Cook v. Tait

COOK v. TAIT.

41.

Argument for Plaintiff in Error.

rminimm;" and § 2 of the Act of 1903 does not require that they shall have their brakes Qperated by the engineer.

The question whether it was a violation of law to haul defective cars to Erie, the place of the first repair station, while associated in the train with the prescribed minimum is not involved in this case, and we express no opinion upon it.

The answer to the question certified is: No, anless placed in the train to the rear of all cars

having their brakes operated by the engineer.

No. 220. Argued April 15, 1924.-Decided May 5, 1924.

Congress has power to tax the income received by a native citizen of the United States domiciled abroad from property situated abroad. P. 54.

286 Fed. 409, affrmed.

ERROR to a judgment of the District Court, dismissing on demurrer an action to recover money paid, under protest, as income taxes.

Mr. Charles Claflin, Allen,* Jr., and Mr. Charles Claflin Allen, with" whom Mr. Frederic N. Watris .was on the briefs, for plaintiff in error.

L Congress has no power to impose a tax upon income received by a native citizen of the United States who was at the time when the income was received perma- nently resident and domiciled in the Republic of. Mexico, when such income was derived solely from real and personal property permanently located at all times with-

48

Argument for Plaintiff in Error.

out the territorial jurisdiction of the United States and solely within the territorial jurisdiction of the Republic. of Mexico.

A. This proposition involves solely the question.of the

power to levy the tax and not the mode of its exercise.

Veazie Bank v. Fenno, 8 Wall. 533; Pollock v. Farmers' Loan & Trust Co., 157 U. S. 429; 158 U. S. 601; Brushaber

v. Union Pac. R. R. Co., 240 U. S. 1; Stantqn v. Baltic

Mining. Co., 240 U. S. 103; Eisner v. Macomber, 252 U. S.

189; Peck & Co. v. Lowe,.247.U..S. 165; Evans v. Gore, 253 U. S. 245; Nicol v. Ames, 173 U. S. 509;. United States'

v. Phellis, 257 U. S. 156.

B. The power of taxatioi, inherent in sovereignty, is

limited to the territorial jurisdiction of Ithe sovereign; and the attempt to impose a tax upon property, persons or business beyond that jurisdiction is void. I -Cooley, Taxation, p. 249; McCulloch, v. Maryland, 4 Wheat. 316; United States v. Rice, 4 Wheat. 247; Loughborough v.

Blake, 5 Wheat. 317; State Tax on. Foreign-Held Bonds, 1 Wall. 300; Dewey v. Dds Moines, 173 U. S. 193; De Lima v. Bidwell, 182 U. S. 1; United States v. Hay- ward, 2 Gall. 485; St. Louis v. The Ferry Co., 11 Wall.

423; Tappan.v. Merchants' National Bank, 19 Wall: 490; Louisville Ferry Co. v. Kentucky, 188 U. S. 385; Union Refrigerator Transit Co. v. Kentucky, 199'U. S. 194.

(1) The subject of the tax is the right to the rents anmd-

profits from the property realized in the shape of income; this is a property right having- its situs in the Republic of Mexico. Dobbins v. Commissioners of Erie County, 16" Pet. 435; Maguire v. Trefry, 253 U. S. 12; Pollock v.

Farmers' Loan &-Trust Co., 157 U. S..429; 158 U. S. 601; Brushaber v. Uion Pac. R. R. Co., 240 U. S. 1; Gillespie

v. Oklahoma, 257 U. S. 501; Greiner v. Lewellyn, 258

U. S. 384; Eisner v. Macomber, 252 U. S. 189;-Evans .v.

Gore, 253 U. S. 245; Revenue Act of 1921, § 210; Six- teenth Amendmeit; Nicol v. Ames, -173 U. S. 509; The.

Exchange, 7 Cr. 116; Selliger v. Kentucky, 213 U. S. 200; COOK v. TAIT.

49 47

Argument -for Plaintiff in Error.

Union Refrigerator Transit Co. v. Kentucky, 199 U. S.

194; Louisvil'e Ferry Co. v. Kentucky, 188 U. S. 385; Thirty Hogsheads of Sugar v. Boyle, 9 Cr. 191; United States v. Rice, 4 Wheat. 247; Fleming v. Page, 9 How. 603.

(2) The person of plaintiff in error is not within the

jurisdiction of the United States for Purposes of taxation.

See authorities cited supra, under B(1).

(3) Citizenship of a native American is neither prop-

erty nor a privilege granted by Congress and therefore caii- not afford any basis for the tax in the instant case.

United States v. Rice, 4 Wheat. 247; Downes v. Bidwell, 182 U. S. 282; Collector v. Day, 11 Wall. 113; Louisville Ferry Co. v. Kentucky, 188 U. S. 385; Shaffer.v. Carter, 252 U. S. 37; Const., Art. I, § 8, par. 1; Art. I, § 2, cl. 3; Art. I, § 9, ci. 4; Fhnt v. Stone Tracy Co., 220 U. S. 107; Loan Association v. Topeka, 20 Wall. 655; Pollock v.

Farmers' Loan & Trust Co., 157 U. S. 429; Moore, Ameri- can Notes to Dicey on Conflict of Laws, pp. 783, 800.

the tax, its imposition and collection .is a mere extortion under the guise of taxation and violates the rights of the plaintiff in error guaranteed him under the Fifth Amend- ment. State Tax oh Foreign-Held Bonds, 15 Wall. 300; Union Refrigerator Transit Co. v. Kentucky, 199 U. S.

194; Shaffer v. Carter, 252 U. S. 37; Dewey v. Des Moines,

D. The tax is in violation of the natural and inherent

rights of plaintiff in error and is contrary to the rights re- served-independently of citizenship-by the first ten amendments to the Constitution, and especially the Fifth, Ninth and Tenth Amendments. Downes v. .Bidwell, 182-

U. S. 282; Fong Yue Ting v. United States, 149 U. S. 715.

H. The tax assessed is not within the statute.

A. The statute does not contain express declaration of

authority to impose the tax and will be strictly construed in favor of the taxpayer. Revenue Act, 1921,- § -210, 42

.50

Argument for Defendant in Error.

Stat. 233; Revenue Act, 1913, § 2-A, Subdiv. 1, 38 Stat.

166; Revenue Act, 1916, § 1-A, 39 Stat. 756; Revenue Act, 1918, § 210, 40 Stat. 1057; Mutual Benefit Life Ins.

Co. v. Herold, 198 Fed. 199; s. c., 201 Fed. 918; Eidman v.

Martinez, 184 U. S. 578; United States v. Goelet, 232

B. The statute must be construed as including only

property and persons within the constitutional power of Congress to reach, so -as to keep the statute in harmony with the'Constitution. McCullough v. Virginia, 172 U. S.

"102; Sedgwick, Construction (Pomeroy), 2d'ed., p. 206.

Mr. Solicitor General Beck for defendant in error.

to lay and collect taxes.

4

Referring to this power, this Court said in the License Tax Cases, 5 Wall. 462: "It is given in the Constitution with. only one exception and only two qualifications.

Congress can not tax exports, and it must impose direct taxes by the rule of apportionment, and indirect taxes by the rule of uniformity. Thus limited, and thus only, it reaches every subject, and may be exercised at discretion.'

The rule announced in these cases 'was reitated and affirmed in'Polock v.'Farmers' Loan & Trust Co., -157

U. S. 429. .To the same effect are Nicol v. Ames, 173

U. S. 509; KnOwlton. v. Moore, 178 U. S. 41; and Flint

v. St6ne Tracy Co., 220 U. S. 107. See'Brushaber-v.

.Uniion Pacific R.R. Co., 240 U. S. 1.

tional because it applies to income from property outside of the United States.

This Court has decided (Brushaber Case, supra) that even before the adoption of- the Sixteeiith Amendment' Congress might tax all property and the income from all property. Stanton v; Baltic Mining Co., 240 U. S. 103.

All taxes are personal obligations of the citizen, even though measured in amount by his property o'r the income

COOK v. TAIT.

47

- Argument for Defendant in Error.

thereof. Taxes are not imposed upon property as such but upon its owner.

The contention that taxing the income is not author- ized by the Sixteenth Amendment, if well founded, would apply equally to a citizen residing in the United States, and deriving his entire income from sources outside of the United States; -and yet unquestionably Congress has such power of taxation over citizens. residing within the United States. How can the duty of the citizen to sup- port the government which protects him depend upon his place of residence? Wherein does the Constitution impose such a limitation upon the power of Congress to tax?

The Sixteenth Amendment made it immaterial whether income were or were hot derived from property.

may tax the income of one who is subject to its jurisdib- tion, although that income is derived from sources outside of the United States. Nevada Bank v. Sedgwick, 104

U. S. 111; Memphis & Charleston, R. R. Co. v. United

States, 108 U. S. 228; 26 R. C. L., pp. 85, 86; United States v. Erie Ry. Co., 106 U. S. 327; United States v.

Goelet, 232 U. S. 293; United States v. Bennett, 232 U. S.

299; Porto Rico Coal Co. v. Edwards, 275 Fed. 104.

IV'. Decisions relating to state legislation taxing persons or property beyond the borders of those States are in- applicable. United States v. Bennett, supra."

jects is not confined to its territorial domain. I Hyde, Int.

Law, pp. 410-412, 423, 435-446. Treason may be pun-* ished no matter where the treasonable acts have occurred.

35 Henry VIII, c. 2; Criminal Code, § 1. This is also true of conspiracy, United State& v. Bowma, 260 U. S. 94; of cannibalism, Regina v, Dudley, 15 Cox C. C. 624; and by English law it is true of offenses by Crown officials.

11 William I.,'c. 12; 42Geo.I, c..85, 1. Subjectswho go to uncivilized countries take their national law with

.

52"

Argument for Defendant in Error.

them. I Hyde, supra, p. 451. Our Criminal Code (§§ 308, 309) forbids the sale of arms, liquors, or opium to the aboriginal natives of Pacific islands which are not in the possession of or under the protection of any civilized power; and an act of Congress (March 3, 1915, a. 74 §§ 1-13, 38 Stat. 817) regulates the practice of pharmacy and the sale of poisons in consular districts in China. Under treaties the United .States has established consular courts for American citizens in several countries. So also, per- sonal representatives of a sovereign, members of the diplo- matic corps, -carry their national law with them, and they are immune from the operation of the laws of the country- to which they are sent. I Hyde, supra, pp. 746-763.

Counsel for the plaintiff urge that. the" imposition of such a tax upon him would be subvertive of the -sov- ereignty of Mexico. The rules of international law, how- ever, indicate that there is no subversion of the sovereignty of the countr- when a resident alien obeys the command of his own national sovereign, unless the command of his sovereign conflicts with the command 'f the local sov- ereign.

concede that a national sovereign has the power to impose taxes upon its nonresident citizens regardless of the sources from which such- incomes are derived. I Oppen- heim, Int. Law, p. 195; Bar, Int. Law, 2d el., p. 247; Story,"Conflict of Laws, 7th ed., pp. 21, 22, 682; I West- lake, Int. Law, pp. 111, 112, 206, 208; I Hyde, Int. Law,

p. 362; Webster, The Law of Citizenship, 1891, pp.

167, 168.

The payment of an income tax by a nonresident 6itizen is looked upon as prima fade evidence of -itizenship. The failure to pay such an income tax is, inter alia, of con- siderable weight in determining that the nonresident citizen has given up his allegiance to the United States.

Borchard, Diplomatic Protection of Citizens Abroad, pp.

694-697, 706, 728 et seq.; Mr. Fish, Secretary of State,

47

COOK v. TAIT.

Opinion of the Court.

to Mr. MacVeagh, December 13, 1870, Foreign Relations, 1871, pp. 887-888; The Charming Betsy, 2 Cr. 64.

A, pointed out in Minor v. Happersett, 21 Wall. 162, a citizen owes allegiance tohit nation and is entitled to its protection.

any rights of {he plaintiff under the first ten amendments.

Brshaber v. .Union, Pacific B. R. Co., 240 U. S. 1, 24; Heald v. District of Columbia, 259 U. S. 114, 124.

M . JusTicE M6KENiNA delivered the opinion of the Court.

Action by plaintiff in error, he will be referred to as plaintiff, to recover the sum of $298;34 as the first install- ment of an income tax paid, it is charged, under the threats and demands of Tait.

The tax was imposed under the Revenue Act of 1921, which provides by § 210 (42 Stat. 227, 233): "That, -in. lieu of the tax imposed bp section 210.of th; Revenue Act. of 1918, there shall be levied, collected, and paid for each taxable year upon the net income of every individual a normal tao of 8 .per centum of the amouni of the net

Provided, That in the case of a citizen or resident. df the United States the rat6 upon the first $4,000 of such excess amount shall be 4 per centum."1

1 Tlie following regulation, No. -62, promulgated by the- Commis- sioner of Internal Revenue under the Revenue Act of 1921, provides in Article 3: ".Citizens of the United States except those entitled to . wherever resident, are liable to the benefits, of section 262 the tax. It makes no difference that they may own no assets within the United States and may receive no income from sources within the United States. Every resident alien individual is liable to the tax, even though his income is wholly fron sourees outside the United States. Every nonresident alien individual is liable to the tax on his income from sources within the United States."

.

.

Opinion of the Court..

Plaintiff iH a native citizen of the United States and was such when he took p his residence and becane domiciled in the City of Mexico. A demand was made upon him by defendant in error, designated defendant, to make a return of his income for the purpose of taxation under the Revenue Laws of the United States. Plaintiff ebmplied with the-demand, but uhder protest, the income having been derived from property situated in the City of Mex- in the sum of ico. A tax was assessed against hi $1,193.38, the flrst.installment of which he paid, and for it, as we have said, thi action was brought.

The question in the case, and-which was presented by the demurrer to the declaration is, a expressed by plain- tiff, whether Congress has power to impose a tax upon income received by a native citizen of the United States who, at the time the income wis received, was perma- nentlyxesident and domiciled in the City of Mexico, the income being from real and personal property located in Mexico.

Plaintiff assigns against the power not only his rights under the Constitution of the United States but under international law, and in support oPthe assignments cites It will be bserved that ihe foundation of many cases. the assignments is the fact that the citizen receiving the inome, and the property of which it is the product, are outside of the territorial limits of the United States..

These two facts, the contention is, exclude the eistence of the power to tax.- Or to put the contention another way, as to the "ex.stence of the power and its exercise, the person receiving the income, and the property from which he receives it, must both be within the territorial limits of the United States to be within the taxing power of the United States;. The contention is not justified, and that it is not justified is the necessary deduction of. recent- cases. In. UMited States v. Bennett, 232 U. S. 299, the power of the United States to tax a foreign built yacht -owned and used during the taxing period outside of the

47

COOK v. TAIT.

Opinion of the Court.

United States by a citizen domiciled in the United States was sustained." Thd tax passed on was imposed by a tariff act,2 but necessarily the power does not depend upon the.form by which it is exerted.-

It will be observed that the case contained only one of the conditions of the present case, the property taxed In United States v. was outside of the United States.

Goelet, 232 U. S. 293, the yacht taxed was outdde of the United States but owned by a citizen of the United States who was "permanently resident and domiciled in a for- It was decided that the yacht was not eign. country." subject to the tax-but this as a matter of construction.

Pains were taken to say that the question of power was determined "wholly irrespective" of the owner's "perma- nent domicile in a. foreign country." And the Court put out of view the situs of the yacht. That the Court had no" doubt of the power to tax was illustrated by reference to the income tax laws of prior years and their express extension to those domiciled abroad. The illustration has pertinence to the case at bar, for the ease at bar is concerned with an income tax, and the power to impose it.

We may make further exposition of the national power as the case depends upon it.

It was illustrated at once in United States v. Bennett by a contrast with the power of a It was ppinte& out that there were limitations State. upon the latter thAt were not on the national power. The taxing power of a State, it was decided, encountered at its. borders the taxing power of other States and was limited by them. -There was no such limitation, it was pointed.

'Section 37, Tariff Act of August 5, 1909, o: 6, 86 Stat. 11, 112, provided in part as follows: "There) shall be levied and collected annually on- the first day of September by the collecatr of customs of the district nearest the residence of the managing owner, upon the use of every foreign-built yacht, pleasure-boat or vese1 not used or intended to be used for trade, now or hereafter owned or chartered for more than. six months by any citizen or citizens of the United States, a sum equivalent to a tonnage tax 6f seven dollars per gross ton."

56

Opinion of the Court.

out, upon the national power; and the limitation upon the- States affords, it was said, no ground for constructing a barrier around the United States " shutting that govern- menf off- from the exertion of powers which inherently belong to it by virtue of its sovereignty."

The contention was rejected that a citizen's property without the limits of the United States derives no benefit from the United States. The contention, it was said, came from the confusion of thought in "mistaking the scope and extent of the sovereign power of the United States as a nation and its iefations to. its citizens and their relations to it." And that power in its scope and extent, it was decided, is based on the presumption that government by its very nature benefits the citizen and his property wherever found, and that opposition to it holds on to citizenship vhile it "belittles and destr6ys its advantages and blessings by denying the possession by government of an essential power required to miiake citizenship com- In other words, the principle was Ae- pletely beneficial." dared that the government, by its very nature, benefits the citizen and his property wherever found and, there- fore, has the power to make the benefit complete. Or to express, it another way, the basis of the power to tax was not and cannot be made dependent upon the situs of the property in all cases, it being in or out. of the United States, and was not and cannot be mide dependent upon the domicile of the citizen, that being in or out of the United States, but upon his relation as citizen to the United States and the relation of the latter to him as citizen. The consequence of the relations is that the native citizen who is taxed may have domicile, and the property from which his income is derived may have situs, in a foreign country and .the tax be legal-the government having power to impose the tax.

J;ucgment afirmed.

IR. JusTicE McRxYNoLws took no part in the con- sideration or decision of this case.