Union Packing Co. v. Rogan, No. 1071.

CourtUnited States District Courts. 9th Circuit. United States District Court (Southern District of California)
Citation17 F. Supp. 934
Docket NumberNo. 1071.
Decision Date21 January 1937
PartiesUNION PACKING CO. v. ROGAN

17 F. Supp. 934

UNION PACKING CO.
v.
ROGAN

No. 1071.

District Court, S. D. California, C. D.

January 21, 1937.


17 F. Supp. 935

Benjamin W. Shipman, of Los Angeles, Cal., for plaintiff.

Peirson M. Hall, U. S. Atty., and Francis C. Whelan, Asst. U. S. Atty., both of Los Angeles, Cal., for defendant.

YANKWICH, District Judge.

The Revenue Act of 1936, in title 3 (sections 501-506 26 U.S.C.A. §§ 345-345e), headed "Tax on Unjust Enrichment," provides for the collection of taxes on net income from certain specified sources. The taxes to be levied are:

"(1) A tax equal to 80 per centum of that portion of the net income from the sale of articles with respect to which a Federal excise tax was imposed on such person but not paid which is attributable to shifting to others to any extent the burden of such Federal excise tax and which does not exceed such person's net income for the entire taxable year from the sale of articles with respect to which such Federal excise tax was imposed.

"(2) A tax equal to 80 per centum of the net income from reimbursement received by such person from his vendors of amounts representing Federal excise-tax burdens included in prices paid by such person to such vendors, to the extent that such net income does not exceed the amount of such Federal excise-tax burden which such person in turn shifted to his vendees.

"(3) A tax equal to 80 per centum of the net income from refunds or credits to such person from the United States of Federal excise taxes erroneously or illegally collected with respect to any articles, to the extent that such net income does not exceed the amount of the burden of such Federal excise taxes with respect to such articles which such person shifted to others." Section 501 (a), 26 U.S.C.A. § 345 (a).

The provisions do not apply to any articles not sold prior to the termination of the federal excise tax, nor if an adjustment has been made with respect to the article with the vendee, nor if, under the terms of any statute, the taxpayer would have been entitled to a refund from the United States of the federal excise tax with respect to the article. The remainder of section 501 need not concern us as it deals merely with the definition of net and gross income and with deductions.

By section 502 (26 U.S.C.A. § 345a) it is provided that the taxpayer shall be credited against the taxes so imposed any excess of the amount of other federal income and excess profit taxes payable by him for the taxable year over the amount of such other federal income and excess profit taxes which would have been payable by him for the taxable year, if his net income were decreased by the amount of net income taxable under this title. The administrative provisions, which are contained in section 503 (26 U.S.C.A. § 345b), make all the provisions of law (including penalties) relating to other income taxes applicable to this title, with certain exceptions. This makes available to the taxpayer aggrieved under this title all the rights as to refunds for overpayment, including section 322 of the same act (26 U. S.C.A. § 322). Every taxpayer upon whom a federal excise tax was imposed but not paid or who received any reimbursement or refund or credit of the federal excise tax is required to make a return containing such information as the Commissioner, with the approval of the Secretary of the Treasury, shall prescribe. The return must be filed, and the total of the taxes paid, not later than the fifteenth day of the third month after the date of the enactment of the act. Extensions may be granted for a period, not exceeding three years, if the Commissioner finds that the payment would constitute a hardship. The taxes imposed apply only to taxable years ending during the calendar year 1935 and subsequent taxable years. The United States Treasury Department, Bureau of Internal Revenue, in "Regulations 95" has promulgated regulations governing the reports to be made for taxes under this title.

The plaintiff, Union Packing Company, a California corporation, engaged in the business, among other things, of packing and curing hog products, with its principal place of business in Los Angeles county,

17 F. Supp. 936
Cal., in a "Bill of Complaint and petition for declaratory judgment and injunctive relief," has attacked the validity of this enactment

In substance, the bill alleges that the plaintiff was subject to the processing tax of the Agricultural Adjustment Act, as amended, 7 U.S.C.A. § 601 et seq. before it was declared invalid. On June 29, 1935, it instituted an action to enjoin the collection of the processing tax under it against the defendant in which a temporary injunction was secured, which later, on August 8, 1935, was changed into a preliminary injunction, which enjoined the defendant from all attempts to assess or levy the processing tax under the act. Later, the injunction was dissolved. Upon application to the Circuit Court of Appeals for the Ninth Circuit Merchants Packing Co. v. Rogan, 79 F.(2d) 1, an injunction was issued similar to the one which had been granted to the plaintiff on August 8, 1935. During the pendency of the action, undertakings were filed by the plaintiff guaranteeing the payment of the taxes, which, up to the first of November, amounted to $38,142.68. If the act had been valid, it would have been liable for the additional sum of $17,906.91 up to January 6, 1936, making the total liability, had the Agricultural Adjustment Act been declared valid, $56,049.59. After the decision of the Supreme Court in United States v. Butler (1936) 297 U.S. 1, 56 S.Ct. 312, 80 L.Ed. 477, 102 A.L.R. 914, upon motion, the plaintiff's security was released and exonerated by the court, which, at the same time, released the plaintiff from the payment of any additional amount which would have been assessed and levied against it had not the Agricultural Adjustment Act been declared invalid.

By virtue of these facts, the plaintiff comes under the provisions of title 3 of the Revenue Act of 1936.

Two taxable years of the plaintiff are affected by the act, the taxable years ending December 31, 1935, and December 31, 1936. The plaintiff challenges the tax upon the ground that it is imposed upon a class only, is not an income tax, is a direct tax not apportioned among the several states, is confiscatory, attempts to nullify the judgment of the Supreme Court in United States v. Butler, supra, through an attempt of Congress to validate and reimpose the taxes so invalidated, is a penalty, and an ex post facto law.

As a separate ground for the intervention of equity, plaintiff alleges that the processing tax it paid became a part of the cost of some of the products which it sold, and that its relief from such tax will be given effect in its ordinary income tax return. It never attempted, the bill continues, to segregate in fixing its cost price, the processing tax from other costs, but attempted to sell its goods in the open market, in competition with others, at a fair profit, and made no separate charge or addition to the selling price to cover the processing tax. The object of the act, the bill charges, is to recapture the levied portion of the processing taxes outlawed by the Supreme Court. In attempting to compute it, the plaintiff would have to calculate the net income and the amount of the processing tax shifted to others. This it cannot do, except upon an arbitrary assumed basis, there being no definite basis in the act. In doing this, the plaintiff would have to compute and furnish to the Commissioner information relating to the processing tax, as if it had not been declared invalid. As the processing tax applies only to products made prior to January 6, 1936, the plaintiff has kept its records without any anticipation or thought that any tax of this type would be levied. After reciting the penalties to be incurred in case of nonpayment, it is charged that plaintiff has no remedy at law, as no method of refund is provided in title 3 of the act, and there is no appropriation of funds by the Congress to cover refunds. Injunctive relief is asked and a declaration, under the Declaratory Judgments statute (Jud. Code, § 274d, as amended, 28 U.S.C.A. § 400), that the act is invalid as violative of the due process clause of the Constitution.

The government has moved to dismiss the bill for want of equity and lack of jurisdiction to render a judgment under the Declaratory Judgments Act.

We consider first the constitutionality of the act.

By the Sixteenth Amendment to the Constitution of the United States, the Congress was given power "to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several states, and without regard to any census or enumeration."

Income within the meaning of this amendment is "the fruit that is born of capital," "it is income as the word is known in the common speech of men." United

17 F. Supp. 937
States v. Safety Car Heating Co. (1936) 297 U.S. 88, 99, 56 S.Ct. 353, 358, 80 L.Ed. 500. The power to tax income has always existed in the Congress. The amendment merely removed the necessity for apportionment of taxes on income among the states. Brushaber v. Union Pacific R. R. Co. (1916) 240 U.S. 1, 36 S.Ct. 236, 60 L. Ed. 493, L.R.A.1917D, 414, Ann.Cas.1917B, 713; Peck & Co. v. Lowe (1918) 247 U.S. 165, 38 S.Ct. 432, 62 L.Ed. 1049; Bowers v. Kerbaugh-Empire Co. (1926) 271 U.S. 170, 46 S.Ct. 449, 70 L.Ed. 886. In determining the validity of any tax, income, or other, the relation between the exercise of the taxing power and the Fifth Amendment comes into play often. The due process clause of that amendment is not a limitation upon the taxing power of the Congress except in what the Supreme Court has called "rare and special instances." A. Magnano Co. v. Hamilton (1934) 292 U.S. 40, 44, 54 S.Ct. 599, 601, 78 L.Ed. 1109

These instances involve cases where the tax is "so arbitrary and capricious as to cause it to...

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5 practice notes
  • Broad Motors Co. v. Smith, C. A. No. 7658.
    • United States
    • United States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)
    • September 28, 1949
    ...F.2d 313, 318; Hague Estate v. Commissioner of Internal Revenue, 2 Cir., 132 F. 2d 775, 778; Union Packing Co. v. Rogan, D.C. S.D.Cal., 17 F.Supp. 934, In lieu of submitting evidence in line with the information required in the Regulations the taxpayer presents a formula. The formula purpor......
  • White Packing Co. v. Robertson, No. 4130.
    • United States
    • U.S. Court of Appeals — Fourth Circuit
    • April 6, 1937
    ...Hamilton in Louisville Provision Co. v. Glenn (D.C.) 18 F. Supp. 423, 432, and by Judge Yankwich in Union Packing Co. v. Rogan (D.C.) 17 F.Supp. 934. In this court complainant has filed a motion, supported by affidavits, asking that the cause be remanded with direction to the District Judge......
  • United States v. Pownall, No. 4771.
    • United States
    • United States District Courts. 9th Circuit. United States District Court (Southern District of California)
    • March 22, 1946
    ...v. Commissioner, 9 Cir., 1945, 148 F.2d 513, 514; and see my opinion in Union 65 F. Supp. 151 Packing Co. v. Rogan, D.C.Cal., 1937, 17 F.Supp. 934, 938. Retroactivity has also been sustained when incorporated into special taxing statutes aimed at certain particular profits. Thus, for instan......
  • Filipowicz v. Rothensies, No. 592.
    • United States
    • United States District Courts. 3th Circuit. United States District Courts. 3th Circuit. Western District of Pennsylvania
    • February 16, 1940
    ...a final judgment or decree and be reviewable as such." (Italicizing supplied.) 31 F. Supp. 722 In Union Packing Co. v. Rogan, D.C., 1937, 17 F.Supp. 934, 940, the court declared: "It is the specific command of the Congress of the United States that `no suit for the purpose of restraining th......
  • Request a trial to view additional results
5 cases
  • Broad Motors Co. v. Smith, C. A. No. 7658.
    • United States
    • United States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)
    • September 28, 1949
    ...F.2d 313, 318; Hague Estate v. Commissioner of Internal Revenue, 2 Cir., 132 F. 2d 775, 778; Union Packing Co. v. Rogan, D.C. S.D.Cal., 17 F.Supp. 934, In lieu of submitting evidence in line with the information required in the Regulations the taxpayer presents a formula. The formula purpor......
  • White Packing Co. v. Robertson, No. 4130.
    • United States
    • U.S. Court of Appeals — Fourth Circuit
    • April 6, 1937
    ...Hamilton in Louisville Provision Co. v. Glenn (D.C.) 18 F. Supp. 423, 432, and by Judge Yankwich in Union Packing Co. v. Rogan (D.C.) 17 F.Supp. 934. In this court complainant has filed a motion, supported by affidavits, asking that the cause be remanded with direction to the District Judge......
  • United States v. Pownall, No. 4771.
    • United States
    • United States District Courts. 9th Circuit. United States District Court (Southern District of California)
    • March 22, 1946
    ...v. Commissioner, 9 Cir., 1945, 148 F.2d 513, 514; and see my opinion in Union 65 F. Supp. 151 Packing Co. v. Rogan, D.C.Cal., 1937, 17 F.Supp. 934, 938. Retroactivity has also been sustained when incorporated into special taxing statutes aimed at certain particular profits. Thus, for instan......
  • Filipowicz v. Rothensies, No. 592.
    • United States
    • United States District Courts. 3th Circuit. United States District Courts. 3th Circuit. Western District of Pennsylvania
    • February 16, 1940
    ...a final judgment or decree and be reviewable as such." (Italicizing supplied.) 31 F. Supp. 722 In Union Packing Co. v. Rogan, D.C., 1937, 17 F.Supp. 934, 940, the court declared: "It is the specific command of the Congress of the United States that `no suit for the purpose of restraining th......
  • Request a trial to view additional results

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