U.S. Supreme Court
United States v. Erie Railway Co., 106 U.S. 327 (1882)
United States v. Erie Railway Company
Decided November 27, 1882
106 U.S. 327
During the period when sec. 122 of the Act of June 30, 1864, c. 173, as amended by the Act of July 13, 1866, c. 184, was in force, a railway company paid to alien nonresident holders of its bonds the entire interest due from time to time thereon. Held that the company, no claim Laving been made here against it for any penalty, is liable to the United states for five percent on the amount so paid, with interest thereon at the rate of six percent per annum.
This was an action to recover taxes alleged to be due to the plaintiff on certain interest coupons paid by the defendant in the years 1866, 1867, 1868, and 1869, on bonds previously issued by it, and also certain penalties alleged to be due the plaintiff for failure of the defendant to make returns of the amount of the taxes. It was tried in the District Court for the Southern District of New York upon an agreed statement of facts, of which the following are all that are deemed material to explain the question raised and decided. Prior to September 1, 1866, the defendant had issued sterling coupon bonds to the amount of £800,000, dated September 1, 1865, the principal of which was payable two years after date, drawing interest at six percent per annum, payable semiannually on the first days of March and September of each year, and the principal and interest of which were payable in London, England, at the office of Junius S. Morgan & Co., bankers, of London; after March 1, 1868, and prior to September 1, 1868, the defendant had issued and sold bonds of the same class amounting to £200,000, the principal and interest of which were payable at the same place as the bonds previously issued; that all the bonds with coupons for interest attached were sold directly to J. S. Morgan & Co., J. T. Mackenzie, and Stern Brothers, all foreign bankers, having their places of business in London, and were by them sold to their customers in England and on the continent of Europe; that during the years 1866, 1867, 1868, 1869, the bonds and coupons were all held by nonresident aliens, and not by citizens of the United States, except bonds to the amount of £20,000, and the coupons attached, which were held chanroblesvirtualawlibrarychanroblesvirtualawlibrary
and owned by a citizen or citizens of the United States residing in Europe; that the amount of interest on all bonds was provided for, and sent forward by the defendant, in one sum or block, to J. S. Morgan & Co., before the dates at which it fell due, and as it fell due was paid by J. S. Morgan & Co. at their banking house in London, to the holders of the bonds and coupons; that the amount of interest paid in the years mentioned on the above-described bonds was £186,000, of which £4,200 were paid on the £20,000 held by a citizen or citizens of the United States; that the defendant made no returns to the assessor, or to any other officer of the internal revenue of the United States, of the payment of the interest, or any part thereof, nor did it ever pay to the United States, or to anyone on their behalf, five percent tax, or any tax on the interest, or any part thereof; nor did the defendant withhold the tax or any part thereof from the amount of the interest, but paid the full amount to the holders of the bonds, and that no assessment was ever made by the plaintiffs, or by any officer of the plaintiffs, on the defendant for any portion of the tax, nor was any demand ever made on the defendant for the payment of the same to the United States until December 31, 1872.
The court held that the defendant was not liable for a tax on the £181,800 sterling paid for interest upon coupons and bonds owned and held by nonresident aliens, but was liable for the tax on £4,200 sterling paid for interest on coupons and bonds owned and held by citizens of the United States, and also that it was liable for only one penalty for failure to make return to the revenue officer of the amount paid. Judgment was rendered accordingly, which, on error, was affirmed by the circuit court. This writ of error was then brought by the United States. No claim for any penalty was made in the United States. No claim for any penalty was made in the argument here on behalf of the United States, the only question presented for determination being whether the court below erred in holding that the company was not liable for the alleged tax of five percent on the £181,800 sterling interest which it had paid to nonresident owners and holders of its coupons and bonds.
The action was founded on sec. 122 of the Act of June 30, 1864, c. 173, as amended by the Act of July 13, 1866l mc. 184, which is as follows:
"That any railroad, canal, turnpike, canal
navigation, or slackwater company indebted for any money for which bonds or other evidence of indebtedness have been issued, payable in one or more years after date, upon which interest is stipulated to be paid, or coupons representing the interest, or any such company that may have declared any dividend in scrip or money due or payable to its stockholders, including nonresidents, whether citizens or aliens, as part of the earnings, profits, income, or gains of such company, and all profits of such company carried to the account of any fund, or used for construction, shall be subject to and pay a tax of five percent on the amount of all such interest or coupons, dividends or profits, whenever and wherever the same shall be payable and to whatsoever party or person the same may be payable, including nonresidents, whether citizens or aliens, and said companies are hereby authorized to deduct and withhold from all payments on account of any interest or coupons and dividends due and payable as aforesaid, the tax of five percent, and the payment of the amount of said tax, so deducted from the interest or coupons or dividends, and certified by the president or treasurer of said company, shall discharge said company from that amount of the dividend, or interest, or coupon on the bonds or other evidences of their indebtedness so held by any person or party whatever, except where said companies may have contracted otherwise. And a list or return shall be made and rendered to the assessor or assistant assessor on or before the tenth day of the month following that in which said interest, coupons, or dividends become due and payable, and as often as every six months, and said list or return shall contain a true and faithful account of the amount of tax, and there shall be annexed thereto a declaration of the president or treasurer of the company, under oath or affirmation, in form and manner as may be prescribed by the Commissioner of Internal Revenue, that the same contains a true and faithful account of said tax. And for any default in making or rendering such list or return, with the declaration annexed, or of the payment of the tax as aforesaid, the company making such default shall forfeit as a penalty the sum of $1,000, and in case of any default in making or rendering said list or return, or of the payment of the tax, or any part thereof, as aforesaid,
the assessment and collection of the tax and penalty shall be made according to the provisions of law in other cases of neglect or refusal, provi assessment and collection of the tax and penalty shall be made according to the provisions of law in other cases of neglect or refusal, provi assessment and collection of the tax and penalty shall be made according to the provisions of law in other cases of neglect or refusal, provided that whenever any of the companies mentioned in this section shall be unable to pay the interest on their indebtedness, and shall in fact fail to pay such interest, that in such cases the tax levied by this section shall not be paid to the United States until said companies resume the payment of interest on their on their indebtedness."