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of the five subsidiaries named; and it owned this stock while the subsidiaries were accumulating the earnings that were afterward transferred to the Corporation in the form of dividends. With exceptions not now material, none of the subsidiaries had declared a dividend before December 31, 1912; the previous earnings had been used from time to time in carrying on, extending, and developing the several enterprises in which they were engaged, and the earnings were properly employed for these purposes. In January, 1913, the Corporation decided to have these earnings transferred to itself, and thereupon the subsidiaries took the following steps: On February 7, 1913, the Guffey Petroleum Company, the Gulf Pipe Line Company, and the Gulf Pipe Line Company of Oklahoma, each declared a dividend, payable immediately, out of the surplus and earnings that had accumulated before January 1, 1913; and on April 11, the corporation received on this account from the Guffey Company $3,749,750, from the Gulf Pipe Line Company $4,724,055, and from the Gulf Pipe Line Company of Oklahoma $2,597,660. The Indiana Oil & Gas Company declared two dividends out of similar surplus and earnings, one on January 8, 1913, from which the Corporation received on the same day $338,000, and one on February 24, 1913, from which on February 25 the Corporation received $10,000. Out of similar earnings and surplus, the Gulf Commissary Company declared a dividend on December 17, 1912, from which on January 4, 1913, the Corporation received $4,975. The respective dividends were not declared in cash; the earnings, as and when produced, had been employed in the several enterprises, and had thus been invested in different kinds of property. They had not always been used to promote the particular business that had earned them, but had been sometimes used to aid another branch; the subsidiaries keep ing a debtor and creditor account among themselves. In this situation, the Corporation made a return to the government of its income for 1913, certifying that the return did not include the dividends referred to, and giving as a reason that they had been declared and paid out of earnings and surplus that had accrued before January 1, 1913. The collector, however, demanded a total tax of $114,244.40 from the Corporation for the year 1913, basing the assessment solely on the receipt of these dividends. This was in part a franchise tax, and in part an income tax. After various proceedings-claim for abatement, protest, payment, petition for repayment, and the Commissioner's refusal—the controversy reached the District Court in the suit now before us. The subsidiaries had all been subject to the excise or franchise tax under the act of August 5, 1909, and they had all paid the amounts imposed thereunder. The sum now in dispute was not charged against the subsidiaries, but against the Corporation alone, and is made up of a franchise tax for the first two months of 1913 and of an income tax for the remaining ten months. The opinion of the District Judge sets forth the argument that led him to decide that the taxes were unlawfully imposed the position being that the dividends had been declared out of surplus earnings that had accumulated during several years and had accrued to the Corporation (at least in equitable owner

ship) before January 1, 1913. We are unable to assent to this proposition for the following reasons:

[1] It is first to be observed (and this should be borne distinctly in mind) that the government's levy was not upon the subsidiaries, but upon one of their stockholders, namely, upon the Gulf Oil Corporation. We do not understand the Corporation to lay stress upon a supposed identity of the five subsidiaries with itself, but in any event the facts in proof would furnish a sufficient answer to such a position. No doubt all the companies are engaged together in a common enterprise, but the enterprise has several branches, and each subsidiary attends to its own branch, while the Corporation does the like. Perhaps the Corporation may be more accurately described as uniting and regulating its subsidiaries ; ' but each of the companies, whether holding or subsidiary, is a distinct entity, and is to be so treated. The several companies are not in such relations to each other that the property and obligations and liabilities of one can be regarded as the property and obligations and liabilities of any other. Each owns its own assets, carries on its own business, owes its own debts, pays its own taxes, and enjoys its own income. Under the Excise Act of 1909, each was separately taxed in respect of its own business, and under that act the Corporation certainly did not include in its own return the proceeds of the business done by the subsidiaries.

[2] Now, if the Corporation had been an individual, and had received the property in question by the method of transfer described in the findings of fact, the contention would hardly be made that no dividend had in fact been declared or received; for, although no actual money might have passed, each company would have transferred the ownership of valuable property to one of its stockholders, who could thenceforth deal with it as he pleased, and could convert it into cash whenever he might desire. The fact that the stockholder happens to be incorporated can make no difference. The central question is, Has a dividend been declared? If the Corporation has received a "dividend,” this dividend has been declared by the act to be “income"; and, as income, Congress has directed it to be used in measuring both the taxes now in dispute. That the money (or property) handed over to the Corporation was a dividend we entertain no doubt. All the property transferred had been derived from earnings; none of it had becone capital; it had been accumulated like cash, having been gained in the course of each subsidiary's business, and it awaited the pleasure of che respective boards of directors. These boards did not carry it to capital account; they did not issue stock to represent its value; they did not retain it for future use in their respective businesses; they decided to distribute it formally to their stockholders as a dividend, just as if it had been money; and they did in fact distribute it. No doubt one of the stockholders received almost all of it; but this did not change the character of the directors' act, which continued to be the declaration of a dividend, judged by the accepted tests. Gibbons v. Mahon, 136 U. S. 549, 10 Sup. Ct. 1057, 34 L. Ed. 525. It can make no difference in the character of the directors' act that the stockholder in question is a corporation and not an individual. Whether a distribution of corporate property is to be regarded as a dividend or not does not depend on the status of the person that receives a share, but on what is done by the distributor. In the first instance, the money or property is owned by the distributor, and as owner he has the power to decide what is to become of it. After the stockholder receives it, he may use it as he likes; but it comes into his hands as a dividend, whether he be an individual or a chartered company. We conclude, therefore, that the Gulf Oil Corporation received the property in question in the character of a separate stockholder in the subsidiaries and received it as a dividend.

Being a dividend, the Corporation received it after March 1, 1913, and the remaining question is whether taxes have been laid upon it, and, if so, to what extent and in what manner? In thus speaking of a tax being laid upon property, we use the customary phrase; in strictness, taxes like the sum in question are not upon the property itself, but are exacted from the taxpayer because of his relation to the property. The owner pays, and the property measures the amount of the exaction. This is emphasized in the case before us, where two taxes are levied upon the same taxpayer; each tax is levied in respect of a different subject of taxation, but the amount of each is ascertained by the same measure, namely, by the taxpayer's income. For the year 1913, the Corporation was called upon to pay two taxes—one, an excise or a franchise tax for January and February; and the other, an income tax for the remaining 10 months. But the amount of the excise tax was measured by the Corporation's income, and the amount of the tax in respect of the income itself was determined by the same measure. Before February 25, 1913, Congress could not tax the Corporation's income directly, but it could value its franchise according to its income, and could impose the tax on that basis. Maine v. Railway Co., 142 U. S. 217, 12 Sup. Ct. 121, 163, 35 L. Ed. 994. After the adoption of the Income Tax Amendment, Congress could tax the income directly, and for the remainder of the year it did tax the income in this manner. Each tax being computed by the same method, both were collected in one sum for convenience, but each depends for its validity on separate provisions. And we may add that Congress was not bound to go into a minute inquiry concerning the source of earnings that might be divided, or concerning the method by which they had been accumulated. For we have to do with a situation where the property divided is concededly earnings, and our decision is confined to the facts before us.

The foregoing is the course of reasoning that commends itself to our minds, and we may briefly restate the conclusions. As levied by the act of 1913, both taxes are constitutional, and each was distinctly laid on a separate subject of taxation. The excise or franchise tax was limited to the first two months of the year, and the value of the franchise was lawfully ascertained by using the Corporation's income as a measure; the income tax was for the remainder of the year, and was lawfully ascertained by using the same measure. In computing the Corporation's income, the government lawfully took into account the valuable property over which the Corporation had acquired the com

plete ownership by virtue of its stock in the several subsidiaries; this ownership having been transferred to it by the formal declaration of a dividend. In exact terms the facts present the conditions laid down by the act of Congress, and therefore (as no question is made concerning the regularity of the government's procedure) the amount of the two taxes was lawfully levied and collected.

The case of Lynch, Collector, v. Turrish (C. C. A. 8) 236 Fed. 653, 149 C. C. A. 649, on which the Corporation relies with much confidence, does not seem to be in point. The facts were these: Turrish was a stockholder in the Payette Lumber Company, whose capital stock, $1,500,000, was invested in timber lands. The company did no business and earned no money, but the value of its lands increased gradually until, on March 1, 1913, it had grown to be $3,000,000. In 1914 the company sold the lands—that is, all its capital—for $3,000,000 and divided this sum among its stockholders. The share of Turrish was taxed as income received during 1914, and the Court of Appeals decided that he was not liable:

"Because no income, gains, or profits accrued to the plaintiff during the year 1914, or after March 1, 1913, but during that time his property remained of the same value, and because the sale of the property of the Payette Company in 1914 and the distribution of its proceeds by a dividend to its stockholders was but a change of the form, without any increase of the value, of the property he owned before the Income Tax Law of 1913 took effect."

The case did not involve the question of an ordinary dividend from accumulated earnings, but decided that a sale of capital property and a distribution of the proceeds did not constitute the division of "income, gains, or profits” within the meaning of the act of 1913. No such facts are before us now. We may add that the decision is to be reviewed by the Supreme Court.

A situation more like the case in hand is found in Southern Pacific Co. v. Lowe (D. C.) 238 Fed. 847, where Judge Manton delivered an opinion that discusses the general subject satisfactorily. We shall not take up other citations in the briefs of counsel; most of them may be distinguished on their facts, and in any event the question here, if we have outlined it correctly, seems to suggest an answer that is reasonably plain. Moreover, the two cases just referred to cite and consider nearly all the cases to which our attention has been called.

One or two minor questions have been raised, but they do not require attention. The important points have been stated, briefly, but we hope adequately, and, if they have been correctly decided, we see no need for a more elaborate discussion.

The judgment is reversed, with instructions to the District Court to enter a judgment in favor of the collector.

VINEYARD LAND & STOCK CO. v. TWIN FALLS SALMON RIVER LAND

& WATER CO. et al.
(Circuit Court of Appeals, Ninth Circuit. August 6, 1917.)

No. 2885.
L WATERS AND WATER COURSES C 247(1)-PRIOR APPROPRIATIONS—EVI-

DENCE-WEIGHT.

That surveys and estimates of plaintiffs claiming under the Carey Act (Act Aug. 18, 1894, c. 301, § 4, 28 Stat. 422 (Comp. St. 1916, $ 4685]) were made three years earlier than those of defendant renders plaintiffs' testimony as to the amount of water appropriated the more reliable, because

speaking of a time much nearer the time of plaintiffs' appropriation. 2. WATERS AND WATER COURSES Cm 247(1)–PRIOR APPROPRIATION-EVIDENCE

-SUFFICIENCY.

In a suit between appropriators of water from an interstate stream, under the Carey Act, evidence held to support the court's estimate that 5,500 acres comprised all the lands which defendant had under irrigation

at the time of plaintiffs' appropriation. 3. WATERS AND WATER COURSES O 240_APPROPRIATION-MODE.

An appropriation of water from a public stream, under the Carey Act, may be initiated by notice or by actual diversion from the stream, either process being evidentiary of the intent on the part of the person giving

the notice to make an appropriation. 4. WATERS AND WATER COURSES 240-APPROPRIATION-EXTENT.

In the appropriation of water from a public stream by notice, the notice would indicate the amount of the intended appropriation, while in appropriation by diversion the capacity of the ditch used for the purpose would indicate the appropriator's thought as to the amount designed for

use.

5. WATERS AND WATER COURSES 249__APPROPRIATION-BENEFICIAL USE

DILIGENCE.

After initiating an appropriation, an appropriator must use due dillgence in applying the water for a beneficial use or he will be deemed to

have abandoned his rights as to appropriations by others in the meantime. 6. WATERS AND WATER COURSES 249—APPROPRIATION-BENEFICIAL USE

"DILIGENCE."

Whether an appropriator of water from a public stream has used due diligence to utilize the water for a beneficial use must be determined upon the facts in the particular case, "diligence," as employed in such case, being largely a relative term.

(Ed. Note. For other definitions, see Words and Phrases, First and

Second Series, Diligence.] 7. WATERS AND WATER COURSES Om 249APPROPRIATION_DILIGENCE-Evi

DENCE-SUFFICIENCY.

The want of diligence of defendant and his predecessor in constructing the high-line ditch, and the application of the water through it to a beneficial use, held, under the evidence, to deprive defendant of its initiatory

rights in so far as affecting plaintiffs' appropriations. 8. WATERS AND WATER COURSES Cm 249—APPROPRIATION-AMOUNT NECES

SARY.

An appropriator can claim no more water than is necessary for the purpose of the appropriation, and when he has that he cannot prevent

others from using the surplus. 8. WATERS AND WATER COURSES w254—APPROPRIATION-AMOUNT NECESSARY -EVIDENCE-SUFFICIENCY.

In suit between appropriators of a public stream, held, under the evidence, that the court properly concluded that 12,500 acre-feet was sufficient to answer the needs of defendant under its appropriations. For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

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