Nolte v. Hudson Nav. Co.

• Decision Date: 27 July 1925
• Docket Number: No. 362.,362.
• Citation: 8 F.2d 859
• Parties: NOLTE et al. v. HUDSON NAV. CO.
• Court: U.S. Court of Appeals — Second Circuit

8 F.2d 859 (1925)

NOLTE et al. v. HUDSON NAV. CO.

No. 362.

Circuit Court of Appeals, Second Circuit.

July 27, 1925.

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Geller, Rolston & Blanc, of New York City (Frederick Geller, Mansfield Ferry, and Alexander C. Neave, all of New York City, of counsel), for Farmers' Loan & Trust Co.

Graham, McMahon, Buell & Knox, of New York City (Edward Ward McMahon, of New York City, of counsel), for National Commercial Bank & Trust Co. of Albany.

Murray, Aldrich & Roberts, of New York City (William M. Evarts and Hugh L. M. Cole, both of New York City, of counsel), for Equitable Trust Co. of New York.

Reynolds, Richards & McCutcheon, of New York City (George H. Richards and John S. Chapman, Jr., both of New York City, of counsel), for receiver of Hudson Nav. Co.

Emory R. Buckner, U. S. Atty., of New York City (Sherwood E. Hall, Asst. U. S. Atty., of New York City, of counsel), for the United States.

Before ROGERS, MANTON and HAND, Circuit Judges.

ROGERS, Circuit Judge (after stating the facts as above).

This is an appeal by the United States from an order entered in the District Court which denied the right of the government to any preference or priority of payment of the claims of United States for so-called transportation taxes alleged to be due from the Navigation Company, which is in the hands of a receiver. At the time the receiver brought this matter to the District Court for instructions, the claims of the United States totaled $264,666.79. This sum included $181,010.14, collected by the Navigation Company from August, 1918, to January, 1921, inclusive, on account of transportation taxes, the sum of $9,050.51 in penalties, and $74,606.14 in interest at 1 per cent. per month to October 1, 1923.

The United States claims that the District Court committed error in the following particulars: (1) In holding that the claims were entitled to allowance only as general claims. (2) In denying to the claims preference and priority of payment as against the claims of the general creditors and as against the claim of the Farmers' Loan & Trust Company, as trustee. (3) In holding that the claims do not constitute claims for taxes, and as such entitled to preference and priority of payment, but constitute merely ordinary debt claims. (4) In holding that debts due the United States from the defendant in receivership are not entitled to preference and priority in payment over general claims, and that the provisions of section 3466 of the Revised Statutes are not applicable to the present equity receivership suit.

The moneys in respect of which the United States claims priority were collected by the Navigation Company in the years 1918 to 1921, inclusive, under the provisions of title 5 of the Revenue Act of October 3, 1917 (40 Stat. 314) and of the Revenue Act of 1918 (Comp. St. Ann. Supp. 1919, §§ 6309 1/3a-6309 1/3e). Those acts imposed a tax upon persons and property for their transportation from one point in the United States to another. The language of the act is: "That the taxes imposed * * * shall be paid by the person, corporation, partnership, or association paying for the services or facilities rendered." Section 501. It laid the duty of collecting the tax upon the carrier rendering the service, and made it the duty of the carrier to make monthly returns under oath, "and pay the taxes so collected and the taxes imposed * * * to the collector of internal revenue of the district in which the principal office or place of business is located." Section 503. And the act of 1918 declared that, "if the tax is not paid when due, there shall be added as part of the tax a penalty of 5 per centum, together with interest at the rate of 1 per centum for each full month, from the time when the tax became due." 40 Stat. 1103, § 502 (Comp. St. Ann. Supp. 1919, § 6309 1/3c).

The acts of 1917 and 1918 are similar, in that each imposes the tax upon the passenger carried or the goods transported, and each alike makes the carrier a collecting agent for the United States of the taxes imposed upon the travelers or shippers for the services rendered. The language of the acts is that "* * * the taxes * * * shall be paid by the person * * * paying for the services or facilities rendered," and they also provide that the carrier shall "collect the amount of the tax * * * and pay the taxes so collected." And article 71 of the act of 1917 provided that, "where an agent of one carrier in collecting the amounts paid for seats, berths, or staterooms in parlor or sleeping cars or on vessels, acts on behalf of any or all of the several carriers who are to furnish the accommodations involved, such agent shall collect the taxes on the total charges as and when such charges are collected and remit to such other carriers the respective amounts, charges and taxes, collected on their behalf, and such other carriers shall return and pay such taxes." A similar provision is found in article 89 of Regulations 49 of Commissioner of Internal Revenue issued under the provisions of the act of 1918.

It seems to us too clear for argument that the acts of Congress involved herein impose a tax upon the person transported or upon the shipper of freight to be carried. The tax is not imposed on the carrier but on the person or thing carried. And it is equally clear that the carrier is made a collector of the tax, and the duty is laid upon it to pay the amount which is thus collected to the collector of internal revenue of the district in which the carrier has its principal office or place of business.

A tax is a pecuniary burden imposed for the support of government. The courts have said again and again that a tax is not a debt nor in the nature of a debt. It is not, as is a debt, founded on contract or agreement. It is an impost levied by authority of the government upon its citizens or subjects for the support of the state. The taxpayer is the one upon whom the pecuniary burden is imposed and whose duty it is to make payment. The burden of making payment here rests on the traveler or shipper. The duty of collecting it and then paying over the amount collected rests on the carrier it is true, but this does not make the carrier a taxpayer as distinguished from a tax collector.

In Graham v. Township of St. Joseph, 67 Mich. 652, 655, 35 N. W. 808, 810, the court said: "A tax is a portion of the property of the citizen required by the government for its support in the discharge of its various functions and duties, and may be imposed when either person or property is within its jurisdiction." But in the case now before the court "the portion of the property" exacted is not exacted from the property of the carrier. It is taken from the property of the person carried or whose property is carried. It cannot be a tax upon the carrier as it does not come out of its property. It ought not to be necessary to refer to any authorities to sustain so self-evident a proposition. But it has happened before that courts have been compelled to sit in judgment, if not upon just such a proposition, upon one analogous to it.

In United States v. Railroad Co., 17 Wall. 322, 21 L. Ed. 597, the Supreme Court had under consideration the Internal Revenue Act of 1864. Section 122, as amended (14 Stat. 138), provided that railroads and certain other corporations "indebted for any money for which bonds * * * have been issued * * * upon which interest is stipulated to be paid * * * shall be subject to and pay a tax of 5 per centum on the amount of all such interest." The court, affirming the court below, held that this was not a tax upon the corporation, but upon the creditor. Mr. Justice Hunt, writing for the court, said:

"It is not taxation that government should take from one the profits and gains of another. That is taxation which compels one to pay for the support of the government from his own gains and of his own property. In the cases we are considering the corporation parts not with a farthing of its own property. Whatever sum it pays to the government is the property of another. * * * The corporation is neither richer nor poorer. Whatever it thus pays to the government, it by law withholds from the creditor. * * * It is no pecuniary burden upon the corporation. * * * The burden falls on the creditor. He is the party taxed."

And it was said that "The corporation is made use of as a convenient and effective instrument for collecting the same." In this case there was a dissent by Justices Clifford and Miller, but it was not in relation to the question above discussed. See, also, Case of the State Freight Tax, 15 Wall. 232, 21 L. Ed. 146; Jackson v. Northern Central Railway, 7 Wall. 262, 19 L. Ed. 88; Haight v. Railroad Co., 6 Wall. 15, 18 L. Ed. 818.

The courts hold in such cases that the tax is not imposed on the corporation, but on the bondholders, and that upon the bankruptcy of the corporation the amount due from it on account of taxes so imposed and collected by it is not a tax due from the bankrupt, and so entitled to priority of payment under the Bankruptcy Act of 1898 (Comp. St. §§ 9585-9656), but is a liability payable like any ordinary indebtedness. In re Wyoming Valley Ice Co. (D. C.) 145 F. 267; In re York Silk Mfg. Co. (D. C.) 188 F. 735, 738, 740. And see In re William A. Harris Steam Engine Co. (D. C.) 225 F. 609, 612.

The state of Pennsylvania some years ago enacted a law making it the duty of each private corporation incorporated under the laws of that commonwealth, or doing business in that state, although incorporated in another, to collect a tax due from its bondholders by retaining it from the interest paid on its bonds, and to pay the same to the state treasurer.

In the Wyoming Valley Ice Co. Case the court, passing on the above statute, said: "* * * It appears that while, as between the state and the resident bondholders, the obligation is a tax, for which the latter is primarily and directly liable; as to the corporation, it is not...