US SUPREME COURT DECISIONS

Under the 20th section of the Act of July 20, 1868, entitled "An act imposing taxes on distilled spirits," &c., in the absence of a distiller's having appealed to the Commissioner of Internal Revenue (as under the 10th section of the act he may do) for the correction of any error made by the assessor in fixing the "true producing capacity" of his distillery, it is lawful for the government to assess and collect, as for a deficiency, the taxes upon the difference between the said "producing capacity" as estimated by the assessor and the amount of spirits actually produced by such distillery, even though the distiller have in good faith reported and paid taxes upon his whole production and though such production have exceeded 80 percentum of the producing capacity aforesaid.

The 10th section of the "Act imposing taxes on distilled spirits," &c., approved July 20, 1868, [Footnote 1] enacts:

"That every assessor shall proceed at the expense of the United States, with the aid of some competent and skillful person to be designated by the Commissioner of Internal Revenue, to make survey of each distillery registered for the production of spirits in his district, to estimate and determine its true producing capacity &c., a written report of which shall be made in triplicate, signed by the assessor and the person aiding in making the same, one copy of which shall be furnished to the distiller, one retained by the assessor, and the other immediately transmitted to the Commissioner of Internal Revenue. If the

Page 84 U. S. 183

Commissioner of Internal Revenue shall at any time be satisfied that such report of the capacity of a distillery is in any respect incorrect or needs revision, he shall direct the assessor to make in like manner another survey of said distillery."

The 19th section of the same act makes it the duty of every distiller, on the 1st, 11th, and 21st days of each month or within five days thereafter,

"to render to the assistant assessor an account in duplicate, taken from his books, stating the quantity and kind of materials used for the production of spirits each day, and the number of wine gallons and of proof gallons of spirits produced and placed in warehouse."

The 20th section proceeded thus:

"On receipt of the distiller's first return in each month, the assessor shall inquire and determine whether said distiller has accounted, in his returns for the preceding month, for all the spirits produced by him and to determine the quantity of spirits thus to be accounted for, the whole quantity of materials used in the production of spirits shall be ascertained, and forty-five gallons of mash or beer, brewed or fermented from grain shall represent not less than one bushel of grain; and seven gallons of mash or beer, brewed or fermented from molasses shall represent not less than one gallon of molasses. In case the return of the distiller shall have been less than the quantity thus ascertained, the distiller or other person liable shall be assessed for such deficiency at the rate of fifty cents for every proof gallon, together with the special tax of four dollars for every cask of forty proof gallons, and the collector shall proceed to collect the same as in cases of other assessments for deficiencies; but in no case shall the quantity of spirits returned by the distiller, together with the quantity so assessed, be for a less quantity of spirits than 80 percentum of the producing capacity of the distillery as estimated under the provisions of this act."

In September, 1868, soon after the statute took effect, an assessor addressed the Commissioner of Internal Revenue at Washington for instructions on the subject of how the true "producing capacity" of a distillery under section 10 of the above-quoted act was to be determined. chanrobles.com-red

Page 84 U. S. 184

The commissioner thus replies to him:

"In determining the true producing capacity of a distillery under the said section, it makes no difference whether the distillery is proposed to be run one, ten, or twenty-four hours, nor what number of bushels the distiller proposes to mash per day."

"You are to determine first what number of bushels of grain can be mashed and fermented in twenty-four hours, and second what quantity of spirits can be produced in twenty-four hours."

"What you are to determine is the absolute producing capacity, without deduction for any cause; you must estimate the maximum quantity of spirits which can be produced by the distiller, supposing him to run continuously for twenty-four hours."

"The number of bushels which you determine upon these principles can be mashed and fermented in twenty-four hours is the basis upon which you will assess the per diem capacity tax imposed by section 13. [Footnote 2] The number of bushels so determined, multiplied by the quantity of spirits which can under all circumstances (all the apparatus and machinery being in good order) be produced in the distillery from a bushel of grain will give the quantity of spirits which can be produced in twenty-four hours, and this is the basis of the examination to be made by you monthly of his return under section 20."

"If his returns exceed 80 percent of this, no assessment is necessary unless it shall appear that his actual production is in excess of his returns."

In this state of things, one Beggs, a distiller, made true and correct reports for the months of September, October, and November, 1868, of all the spirits by him actually produced. The amount of such spirits so reported exceeded 80 percentum of the producing capacity of the distillery of plaintiff for the said months respectively.

He also paid all the taxes assessable against him for such product so reported.

But by a survey of the distillery, which had been made in pursuance of the above-quoted section 10 of the Act of July chanrobles.com-red

Page 84 U. S. 185

20, 1868, and in force during the said months of September, October, and November, 1868, the distillery was estimated to be capable of producing from each bushel of grain used three and one-quarter gallons of spirits.

The amounts reported by Beggs as having been produced at his distillery during the said months was less than three and one-quarter gallons for each bushel of grain by him used during that time.

Hereupon the assessor, maintaining that Beggs was bound to pay taxes upon the amount of three and one-quarter gallons for each bushel of grain used by him during those months, assessed him upon the difference between the amount reported in his returns aforesaid and the said estimated product of three and one-quarter gallons per bushel as fixed and determined in the survey, and made return of this assessment to the collector.

On demand made by the collector, Beggs paid under protest the sum assessed, and having made application for repayment of it to the Commissioner of Internal Revenue, who refused to repay it, he brought suit in the court below against the collector, one Stevenson, to recover it.

The court found the facts above stated and held the assessment illegal, and the plaintiff entitled to recover.

Judgment being entered accordingly, the collector brought the case here. chanrobles.com-red

Page 84 U. S. 187