W.C. Peacock & Co. v. Pratt

• Decision Date: 09 February 1903
• Docket Number: 897.
• Citation: 121 F. 772
• Parties: W. C. PEACOCK & CO., Limited, et al. v. PRATT, Assessor and Collector.
• Court: U.S. Court of Appeals — Ninth Circuit

121 F. 772

W. C. PEACOCK & CO., Limited, et al. v. PRATT, Assessor and Collector.

No. 897.

United States Court of Appeals, Ninth Circuit.

February 9, 1903

Thomas Fitch and Joseph J. Dunne, for appellants.

Robertson & Wilder, for appellee.

The appellants were the complainants in a bill in equity brought to enjoin the collection of an income tax authorized by the act of the Legislature of Hawaii Territory, known as Act No 20, pp. 31-35, Sess. Laws 1901. The sections of the law which are involved in the discussion on the appeal are the following:

'Section 1. From and after the first day of July, A.D. 1901, there shall be levied, assessed, collected and paid annually upon the gains, profits and income over and above one thousand dollars, derived by every person residing in the territory of Hawaii from all property owned, and every business trade, profession, employment or vocation carried on in the territory, and by every person residing without the territory from all property owned, and every business, trade, profession, employment or vocation carried on in the territory, and by every servant or officer of the territory, wherever residing, a tax of two per cent. on the amount so derived during the year preceding.

'Sec. 2. There shall be levied, assessed, collected and paid annually, except as hereinafter provided, a tax of two per cent. on the net profit or income above actual operating and business expenses, from all property owned, and every business, trade, employment or vocation carried on in the territory of Hawaii, of all corporations doing business for profit in the territory, no matter where created and organized: provided, however, that nothing therein contained shall apply to corporations, companies or associations conducted solely for charitable, religious, educational or scientific purposes, including fraternal beneficiary societies, nor to insurance companies taxed on a percentage of the premium under the authority of another act.

'Sec. 3. In estimating the gains, profits and income of any person or corporation, there shall be included all income derived from interest upon notes, bonds and other securities, except such bonds of the territory of Hawaii, or of municipalities hereafter created by the territory, the principal and interest of which are by the law of their issuance exempt from all taxation; profits realized within the year from sales of real estate, including leaseholds purchased within two years, dividends upon the stock of any corporation; the amount of all premiums on bonds, notes or coupons; the amount of sales of all movable property, less the amount expended on the purchase or production of the same, and in the case of a person not including any part thereof consumed directly by him or his family; money and the value of all personal property acquired by gift or inheritance, and all other gains, profits and income derived from any source whatsoever.

'Sec. 4. The net profits or income of all corporations shall include the amounts paid or payable to, or distributed or distributable among shareholders from any fund or account, or carried to the account of any fund or used for construction, enlargements of plant, or any other expenditure or investment paid from the net annual profits made or acquired by said corporation. In computing incomes, the necessary expenses actually incurred in carrying on any business, trade, profession or occupation, or in managing any property, shall be deducted, and also all interest paid by such person or corporation on existing indebtedness. And all government taxes and license fees paid within the year shall be deducted from the gains, profits or income of the person who, or the corporation which, has actually paid the same, whether such person or corporation be owner, tenant or mortgagor; also all losses actually sustained during the year incurred in trade or arising from losses by fire not covered by insurance, or losses otherwise actually incurred. Provided, that no deduction shall be made for any amount paid out for new buildings, permanent improvements or betterments made to increase the value of any property or estate. Provided, further, that no deduction shall be made for personal or family expenses, the exemption of one thousand dollars, mentioned in section 1, being in lieu of same. Provided, further, that where allowable herein, only one deduction of one thousand dollars shall be made from the aggregate annual income of all the members of one family composed of one or both parents and one or more minor children, or husband and wife; that guardians shall be allowed to make a deduction in favor of each and every ward, except where two or more wards are comprised in one family, in which case the aggregate deduction in their favor shall not exceed one thousand dollars. Provided, further, that in assessing the income of any person or corporation there shall not be included the amount received from any corporation, as dividends upon the stock of such corporation, if the tax of two per cent. has been assessed upon its net profits by said corporation as required by this act, nor any bequest or inheritance otherwise taxed as such.'

'Sec. 6. It shall be the duty of all persons of lawful age, having an income of six hundred dollars or more for the preceding year, from all sources and of all corporations made liable to income tax, to make and render a list or return, between the first and thirty-first days of July of each year, in such form as the treasurer of the territory may direct, to the assessor of the division in which such persons or corporations reside, locate or do business, of the amount of their or its income, gains and profits as aforesaid; and all guardians, trustees, executors, administrators, agents, receivers, and all corporations, or persons, acting in a fiduciary capacity, shall make or render a list or return, as aforesaid, to the assessor of the division in which such person or corporation, acting in a fiduciary capacity, resides or does business, of the amount of income, gains, and profits of any minor or person for whom they act; and the assessor shall require every list or return to be verified by the oath or affirmation of the person or authorized officer of the corporation making the same. If any person or corporation refuse or neglect to render such return within the time required as aforesaid, or renders a return, which -n the opinion of the assessor is false and fraudulent, or contains any

understatement, it shall be lawful for the assessor to summon such person, or any of the officers of such corporation, or any person having possession, custody or care of books of account containing entries relating to the business of such person, or corporation, or any other person he may deem proper, wherever residing or found, to appear before him and produce such books at a time and place named in the summons, and to give testimony or answer interrogations under oath, respecting any income liable to tax or the returns thereof. False, willful testimony, given before such assessor shall be deemed perjury and punishment as such.'

'Sec. 8. When any person or corporation having a taxable income, refuses or neglects to render any return or list required by law, or decline to take oath or affirmation thereto, the assessor may make such assessments as he may consider just, and the same shall be binding and conclusive upon all parties and shall not be subject to appeal. In case of any false or fraudulent return or valuation by any taxpayer, the assessor shall add 200 per cent. to the just valuation of the income of such taxpayer and the amount of the tax assessed on such increase shall become part of the tax on the said income.'

Section 9 provides for an appeal to the 'tax appeal court.'

The bill further avers as ground for resorting to a court of equity that the defendant in the bill, the appellee, is threatening to collect said tax, and that if the appellants should pay the same under protest, and the law afterward should be determined unconstitutional, they could not procure the return of the money so paid, for the reason that in the meantime, under the system of finances adopted in Hawaii, the moneys received would have been paid out to persons having demands on the treasury of that territory, since the former and present expenditures of the territory are largely in excess of its income, and that there is now a large and constantly increasing deficit in its treasury.

A demurrer was interposed to the bill for want of equity and for multiplicity, and on the ground that the appellant had a full, complete, and adequate remedy at law. The demurrer was sustained and the bill was dismissed. From the decree of the court ordering such dismissal, this appeal is taken.

Before GILBERT, ROSS, and MORROW, Circuit Judges.

GILBERT Circuit Judge, after stating the case as above, .

The appellants, by their bill, seek to enjoin the enforcement of the income tax law of Hawaii, on the ground that it violates both the organic act of the territory and the Constitution of the United States, in that it contains illegal discriminations, fails to exempt the salaries of judges, and compels taxpayers to furnish evidence against themselves which may result in their criminal prosecution. The...