Suter v. Jordan Marsh Co.

• Decision Date: 21 September 1916
• Parties: SUTER et al. v. JORDAN MARSH CO.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

225 Mass. 34

113 N.E. 580

SUTER et al.

v.JORDAN MARSH CO.

Supreme Judicial Court of Massachusetts, Suffolk.

Sept. 21, 1916.

Report from Superior Court, Suffolk County; John D. McLaughlin, Judge.

Action by Hales W. Suter and others, trustees, against the Jordan Marsh Company. Finding for defendant, and plaintiffs excepted. Case reported. Case remanded for assessment of damages.

Arthur H. Russell, of Boston, for plaintiff Suter.

Robt. B. Stone, of Boston, for plaintiffs Woolsey and others.

Chas. K. Cobb, of Boston, for defendant.

RUGG, C. J.

The defendant holds real estate as tenant of the plaintiffs for a long term. One covenant of the written lease is that beside paying an annual rental of $18,000, water and other rates, the lessee ‘will also pay in addition in each year whenever the same are due and payable and before any interest or penalty accrues thereon, all taxes and assessments whatsoever, except betterment taxes, which may be levied for or in respect of the said leased premises, or any part thereof, or upon or in respect of the rent payable hereunder by the lessee, howsoever and to whomsoeverassessed.’ The defendant in accordance with the requirement of the federal income tax law approved October 3, 1913 (38 Stat. § II, p. 169), withheld at its source and paid to the United States the ‘normal income tax’ on certain rentals due under the lease and deducted the amount from the rent reserved in the lease. The present action is brought to recover the amount so withheld, paid and deducted.

The question presented is whether the money withheld by the defendant and paid by it to the United States in accordance with the requirements of the federal income tax was a tax or assessment upon or in respect of the rent payable under the lease. The federal law in paragraph E imposes the duty upon a person in the position of the defendant as lessee to the plaintiffs as lessors ‘to deduct and withhold’ from the rent ‘such sum as will be sufficient and pay the normal tax imposed thereon by this section, and shall pay to the officers of the United States government authorized to receive the same; and they are each hereby made personally liable for such tax.’ In this quotation the words ‘normal tax’ as applied to the facts in the case at bar doubtless mean a tax of one per cent. on the annual rent; that is the rate which has been paid by the defendant; and words ‘imposed thereon’ must refer to the rental; there is no other source of income of the lessors subjected to a tax, to which these words can allude; the concluding phrase renders the lessee personally liable for the payment of what is described as ‘such tax’; that also can relate only to the rental. It seems to follow that, applying the phraseology of the income tax law to the covenant of the lease, the sum of money which the lessee has been compelled by that law to withhold from the plaintiffs and pay to the United States government belongs to the class of imposts correctly described as ‘taxes and assessments' and that it has been levied ‘upon or in respect of the rent payable’ under the lease. While in a general sense it is true that the income tax is laid upon ‘the entire net income’ of the individual, and not upon each of the several items of which it is composed, yet where the person who pays rent is required by the law to pay a percentage thereon to the government in way of tax and in behalf of the person who receives the rent, such payment is a tax...