Edwards v. Wabash Ry. Co.

ROGERS, Circuit Judge (after stating the facts as above). [1-7] The question which this case presents arises under the War Revenue Act, approved on October 3, 1917, which is entitled “An act to provide revenue to defray war expenses, and for other purposes.” dO Statutes at Large, 300. The pertinent .provisions of the act may be found in the margin.1 The question is whether the certificates of A stock and common stock issued by the plaintiff in exchange for the B stock constituted such an issue of stock as to be subject to tax under the provisions of the act quoted in the margin. All the transactions with respect to the exchange of stock occurred during 1918, and therefore subsequent to the passage of the act. The certificates of stock — 614 — issued in exchange for the stock previously issued are undoubtedly subject to. the tax .imposed, if they constitute certificates of original issue; the constitutionality of the statute being conceded. The plaintiff company was organized in 1915, and its articles of association were filed in the office of the secretary of state of Indiana on October 22 of that year. It was incorporated, therefore, before the War Revenue Act was'passed, and it paid the excise tax thereunder in respect of its entire original issue of capital stock, preferred A, preferred B, and common; the tax amounting- to upwards of $70,000. The plaintiff maintains that, as the conversion of the preferred stock B into the prescribed amounts of preferred stock A and common stock did not involve an increase of the capital stock of the company, but was merely a reclassification of certain existing stock pursuant to an arrangement perfected at the time of the organization of the company, the transaction did not involve an issue of “original'’ stock, and therefore was not taxable under the War Revenue Act. The defendant insists that the transaction involved the issue of new certificates of the preferred stock A and of the common stock, and was an “original” issue of new stock never before in existence and subject to the stamp tax which was imposed. The defendant relies upon Treasury Decision 2752, containing, among others, the following ruling: “The tax on the issue of capital stock attaches to the issue of certificates ot stock representing stock never before issued, no matter when authorized. If a corporation issues preferred stock in place of common, or one kind of preferred stock in place of another kind of preferred stock, or stock without par value in place of stock with par value, the tax applies, even though the total outstanding stock is not thereby increased.” And it appears that Treasury Decision 2752 is, as we shall see, contrary to a series of decisions previously made under similar acts. In Robertson v. Downing, 127 U. S. 607, 8 Sup. Ct. 1328, 32 L. Ed. 269, the court in referring to a construction which the Treasury Department had placed on an act of Congress, said: “The regulation of a department of the government is not of course to control the construction of an act of Congress when its moaning is plain. But when there has been a long acquiescence in a regulation, and by it rights of I>arties for many years have been determined and adjusted, it is not to be disregarded without the most cogent and persuasive reasons. United States v. Hill, 120 U. S. 169, 182 [7 Sup. Ct. 510, 30 L. Ed. 627]; United States v. Philbick, 120 U. S. 52, 59 [7 Sup. Ct. 413, 30 L. Ed. 559]; Brown v. United States, 113 U. S. 568, 571 [5 Sup. Ct. 648, 28 L. Ed. 1079].” We may add that a construction placed by a department of the government upon an act of Congress ought not to be overturned, either by the department itself or by the courts, without cogent and persuasive reasons. The statement of the act of Congress herein involved is: “3. Capital Btoelc, Issue. On each original issue, whether on organization or reorganization, of certificates of stock by any * * * corporation, * * * the tax shall be 5 cents per share.” This the defendant contends is a tax imposed on documents rather than on the transaction of which they may be a part. “Stamps are imposed, not on transactions, but on documents.” And our attention — 615 — is called to a case, Malley v. Bowditch, 259 Fed. 809,— C. C. A. —, decided at the October term, 1918, by the Circuit Court of Appeals in the First Circuit, in which the court is said to have used this language : “We are called upon to apply a statute imposing stamp taxes on documents o£ a certain class, and which assumes that these documents may be Issued, not only by corporations, but by associations and companies. * * * The lax is not a franchise tax or a corporation tax, but a stamp tax or document tax.” We see no reason for doubting the accuracy of the above statement. We certainly have no intention of denying the proposition. But conceding it, as we do, it does not decide this case. The question remains whether the documents upon which the fax has been imposed are the evidence of an original issue of stock. A stock certificate is a document which is the evidence of the number of shares of stock which the holder of it owns. And the tax is laid, not on each stock certificate that is issued, but on each original issue of certificates. The language is used to indicate the first issuance of the stock, and this is emphasized by the use of the words, in the same connection, “whether on organization or reorganization.” When a corporation issues for the first time a certificate of the stock, that certificate is an original issue. The tax is placed on the original issue. The word “original” is defined by Webster as “pertaining to the origin or beginning; preceding all; first in order.” Plainly, then, it was not intended to tax the plaintiff on each issue of certificates, but only on each original issue of certificates which preceded all other issues which might, subsequently be made, when the original certificates were surrendered and new ones issued in their place, either to the original owner or to those to whom the original owners had transferred them. The taxation of such subsequent issues involving a change of title is provided for in section 4 of schedule A, title VIII, which imposes a tax on transfers, and imposes it, not on the company, but on the holder,' and fixes the rate of the tax at 2 cents on each share having a face value of $100, instead of 5 cents, which is the rate imposed on the company in connection with the original issue. The “issue” of stock generally means the issue of the certificates. The meaning of the word “issued” in connection with stocks, however, depends upon the connection in which it is used. Thus it has been held that stock is “issued and outstanding,” within the meaning of a statute rendering stockholders personally liable, although the certificates therefor had not in fact been made out or delivered. Flour City Nat. Bank v. Shire, 88 App. Div. 401, 84 N. Y. Supp. 810, affirmed 179 N. Y. 587, 72 N. E. 1141. And in American Pig Iron Storage Co. v. State Board of Assessors, 56 N. J. Law, 389, 29 Atl. 160, the certificate of incorporation stated that the amount of the capital stock was to be 81,550,000, divided into 155,000 shares, of the par value of $100 each. The whole amount of the capital stock was subscribed. No certificates of slock had been given to the subscribers. Two assessments of 5 per cent, each on the subscriptions had been made by the company and paid by the subscribers. It was held that the company was liable to — 616 — taxation on the full amount of the stock subscribed for as capital stock “issued and outstanding” within the meaning of the tax law. The court said: “The word ‘issued,’ as used in this connection, has no technical meaning. ‘To issue,’ as defined by lexicographers, signifies to send out; to put in circulation. In a popular sense, a corporation engaged in organization is said to issue stock when it obtains subscriptions for it, and in the construction of tax laws words are to be interpreted in their popular sense.” In the case at bar, when the plaintiff paid at the time of its organization the tax' of 5 cents for each $100 of face value of its total capital stock, including the A stock, the B stock, and the common stock, such payment was made once for all, and constituted the payment of the tax on each original issue of the certificates of stock whenever and to whomsoever delivered. Whenever thereafter the plaintiff delivered the first certificates of the B stock, it was not under obligation to pay again the tax on the B certificates. That had been already done; and when, subsequently, the plaintiff exchanged the certificates of the B stock for certificates of the A stock and of the common stock, it was not bound to pay again the tax on the certificates. That tax, too, had been already paid. The exchange of stock was an exchange of original certificates of one kind of stock for origins.! certificates of two other kinds of stock, the tax on all of which had been previously paid. Attention has been called to the fact that defendant relies on Treasury Decision 2752. It is undoubtedly true that the construction placed upon a statute by the officers whose duty it is to execute it is entitled to great consideration from the courts in a doubtful case. A practical construction by public officers whose! duty it is to enforce a statute is conceded to be entitled to great influence, provided the statute presents an ambiguity which is real, and not captious, one which is so serious as to raise a reasonable doubt in a fair mind. New York v. New York City R. Co., 193 N. Y. 543, 86 N. E. 565. Revenue laws are strictly construed. Gould v. Gould, 245 U. S. 151, 38 Sup. Ct. 53, 62 L. Ed. 211; Spreckles Sugar Refining Co. v. McClain, 192 U. S. 397, 24 Sup. Ct. 376, 48 L. Ed. 496; Benziger v. United States, 192 U. S. 38, 24 Sup. Ct. 189, 48 L. Ed. 331; Eidman v. Martinez, 184 U. S. 578, 22 Sup. Ct. 515, 46 L. Ed. 697; American Net & Twine Co. v. Worthington, 141 U. S. 468, 12 Sup. Ct. 55, 35 L. Ed. 821; Hartranft v. Weigmann, 121 U. S. 609, 7 Sup. Ct. 1240, 30 L. Ed. 1012; United States v. Isham, 17 Wall. 496, 21 L. Ed. 728. In United States v. Wigglesworth, 2 Story, 369, Fed. Cas. No. 16,690, the rule was stated as follows: “In the first place, it is, as I conceive, a general rule in the interpretation of all statutes levying taxes or duties upon subjects or citizens, not to extend their provisions, by implication, beyond the clear import of the language used, or to enlarge their operation so as to embrace matters not specifically pointed out, although standing upon a close analogy. In every case, therefore, of doubt, such statutes are construed most strongly against the government, and in favor of the subjects or citizens, because burdens are not to be imposed, nor presumed to be imposed, beyond what the statutes expressly and clearly import.” — 617 — Statutes of this kind are not remedial laws, nor are they founded on any permanent public policy. They impose burdens upon the public and restrict the pursuit of occupations and the enjoyment of property. If a tax is to be sustained in any given case it must come clearly within the letter of the statute. It cannot be said that the transaction, herein involved is clearly embraced in and covered by the statute. In Inland Revenue Commissioners v. Harrison, L. R. 7 H. L. 1, it was said that previous decisions should be followed especially in a fiscal maiter where consistency' and certainty are of universal importance. The question raised in that case was as to the meaning of the Succession Duty Act, and Lord Cairns, emphasizing the importance of adhering to the construction previously given to the act in two decisions made by the House, said: “It appears to me that it would be a most dangerous course lor this House to adopt; and if it could bo more dangerous in one case than in another, it would be so in a case in which your Lordships are dealing with one of the fiscal acts of the country, as to which the object must be, above Hint of ali other acts, to maintain them and to expound them in a manner which will be consistent, and which will enable the subjects of this country to know what exactly is the amount of charge and burden which they are to sustain. I think that with regard to statutes of that kind, above all others, it is desirable, not so much that ihe principle of the decision should be capable at all times of justification, as that the law should be settled, and should, when once settled, be maintained without any danger of vacillation or uncertainty.” To impose an excise tax upon original issues of certificates of capita stock is not new in the fiscal legislation of the Congress. The Spanish War Revenue Act, approved June 13, 1898, (30 Statutes at Large, 458), imposed such a tax. Section 6 of the act and schedule A thereto may be found in the margin.2 A comparison of this section and schedule with title VIII and schedule A of the present act, cited in the margin in an earlier part of this opinion, shows that the two enactments are substantially the same. The act of 1898 was repealed by an act of Congress approved on April 12, 1902. 32 Statutes at Large, 96. The precise question now presented under the present act arose under the prior act of 1898 and was submitted to the Treasury Department for a — 618 — ruling. It appears that the Treasury Department at that time ruled that, if there had been no change of ownership, but merely a substitution in the hands of the same stockholder of certificates for one class of stock in lieu of certificates for another class, the transaction was not within the statute and was not taxable. T. D. 20,694, Deb. 7, 1899.' ■ At the outbreak of the European War the statute was again reenacted in substantially the same form in the act of Congress approved on October 22, 1914, 'and which is known as the Emergency War Revenue Act. 38 Statutes at Rarge, 753. The Treasury Department, upon the passage of the act of 1914, issued a series of instructions to internal revenue officers in which it called attention to important rulings made under the act of 1898. Those instructions declared that, as the provisions of the Emergency War Revenue Act of 1914 embodied in schedule A thereof were identical with those of the earlier act, the rulings made by the department upder the former act should be given great weight in considering the requirements of the later act, “as Congress in practically re-enacting the provisions of the earlier act must be considered to have done so in the light of the administrative construction given to that act.” In one of its official circulars issued at that time the department directed specific attention to T. D. 20,694, which it summarized as follows: “Preferred stock issued in lieu of common stock not taxable where there is no change of ownership.” T. D. 2051, March 9, 1914.” It is a familiar and well-established rule that, where a statute that has been construed by the courts has been re-enacted in the same or substantially the same terms, the Legislature is presumed to have been familiar with its construction, and to have adopted it as a part of the law, unless a different intention is indicated; and the same principle is applied to statutes and parts of statutes which have been re-enacted after they have been construed by the legislative or executive departments of the government. The Supreme Court has decided that the re-enactment by Congress, without change, of a statute which had previously received long continued executive construction, is an adoption by Congress of such construction. United States v. G. Falk & Bros., 204 U. S. 143, 152, 27 Sup. Ct. 191, 51 L. Ed. 411; United States v. Cerecedo Hermanos y Compania, 209 U. S. 337, 339, 28 Sup. Ct. 532, 52 L. Ed. 821. We think that principle is applicable to the question herein involved. Congress, by re-enacting the act without substantial change in the provision now under consideration, adopted the construction which the Treasury Department for 15 years had placed upon it. We are under obligation to give to the act the interpretation which Congress intended it should have. We may remark, further, what we think defendant must admit, that in view of the construction placed by the Treasury Department on similar acts in 1899 and in subsequent years, prior to Treasury Decision 2752 rendered August 14, 1918, overruling the earlier construction which held such an exchange of certificates not subject to tax, renders the question herein presented one of considerable doubt, and, — 619 — if doubtful, then the doubt must be resolved in the plaintiffs favor in accordance with the well-established rule that where there is an ambiguity in the language of a statute imposing a tax, and that ambiguity raises a doubt as to the legislative intent, the persons upon whom it is sought to impose the burden are to be given the benefit of the doubt. Judgment affirmed. Footnotes [1] “Title VITI — ■War Stamp Taxes.■ — Seo. 800. That on and after the first day of December, nineteen hundred and seventeen, there shall be levied, collected, and paid, for and in respect of the several bonds, debentures, or certificates of stock and of indebtedness, and other documents, instruments, matters, and things mentioned and described in schedule A of this title, or for or in respect of the vellum, parchment, or paper upon which such Instruments, matters, or things, or any of them, are written or printed, by any person, corporation, partnership, or association who makes, signs, issues, sells, removes, consigns, or ships the same, or for whose use or benefit the same are made, signed, issued, sold, removed, consigned, or shipped, the several taxes specified in snch schedule.” Comp. St. 1918, Comp. St. Ann. Supp. 1919, § 63.1.8a. “Schedule A — Stamp Taxes. * * * 3. Capital Stoelc, Issued. — On each original issue, whether on organization or reorganization, of certificates of stock by any association, company, or corporation, on each $100' of face value or fraction thereof, 5 cents: Provided, that where capital stock is issued without face value, the tax shall be five cents per share, nnless the actual value is in excess of $100 per share, in which case the tax shall be 6 cents on each $100 of actual value or fraction thereof. “The stamps representing the tax imposed by this subdivision shall be attached to the stock books and not to the certificates Issued.” [2] “See. 6. That on and after the first day of July, eighteen hundred and ninety-eight, there shall be levied, collected, and paid, for and in respect of the several bonds, debentures, or certificates of stock and of indebtedness, and other documents, instruments, matters, and things mentioned and described in schedule A of this act, or for or in respect of the vellufn, parchment, or paper upon which such instruments, matters, or things, or any of them, shall be written or printed by any person or persons, or party who shall make, sign, or issue the same, or for whose use or benefit the same shall be made, signed, or issued, the several taxes or sums of money set down In figures against the same, respectively, or otherwise specified or set forth in the said schedule. “Schedule A. Bonds, debentures, or certificates of indebtedness issued after the first day of July, Anno Domini eighteen hundred and ninety-eight, by any association, company, or corporation, on each hundred dollars of face value or fraction thereof, five cents, and on each original issue, whether on organization or reorganization, of certificates of stock by any such association, company, or corporation, on each hundred dollars of face value or fraction thereof, five cents. * * * ”