Opinion — Cook v. Tait

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48 OCTOBER TERM, i923.

Argument for Plaintiff in Error. 265 U.S.

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. 8S. 1; Stanton 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 taxation, inherent in sovereignty, is

limited to the territorial jurisdiction of the 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,

15 Wall. 300; Dewey v. Des Moines, 173 U. 8S. 193;

De Lima v. Bidwell, 182 U. 8. 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 and

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. Union 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 Amendment; Nicol v. Anes, 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. 8.

194; Louisville 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 can-

not afford any basis for the tax in the instant case.

United States v. Rice, 4 Wheat. 247; Downes v. Bidwell,

182 U. 8. 282; Collector v. Day, 11 Wall. 113; Louisville

Ferry Co. v. Kentucky, 188 U. 8. 385; Shaffer v. Carter,

252 U.S. 37; Const., Art. I, § 8, par. 1; Art. I, § 2, el. 3;

Art. I, § 9, el. 4; Flint 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.

C. The United States not having the power to impose

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 on Foreign-Held Bonds, 15 Wall. 300;

Union Refrigerator Transit Co. v. Kentucky, 199 U. 8.

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

173 U.S. 193.

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.

II. 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

2080°—24—-—4

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Leer se ee ee dees

50 OCTOBER TERM, 1923.

Argument for Defendant in Error. 265 U.S.

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. ¢., 201 Fed. 918; Eidman v.

Martinez, 184 U. 8S. 578; United States v. Goelet, 232

U. S. 298.

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.

I. The Constitution confers on Congress a broad power

to lay and collect taxes.

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 restated and

affirmed in Pollock 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. Stone Tracy Co., 220 U. S. 107. See Brushaber v.

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

II. The tax imposed on the plaintiff is not unconstitu-

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 Sixteenth 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 or the income

meg ay

COOK v. TAIT. 51

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 not derived from property.

III. The courts have clearly indicated that Congress

may tax the income of one who is subject to its jurisdic-

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. 8. 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.

V. The jurisdiction of a national sovereign over its sub-

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 States v. Bowman, 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 ITI, e. 12; 42 Geo. IIT, ¢. 85, $1. Subjects who

go to uncivilized countries take their national law with

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52 OCTOBER TERM, 1923.

Argument for Defendant in Error. 265 U.S.

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, c. 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 subversive of the sov-

ereignty of Mexico. The rules of international law, how-

ever, indicate that there is no subversion of the sovereignty

of the country when a resident alien obeys the command

of his own national sovereign, unless the command of his

sovereign conflicts with the command of the local sov-

ereign.

VI. The leading text writers upon international law

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 ed., 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 citizen

is looked upon as prima facie evidence of citizenship. 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,

COOK v. TAIT. 53

47 Opinion of the Court.

to Mr. MacVeagh, December 13, 1870, Foreign Relations,

1871, pp. 887-888; The Charming Betsy, 2 Cr. 64.

As pointed out in Minor v. Happersett, 21 Wall. 162,

a citizen owes allegiance to his nation and is entitled to its

protection.

VII. The imposition of the tax is not in derogation of

any rights of the plaintiff under the first ten amendments.

Brushaber v. Union Pacific R. R. Co., 240 U. S. 1, 24;

Heald v. District of Columbia, 259 U. 8. 114, 124.

VIII. The Revenue Act of 1921 applies to the plaintiff.

Mr. Justice McKenna 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 by section 210 of the Revenue Act

of 1918, there shall be levied, collected, and paid for each

taxable year upon the net income of every individual a

normal tax of 8 per centum of the amount of the net

income in excess of the credits provided in section 216:

Provided, That in the case of a citizen or resident of the

United States the rate upon the first $4,000 of such excess

amount shall be 4 per centum.”’?

*The 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

the benefits of section 262 . . . wherever resident, are liable to

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 's wholly from sources outside the United

States. Every nonresident alien individual is liable to the tax on

his income from sources within the United States.”

54 OCTOBER TERM, 1923.

Opinion of the Court. 265 U.S.

Plaintiff is a native citizen of the United States and was

such when he took up his residence and became 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 complied

with the demand, but under protest, the income having

been derived from property situated in the City of Mex-

ico. A tax was assessed against him in the sum of

$1,193.38, the first installment of which he paid, and for

it, as we have said, this action was brought.

The question in the case, and which was presented by

the demurrer to the declaration is, as 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 was received, was perma-

nently resident 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 of the assignments cites

many cases. It will be observed that the foundation of

the assignments is the fact that the citizen receiving the

income, 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 existence

of the power to tax. Or to put the contention another

way, as to the existence 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 United 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

COOK v. TAIT. 55

47 Opinion of the Court.

United States by a citizen domiciled in the United States

was sustained. The tax passed on was imposed by a

tariff act,’ 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

was outside of the United States. In United States v.

Goelet, 232 U.S. 293, the yacht taxed was outside of the

Enited States but owned by a citizen of the United States

who was “permanently resident and domiciled in a for-

eign country.” It was decided that the yacht was not

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 case 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

State. It was pointed out that there were limitations

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, c. 6, 36 Stat. 11, 112,

provided in part as follows: “There shall be levied and collected

annually on the first day of September by the collector of customs

of the district nearest the residence of the managing owner, upon the

use of every foreign-built yacht, pleasure-boat or vessel, 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 of seven dollars per gross

ton.”

Sekiiaiss Mas

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56 OCTOBER TERM, 1923.

Opinion of the Court. 265 U-S.

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-

ment 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 relations 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 while it “ belittles and destroys its advantages

and blessings by denying the possession by government of

an essential power required to make citizenship com-

pletely beneficial.” In other words, the principle was de-

clared 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 made 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.

Judgment affirmed.

Mr. Justice McReyNnotps took no part in the con-

sideration or decision of this case.

sags Sha ae

COOK v. TAIT, UNITED STATES COLLECTOR OF

INTERNAL REVENUE FOR THE DISTRICT OF

MARYLAND.

ERROR TO THE DISTRICT COURT OF THE UNITED STATES FOR

THE DISTRICT OF MARYLAND.

No. 220. Argued April 15, 1924.-Deeided 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, affirmed.

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., gnd Mr. Charles Claflin

Allen, with whom Mr. Frederic N. Watriss was on the

briefs, for plaintiff in error.

I. 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-

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