United States v. Jefferson Electric Mfg Co American Chain Co v. Eaton Routzahn v. Willard Storage Battery Co

• Citation: 291 U.S. 386,78 L.Ed. 859,54 S.Ct. 443
• Decision Date: 12 February 1934
• Docket Number: Nos. 171,196,329,s. 171
• Parties: UNITED STATES v. JEFFERSON ELECTRIC MFG. CO. AMERICAN CHAIN CO., Inc., v. EATON, Collector of Internal Revenue. ROUTZAHN, Collector of Internal Revenue, v. WILLARD STORAGE BATTERY CO
• Court: U.S. Supreme Court

291 U.S. 386

54 S.Ct. 443

78 L.Ed. 859

UNITED STATES

v JEFFERSON ELECTRIC MFG. CO.

AMERICAN CHAIN CO., Inc.,

v. EATON, Collector of Internal Revenue.

ROUTZAHN, Collector of Internal Revenue,

v. WILLARD STORAGE BATTERY CO.

Nos. 171, 196, 329.

Argued Dec. 15, 1933.

Decided Feb. 12, 1934.

[Syllabus from pages 386-388 intentionally omitted]

The Attorney General and Mr. Frank J. Wideman, Asst. Atty. Gen., for the United States, Robert O. Eaton, and C. F. Routzahn.

Messrs. David S. Day, of Bridgeport, Conn., Chester I. Long, of Wichita, Kan., and Peter Q. Nyce, of Washington, D.C., for petitioner American Chain Co.

Mr. Newton K. Fox, of Washington, D.C., for respondent Jefferson Electric Mfg. Co.

Mr. Charles C. Norris, Jr., of Philadelphia, Pa., for respondent Willard Storage Battery Co.

Mr. Justice VAN DEVANTER delivered the opinion of the Court.

These are actions at law brought—in one instance against the United States and in two against a revenue collector—to recover in each instance money alleged to have been erroneously and illegally exacted as an excise tax—under subdivision 3 of section 900 of the Revenue Acts of 1918¹ and 1921² and subdivision 3 of section 600 of the Revenue Act of 1924³—from the plaintiff, a corporate manufacturer, on sales by it of articles which the revenue officers regarded as automobile parts or accessories.

In No 171⁴ the Court of Claims awarded the plaintiff $20,017.58 with interest and denied a counterclaim interposed by the United States. In No. 196⁵ the District Court for the District of Connecticut gave the plaintiff judgments on three claims⁶ for $329,250.00, $170,470.36, and $98,416.41 with interest on each sum; and the judgments were reversed by the Circuit Court of Appeals.⁷ In No. 329⁸ the District Court for the Northern District of Ohio rendered judgments for the plaintiff on five claims⁹ for $89,195.36, $249,275.32, $189,853.88, $173,934.45, and $41,764.57 with interest on each sum; and the judgments were affirmed by the Circuit Court of Appeals.¹⁰ The cases are here on certiorari.

After the taxes were collected, timely applications for refund were duly made by the plaintiffs, and the applications were denied. The actions were brought within the time generally limited therefor,¹¹ but not prior to April 30, 1928.

The applications for refund and the actions proceeded on the theory that the sales were not taxable under the Revenue Acts because the articles sold were not automobile parts or accessories within the meaning of those acts and not on the theory that the amount collected was in excess of what was properly collectible on taxable sales.

In each case the court's authority to entertain the action and the plaintiff's right to recover were challenged in various ways as precluded by section 424 of the Revenue Act of 1928,¹² which provides:

'Sec. 424. Refund of Automobile Accessories Tax.

'(a) No refund shall be made of any amount paid by or collected from any manufacturer, producer, or importer in respect of the tax imposed by subdivision (3) of section 600 of the Revenue Act of 1924, or subdivision (3) of section 900 of the Revenue Act of 1921 or of the Revenue Act of 1918, unless either—

'(1) Pursuant to a judgment of a court in an action duly begun prior to April 30, 1928; or

'(2) It is established to the satisfaction of the Commissioner that such amount was in excess of the amount properly payable upon the sale or lease of an article subject to tax, or that such amount was not collected, directly or indirectly, from the purchaser or lessee, or that such amount, although collected from the purchaser or lessee, was returned to him; or

'(3) The Commissioner certifies to the proper disbursing officer that such manufacturer, producer, or importer has filed with the Commissioner, under regulations prescribed by the Commissioner with the approval of the Secretary, a bond in such sum and with such sureties as the Commissioner deems necessary, conditioned upon the immediate repayment to the United States of such portion of the amount refunded as is not distributed by such manufacturer, producer, or importer, within six months after the date of the payment of the refund, to the persons who purchased for purposes of consumption (whether from such manufacturer, producer, importer, or from any other person) the articles in respect of which the refund is made, as evidenced by the affidavits (in such form and containing such statements as the Commissioner may prescribe) of such purchasers, and that such bond, in the case of a claim allowed after February 28, 1927, was filed before the allowance of the claim by the Commissioner.'

As respects actions brought on or after April 30, 1928, to recover taxes charged to have been wholly invalid and not merely in excess of what was lawful, which is the situation here, the construction and application of section 424, particularly subdivision (a)(2), are matters about which there has been much contrariety of opinion, as is shown in three lines of decision.

The decisions in the first line regard subdivision (a)(2) as committing all claims for the refunding of taxes of the class in question here to the Commissioner of Internal Revenue for final determination and precluding any examination of such claims in the courts. This view has been taken by District Judges in two cases¹³ and by a Circuit Judge in a dissenting opinion in another case.¹⁴

The decisions in the second line are to the effect that the subdivision relates to administrative action by the Commissioner, but not to proceedings in the courts, and leaves a taxpayer who has applied to the Commissioner unsuccessfully free to sue on his claim and the courts free to entertain the suit and adjudicate the claim—as could be and commonly was done before section 424 was enacted—save that under that section a judgment for the taxpayer in a suit brought on or after April 30, 1928, does not become obligatory or entitle him to the refund awarded by the judgment, unless and until (y) he satisfies the Commissioner that the tax was not collected directly or indirectly from the purchasers of the articles sold, or if so collected has been returned to the purchasers, or (z) gives the bond described in subdivision (a)(3). Such has been the ruling in two cases. In one the ruling was by the District Court for the Eastern District of Pennsylvania,¹⁵ and the Circuit Court of Appeals for that circuit substantially sustained it, and in that connection said,¹⁶ 'This section clearly refers to a 'refund' of taxes by the Commissioner, and nowhere refers to the plaintiff's right of action to recover taxes by litigation nor to the jurisdiction of the court. In other words, this section is an administrative measure for the guidance of the Commissioner in the 'refund' of taxes, and does not purport to contain any provision prescribing conditions under which taxes may be collected by means of a suit.' The other case is No. 329 now under review, where the ruling was by the District Court for the Northern District of Ohio¹⁷ and was fully sustained by the Circuit Court of Appeals for that circuit, as is shown by the following excerpts from its opinion.¹⁸

'Section 424(a) deals not with rights of action, but with limitations upon the power of the commissioner to make refunds. Its provisions are not in conflict with the general provisions of law authoarizing suits for refund of taxes. (Citing cases.)

'We agree with the authorities above cited, not only in reliance upon familiar principles governing repeal by implication, but also because the section appears to us to have an obvious literal meaning perfectly applicable to refunds by the commissioner after judicial determination of the legality of the tax. * * *

'If the claim for refund is made pursuant to a judgment of the court in an action begun prior to April 30, 1928, the commissioner is not forbidden to refund under the applicable statute, and this may well be without qualification, although this we are not required to decide. Failing to bring himself within the condition of paragraph 1, because of not having pursued his claim to judgment in an action begun prior to the critical date, the taxpayer must establish to the satisfaction of the commissioner * * * (b) that such amount was not collected directly or indirectly from the purchasers, or (c) that such amount, although collected from the purchasers, was returned to them.'

The decisions in the third line, like those in the second, regard the subdivision as neither cutting off the right of a taxpayer to sue for a refund after applying unsuccessfully to the Commissioner nor abrogating the authority of the courts to entertain the suit. But, unlike those in the second, they regard the subdivision as substantively limiting the right to a refund of taxes of the designated class to instances where the taxpayer either has not directly or indirectly collected the tax from the purchaser or after so collecting it has returned it to him. In other words, they regard the subdivision as making this substantive limitation and element of the right to a refund of such taxes, and therefore as requiring that this element, like others, be satisfactorily established in any proceedings where an asserted right to a refund is presented for examination and determination, whether the proceeding be before the Commissioner or be a suit brought after an application to him has been unavailing. The Court of Claims has so ruled in two cases,¹⁹ one being No. 171 now under review; and the District Court for the District of Connecticut came to a like conclusion in No. 196²⁰ also now under review.

We are of opinion that ther view taken in the third line of decisions is right.

When section 424 was enacted, the internal revenue laws contained many related provisions constituting what this Court has termed a comprehensive 'system of corrective justice' in respect of the assessment and collection of erroneous or illegal taxes.²¹...