Plaintiffs Brief — Schick v. United States

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T 3 1903

OLEOMARGARINE TAX casEs.} OC 3 |

wm KERNEY,

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—— ee ee

——_—"

SUPREME COURT OF THE UNITED STATES.

Ocroser TERM, 1903.

Aucusr Curr,

Plaintiff in error

US. ow y No. 614, October

Term, 1902.

No. 221, October

Term, 1903.

Tue Unirep Srares.

In error to the District Court of the United States

for the Northern District of Illinois.

{

FREDERICK J. Scuick,

Plaintiffinerror, |

vs. | No. 615, October

ee tear ' erm, 1902.

THE Unitep Starrs. | No. 222. October

In error to the District Court of the United States | Term, 1903.

for the Northern District of Hlinois. |

nee

WiLLiaM Broapwe tt,

Plaintiff in error,

vs.

Tue Unitep Srares. Term, 1902.

No. 223, October

In error to the District Court of the United States Term, 1903.

for the Northern District of ‘ilinvis.

Leo W. McCray,

Plaintiff in error,

VS. f

No. 301, October

Tue Uniten Sratrs. Term, 1993.

In error to the District Court of the United States

for the Southern District of Ohio.

sRIEP FOR PLAINTIFFS IN ERROR.

Wiiutam D. Gurnee,

MILLER Ovu7Tcatt,

CHarces E. Prior.

Francis J. Kearrer,

Drvavan B. Core,

Ciaries C. CARNAHAN,

OF counsel.

pWashington, October Term, 1903.

TrQR Ram etQQaan TO Oae +O awa 1 a

j PRRs” — a, . 7M ere

ZUFO

Fe age MDS

[ 18,842, 18,843. 18.844, 18,952.)

OLEOMARGARINE TAX CASES,

SUPREME COURT OF THE UNITED STATES.

4 +, “ey “ew >

7 OCTOBER TERM, 1903.

yt,

r seine a eR a saa |

‘ AvuGUST CLIFF,

Plaintes En error, No. 614, October

5 ees Term, 1902.

: THE Unirep Srares. No, 221, October

“ a : Term, 1903.

q In error to the District Court of the Unnted States

for the Northern District of Hlinois.

FREDERICK J. SCHICK,

i Mane in error, | wo. 615, October

H nis Term, 1go02.

; THE UNITED SPares. Ne, 222, October

e , oe , : a Term, tyo3.

5 In error to the District Court of the United States

for the Northern District of Mlinois.

’ - _

; WILLIAM BROADWELL,

: No, 616, October

are Seed te ‘ 7 Term, 1902.

PHeE UNITED Srares, No. 223. October

In error to the District Court of the United States Perm, 1903

for the Northern District of Wineis.

Leo W. McCray,

Liane: Fs i<errur

= No. 391, October

{ THe UNITED Srares. Term, 1903.

in error to the District Court of the United States

for the Southern District of Ohio.

BRIEF FOR PLAINTIFFS IN ERROR.

STATEMENT OF FACIHS,

The above entitled cases draw ia question the consti-

tutionality of certain provisions of the act of Congress

commonly called the » Oleomargarine Act.” and en-

‘ ’

tited “An act defining butter, also imposing a tax

upon and regulating the manufacture, sale, importation

and exportation of oleomargarine,” approved August 2

1886, as supplemented by section 41 of the act of

October 1, 1890, and as amended by the act of May o,

1902 (24 Stat. 200, c. S4o; 26 Stat. 621,c. 1244. $41; 32

Stat. 193. ¢. 784), on the ground that they interfere with

the reserved power of the States to reculate tieir

internal commerce, deprive the individual of liberty

and property without due process of law, and confer

final judicial power upon an administrative officer.

The plaintiffs in error Cif. Schick and Browdzell

were prosecuted by information in the District Court of

the United States for the northern district of Mlinois

(Ex parte Wilson, 114. U.S. 417. 425: Lees ve Cnited

Sates, 150 U.S. 476, 470) for the offense of having pur-

chased or received for a oleomargarine which had not

been * stamped accordiny to law “ under section 11 of the

act. In the case of MeCrar. the government instituted

in the District Court of the United States for the

southern district of Ohio a civil suit under the same

section of the act. for the recovery of the ; penalty therein

provided. //liig v. Cnited Strtes, i88 U. S. 605. 610.

The title of the amendat act defines the general

isin of the levislation as follow Vs (32 Stat. pt. 1. p. 193):

An Act to make oleomargarine and other imi

tation dairy products subject to the laws of any

State, or Territory or the District of Colui untia into

which they are tra: isporte ‘d. and to char Ung » the tax

on oleom: ya rine, and to impose a tax, provide for

the inspection, and re sulate the manufacture and

sale of certain dairy products. and to amend an Act

entitled *An Act dctining butter, also imposing a

tax upon and regulating the manufacture, sale. im

a — 20456

portation. and exportation of oleomargarine, ap-

proved August second, eighteen hundred and

eighty-six.”

The act, as amended, consists of 21 sections. Sec-

tion 1 defines butter as follows (24 Stat. 209):

“That for the purposes of this act the word

‘butter’ shall be understood to mean the food

product usually known as butter, and which is

made exclusively from milk or cream, or both,

with or without common salt, and with er without

additional coloring matter.”

Section 2 defines oleomargarine as follows (24 Stat.

200):

“That tor the purposes of this act certain

manufactured substances, certain extracts, and

certain) mixtures and =~ compounds. —_ inclu-

ding such = mixtures and compounds — with

butter, shall be known and designated as

‘oleomargarine, namely: All substances hereto-

fore Known as olcomaryarine. olco, oleomargarine-

oil, butterine, Jardine. suine, and neutral; all lard

extracts and tallow extracts: and all mixtures and

compounds of tallow, beef-fat. suet. lard. lard-oil,

vegetable-oil. annotlo. and other coloring matter.

intestinal fat. and offal fat. woo fx tmitation er

semblance of butter, or when so made. calculated

er intended to be sold as butter er for butter.”

Section 3 imposes special taxes on manufacturers,

ee sae ee ee oe

wholesale dealers and retail dealers in oleomaryarine,

and section 4 prescribes heavy penalties for their non-

payment. Section 5 provides for regulation of the

| business of man acturing oleomargarine by the Com-

| missioner of Internal Revenue, places the conduct

of such business under * surveillance of officers and

agents © of the Commissioner, and requires each manu-

facturer to give a bond in the penal sum of not less

than five thousand dollars, which “may be increased

fow sie the weal internal devon lathe! sommtoniny: «

Candin MG too wine thee caine practi om Whe caver lelbe ll

the Feet ange aah,

Smee tian ae aemmocrtediesdl they sewrtiiowh 9 afl dhe swt afl Wey

~ The colkewamranhy: atin wlth cfhieill thee nes.

edactesed cod sah OL on

wher, Ghee tee cial thee “> po Fr me eph

Ca ces gar gaunertel, few Naeem

devas hesent: ed Me eee

ee juuhage abil he deewell ge 6 penned San ader

Wi. ahowmmargatinn i> iiu8 fia attthard cabin

tiek thet cous # he hah the dade of pe

| whade of sullen saad tas shell de ane heh af an

cond Jor pound,’

| Swetion » PW elle hott rose meee ol Rane e ae alles

S mungariee which has teve aSl er camel bo ats

. ~ withons the we ad the groguy Se

as CLL COs coi Ce enter i

Cilcrenss or gcewieiwe few aelMtitione ae he city. SmoteM oH gre

| title thee gecmadty jprediecliadlhy ivempencee!! te lve signee oe Bove

| > bellows (2g Same, 200)

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and raw material found on the premises, and by fine

not exceeding five thousand dollars and imprison-

ment for not more than three years. Section 18 pun-

ishes by a penalty of one thousand dollars, and _for-

feiture of all oleomargarine owned by the offender if he

be a manufacturer, all failures to comply with the act not ;

otherwise punished. Section 19 provides * that all fines,

penalties and forfeitures imposed by this act may be re-

covered in any court of competent jurisdiction.” Section

20 provides * that the Commissioner of Internal Rev-

enue, with the approval of the Secretary of the Treas-

ury, may make all needful regulations for the carrying

into effect of this act.” Section 21 of the original act

provides for its going into effect ninety days after its

passage, and the act, as amended (under the last section

of the act of May 9. 1902), went into effect on July 1,

1902.

On the trial of each case, it was contended by the

defendant that, in so far as this act imposes a tax of

ten cents per pound on olcomargarine containing

= RETR

* artificial coloration that causes it to look like butter of

any shade of yellow,” it was in contravention of the

Constitution of the United States and the amendments

thereto, because it constituted an invasion of the powers

reserved to the several States and deprived him and the

oleomargarine manufacturers and dealers in the United

States of liberty and property without due process of

law. In the CZf/and J/eCray cases it was contended also

that the act was unconstitutional in so far as it authorizes

the Commissioner of Internal RKevcnue “to decide

what substances, extracts, mixtures, or compounds ‘

which may be submitted for his inspection in con-

20458

—

‘

tested cases are to be taxed under this act,” and pro-

vides “ that his decision in matters of taxation under

this act shall be final,” on the ground that it dele-

gates to an inferior administrative officer the power

finally to determine an essentially judicial ques-

tion. Notwithstanding these contentions, judgment

was rendered in favor of the government imposing the

statutory penalty of fifty dollars in each case (Cliff

record, pp. 22-245 Schick record, pp. 19-215 Broadwell

record, pp. 19-21; WMeCray record, pp. 5-7). ‘There-

upon, the cases were brought direct to ihis court

by writ of error under authority of section § of

the judiciary act of March 3, 1891, as involving the

construction or application of the Constitution of

the United States and also as cases in which the

constitutionality of a law of the United States was

drawn in question. 20 Stat. $27, c 5173 Jlotes v.

United States, 178 U.S. 458; 406; Fairbank v. United

States, 181 U.S. 283, 254.

In the Cliff case, the Government showed that the

defendant was a eeneral grocer and retail dealer in

oleomargarine in Chicago; that on December 22, 1902,

he had in his possession a ten pound package of oleo-

margarine of a color resembling June butter and bearing

a tax-paid stamp at the rate of one-fourth of one cent

per pound; that the article was composed of oleo

oil, neutral lard, cotton-seed oil, milk, common sait and

palm oil; that the color of June butter was imparted

to it by the palm oil it contained; that the oleomarga-

rine had been manufactured in the month of Decem-

ber, 1902, by Wm. J. Moxley, Incorporated, factory

No. 5, at the corner of Clinton and Randolph Streets,

SG ERGO EE BT 8

Bhat Nabe SUE T LENA AON Gg a |

ih labia icra ibid ssa 0

in the City of Chicago, State of Illinois; that the pack-

age was put up, marked, stamped and branded in every

respect in accordance with the acts of Congress relating

to oleomargarine and the regulations of the Secretary

of the Treasury and the Commissioner of Internal

Revenue except that it bore only a tax-paid stamp of

one-fourth of one cent per pound, and that the defend-

ant admitted to the collector at that time that he pur-

chased and received from the Moxley Company the oleo-

margarine in question for the purpose of sale as oleo-

margarine, knowing its character and ingredients and

the amount of tax paid thereon (CZ record, p. 8).

Inthe Schick case substantially the same showing was

made, except that it appeared that the package of oleo-

margarine involved in that case admittedly contained

‘artificial coloration,’ namely, Wells-Richardson’s Im-

proved Butter Color, and that the packave bore only a

tax-paid stamp at the rate of two cents per pound (Schick

record, p. 8).

In the Broadwell case the same showing as in the

Schick case was made, except that the package of oleo-

margarine bore no stamp and no tax had been paid on

it (Broadwell record, p. 8).

The operation and effect of the act were shown by

undisputed evidence offered and adduced on behalf of

the defendant in each case, as follows:

Oleomargarine is designed to be used as a substitute

for butter and to that end is colored as butter is

colored. There is substantially no difference between

yellow olcomaryarine and yellow butter. They are

identice! as to the chemical elements of each, except

only a slight difference in proportion. They each con-

tain olein, stearin, palmatin, butyrin and coloring matter.

The first three elements olein, stearin and palmatin,

are the principal components, are exactly the same in

oleomargarine and butter, and constitute more than

go per cent. of the finished product in both cases.

The amount of butyrin varies slightly, being about six

per cent. in good butter, and somewhat less in oleomar-

garine, depending upon the amount of milk, cream or

butter used in its manufacture, as butyrin is found only in

milk, cream or butter. The amount of coloring matter in

butter varies at different periods and according to the con-

dition and food of the cows. It is universally colored

throughout the year to a uniform-shade of yellow, but

requires more color in the winter, when it is white, than

in the spring, when it has some natural color, especially

if the cows have been fed on green grass or clover.

There is nothing, however, in these slight differences

which renders butter more wholesome or digestible

than oleomargarine as an article of food, and

the coloring matter used in both cases is harmless.

Yellow oleomargarine and yellow butter are used tor

the same identical purpose, and compete with each

other in the market. The reason for coloring these

products is the same in both cases: because the

consumers demand it. A necessary element of the

marketability of each is a certain shade of yellow which

must be imparted to the product before it can be sold.

There is no market either for uncolored oleomargarine

or uncolored butter, except, in the case of oleomar-

garine, as a substitute for lard, and, in the case of butter,

a small quantity of sweet unsalted butter is sold to sup-

ply the Jewish settlements. It costs less to produce

1¢

oleomargarine than it does to produce butter, and to this

extent, oleomargarine successfully competes with and

tends to cheapen butter; »dut this difference in cost

is not great enough to enable the colored oleomargarine

to be sold after paying the tax of ten cents per pound

except occasionally when the price of butter is abnor-

mally high (CZ record, pp. 8-21; Schzck record, pp.

8-19; Broadweli record, pp. 8-19).

Prior to July 1, 1902, when the act of May 9, 1902,

went into effect, the business of producing and _ selling

yellow oleomargarine had been able to compete with the

yellow butter industry to a very considerable extent. It

was shown that the Moxley plant, at which the packages

involved in these cases were manufactured, had been

in operation since 1884, supplying the trade in various

parts of the United States with yellow oleomar-

garine designed to be used as a_ substitute for

butter, and had grown to a capacity of between three

and four million pounds per month. Prior to July 1,

1902, the entire output of this factory was all artificially

colored as butter is colored. Thereafter, it could not

be manufactured and sold at a profit after paying the tax

of ten cents per pound, and for the first five months none

of the colored article was produced or sold. In Decem-

ber, 1902, owing to the abnormally high price of butter,

the Moxley Company was enabled to sell 37,594 pounds

of colored oleomargarine, as compared with an output of

about 2,000,000 pounds per month prior to July 1; but

when butter fell again to its normal price, oleomaryarine

bearing the tax of ten cents per pound was practically

unable to compete with it. The uncolorea product,

so far as could be ascertained, was sold for cook-

ing purposes, but only in comparatively small and

uncertain quantities, because the relative cost of

production was such that oleomargarine could

not ordinarily compete with lard, although more

desirable than lard for cooking purposes (Cif

record, pp. 18-20). Amundsen, a retail dealer

in Chicago, who obtained his supplies from this factory,

had worked up a business among the laboring classes of

Chicago amounting to sales of 2,600 pounds per week.

‘The customers * knew that it was oleomargarine and not

buiter and they bought it because it was cheaper than

butter’ (26. p.17). But when the ten cent tax was to be

paid it was cheaper to buy butter, and they would not

have the uncolored article. As a consequence, to quote

the witness, ‘every customer I had quit” (7d.). There-

after, he supplied a part of the trade with butter for

table use, selling white oleomargarine only for cooking

purposes (26. pp. 16-17). Izard, a restaurant proprietor

in Chicago, furnished yellow oleomargarine almost ex-

clusively to his patrons, who had no objection to it so

long as it had the proper color. After July 1, 1902, he

could not use it because it was white and the addition of

ten cents per pound to the price of colored oleomar-

garine resulted in the use by him of colored butter

almost exclusively. The uncolored oleomargarine he

could use only for cooking in place of lard (26. pp.

17-18).

In the Cif and MWceCray cases, where the package

was tax-paid at the rate of one-fourth of one cent

per pound, there was an additional question as to

whether the package contained ‘artificial’ coloration

within the meaning of section 8 of the act by reason of

Goer: . ¥

the admixture of palm oil or colored butter. Upon this

issue also the facts were undisputed. In the C/f case,

the government showed that the article was of the color

of June butter, and that this color was imparted to

it by the admixture of palm oil in its manufacture

(Cif record, p. 8). The defendant showed by compe-

tent testimony that palm oil is a vegetable oil derived

from the fruit of a certain kind of palm which grows

in East Africa, that it is a digestible and edible

oil, containing all the chemical constituents of butter,

except butyrin, that it is used by the natives of

the country where it is produced as an article of

food, that it is reddish-yellow in appearance and a

very small proportion of it is sufficient to produce

what is considered a desirable color in oleomargarine,

that there is little, if any, difference between the

taste of oleomargarine made in this way and _ the

taste of butter. that it is quite as digestible as

butter and is very cheap, that the oleomargarine

thus produced is substantially the same product as

good butter, and that the nature of palm oil is such

that, by the process of refining, its intense color may be

partially eliminated, thus rendering its use in consider-

able quantities desirable in the manufacture of oleomar-

garine apart from its yellow color (zd. pp. 10-13). These

facts being wholly undisputed, the conviction was

based on the assumption that the question thus pre-

sented had been foreclosed by the final decision of the

Commissioner of Internal Revenue, who had ruled that

palm oil in oleomargarine does constitute ‘ artificial ’

coloration (7. pp. 9, 10), and had instructed the prose-

cuting witness, a Deputy Collector of Internal Revenue,

that its use would subject the product to the tax of ten

cents per pound (2d. p. 8).

In the J/Cray case the government alleged in its

complaint that the defendant had purchased for sale

as a retail dealer a package of oleomargarine con-

taining ‘“‘coloring matter that caused it to look like

butter of a certain shade of yellow,” and bearing

a tax-paid stamp at the rate of only one-fourth of one

cent per pound (J/cCray record, p. 2). These allega-

tions were admitted by the defendant, who averred

by way of defense that the coloring matter contained

in the article was that contained in the creamery

butter used by the manufacturer of the oleomargarine

as one of its elementary and necessary ingredients,

according to a formula used in the course of business,

which creamery butter contained Wells-Richardson’s

improved butter color, a harmless substance, universally

used in the United States in the manufacture of butter,

for the purpose of imparting a deep yellow color,

that said creamery butter was purchased in the open

market for said purpose, that no additional or other

coloring matter of any kind whatsoever was used or

introduced into said oleomargarine, that said oleomarga-

rine contained nothing but oleo oil, neutral lard, cream-

ery butter, milk, cream and common salt, and was whole-

some and nutritious and free from any deleterious or in-

jurious ingredient; that said package had been “ packed,

marked, stamped, branded and labeled, in compliance

with all the provisions of said acts and with all the

regulations thereunder prescribed by the Commissioner

of Internal Revenue and the Secretary of the Treasury,”

that “the cost of manufacture of the wholesome and

OR EE EMR IO

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nutritious oleomargarine like that contained in said

package is such that it cannot be sold in competition

with butter if the tax of ten cents per pound be imposed

and paid,” and that there is little demand in the United

States for either uncolored butter or uncolored oleo-

margarine (2d. pp. 3-5). These facts were admitted by

the demurrer of the government which the court sus-

tained (7d. pp. 6, 7).

The historical facts concerning oleomargarine will

be found in Encye. Brit., vol. 17, p. 760; Century

Dict. & Cyc., vol. 5, p. 4101; Oleomargarine Regula-

tions, U.S. Int. Rev., June, 1902, pp. 11-15; ‘ The

Oleomargarine Bill” (Gov. Print., 1901), resumé pp.

815-885; People v. Marx, 99 N. Y. 377, 382-383:

Feople v. Arensberg. 105 N.Y. 123, 129-132; People ex

rel. Moxley v. Pease, 30 Chicago Leg. News, No. 34;

Ex parte Scott, 66 Fed. Rep. 45. 48; Schollenberger v.

Pennsylvania, 171 U.S. 1, 8-12: ln re Brundage, 96

Fed. Rep. 963, 965.

Shortly after the Franco-Prussian war of 1870-1871,

the French government decided that it was of the

utmost importance that some cheap and wholesome sub-

stitute for butter should be discovered for the relief of

the poor in the great cities and manufacturing centers

who were unable to obtain butter. To that end a prize

was offered to scientists, and the result was the invention

of oleomargarine by M. Mege-Mouries (Encyc. Brit.,

Vol. 17, p.760). This invention was immediately recog-

nized and hailed as a boon to humanity, and soon sprang

into use all over the world. It was at first made by

treating pure beef fat by acertain process. Afterwards,

in order to make the product more wholesome and

SO46E

digestible as well as more palatable, various modifications

in the process were from time to time introduced. The

present method is to take selected fat of the steer, re-

duce it to oil, which is called ‘oleo oil,’ and then mix

and work this oleo oil with natural lard, milk, cream and

butter. Oleomargarine furnishes a very valuable by-

product of the slaughter houses and packing establish-

ments, and the effect has been to utilize what had before

gone to waste, to increase the value of beef cattle and to

decrease the price of butter. It has practically no com-

mercial use or value, except as a cheap and wholesome

substitute for butter and as such it necessarily competes

with butter. If it is not allowed to be used as a

substitute for or to compete with butter, the discovery

is of no practical utility to mankind.

The commercial character of oleomargarine is de-

scribed by Mr. Justice Peckham in the case of Schollen-

berger v. Pennsylvania, 171 U.S. 1, 8-12. The growth

and extent of the use of oleomargarine in every

civilized country is part of the common history of the

times. The official records of the United States govern-

ment show that the output during the twelve months

ending June 30, 1900, amounted to 107,045,028 pounds,

an average of 8,920,419 pounds per month, and that

a the revenue collections from oleomargarine in 1900

were $2,543.785.! On the other hand, the same records

show the yearly sales of butter to have been 1,492,699,-

143 pounds;? so that the production of oleomargarine

was only about seven per cent. of the amount of butter

manufactured. As oleomargarine was invented and is

’ Senate Doc. 168, 57th Cong., Ist session.

° Twelfth Census, 1900, vol. 1X, Manufactures, pt. III, p. 517.

pars mm

used commercially almost wholly as a_ substitute

for butter and in competition with butter, it is

desirable that its flavor and color should be similar to

the flavor and color of butter, and hence the necessity

for the use of flavoring and coloring matter, being the

same as that used to color and flavor butter. Oleo-

margarine is colored yellow for exactly the same reason

that butter is colored, namely, to meet the taste and

demand of the public.

In 1886 Congress determined to tax oleomargarine

and regulate its manufacture. The act of August 2,

1886, contained a definition of oleomargarine and of

butter which recognized the use of coloring matter as an

element in the manufacture of both articles. It treated

all oleomargarine, no matter how colored, as one article

for the purposes of taxation. The tax then imposed

was at the rate of two cents per pound, and between

November 1, 1886, and the close of the year 1901

more than $21,000,000 had been paid as_ taxes

under this law. The act of Congress of May 9,

1902, does not change these definitions, but oleo-

margarine is classified according to color, and that * free

from artificial coloration that causes it to look like but-

ter of any shade of yellow” is taxed at one-fourth of

one cent per pound, while that containing “ artificial

coloration that causes it to look like butter of any shade

of yellow,” is taxed at ten cents per pound, or forty

times as much.

The discussion in this briet will proceed upon the face

of the act of Congress in question and its undisputed

practical operation and effect, which is to prohibit

the sale of yellow oleomargarine. No quotations will

be made from the debates in which the real purpose

of the enactment may have been declared by indi-

vidual members, because counsel are apprehensive that

such debates are not admissible. Avowlton v. Moore, 178

U.S. 41,72. Under the decisions, the question is most

perplexing. The court frequently does refer to these

debates for information, and yet has often declared that

they are not admissible to show purpose or motive or to

determine the intention of particular legislation. The true

rule appears to be that debates may be referred to in

order to show the occasion for the legislation and the

circumstances surrounding its enactment, but not in

order to ascertain the individual motives or purposes of

its promoters or to control the meaning of the language

used. As, in the present cases, reference to the de-

bates would involve a showing of individual motives

and purposes calculated, as it might be charged, to ex-

cite prejudice and sympathy, which counsel are not

satisfied constitute proper elements in the strictly legal

judgment which the court is required to render, they

will not be referred to in argument. It is enough to say

that the supposed * exigencies which led to the passage

of the act” and “the reasons for fixing the duty at this

amount’ may be ascertained by examining the de-

bates.!_— If the court shall reach the conclusion that it will

consult these evidences of leyislative intent and purpose,

the references in the margin may be of convenience.?

"American Net & Twine Co. \. Worthington, 141 U.S. 468, 474; Al-

dridgev. Wrliams, 3 Yow. 9, 24; Jeantso a NV. Avrh, 98 U. S. 453. 459;

Plattv. Union Pacific R. R. Co., 99 U.S. 48, 64. See also //oly Trinity

CRUELE v. Untted States, 143 U.S. 457, 463; Zhe Delaware, 161 U. §.

459. 472; Duilap v. United States, 173 U.S. 65. 75. United States v.

Vretght . Asso dation, 166 U. S. 290, 318, 360.

? Cong ressional Record, 57th Cong., Ist sess., vol. 35, part 2, pp. 1251

ef Seg., 1299, 1310, 1544; part 3, pp. 3192, 3195, 3196, 3246, 327 O- 3274,

3280, 3322, 3452, 3458, 3406, 3467, 3499-3514, 3556, 3595-3597-

‘AAU ot NTS aria raat peer «iF

A ost Ree Gat

SRE Tg SO Tt

ASSIGNMENT OF ERRORS.

Error in refusing to hold that the provisions of the

act of Congress of August 2, 1886, as amended by the

act of Congress of May 9, 1902, were in contravention

of the Constitution of the United States and the amend-

ments thereto, in that—

(1) They constitute an encroachment upon and inter-

ference with the powers reserved to the several

States;

(2) They deprive the plaintiffs in error of liberty and

property without due process of law;

(3) They invest an administrative officer with the

power finally to determine essentially judicial ques-

tions.

Error in striking out and refusing to consider proper

evidence offered and received on behalf of the defend-

ants below in the first three cases, tending to prove:

(1) That oleomargarine is a substitute for and com-

petes with butter, that the market demand for and

commercial value of both butter and oleomargarine re-

quire that they shall havea certain shade of yellow during

all seasons of the year, and that there is practically no

market either for uncolored butter or uncolored oleo-

margarine;

(2) That the cost of production of oleomargarine is

such thai, after payment of a tax of ten cents per pound

thereon, it cannot be sold.

The questions presented under these assignments of

error may be classified for the purposes of argument

under the following heads, viz.:

PS th

pa sea arg 8 TI : j > 4a SOAR

Re - we NS oe

I. The power of Congress to levy excise taxes on manufac-

tures (pp. 19-28).

Il The internal commerce of the States and the exercise

of the taxing power by Congress (pp. 28-52).

Ill. The restrictions upon the taxing power contained in

the Fifth Amendment (pp. 52-70).

IV. The provision of section 14 of the act conferring

judicial power upon the Commissioner of Internal

Revenue (pp. 70-75).

V. Effect of the invalid amendment upon the original act

(pp. 75-76).

THE POWER OF CONGRESS TO LEVY EXCISE TAXES ON MANUFAC-

TURES.

The Constitution of the United States grants to

Congress (Art. I, sec. 8) “the power to lay and collect

taxes, duties, imposts and excises, to pay the debts and

provide for the common defense and general welfare of

the United States,” and directs that capitation and other

direct taxes shall be laid in proportion to the census or

enumeration, and that duties, imposts and excises

shall be uniform throughout the United States. Sub-

ject to these two directions, which are not strictly

limitations of power but rules prescribing the mode in

which the power shall be exercised.! the only express

limitation in the Constitution, as originally adopted, was

that no “tax or duty shall be laid on articles exported

from any State.”’?

An examination of the debates in the various conven-

tions to which the Constitution was submitted for ratifi-

cation and of the writings of that time will show that the

subject of federal taxation and the danger of oppression

from its exercise was discussed as much as any other fea-

* Chief Justice Chase in Veazée Pank v. Fenno, 8 Wall. 533, at p. 541.

? Art. 1, sec. 9; Fazrdank v. United States, 181 U.S. 283, 290.

OCD PR CME

SERRA A ARE EOE

ture, and that some of the States apprehended particular

injury from the power to levy excises on manufactures

and commodities. It was particularly objected by the

opponents of the Constitution that Congress was given

power to pass any law which it thought necessary and

proper in aid of the powers granted to it. The answer

of Hamilton in the Federalist was that Conyress could

not by its mere declaration make that necessary and

proper to the execution of its powers which, in its

essence, was not necessary and proper. His language

was (Ford's ed. No. 78, p. 521):

“If it be said that the legislative body are

themselves the constitutional judges of their own

powers, and that the construction they put upon

them is conclusive upon the other departments, it

may be answered that this cannot be the natural

presumption, where it is not to be collected from

any particular provisions in the Constitution.

It is not otherwise to be supposed that the

Constitution could intend to enable the repre-

sentatives of the people to substitute their will to

that of their constituents. It is far more rational to

suppose that the courts were designed to be an

intermediate body between the people and

the legislature, in order, among other things,

to keep the latter within the limits assigned to

their authority. The interpretation of the laws is

a proper and a peculiar province of the courts. The

Constitution is, in fact, and must be regarded by

the judges, as the fundamental law. — It, there-

fore, belongs to them to ascertain its meaning, as

well as the meaning of any particular act proceed-

ing from the legislative body. If there should

happen to be an irreconcilable variance between

the two, that which has the superior obligation and

validity ought, of course, to be preferred; or, in

other words, the constitution ought to be preferred

to the statute; the intention of the people to the

intention of their agents.”

ces SRE ES FE

2s & See SS Nae al :

Notwithstanding this assurance, destined as it was

to become an elemental feature of our constitutional

jurisprudence, ! it is well known that the consent of the

people in the necessary number of States was secured

only upon the pledge that amendments recognizing the

reserved powers of the States and protecting the indi-

vidual against the abuse of the powers granted to the

national government would be forthwith submitted.

Barron v. The Mayor and City Council of Baltimore,

- Pet. 243, 250. In pursuance of this pledge. the first

Congress (1 Stat. 97; Rev. Stat. p. 28, note) proposed

the first ten articles of amendment to the Consti-

tution, “in order,” as recited in the preamble of

the resolution, “* to prevent misconstruction or abuse

of its powers” and for the purpose of adding ** declara-

tory and _ restrictive clauses.” Of these restrictive

clauses, the Fifth Article provides that “ no person shall

be deprived of life, hberty or property, with-

out due process of law,” and the Tenth Article provides

that “the powers not delegated to the United States

by the Constitution nor prohibited by it to the States,

are reserved to the States respectively, or to the people.”

These amendments are clearly to be regarded of equa

force and validity with the provisions of the Constitution

itself. As Mr. Justice Shiras, speaking for the court in the

recent case of Prout v. Starr, 188 U.S. 537. 543) 544 said:

“The Constitution of the United States, with

the several amendments thereof, must be regarded

as one instrument, all of whose provisions are to

be deemed of equal validity. . . .

l Varbury v. Madison, 1 Cranch, 137, 176-1795 McCulloch v. State of

Moryland, 4 Wheaton, 316, 421, 423; Hepburn v. Griswold, 8 Wall. 603,

614,615; Smyth v. Ames, 169 U.S. 466, 5273 Matter of Application

of Facobs, 98 N. Y. 98, 112.

yet

paleo

ie a Radin Seale ai riage ie cite boli pe Sas

It is one of the important functions of this

court to so interpret the various provisions and

limitations contained in the organic law of the

Union that each and all of them shall be respected

and observed.”

But whether the Fifth and Tenth Amendments con-

stitute limitations upon the taxing power of Congress

has never yet been expressly adjudged. The wise rule

of our system of jurisprudence which confines adjudi-

cations by the courts to actual cases as they arise from

time to time, has made the growth of American constitu-

tional law extremely slow, and novel exercises of govern-

menta! power are constantly presented which require a

renewed exposition of fundamental principles and a re-

examination of the distribution of governmental powers

contained in the Constitution.! For centuries, the

principics of the common law have been growing by

slow steps to maturity and symmetry, evolving rules of

private justice as between man and man, and it is,

therefore, hardly astonishing that the growth of consti-

tutional jurisprudence also should be by slow and cau-

tious steps in the application to individual cases of

the eternal principles of public justice embodied in the

Consiiiution which protect personal liberty and prop-

erty against the abuse of the powers of government.

Although the Constitution has been in operation for one

hundred and fourteen years, this court has not yet ad-

judged whether there are any qualifications of the power

of Congress to levy taxes other than the rules of ap-

portionment and geographical uniformity, except in

so far as the instrumentalitics of the state govern-

ments are concerned.? Indeed, it was not until

' Leleus vy. Port f Motil. » Ring it. Ss, 4 t0, 638.

Company, 17 Wall. 322, 327; Van Brocklin v. State of Tennessee, 117

May, 1900, in the case of Knowlton v. Moore, 178

U. S. 41, 92, that the true meaning of the provision

“uniform throughout the United States” was def-

initely settled to be geographical uniformity.! In

the later case of Wight v. Davidson, 181 U.S. 371;

377, Mr. Justice Shiras stated in the opinion of the

court, referring to a federal statute, that “ the consti-

tutional right against unjust taxation is given for the

protection of private property,” but did not discuss

what provision of the Constitution secured that right.?

And still later, in the case of Yatton v. Brady, 184 i,m

608, 622, we find Mr. Justice Brewer stating that the

rule of geographical uniformity was the only limitation

imposed upon Congress by the framers of the Constitu-

tion and the people who adopted it in respect of the

power to lay excise taxes. Yet, it cannot be supposed

that this language was intended to recognize the

existence of an unresirained taxing power, in view

of the dissent of the learned Justice in Knowlton v.

Moore, 178 U.S. 41, 110.

From the statement of facts, it appears that the inquiry

‘a each of the cases at bar is confined to the validity

of the act of Congress of May 9, 1902. in so far as

it operates upon the internal commerce of the States of

Illinois and Ohio. ‘The oleomargarine in question was

manufactured and sold in Illinois and Ohio by residents

of those States and the transaction was confined tu

U.S.151, 178; Mercantile Bank v. New York, 121 U.S. 138, 162; /a-

come Tax Cases, 137 U.S. 429, 5845 Plumer v. Coler, 178 U.S. 115,

117; Ambrosini v. United States, 187 U. S. 1,7, Sayder v. Bettman, 190

U. S. 249, 253-

‘See, however, Mr. Justice Field's discussion of the provision in

Income Tax Cases, 157 U.S. 429, at p. 592 ef seg.

2 See also Parsons v. District of Columbia, 170 U.S. 45, 51.

Bo erase cule

oe ee ee

se)

Dee DPR NS ne SMR in Ne SME TR TOY eG SEN

the internal commerce of each State. It is, of course,

settled that Congress was not delegated any power

whatever to regulate the internal commerce of the

States, and that the regulation of such commerce

was expressly reserved to the States by the Tenth

Amendment. Gvbéons v. Ogden, 9 Wheat. 1, 194, 203;

License Cases, 5 How. 504. 574, 599; Vassenger Cases, 7

How. 283, 400; License Tar Cases, 5 Wall. 462, 470-471;

United States v. Dewitt, 9 Wall. 41, 44; Trade-Mark

Cases, 100 U. S. 82, 96-97: United States v. E. C.

Knight Co.,156 U.S. 1,12, 13. That the police power

never was surrendered by the States is also a proposition

that need not be argued. It is ‘conceded in all the cases.”

New Orleans Gas Co. v. Louisiana Light Co., 115 U.S.

650, 661; seealso Sn ve Rahrer, 140 U.S. 545,554. 556;

Plumley v. Massachusetts, 155 U.S. 461, 472; United

States v. E. C. Knight Co., 156 U.S.1, 11, 13; Connolly

v. Union Sewer Pipe Co., 184 U. S. 540, 558. Andthe

act now before the court, if grounded upon the attempt

to regulate the manufacture of dairy products and oleo-

margarine and their sale in the internal commerce of the

States, would be clearly beyond the powers of Congress

and unconstitutional. Uzy7tead States vy. Dewitt, 9 Wall. 41,

45; United States v. Fox, 94 U. S. 315, 320: Zrade-

Mark Cases, 100 U. S. 82, 96; Covington, Ce.

Bridge Co. v. Kentucky, 154 U.S. 204, 210; United

States v. E. C. Knight Co., 156 U.S. 1, 12. 13; United

States v. Boyer, 85 Fed. Rep. 424, 432.

The provisions of this act, so far as they affect the

internal commerce of a State, can, therefore, only be

sustained under the power of Congress to tax and to

employ necessary and proper means for carrying that

power into execution. It follows that the exact ques-

tion presented in the cases at bar is whether Congress

may prohibit the internal manufactures of the States

by means of a prohibitive tax.

The power of Congress to exclude any commodity

from interstate commerce or to lay a prohibitive ex-

cise tax upon articles transported between States in

order indirectly to accomplish that end, need not now

be discussed. It will be time enough to consider the

subject when a case actually involving that momentous

question shall arise, for it would be difficult to suggest

one of a graver character or the decision of which would

be more far-reaching. Nevertheless, we may remark,

‘nthe language of Mr. Justice Harlan, delivering the

opinion of the court in the recent Lottery Case, 188

U.S. at pp. 362-363:

“ The power of Congress to regulate commerce

among the States, although plenary, cannot be

deemed arbitrary, since it is subject to such limita-

tions or restrictions as are prescribed by the Con-

stitution. This power, therefore, may not be

exercised so as to infringe rights secured or pro-

tected by that instrument. It would not be diffi-

cult to imagine legislation that would be justly liable

to such an objection as that stated, and be hostile

to the objects for the accomplishment of which

Congress was invested with the general power

to regulate commerce among the several States.”

Nor. as to foreign commerce, is there any need to chal-

lenge or doubt the unlimited power of Congress to

exclude or prohibit, and, as a means to that end,

to lay prohibitive duties. Its authority to do so

does not rest upon the taxing power, for even if the

national government had no powcr to tax, its power

Jacana aie REE NG” MeN te SO EO oe eee

to regulate foreign commerce and international rela-

tions would be broad enough to support prohibitory

duties on imports. No one has ever doubted that

a governmental power to regulate international trade

included the power to tax it as a means of regulation.

The American colonies did not deny the authority of

the British Parliament to tax them as a regulation of

commerce. The War of the Revolution was precipitated

because Parliament sought to use this power for another

object, namely, the raising of revenue as such.'

It may, therefore, be conceded that Congress, under

the plenary power to regulate our relations with foreign

countries, can exclude commodities of any nature

whatsoever, and levy prohibitive taxes or protective

duties to accomplish that object. The power of Con-

gress—the legislative power of a sovereign nation—

to exclude foreign persons or commodities in_ its

judgment and discretion need not be challenged in the

slightest degree. But no one would seriously suggest

that any class of American citizens could be excluded

or deported under the same power which enables Con-

gress to exclude or deport aliens. United States

v. Wong Kim Ark, 169 U.S. 649, 653. When we say

that Congress may exclude or deport foreigners or their

products or publications from the United States, or

pass a non-intercourse law, or place an embargo upon

foreign ships or manufactures, we are but recognizing

the ancient doctrine of international law that an alien

and an alien's property come into the territory of a

sovereign nation only by its sufferance, and may be

1 Gibbons v. Ogden, 9 Wheat. 1, 199, 202

ee oe

excluded at its will.’ And whether the exclusion be for

the purpose of self-defense, or as an incident to the

regulation of imports or commerce, oF otherwise,

the right to exclude or deport or prohibit is as much

the sovereign’s prerogative as the power to make

treaties giving to foreigners the privilege of abiding or

of bringing or selling their goods or publications within

the sovereign’s domain. That this attribute of sover-

eignty has been surrendered by and does not belong to

the States cannot for a moment be doubted, for the

Siates are expressly forbidden to enter into any form

of treaty.”

in Cooley on Taxation, the distinguished author well

says (at pp. I1, 12, 13):

“In the laying of taxes, one purpose had in view

may be to encourage one branch of industry or

trade, though at the expense of others; as where a

tax is laid upon certain fabrics received from abroad

by the exchanges of commerce for the sake of

encouraging the domestic producer of similar

articles, on whose industry the tax operates as a

bounty. Such a burden, however, may be so

heavy that the market will not warrant its being

paid, and in such case, instead of producing reve-

nue, it merely precludes importation. But a law

which, under the name of taxation, has for its

purpose only to embarrass and, perhaps, to

destroy a certain branch of commerce, if en-

acted by a State, would look to the general

police power for its justification; and, if enacted

by the general government, would seem more

properly to derive its force from the authority con-

ferred upon the government to regulate commerce,

TY Nishimura Ekiu v. United States, 142 U.S. 651, 659; Fong Yue Ting

vy. United States, 149 U. S. 698, 707, 712; United States v. Brigantine

“ William,” 2 Hall’s Am. Law Journal, 255; Gzbbens v. Ogden, 9 Wheaton,

1, 191, 192.

2 Section 10 of Article I of the Constitution of the United States.

CORALS LESNAR AS RS tc kas RRR

Fe SAIS PS

Stet SP ah ed aan

Won een ES SE

Pee aaa

PES

and the intercourse with foreign countries, than to

an authority conferred for revenue purposes, which

such a law would not aim or tend to sub-

serve. . . . As no one will pay the tax

who does not expect to be reimbursed the

expense from the profits of sales, it is ob-

vious that the heavier the tax the fewer can

afford to pay it, and it may be made so heavy that

no one can afford to pay it, and then it becomes

prohibitory. A tax laid for the double purpose of

regulation and revenue must be grounded in both

the police and the taxing power; but the grant of

a power to tax would not authorize the imposition of

a burden in its nature and purpose prohibitory.”

Il.

THE INTERNAL COMMERCE OF THE STATES AND THE EXERCISE OF

THE TAXING POWER BY CONGRESS.

In the cases at bar, the court is called upon to con-

sider what purports on its face to be a tax law, but

which, it is contended, constitutes the imposition of a

burden in its nature and purpose prohibitory of the

internal commerce of the States in a recognized article

of commerce. !

There can be no reasonable doubt that any statute

of Congress which purported on its face to prohibit

internal commerce in oleomargarine would be declared

by this court to be unconstitutional and void on the

ground that it sought to accomplish an object not en-

trusted to Congress and invaded the powers reserved

to the States.2_ It is now to be determined whether

Congress may nevertheless accomplish this forbidden

object and thereby under the form of a tax law, do indi-

rectly what it could not do directly.

" Schollenberger v. Pennsylvania, 171 U.S. 1, 8.

? United States v. Dewitt, 9 Wali. 41, 43 -45; Trade-Mark Cases, 100

U. S, 82, 96; United States v. F.C. Knight Co., 156 U.S. 1, 11-13.

See eatiatiateaiainde . . a

If the object of the act be legitimate taxation, the

excise in question is concededly within the constitu-

tional powers of Congress; but if, under the pretext of

laying an excise on manufactures, the object sought

to be accomplished is to prohibit or destroy the manu-

factures and internal commerce of the States, then it is

submitted that the legislation is not legitimate taxation

at all and is beyond the authority delegated to Con-

gress and conilicts with the powers expressly reserved

to the States.

Chief Justice Marshall in McCulloch v. Maryland,

4 Wheat. 316, 421, 423, among other things said:

“ Let the end be legitimate, let it be within the

scope of the Constitution, and all means which are

appropriate, which are plainly adapted to that end,

and which are not prohibited, but consist with the

letter and spirit of the Constitution, are constitu-

tional. . . +. Should Congress, in the execu-

tion of its powers, adopt measures which are pro-

hibited by the Constitution; or should Congress,

under the pretext of executing its powers, pass

laws for the accomplishment of objects not entrusted

to the government, it would become the painful

duty of this tribunal, should a case requiring such

4 decision come before it, to say that such an act

was not the law of the land.”

The settled doctrine of this court is that whatever may

» be the motive or pretext or guise of a statute, or in

whatever language it may have been framed, its pur-

pose and its validity must be determined by its natural

and reasonable effect to be ascertained from the prac-

tical operation of its provisions.

Thus. in Henderson v. Mayor of New York, 92 U.S.

259, 268, Mr. Justice Miller, delivering the unanimous

opinion of the court, among other things, said:

SpA TARE TELE L ; ee

In whatever language a statute may be framed,

its purpose must be determined by its natural and

reasonable effect; and if it is apparent that the

object of this statute, as judged by that criterion, is

to compel the owners of vessels to pay a sum of

money for every passenger brought by them from

a foreign shore, and landed at the port of New

York, it is as much a tax on passengers if collected

from them, or a tax on the vessel or owners for the

exercise of the right of landing their passengers in

that city, as was the statute held void in the /as-

senger cases. To require a heavy and almost im-

possible condition to the exercise of this right,

with the alternative of payment of a small sum of

money, is, in effect, to demand payment of that

sum.

IDR i PDA SAE Sat: ADRENERGIC

Mr. Justice Miller in Morgan v. Louisiana, 118 U.S.

j 455. 462, again referred to this point in the following

language:

‘In all cases of this kind it has been repeatedly

held that, when the question is raised whether the

4 State statute is a just exercise of State power or is

i intended by roundabout means to invade the

4 domain of Federal authority, this court will look

: into the operation and effect of the statute to dis-

' cern its purpose. See //enderson v. Mayor of New

4 York, 92 U.S. 259; Chy Lung v. Freeman, 92 U.

‘ S. 275; Cannon v. New Orleans, 20 Wall. 577.”

In construing a state statute applicable to oleomar-

garine, Mr. Justice Peckham in Collins v. New Hamp-

shire, 171 U.S. 30, 33,34, speaking for the court, said:

‘The direct and necessary result of a statute

must be taken into consideration when deciding as

to its validity, even if that result is not in so many

words either enacted or distinctly provided for. In

whatever language a statute may be framed, its

purpose must be determined by its natural and

reasonable effect. Henderson v. Mayor of New

York, 92 U. S. 259; Morgan's Steamship Co. v.

ert "Wt ideale — —

ES bp

Louisiana, 118 U.S. 455, at 462. Although under

the wording of this statute the importer is per-

mitted to sell oleomargarine freely and to any €x-

tent, provided he colors it pink, yet the permission

to sell, when accompanied by the imposition of a

condition which, if complied with, will effectually

prevent any sale, amounts in law to a prohibition.”

Indeed, as Mr. Justice Harlan said, in Mugler v.

Kansas, 123, U. S. 623, 661:

“The courts are not bound by mere forms, nor

are they to be misled by mere pretences. They

are at liberty-—indeed, are under a solemn duty—

to look at the substance of things, whenever they

enter upon the inquiry whether the legislature has

transcended the limits of its authority.”

And Mr. Justice Brewer in Fairbank v. United States,

181 U. S. 283, 294, 295, 300, speaking of the decision

in Woodruff v. Parham, 8 Wall. 123, used the fol-

lowing language:

“In other words, that decision affirms the great

principle that what cannot be done directly because

of constitutional restrictions cannot be accomplished

indirectly by legislation which accomplishes the

same result. . - . The form m which the

burden is imposed cannot vary the substance. . - -

Constitutional provisions, whether operating by

way of grant or limitation, are to be enforced ac-

cording to their letter and spirit. and cannot be

evaded by any legislation which, though not in

terms trespassing on the letter, yet in substance

and effect destroy the grant or limitation.”

Agr

, In Postal Telegraph Cable Co. v. Adams, 155 U. S.

f 688, 698, Mr. Chief Justice Fuller said, speaking of

taxation:

F “ The substance and not the shadow determines

j the validity of the exercise of the power.

BVapee noe Fe

OEE Bie EN AL aa as He iS as SMM ieee

aay

surge Nant i art eg

ty OE Pe ee Peat sath a

| er ee ide HAG ER Dees

And again in Pollock v. Farmers’ Loan & Trust Co,

157 U.S. 429, 581:

“If it be true that by varying the form the sub-

stance may be changed, it is not easy to see that

anything would remain of the limitations of the

Constitution. . . . But constitutional —provi-

sions cannot be thus evaded. It is the substance

and not the form which controls, as has indeed

been established by repeated decisions of this

court.”

In Zhomas v. Gay, 169 U. S. 264, 283, Mr. Justice

Shiras, speaking of the acts of a territorial legislature

under authority of Congress, said :

‘‘When, as may sometimes happen, the legisla-

ture transcends its functions and enacts, in the guise

of a tax law, a law whereby the property of the

citizen is confiscated, or taken for private purposes,

the judiciary has the right and duty to interpose.”

Mr. Justice McKenna, in Smith v. St. Louis and

Southwestern Ry. Co., 181 U.S. 248, 257, said:

“Any pretense or masquerade will be disre-

garded, and the true purpose of a statute ascer-

tained.”

It must, therefore, be presumed that the purpose which

Congress had in view in the statute of 1902 was to ac-

complish that which follows as the natural and reason-

able effect of its enactment, and that if the tax now in

question operates as a prohibition of the manufacture

and sale of an article of commerce, the legislation is an

invasion of the powers reserved to the States, and seeks

to accomplish an object beyond the powers granted to

Congress.

It is not, of course, disputed that Congress for

national purposes may tax the manufactures of a

State whether constituting internal or interstate

commerce, and that both the national and state gov-

ernments can lay excise taxes upon the same

articles. Conflict may thus arise; and as commodities

can only bear a certain amount of taxation, varying ac-

cording to the nature of the article, the exercise of the

taxing power by one government may indirectly affect

the collection of taxes by the other. The mere fact

that Congress taxed a given article, e. g., liquors, would

not, of course, limit or affect the power of the States

either to tax or to prohibit its manufacture so far as

concerned internal commerce; and conversely the

fact that a State taxed its manufactures would

not limit or affect the power of Congress to

tax the same commodities. In the case at bar,

there is, however, no conflict of taxing powers, for

neither the State of Illinois nor the State of Ohio

taxes the manufacture of oleomargarine other than indi-

rectly by means of general property taxes.

In its final analysis, then, the court is asked to deter-

mine the validity of the present law according to its

natural and reasonable effect which ‘* amounts in law toa

prohibition” ; in other words, to determine by its practical

operation whether it is a tax law at all, or merely an at-

tempt to prohibit internal commerce under the guise or

pretext of a tax law. There is no rule of consti-

tutional law and no consideration of public policy

which will prevent this court from deciding ac-

cording to substance and not to form, simply because a

given enactment purports to be an exercise of the tax-

ing power. The indisputable law of the Constitution is

' License Tax Cases, 5 Wall. 462, 470; Pervear v. The Commonwealth,

5 Wall. 475, 479.

MIRE LEONE OER

that Congress may not interfere with or regulate the

internal commerce or affairs of a State, and the court will

enforce that rule according to its letter and its spirit.

The Tenth Amendment imperatively forbids any such

interfering regulation as much as if the Constitution

declared in so many words that Congress should not in-

terfere with internal commerce. It surely cannot be

maintained as a rule of our constitutional law that what

Congress may not do directly it may nevertheless do

indirectly under the pretext of an exercise of the taxing

power. As Mr. Chief Justice Fuller said in the Zxcome

Tax cases, supra (157 U. S. 429, 581):

“It is the substance and not the form which

controls, as has indeed been established by re-

peated decisions of this court.”

But, it will be said, the concession of the power to tax

brings the case within the rule that the extent of the

exercise of the taxing power cannot be controlled by the

courts. This argument, however, begs the whole

question. The point to be decided is whether or not

this is a tax law or a regulation of the internal

commerce of the States. If it be a legitimate tax

law, it is constitutional. If the nominal exercise of

the taxing power be a mere pretext * for the accom-

plishment of objects not entrusted to the government,”

then it is not constitutional, and it is the province of this

court to so declare. It may be often difficult to draw

a line between a tax law and an attempt to regulate or

prohibit under the guise or pretext of a tax; but yet it

is not always impracticable, for the validity of many en-

actments, state and national, may depend upon degree.

The amount of a tax or license fee or regulation of rates

RAAT TE

— 2047

frequently forms the basis of judicial action and de-

termines the validity of legislation. The court has

found no insuperable difficulty in determining the dif-

ference between a tax and a reasonable fee cover-

ing expenses to protect the government against fraud,'

between a tax on exports and a mere stamp duty on a

document,? between a tax and a penalty,* between a

tax and a covert regulation of interstate commerce,* be-

tween a legitimate regulation of rates and a regulation

which is confiscatory.» The amount of the tax imposed

ina given case has often been considered by this court in

determining whether a particular statute was valid as a

means to accomplish a constitutional object, or invalid as

a pretext to accomplish an object forbidden by the Con-

stitution. The instance of a license tax upon persons

or corporations engaged in foreign or interstate com-

merce is a commonone. In such a case, the only

object which may constitutionally be accomplished by

a State is compensation for reasonable governmental

inspection or supervision. If the amount of the tax

be materially in excess of what is

PEELING LN Eee ee

a NCE DERI ETRE E MES PR Tc ee alk ai

necessary

for that object, there is an indication of a purpose

to regulate foreign or interstate commerce; and it

is therefore necessary for the court to draw the

line in each case according to the amount and adjudge

what amount will constitute taxation for a proper pur-

rR TNL IOS

tie

pose and what amount will constitute a regulation é

of commerce. Atlantic, etc., Tel. Co. v. Philadelphia, ;

' Pace v. Burgess, Collector, 92 U. S. 372, 374, 375+

2 Fairbank v. United States, 181 U.S. 283, 290. 5

° Helwig v. United States, 188 U.S. 605, 611. 4

‘ Atlantic, ete., Tel. Co. v. Philadelphia, 190 U.S. 160, 162. B

190 U. S. 160, 164. While a State may impose

a license fee upon foreign corporations engaged in

interstate commerce and_ indirectly tax their fran-

chises,! it cannot for a moment be doubted that,

if the State should impose a _ prohibitory tax, it

would be unconstitutional and that the question

of constitutionality in such a case would depend entirely

upon degree. If, for example, a State should impose a

property tax upon an express company,? the effect of

which was practical prohibition, no doubt the court would

hold that it was not a legitimate tax at all, but a round-

about way of prohibiting indirectly what the State could

not prohibit directly, namely, interstate commerce.

So, whenever it is claimed that the amount of

a state inspection charge upon articles of foreign or

interstate commerce is so much in excess of what is

reasonably necessary to accomplish that object as

to evince a purpose to interfere by taxation

with foreign or interstate commerce, the court

must decide when the amount in the par-

ticular case becomes unconstitutional. atapsco Guano

Co. v. North Carolina, 171 U.S. 345, 351 ef zeg., citing

cases. The same principle applies in those cases

where the amount of compensation for the use of prop-

erty affected by a public interest is drawn in question as

being confiscation in the guise of police regulation.

Chesapeake & Potomac Tel. Co. v. Manning, 186 U.S.

'Waine v. Grand Trunk R'y Co., 142 U. S. 217, 228; Fecklen v.

Shelby County, 145 U.S.1,23; Postal Telegraph Cable Co.v. Adams,

155 U. S. 688,697; Atlantic, etc., Tel. Co. v. Philadelphia, 190 U. S.

160, 163, citing cases.

"Adams Express Company v. Ohio, 165 U.S. 194,220; Adams Express

Company v. Kentucky, 166 U.S. 171, 180: Adams Express Company v-

Ohzo, 166 U.S. 185, 221.

_—

PERSE EAIA I, PLN ELIT

238, 250, and Cotting v. Kansas City Stock Yards

Co., 183 U.S. 79, 85) citing cases.

At the last term, in Helwig v. United States, 188

U. S. 605, 611, Mr. Justice Peckham said:

“Whether called a ‘further sum’ or an ‘addi-

tional duty,’ or by some other name, the amount

imposed was so large in proportion to the value of

the merchandise imported as to show beyond doubt

that it was a sum imposed not in fact, as a duty

upon an imported article, but as a penalty and

nothing else.”

So, with regard to the tax in question, the amount

of the tax is so large in proportion to the value of

the merchandise as to show beyond doubt that it was

a sum imposed, not in fact as an excise for revenue,

but as a prohibition, and nothing else.

Let us take, for the purpose of concrete illustration,

the case of oleomargarine. It has been held that a

State, under the power to regulate its internal com-

merce, could prohibit the manufacture and sale of oleo-

margarine (Jowell v. Pennsylvania, 127 U.S. 678, 686;

Pluniley v. Massachusetts, 135 U. S.461, 467,and Cafz-

tal City Dairy Co.v. Ohio, 183 U. S. 238, 246), but that

it could not prohibit the sale of oleomargarine manu-

factured in other States and offered for sale in the

course of interstate commerce. Schollenberger v. Penn-

sylvania, 171 tf. S 2,41, %5: & se conceivable that

nevertheless, a State, could indirectly do what this

court has said it could not directly do, that is, prac-

tically prohibit interstate commerce in oleomarga-

rine by taxing it to death? Surely this court

would not entertain an argument attempting to

uphold such legislation upon the ground that on

PARES an

2047

SAAR RPA LSE LO RATT

VoL RO GC” AE ASEH Na:

nerd

= ae TAO

its face it was impartial and applied alike to internal

and interstate commerce and that the power to

tax involved the power to destroy.

If a State should impose a tax upon a commercial

commodity as property? and the effect of such a tax, as

to articles brought from other States, was to destroy all

opportunity to sell the commodity, it cannot be doubted

that the law would be declared unconstitutional as

interfering with interstate commerce even though the

same amount of tax should be laid on domestic man-

ufactures as property, and even though such a tax would

only apply after the ‘ original package’ of importation

had been broken and the contents exposed for sale.*

There would be prima facie no discrimination in the

law; on its face it would apply impartially to home

and foreign manufactures alike. Nevertheless, such a

tax law would be held unconstitutional; for, if allowed

to operate, it could as effectually bar the products and

manufactures of other States as if the law directly

enacted that such articles should not be sold. The

products of one or more States could thus, by taxation,

be excluded from any State. Fortunately, ‘such efforts

have been heretofore rendered fruitless by the supervis-

: Woodruff v. Parham, & Wall. 123, 131, 140; Brown v. Houston,

114 U. S. 622, 634. Of course, where the State may prohibit as a police

regulation, different considerations are presented, as discussed by Judge

Cooley in the quotation from his work on Taxation, sufra, pp. 27, 28.

* Woodruff v. Parham, 8 Wall. 123, 131, 140; /Zénson v. Lott, 8 Wall.

148, 152; Brown v. Houston, 114 U.S. 622, 632, 634; Postal Telegraph

Cable Co. v. Adams, 155 U.S. 688, 697; American Refrigerator Tran-

sit Co. v. Hall, 174 U.S. 70, 74; Reymann Brewing Co. v. Brister, 179

U.S. 445, 453.

5 May v. New Orleans, 178 U.S. 496, 508.

* Leloup v. Port of Mobile, 127 U.S. 640, 647; Brennan v. Titusville,

153 U. S. 289, 303.

pic Sas asi

Fe gk eg eh ae Se ae as

3 Rages a

ing action of this court.”! In the supposed case, it would

undoubtedly be held that, in whatever language the

statute was framed, its purpose must be determined by

its natural and reasonable effect. The court would brush

aside the form and the pretext, and hold that the

tax in its practical effect was prohibitory, that the pur-

pose of the legislation was legally to be determined by

such prohibitory effect, and that prohibition was beyond

the constitutional power of a State.?

In the case of such a property tax levied by a State,

would it not be relevant to show that the amount of the

tax was such as to prevent sales, and that consequently

‘t was not strictly a tax law at all but a regulation of

interstate commerce? It would undoubtedly be held

that in whatever language the statute was framed, its

purpose must be determined by its natural and reason-

able effect.

On the other hand, if the tax was not prohibitive

but a proportional and reasonable charge for the

maintenance of the state government, levied upon all

similar property, entirely different considerations would

be presented, and it would then be for the courts to

determine whether such a law was in its purpose, opera-

tion or effect a proper and reasonable tax law which did

not unduly interfere with the power of Congress to regu-

late interstate commerce.® In such a case, too, would it

not be relevant to show that the amount of the tax was

such as not to operate as a_ practical prohibition of

\ Caldwell v. North Carolina, 187 U.S, 622, 633.

2 American Fert. Co. v. Board of Agriculture, No. Car., 43 Fed. Rep.

69, 613, cited in Patapsco Guzno Co. v. North Carolina, 171 U.S. 345,

347-

3 Postal Telegraph Cable Co. v. Adams, 155 U.S. 688, 697.

EPPA SEE IE OLNI MO ae Be SORTS LN MOREE OT

———— Te

sales in competition with the products of the taxing

State? Or, if it were in the guise of an inspection or

license fee, would it not be relevant to show that it was

not large enough to operate as a prohibition or penalty ?}

Are not these all cases of degree and does not the ex-

tent and effect of the tax determine its constitutionality ?

Nor does the fact that the act of Congress applies

also to interstate commerce affect the question,

for it is the settled law of this court that

the power of Congress to regulate interstate com-

merce does not uphold any act which operates

directly upon internal commerce and invades the

domain of the States. The very point was involved in

the Zrade-Mark Cases, 100 U. S.82, 95, 96, where, de-

livering the unanimous opinion of the court, Mr. Justice

Miller said:

* When, therefore, Congress undertakes to enact

a law, which can only be valid as a_ regulation of

commerce, it is reasonable to expect to find on the

face of the law, or from its essential nature, that it

is a regulation of commerce with foreign nations,

or among the several States, or with the Indian

tribes. If not so limited, it is in excess of the

power of Congress. If its main purpose be to

establish a regulation applicable to all trade, to

commerce at all points, especially if it be apparent

that it is designed to govern the commerce wholly

between citizens of the same State, it is obviously

the exercise of a power not confided to Congress.”

The principal argument in support of the law has

heretofore been based upon the famous phrase * that

the power to tax involves the power to destroy,” in

1 Ward v. Maryland, 12 Wall. 418, 425, 429; Welton v. State of Mis-

sourt, 1 U.S. 275, 278; People v. Compagnie Gen. Transatlantigue, 107

U.S. 59, 60; Moran vy. New Orleans, 112 U.S. 69,73; Walling v. Mich-

tgan, 116 U.S. 446, 461; Emert vy. Missourd, 156 U.S. 296, 311.

e Page Kare es PEPE 4 Pate

support of which is cited the decision of this court in

Veazie Bank v. Fenno, 8 Wall. 533.

We know of no dictum in any decision that has

been more misconstrued than the statement of Chief

Justice Marshall in A/Culloch v. Maryland, 4 Wheat.

316, 431, that “the power to tax involves the power

to destroy,” nor of one whose misapplication is more

illustrative of the dangers which lurk in a brilliant epi-

gram. Since that decision, there has been no arbi-

trary or unjust exaction under the guise or pretext of

taxation but that it is said to be sanctioned by this

dictum. It has done immeasurable harm, for it has

been held up before legislatures as placing in

their hands unrestrained power to exercise tyranny in

the form of law. ‘ How oft the sight of means to do

ill deeds makes ill deeds done.”! The great Chief

Justice never meant to say that the taxing power

could be arbitrarily exercised to the extent to which

his language has been perverted, or that it could be used

as a pretext to accomplish a forbidden object. He would

have repudiated such a proposition as monstrous and

against all justice and reason. Far from meaning

to say that the power of taxation could be used as

a mere pretext for accomplishing objects not entrusted

to the government, at page 423 of the same opinion,

he distinctly pointed out that Congress could not do so.

He never meant that under the power of taxation, either

of the federal or the state governments, any class of

persons or business could properly be selected for de-

struction. He was speaking of a discriminating state

' King John, IV, 2. See“ The Oleomargarine Bill” (Gov. Print, 1901),

p. 857.

Sent

CORRS LE MPRA

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ariel

“

tax imposed upon an instrumentality of the national gov-

ernment. He did not mean that, under the pretense of

taxation, Congress could invade any State and destroy

one of its industries solely for the purpose of bene-

fitting another competing industry. He was speak-

ing of a legitimate tax law. Had the occasion arisen

in his time, who can doubt that he would have

limited this now famous dictum to the facts of

that case? Cohens v. Virginia, 6 Wheat. 264, 399.

Doubtless he would have held that the Constitution

will not admit of the exertion of any power of gov-

ernment, be it the taxing power or any other, which, in

its last analysis, is appropriate and calculated only to

interfere with the internal concerns of the States and to

accomplish the destruction of private property and the

deprivation of the right to pursue a useful calling with-

out due process of law.

Even though it be true, in a proper sense, that

the power to tax involves the power to destroy, it

is no less true, by the reasoning of the opinion in

McCulloch v. Maryland (at p. 423), that this power to

destroy, in the hands of Congress, must not be exerted

to accomplish objects not assigned to it by the Con-

stitution. It must operate in harmony with the con-

stitutional scheme. On the other hand, this same power

to destroy in the hands of a State (which is the sense in

which it was discussed by Marshall) is justifiable by the

inherent power of government originally and always re-

siding in the States, provided only it be not forbidden

by the Constitution. In short, though the destruction

of the oleomargarine industry by a repressive state tax

might be supported under the police power by all those

2047

familiar arguments which have been advanced in this

court during the past sixteen years,! a similar repressive

tax by Congress must be supported, if at all, on other

grounds. Cooley on Taxation, p. 12, 13.

The suggestion in AZcCulloch v. Maryland, 4 Wheat.

316, 435, that Congress might tax a state instrumental-

ity with more reason than a Staie could tax an instru-

mentality of the Nation, cannot be cited as sustaining an

unlimited taxing power in Congress, inasmuch as it has

long since been established that Congress has no power

to tax the instrumentalities of a State (Sxyder v. Bett-

man, 190 U.S. 249, 253), unless it be necessary and

proper to carry into execution some power given

to Congress other than the power of taxation.

In Berney v. Tax Collector, 2 Bailey (S. C.) 654, 674,

Harper, J., said, in speaking ofa state tax upon stock

of the United States Bank, and after discussing Mar-

shall’s dictum that the power to tax involves the power

to destroy:

“It will he perceived, that in my opinion the

question is, whether the imposition in question

is, 22 good faith, a tax, or whether, under the

guise of a tax, a fenalty was intended to be

inflicted, with a view to the suppression of

the bank. Such a distinction was made in

the case of Zhe State v. Allen, 2 MC.

55. where a tax, as it was called, of $10,000,

was imposed on the act of selling lottery

tickets. And this court held, that, although called

a tax, it was in fact a penalty, having no reference

to property; and that it violated the provision of

our constitution, that ‘no freeman of this State

shall be taken, or imprisoned, or disseized of his

' Powell v. Pennsylvania, 127 U.S. 678; Capital City Dairy Co. Vv.

Okio, 183 U.S. 238.

LEER APL ILE LY PLL IIOD

freehold, liberties, or privileges, or outlawed, or

exiled, or in any manner destroyed, or deprived of

his life, liberty, or property, but by the judgment

of his peers, or the law of the land.’

Iam aware, that it has been objected to this

method of construction, that it is liable to too

great uncertainty, and gives to the courts a dan-

yerous latitude of construction, in determining on

the ¢xtention of the legislature. When will you

say that the law becomes unconstitutional? When

the tax is raised to five, or ten, or fifty per cent. ?

By what rule shall government be conducted ?

Or when can the legislature be assured that

its laws will have effect? In general, perhaps,

it is desirable, that rules of law should be

technical and artificial; being thus suscepti-

ble of greater precision: but this is not always

practicable, and I fear that we may some-

times run into the most dangerous errors, in

searching after this precise, technical, artificial

rule. In sucha case as this, it is not possible to

have one, unless, by adopting such artificial reason-

ing as I have referred to in the beginning, we

pervert the constitution to. purposes, for which it,

most notoriously, was never intended, and change

the whole character of our institutions.”

The Veazie Bank case is not authority for an un-

limited and arbitrary power to tax. On the contrary

Chief Justice Chase said (p. 5.41) that—

“There are, indeed, certain virtual limitations,

arising from the principles of the Constitution itself.

It would undoubtedly be an abuse of the power if

so exercised as to impair the separate existence

and independent self-government of the States, ov

if exercised for ends tneonsistent with the limited

grants of power tn the Constitution.”

The tax in that case was sustained upon the ground

that Congress, in the exercise of undisputed authority

to regulate the currency, could adopt any means

suitable for that purpose, and that a prohibitive tax con-

2047

stituted an appropriate means.’ If the statute had

declared on its face that it was intended to prohibit

issues of currency by state banks, the act would have

been constitutional. The cad was legitimate and pro-

hibitory means were appropriate. If there had been no

power in Congress to regulate the currency, it cannot

be doubted that the tax then imposed would have been

regarded as seeking to accomplish an olject ma

entrusted to Congress and “ exercised for ends incon-

sistent with the limited grants of power ” to the federal

government and the powers expressly reserved ty the

States.

That the Vaczie Bank decision does not rest upon the

proposition that the power to tax involves the power to

destroy the currency of state banks has been repeatedly

recognized by this court.

Thus, at the same term, Mr. Justice Miller, whe com-

curred in the opinion of the court in the Veaste Hank

case. said in his dissenting opinion in //pburm vw.

Griswold, 8 Wall. 603. 636:

“In the Veasie Bank v. Feuno, decided at the

present term, this court held, after full comsinl -

ation, that it was the privilege of Congress to

furnish to the country the currency to be weed

by it in the transaction of business, whe ther thas

was done by means of coin, of the notes of the

United States. or of Lanks created by Congress.

And that as a means of making this power of

Congress efficient, that body coukl make this cur-

rency exclusive by taxing out of existence amy

currency authorized by the States.

‘The precise question decided in the Voaste Mant case

arose again ten years later in National Bank +. United

' See, however, the language used at p. $68

States, 101 U. S. 1, and the language employed in

deciding it shows clearly the scope of the _princi-

ple involved. Chief Justice Waite, delivering the opin-

ion of the court, said (pp. 5, 6):

“We think this case comes directly within the

principles settled in Vcaztie Bank v. fenno, (8 Wall.

533), where it was distinctly held that the tax im-

posed by that section on national and State banks

for paying out the notes of individuals or State

banks used for circulation was not unconstitutional,

The reason is thus stated by Mr. Chief Justice

Chase: ‘Having thus, in the exercise of undis-

puted constitutional powers, undertaken to provide

acurrency for the whole country, it cannot be

questioned that.Congress may constitutionally se-

cure the benefit of it to the people by appro-

priate legislation. To this end Congress

has denied the quality of legal tender to

foreign coins, and has provided by law against

the imposition of counterfeit and base coin on the

community. To the same end Congress may re-

strain, by suitable enactments, the circulation as

money of any notes not issued under its authority.

Without this power, indeed, its attempts to secure a

sound and uniform currency for the country must

be futile.” . . . The tax thus laid is not on the

obligation, but on its use in a particular way. As

against the United States, a State municipality has

no right to put its notes in circulation as money,

li may execute its obligations, but cannot, against

the will of Congress, make them money. The tax

is on the notes paid out, that is, made use of as a

circulating medium. Such a use is against the

policy of the United States. Therefore the banker

who helps to keep up the use by paying them out,

that is, employing them as the equivalent of money

in discharging his obligations, is taxed for what he

does. The taxation was no doubt intended to de-

stioy the use; but that, as has just been scen, Con-

gress had the power to do.”

The true scope of the principle of the Veazze Bank

case is perhaps most clearly apparent from its applica-

tion in the Head Money Cases, 112 U. S. 580, 596, de-

cided in 1884. It is there held that an otherwise un-

constitutional exercise of the taxing power may be

upheld where the object accomplished is one committed

to Congress by the Constitution ; and the Veazie Bank

case is relied on as the leading authority. Mr. Justice

Miller, who delivered the opinion of the court, said:

“If this is an expedient regulation of commerce

by Congress, and the end to be attained is one

falling within that power, the act is not void, be-

cause, within a loose and more extended sense

than was used in the Constitution, it is called a

tax. In the case of Veazze Bank v. Fenno, 8

Wall. 533. 549, the enormous tax of eight

[ten] per cent. per annum on the circulation

of State banks, which was designed, and did have

the effect, to drive all such circulation out of

existence, was upheld because it was a means

properly adopted by Congress to protect the cur-

rency which it had created, namely, the legal-tender

notes and the notes of the national banks. was

not subject, therefoie, to the rules which would

invalidate an ordinary tax pure and sinple,

Weare clearly of opinion that, in the ex-

ercise of its power to regulate immigration, and in

the very act of exercising that power, it was com-

petent for Congress to impose this contribution

on the ship owner enyaved in that business.”

The ratio decidendi of the cases upon this point is

summed up by Mr. Justice Miller in Loan Association

v. Topeka, 20 Wall. 655, 663. namely,

“Given a purpose or object for which taxation

may be lawfully used, and the extent of its exercise

is in its very nature unlimited.”

And the tax involved in that case was condemned be-

cause the object of the statute was found to be the

encouragement and benefit of certain private industries.

To the same effect, see Parkersburg v. Brown, 106

U.S. 487, 500; Cole v. LaGrange, 113 U.S. 1, 6; The

State ex rel.v. Osawkee Township, 14 Kan. 418, 427;

Lowell vy. Boston, 111 Mass. 454, 461; Mead v. Acton,

139 Mass. 341, 344; Allen v. Inhabitants of Jay, 60 Me.

124, 128, 138; Sugar Co. v. Auditor General, 124 Mich.

674, 678; State v. Foley, 30 Minn. 350, 357; Wersmer v.

Village of Douglas, 64 N. Y. 91, 100; Bertholf vy.

O'Reilly, 74 N. Y. 509, 515; Sharpless v. Mayor of

Philadelphia, 21 Pa. St. 147, 168; Burroughs on Taxa-

tion, pp. 6, 506.

Answering the argument that the power to tax in-

volves the power to destroy, Mr. Justice Harlan, de-

livering the dissenting opinion in Fazrbank v. United

States, 181 U.S. 283, 318, used the following language:

‘It is said that the power to tax is the power to

destroy, and that if Congress can impose a stamp

tax of ten cents upon the vellum, parchment or

paper on which is written a bill of lading for arti-

cles to be exported from a state, it could as well

impose a duty of five thousand dollars and thereby

indirectly tax the articles intended for export.

That conclusion would by no means follow. A

stamp duty has now, and has had for centuries,

a well defined meaning. It has always been

distinguished from an ordinary tax meas-

ured by the value or kind of property taxed.

If Congress, in respect of a bill of lading

for articles to be exported, had imposed a

tax of five thousand dollars for and in respect

of the vellum, parchment or paper upon which

such bill was written, the courts, looking beyond

form and considering substance, might well have

held that such an act was contrary to the settled

theory of stamp tax laws, and that the purpose and

necessary operation of such legislation was, in

_— 748)

violation of the Constitution, to tax the articles

specified in such bill and not to impose simply a

stamp duty. Here, the small duty imposed, with-

out reference to the kind, quantity or value of the

articles exported, renders it certain that when

Congress imposed such duty specifically on the

vellum, parchment or paper upon which the bill

of lading was written or printed, it meant what it

so plainly said; and no ground exists to impute a

purpose by indirection to tax the articles ex-

ported.”

If, therefore, “ the courts, looking beyond form and

considering substance ” in the cases at bar, shall be per-

suaded that the purpose and necessary operation of this

legislation be to accomplish an end or object not en-

trusted to this government, the legislation may and

should be declared unconstitutional. McCulloch v.

Maryland, 4 Wheat. 316, 423- In other words, given

a case in which Congress has authority to prohibit, as

in the case of foreign commerce or the currency, and

it may accomplish that object by prohibitory taxation.

If, however, Congress has not the power to prohibit as

a legitimate end or object, it may not do so indirectly

under the pretext of exercising the taxing power.

It may be argued that the prohibition of yellow

oleomargarine is necessary and proper to facilitate the

collection of the tax on other oleomargarine, and to pre-

vent fraud in sales of articles taxed by the government,

but the argument that the prohibitive tax of ten cents

per pound was laid to facilitate the collection of the tax

of one-quarter of one cent on other colors of oleomarga-

rine cannot uphold the law. Such a purpose is too

remote and uncertain. In United States v. Dewitt,

9 Wall. 41, 44, the question was as to the va-

lidity of section 29 of the Internal Revenue Act of

eet Seca

en Oa Es

xe ae

STAC EP te

ets OTIS

Aa MCRAE CLITA

March 2, 1867 (14 Stat. 484), which made it a misde-

meanor to mix for sale or to sell or offer for sale

naphtha and illuminating oils, inflammable at less than a

designated temperature. It was held that the act could

have no constitutional operation within state limits be-

cause it was a mere police regulation relating exclu-

sively to internal trade of the States. Chief Justice

Chase, delivering the opinion of the court and referring

to the want of jurisdiction in Congress to interfere with

the internal commerce of the States, said (p. 45):

“This has been so frequently declared by this

court, results so obviously from the terms of the

Constitution, and has been so fully explained and

supported on former occasions, that we think it un-

necessary to enter again upon the discussien.”

fer GR ie tinahad CNRS et he adsy xh

It was, however, urged in that case on behalf of the

governinent that the prohibition of the sale of illumina-

ting oil, inflammable at less than a certain tempera-

ture, was in aid and support of the internal revenue

tax imposed on other illuminating oils. In answer to

this suggestion, Chief Justice Chase, among other

3 things, said (p. 44):

“If the prohibition, therefore, has any relation

ptt tl ia?

to taxation at all, it is merely that of increasing the

. production and sale of other oils, and, conse-

4 quently, the revenue derived from them, by ex-

: cluding from the market the particular kind

3 described. This consequence is too remote and

3 too uncertain to warrant us in saying that the pro-

a hibition is an appropriate and plainly adapted

3 means for carrying into execution the power of

4 laying and collecting taxes.

% A further conclusive answer to this contention is that

‘e

there is no demand for uncolored oleomargarine, except

as a substitute for lard, and as such, a true construction

Ds thn, SQ aT

on De

of the act does not permit any tax to be laid upon it.

The act taxes oleomargarine under one of two express

conditions and not otherwise, that is when ‘ made in

‘mitation or semblance ef butter,” or,“ when so made,

calculated or intended to be sold as butter or for butter ”

(Section 2). It is plain that oleomargarine manu-

factured in the usual way is not in imitation or semblance

of butter, unless it is colored yellow, because it is

pure white, or almost pure white, in appearance, whilst

practically all butter which goes on the market is uni-

formly colored a high shade of yellow throughout the

year. It is no less plain that oleomargarine so made

is not calculated or intended to be sold as or for butter,

and not even as a substitute for butter, because it can

be sold only as a substitute for lard. A preduct which

does not look like butter, and which can be sold only

as a substitute for lard, is not eleomargarine within the

definition of the act for the purpose of tax-

ation. This is the construction placed on the

act by Attorney-General Garland in his letter of Octo-

hey 18, 1886, to the Secretary of the Treasury (18 Op.

Atty.-Gea. 489). This opinion was accepted as final

and has ever since been acted on by the Treasury De-

partment (Olcomargarine regulations, June, 1902. p. 12);

and the Commissioner of Internal Revenue has specifi-

cally decided, under the authority vested in him by

section 14 of the act, that oleomargarine designed only

as a substitute for lard is not subject to any tax, although

it has a shade of yellow color (Treasury Decisions,

Vol. 6, No. 3, p. 36).

. SNE OE = ————

THE RESTRICTIONS UPON THE TAXING POWER CONTAINED IN THE

FIFTH AMENDMENT.

As we have already seen, the first ten amendments

to the Constitution of the United States were adopted as

limitations upon the powers delegated to Congress * in

order to prevent misconstruction or abuse of its powers ”

by means of “declaratory and restrictive clauses.”

It has never been determined whether the provisions of

the Fifth Amendment prevent the abuse of the taxing

power by means of arbitrary and discriminating taxes,

the effect of which would be to deprive an individual

or a selected class of liberty and property without due

process of law.

So far as is disclosed by a careful perusal of the de-

bates in the constitutional conventions at the time the

Constitution was ratified, as well as of the debates in

Congress when the first ten amendments were pro-

posed, it does not appear that the provision requiring

‘due process of law’ contained in the Fifth Amend-

ment was mentioned as protecting the individual

against arbitrary or discriminating taxation. The

import of *'.. words may or may not have been

assum_a to apply to taxation as well as to all

viner powers in the exercise or abuse of which the

rights of the individual might come in conflict with the

powers of government. ‘The same thing may also be

said of the circumstances surrounding the adoption of the

Fourteenth Amendment shortly after the close of the

Civil War, and yet it is established beyond question

that the requirement of ‘due process of law’ in the

igs

later amendment clearly applies to the taxing power of

the States.

There is, however, no principle of constitutional

construction which would permit the court to say

that because the question of arbitrary or discrimina-

ting taxes was not in the minds of those who

framed and adopted these amendments, “in order to

prevent misconstruction or abuse of its powers © by the

national government, the Fifth Amendment should not

be applied to an abuse of the taxing power as well as

of eny other power. The taxing power was the most im-

portant and far-reaching of the powers conferred; it was

the one the absence of which above all others had ren-

dered the government under the Articles of Con-

federation impotent and imbecil; it was the one

most liable to abuse; it was the one around and about

which waged the contest for ratification of the Constitu-

tion, and it was the one which of all powers could ob-

viously “as readily be employed against one class of

individuals and in favor of another, so as to ruin the

one class and give unlimited wealth and prosperity to

the other, if there is no implied limitation of the uses

for which the power may be exercised.”!

But even if it could be shown that the abuse of the

taxing power was not in the minds of the peo-

ple at the time these amendments were adopted and

that the framers perceived and apprehended no dan-

ver from the abuse of that power, this fact would not

tend to limit the scope of the amendments if the case

now presented be fairly within their spirit and letter.

As was said by Chief Justice Marshall in the famous

\ Loan Assoctation v. Topeka, 20 Wall. 655, 664.

OWE Pe

case of Dartmouth College v. Woodward, 4 Wheat. 518,

“It is more than possible that the preservation

of rights of this description was not particularly in

the view of the framers of the constitution, when

the clause under consideration was introduced into

that instrument. It is probable that interferences

of more frequent recurrence, to which the tempta-

tion was stronger, and of which the mischief was

more extensive, constituted the great motive for

imposing this restriction on the state legislatures.

But although a particular and a rare case may not,

in itself, be of sufficient magnitude to induce a

rule, yet it must be governed by the rule, when

established, unless some plain and strong reason

for excluding it can be given. It is not enough to

say that this particular case was not in the mind of

the Convention, when the article was framed, nor of

the American people when it was adopted. It is

necessary to go farther, and to say that, had this

particular case been suggested, the language would

have been so varied as to exclude it, or it would

have been made a special exception. The case

being within the words of the rule must be within

its operation likewise, unless there be something

in the literal construction so obviously absurd or

mischievous, or repugnant to the general spirit of

the instrument as to justify those who expound the

constitution in making it an exception.

On what safe and intelligible ground can this

exception stand? There is no expression in the

constitution, no sentiment delivered by its contem-

poraneous expounders, which would justify us in

making it. In the absence of all authority of this

kind, is there in the nature and reason of the case

itself, that which would sustain a construction of

the constitution not warranted by its words? Are

contracts of this description of a character to excite

so little interest, that we must exclude them from

the provisions of the constitution, as being unwor-

thy of the attention of those who framed the in-

strument? Or does public policy so imperiously

demand their remaining exposed to legislative al-

teration, as to compel us, or rather permit us to

say, that these words, which were introduced to

give stability to contracts, and which in their plain

import comprehend this contract, must yet be so

construed, as to exclude it?”?

Applying to the federal taxing power the doctrine thus

lucidly stated, we may say that there is no reasonable

ground which would justify the conclusion that if the

abuse of the taxing power, by means of arbitrary, un-

equal and discriminating tax laws, had been in the minds

of the framers of the Fifth Amendment, they would

have varied its language so as to make it broader and

more comprehensive. No one will seriously ad-

vance the proposition that public policy or the

safety or perpetuity of the national government

demand that Congress should have the power to

impose arbitrary or prohibitive taxes upon in-

ternal industries. It would be repugnant to the very

theory upon which these ‘restrictive clauses’ were

drafted, and in conflict with the purpose sought to be

accomplished by them, to now hold that there is in

them no efficacy to restrict the most important power

granted to Congress by the Constitution, the one most

liable to abuse. and the one which at all times would

most reach and affect the individual.

Indeed, it may be respectfully submitted that if it be

now held that the requirement of * due process of law’

‘1 the Constitution of the United States imposes no

prohibition or limitation upon the taxing power of Con-

gress, then the result must be that this amendment, in-

"See also Slaughter-Heuse Cases, 16 Wall. 36, 72; Ax parte Vo-

ginta, 109 U. S. 339 347, 361; Holden v. Hardy, 169 U.S. 366. 382, 385;

United States v. Wong Kim Ark, 169 U.S. 649, 676.

RGAE ET ETRE, ETE AEST EM

yr PEOPLE AEM orn

tended to constitute part of a bill of rights protecting

the people in their individual liberties as against the

majority wielding the power of government, must now

be construed as if it read :

‘“No person shall be . . . deprived of life,

liberty or property, without due process of law,

except it be in the form of taxation; nor shall

private property be taken for public use, without

just compensation, except tx cases of taxation.”!

But, aside from these considerations, it is confidently

submitted that had the first Congress deliberated at

length upon the choice of a provision which would be

most effective to prevent an abuse of the taxing power,

it would have been difficult to select one more ap-

propriate than that of ‘ due process of law,’ or langyage

which it was more natural for the descendants of Engfish-

men to have selected for that purpose. It embodied

then, as now, one of those maxims of constitutional law

“ which are the monuments showing the victorious pro-

gress of the race in securing to men the blessings of

civilization under the reign of just and equal laws, so

that, in the famous language of the Massachusetts bill

of rights, the government of the commonwealth * may be

a government of laws and not of men’?

The phrase ‘due process of law’ or its equivalent

‘the law of the land’ antedated the establishment of

our political institutions, and was endeared to our

fathers by antiquity and tradition, as well as by the

noblest historical associations. It represented the

broadest and most far-reaching guaranty of personal

" County of Santa Clara v. Southern Pac. R. Co., 18 Fed. Rep. 385,

399; affirmed 118 U.S. 394, 417, 422.

2 Vick Wo v. Hopkins, 118 U.S. 356, 370.

a) a

and property rights. There are no words in our language

which signify or mean more in respect of the rights and

liberties of the individual than either of these phrases.

It is not deemed necessary, however interesting it would

be, to trace the historical origin of the term ‘due process

of law’ and the development of its meaning and scope,

except to say that its first appearance in any of the

great constitutional documents was probably in the Pe-

tition of Right in the third year of the reign of Charles

I, and that it has ever since been regarded as having

and importing exactly the same meaning as the words

‘the lawof the land’ in Magna Charta.?

No statement of the general meaning of these equi-

valent phrases is more often quoted than that from Mr.

Webster's argument in the famous Dartmouth College

case (4 Wheat. at p. 581), viz.:

“ The meaning is, that every citizen shall hold

his life. liberty, property, and immunities, under

the protection of the general rules which govern

society. Everything which may pass under the

form of an enactment, is not, therefore, to be con-

sidered the law of the land.”

The statement of Mr. Justice Story, in his work on

the Constitution (5th edition, section 1945), is perhaps

the most accurate, viz.:

“Due process of law in each particular case

means such an exertion of the powers of govern-

ment as the settled maxims of law permit and

sanction, and under such safeguards for the pro-

tection of individual rights as those maxims pre-

scribe for the class of cases to which the one

being dealt with belongs. ’

' Hurtado v. California, 110 U.S. 516, 521, 527, 543-

- - —_

PILE AOE PALI

SAWS eh at abi Si

Deh EEE Ah il ca a ae A RS STR han SOG ae NR ate

cra

Judge Cooley, in his Constitutional Limitations,

in speaking of this phrase, uses the following language

(Sixth ed., p. 433):

“While every man has a right to require that

his Own controversies shall he sudged hy: Hho seve

rules which are applied in the controversies of his

neighbors, the whole community is also entitled,

at all times, to demand the protection of the

ancient principles which shield private rights

against arbitrary interference, even though such

interference may be under a rule impartial in its

operation. It is not the partial nature of the rule,

so much as its arbitrary and unusual character,

that condemns it as unknown to the law of the

land.”

The first exposition of these phrases by this court will

be found in the case of Bank of Columbia v. Okey.

4 Wheat. 235, 244, where Mr. Justice Johnson, among

other things, said:

*“ As to the words from Magna Charta. incorpo.

rated into the constitution of Maryland, after vol-

umes spoken and written with a view to their ex-

position, the good sense of mankind has at len rth

settled down to this: that Hcy were intended to

secure the individual from the arbitrary exercise of

the powers of government, unrestrained by the

established principles of private rights and distril-

ulive justice.”

This statement as to the meaning and scope of the

famous phrase has been repeatedly quoted with approval

by this court, as will be seen by reference to the follow.

ing cases: United States v. Cruikshank, 92 U.S. $42,

554: Hurtado v. California, 110 U.S. §16, $27:

Caldwell v. Texas, 137 U.S. 692. 697: Scott v. Me-

Neal, 154 U.S. 34. 45; /aylor and Marshall v. Beck-

ham, 178 U.S. 548, 592.

Mr. Chief Justice Fuller in Giecee v. Tierman, 148

U. S. 657. 662, said, speaking for the court:

~ And duc process of law within the meaning

the amendment is secured # the laws om

al} alike. and go not sublect the eeaches Z

See also Duncan ¥. Missouri, 152 U. S. 977. g*.

Thomas +. Gay, 16g U.S. 264, 283: Norwund +. Aobee

172 U.S. 269. 279.

The court has never attempted to define the provishom

- due process of law.’ with precision and probably sever

will, any more than it would atiempt to define the word

‘justice’ in the preamble to the Constitution: bus

nevertheless the phrase has constantly been recogmieed

as embodying fundamental principles of right and

justice which protect the individual from the artierary

exercise of any power of government. As Mr. justine

Brown said in Holden +. Hardy. 164 U.S $4. ge

This court has never attempted te define with

precision the words ‘due process of law, sor is @

necessary to do so in this case. It is sufficient to

say that there are certain imenatablle

A justice which inhere in the very ides of free gon

ernment which no member of the Usiom aay Ge

regard.”

It is true that the cases im thes court apply img te tena

tion the constitutional guaranty of due process of lew

arowe under the Fourteenth Amendanene and related

to state laws: but, alter the most carefal seudy and

reflection. no reason can be perceived why the very

same provision in the Comstitutiom shoud have one

meaning when appled to the state governments and

a farrower meaning amd morte lemted soge whem

applied to the national governmene wading Fond

2 OEMS

| | ee

Cases, 99 U.S. 700,718. Logically, if there could be in

reason and justice any difference, it should be against

the national government, which is indisputably one of

limited and enumerated powers. Cooley on Taxa-

tion, p. 12. The only sound principle must be that the

provision is the same in both cases as applied to the

taxing power (Mr. Justice Harlan dissenting in French

v. Barber Asphalt Paving Co., 181 U.S. 324, 355).

If it appeared that the State in a given case could

not, under the police power, prohibit or destroy com-

merce in a particular commodity, and was simply

exercising the taxing power, it is submitted that a tax

upon a commodity, which amounted to practical confis-

cation or prohibition of its manufacture and sale, would

clearly deprive the individual of property and liberty

without due process of law within the meaning of the

Fourteenth Amendment. In the Powell case as well as

in the Yumley case it was recognized that a statute

under the police power which prevented all sales in a

legitimate article of commerce would not be valid.

Powell v. Pennsylvania, 127 U.S. 678, 685; Lumley v.

Massachusetts, 155 U.S. 461, 467.

Mr. Justice Harlan, in the opinion of the court in the

Lottery Case (at p. 363) recognized that, in the exercise

of the power to regulate commerce among the several

States, Congress could not act arbitrarily, but was

‘‘ subject to the limitations imposed by the Constitution

upon the exercise of the powers granted,” and there is

no reason to suppose that the learned justice did not

mean to refer particularly to the most comprehensive

and far-reaching of all limitations embodied in the con-

stitutional guaranty of ‘due process of law. In /uter-

a ————17 ELTON ee a eF

P >

wea,

prays

WF ae

state Commerce Comm. v. Brimson, 154 U.S. 447, 479

the learned justice also said: “It is scarcely necessary

to say that the power given to Congress to regulate

interstate commerce does not carry with it any power

to destroy or impair those guaranties.” The very same

reasoning must apply to the exercise of the taxing

power.

Assuming, for the reasons above stated, that the re-

strictive clause of the Fifth Amendment applies to the

exercise of the taxing power, then its prohibition or

limitation should be enforced in its spirit and to its

entirety as fully as if it were part of the very article

conferring the taxing power. rout v. Starr, 188

U. S. 537.543. As Mr. Justice Brewer said in the

case of Fairbank v. United States, 181 U. S. 283,

288:

“ We are not here confronted with a question of

the extent of the powers of Congress but one of

the limitations imposed by the Constitution on its

action, and it seems to us clear that the same rule

and spirit of construction must also be recognized.

If powers granted are to be taken as broadly

granted and as carrying with them authority to

pass those acts which may be reasonably necessary

to carry them into full execution; in other words,

if the Constitution in its grant of powers is to be

so construed that Congress shall be able to carry

into full effect the powers granted, it is equally

imperative that where prohibition or limitation is

placed upon the power of Congress, that prohibition

or limitation should be enforced in its spirit and

to its entirety. It would be a strange rule of con-

struction that language granting powers is to be

liberally construed and that language of restriction

is to be narrowly and technically construed. Es-

pecially is this true when in respect to grants of

powers there is as heretofore noticed the help

‘

x DRO

Pente wea ee

st ae

found in the last clause of the eighth section, and

no such helping clause in respect to prohibitions

and limitations. The true spirit of constitutional

interpretation in both directions is to give full,

liberal construction to the language, aiming ever

to show fidelity to the spirit and purpose.”

The act of Congress of May 9, 1902, purports to

levy what is strictly and technically an excise upon

the manufacture and sale of an article of food.

Fatton v. Brady, Executrix, 184 U. S. 608, 618.

An excise is generally included in the term ¢ax which,

‘in its most enlarged sense, embraces all the regular

impositions made by government upon the person,

property, privileges, occupations, and enjoyments of

the people for the purpose of raising public revenue.

Taxes are distinguished from arbitrary levies

in that they are laid according to some rule which appor-

tions the burden between the subjects thereof. An

exaction which is made without regard to any rule of

apportionment is therefore not a tax, and is not within

the constitutional authority of the government.”!

Chief Justice Marshall defined ‘taxation’ to be “the

simple operation of taking small proportions from

a perpetually accumulating mass, susceptible of almost

infinite division.” What would he have said of an

alleged tax which took all ?

There is undoubtedly a difference between a land or

property tax and an excise upon a business or upon the

manufacture and sale of a commodity. An excise may

be upon the article, or its value, or its quality, or its

quantity, or its weight; but however the amount be de-

termined, whether by specific or ad valorem taxes or

Cooley's Pr. Const. Law, Third ed., p. 56.

? Grbbons v. Ov den, 9 Wheat. 1, 199.

_— SOATEST ATL SIAN DN AN

Ko 3

VV ba "Manis

e . . é

duties, or both methods, although it need not be inher- ¥

ently equal, it must operate alike on all persons within the

Per th Vedas

class selected or who exercise the same privilege.

The most satisfactory definition of an excise is to be

found in the Massachusetts reports. It is true that the

Massachusetts constitution requires excises to be

‘reasonable,’ but the following definition is not therefore

without general application. A leading case is that of

Oliver v. Washington Mills, 11 Allen, 268, 274, 279)

where Bigelow, C. J., speaking for the Supreme Judicial

Court, said:

« An excise, on the other hand, is of a different

character. It is based on no rule of apportionment

or equality whatever. It is a fixed, absolute and

direct charge laid on merchandise, products or

commodities, without any regard to the amount

of property belonging to those on whom it may

fall, or to any supposed relation between money

expended for a public object and a special benefit

occasioned to those by whom the charge is to be

paid. . . . it only remains for us to consider

whether the assessments laid on the defendants can

be supported as a valid exercise of the power to

impose excises. -» = > In the first place, it is

grossly unequal, and does not operate alike on

all persons whose property is made subject to it.

It was declared by this court in Portland v. Apthorp,

ubi supra,’ that * Taxes of this sort must undoubt-

edly be equal’; that is, must operate alike on all

persons who exercise a particular employment or

enjoy the same privilege or commodity. The same

doctrine was affirmed in the recent case of Com-

monwealth v. People's Savings Bank, ubi supra.*

The reason is obvious. In the language of the

court, an unequal excise would be ‘contrary to

the principles of justice. That the excise in ques-

‘42 Mass. 252, 255.

25 Allen, 431.

a TNO

Sy SPE Te ee oh a ep Chea ee ee

| oe fe ee OEE cet

——

tion operates unequally in this sense cannot be

doubted.”

This definition of an excise was cited by the Attorney-

General of the United States (Hon. Charles Devens) in

the opinion furnished to Congress for its guidance

(15 Op. Attys.-Gen., p. 219), adding that such an excise

‘may be increased or diminished by the extent to which

the privilege is exercised.”

Assuming that an excise must operate alike on all

persons whose property or business selected for tax-

ation is substantially the same in character, and that an

arbitrary and discriminating excise would be ‘ contrary

to the principles of justice’ and would not constitute

‘due process of Jaw,’ it remains to consider whether

the excise now before the court is arbitrary and dis-

criminating as contended by the plaintiffs in error.

The act of Congress purports to lay an excise tax

upon oleomargarine. Congress, of course, knew, as its

very definition discloses, that oleomargarine was a sub-

stitute for butter and that this quality and essence

alone gave it commercial value or utility. The act im-

poses a tax of ten cents per pound upon yellow oleo-

margarine, which is shown to be prohibitive, and under

the authorities above discussed such prohibitive opera-

tion must be presumed to have been the purpose of

Congress. For all legitimate purposes of taxation, oleo-

margarine, whether colored or uncolored, is practically

the same thing, and there are no inherent differ-

ences between them which would warrant their

separation into two distinct classes. In the nature

of things. reasoning solely according to the rules

which should govern the imposition of taxes, white

st ear icy |

fw * . J

oleomargarine ought not to be taxed one-quarter of a

Fay TSR LOM

cent a pound and yellow oleomargarine forty times as :

much, and, in the absence of some ulterior motive, such :

discrimination would never have been attempted. No

conceivable reason can be suggested for the discrimina-

tion based alone upon the yellow color, other than that

it competes with another and untaxed article of com-

merce, namely, butter. On the very face of the act, it is

declared that this discrimination of ..early four thousand

per cent. in the amount of the tax imposed is made

solely because oleomargarine in its commercial form

looks like butter. Such legislation, it is submitted, is

just as arbitrary and indefensible as if Congress were

to endearor to lay a capitation tax upon men of red

hair, and it were to be argued in support ef such a law

that it was constitutional because apportioned.

It cannot be denied that the tax on yellow oleomar-

garine in the case at bar is an extraordinary piece

of legislation, unusual in our system of government,

and of a kind heretofore happily rare. On its face,

it imposes an enormous and disproportional penalty

upon the mere fact of coloring a wholesome and nutri-

tious article of food, whilst another competing food

product, practically the same substance produced in a

different way, is left untaxed. The proof shows that in

its practical operation the necessary effect of the

discrimination is the destruction of an industry con-

ducted within the jurisdiction of a State, by which

the plaintiffs in error and thousands of others are

deprived of a means of livelihood in a legitimate

trade.

When we say that the federal tax on oleomar-

garine is arbitrary, we do not mean to say that

Congress was actuated by no reason in making the

discrimination. We concede that it had a reason and

sought to accomplish a definite object, namely, to pre-

vent the manufacture and sale of yellow oleomargarine

because it looks like and competes with colored butter;

but what we do mean to assert is that it was actuated by

no reason which, under the Constitution of the United

States, it could properly entertain, for in respect of in-

ternal commerce it has no police power whatever. A

commodity cannot be taxed at a prohibitive rate simply

because it necessarily resembles and competes with

another. Such a reason furnishes no legitimate basis

for the object sought to be accomplished. Even under

the police power, a State could not prohibit an article

harmless in itself merely because it looked like another

with which it competes: it could only do so in order to

prevent fraud.

Now, the power to tax undoubtedly involves

the power to classify for purposes of taxation;

but due process of law requires that classifi-

cation shall be something more than mere arbitrary

selection. What test then is to be applied for the

determination of whether there has been legitimate

classification or a mere arbitrary selection? What-

ever else may be done, it must surely be that

discrimination calculated only to deprive one

class of persons of their occupations or property

for no other purpose than to benefit another class

of persons who are their business competitors is, legally

speaking, a mere arbitrary selection. Thus, in the

cases at bar, we find a tax of tem cents per pound upon

- Seem

oleomargarine solely because it looks like and competes

with butter, which is exempted from any tax. The

tax depends solely upon the article being a sub-

stitute for an untaxed commodity. What difference

then exists between these two articles to justify this

discrimination? In their chemical composition there is

substantially no difference and they are used for the

same identical purpose. They compete directly in the

market, but a necessary element of the marketability

of each product is a certain shade of yellow which

must be imparted before it can be sold. The cost of

production is such that yellow oleomargarine cannot

be sold in competition with colored butter if the ten cent

tax be paid. Since uncolored oleomargarine cannot be

| sold or compete with colored butter, the result is the

prohibition of the manufacture and sale of all oleo-

margarine in competition with butter. Therefore, the

. mere fact of necessary resemblance is made to support

the accomplishment of but one object, namely,

the suppression of the oleomargarine industry for the

benefit of the butter industry. No such power was en-

trusted to Congress by the Constitution. It is not

legitimate classification, but mere arbitrary selection

which deprives of liberty and property one body of in-

dividuals for the benefit of another. As Mr. Justice

Harlan said of a state statute in Connolly v. Union

Sewer Pipe Co., 184 U.S. 540, 563:

“ Such a statute is not a legitimate exertion of

the power of classification, rests upon no reason-

able basis, is purely arbitrary, and plainly denies

the equal protection of the laws to those against

whom it discriminates."

What Mr. Justice Brewer said in Gulf, Colorado &

Santa Fe Ry v. Ellis, 165 U.S. 150, 154, is equally

applicable to the Fifth Amendment, viz.:

“While good faith and a knowledge of existing

: conditions on the part of a legislature is to be pre-

3 sumed, yet to carry that presumption to the extent

3 of always holding that there must be some undis-

: closed and unknown reason for subjecting certain

4 individuals or corporations to hostile and discrimi-

2 nating legislation is to make the protecting clauses

of the Fourteenth Amendment a mere rope of

sand, in no manner restraining state action.

The State may not say that all white men shall be

subjected to the payment of the attorney's fees of

parties successfully suing them and all black men

not. It may not say that all men beyond a certain

age shall be alone thus subjected, or all men _ pos-

sessed of a certain wealth. These are distinctions

which do not furnish any proper basis for the at-

tempted classification. That must always rest

upon some difference which bears a reasonable

and just relation to the act in respect to which the

classification is proposed, and can never be made

arbitrarily and without any such basis.”

In Zhe State v. Loom?s, 115 Missouri, 307, 314, cited

and quoted with approval in the £7/7s case, Black, J..,

said:

Classification for legislative purposes must have

‘ some reasonable basis upon which to stand. It

x must be evident that differences which would serve

for a classification for some purposes furnish no

reason whatever for a classification for legislative

purposes. The differences which will support

class legislation must be such as in the nature of

things furnish a reasonable basis for separate laws

and regulations. ‘Thus the legislature may fix the

age at which persons shall be deemed competent to

contract for themselves, but no one will claim that

competency to contract can be made to depend

upon stature or color of the hair. Such a classi-

69 :

fication for such a purpose would be arbitrary and

a piece of legislative despotism, and therefore not

the law of the land.”

It is no longer open to question that the right

to earn one’s livelihood by any lawful calling con-

stitutes the liberty and property of the individual and

one of the inalienable privileges and immunities of every

citizen of the United States which are secured by

the Constitution. Butchers’ Union Co. v. Crescent City

Co, 111 U. S. 746, 757+ 7945 Powell v. Pennsyl-

vania, 127 U. S. 678, 684; Allgeyer v. Louisiana,

165 U.S. 578, 589; People v. Marx, 99 N. Y. 377, 386»

and People v. Gillson, 109 N. Y. 389, 399-

The contention of the plaintiffs, if adopted, would not

limit the taxing power of the federal government. It

would leave it free to determine the extent and method

of taxation in all cases where taxation is necessary

and proper to carry into execution the powers delegated

by the Constitution, and to call upon the people to con-

tribute even to the last penny if necessary to defend

or preserve the U nion or promote the common welfare

of the Nation. It would take away no power that a civ-

ilized government ought to exercise. It would declare

that in the exercise of the taxing power Congress may

not impose prohibitory taxes upon internal products

based upon the fact that a manufactured article resem-

bles and competes with another product which is not

taxed: in other words, that it may not destroy the

property of one class of its citizens for the benefit of an-

other class. Such a decision would be but following

the duty which Chief Justice Marshall said would be

imperative if the court were satisfied that a given stat-

‘Vib SE

fe ROOT Liting SMAI Rd RENE

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th kets.

eee SRR PE RE

Bean: SACHA Q ¢

= — a,

ute purporting to lay a tax was in truth a mere pretext

for unauthorized prohibition.

IV.

THE PROVISION OF SECTION 14 OF THE ACT CONFERRING JUDI-

CIAL POWER UPON THE COMMISSIONER OF INTERNAL REVENUE.

The act in question is subject to the additional objec-

tion that the power to decide finally what articles are

to be taxed cannot be conferred upon the Commissioner

of Internal Revenue, who is only an administrative

officer. Sec. 14 of the act provides as follows:

‘And such Commissioner is authorized to decide

‘what substances, extracts, mixtures, or compounds

which may be submitted for his inspection in con-

tested cases are to be taxed under this act ; and

his decision in matters of taxation under this act

shall be final.”

The invalidity of this clause would seem to be estab-

lished by the decision in Unzted States v. Eaton, 144

U. S. 677, 688, where the court, speaking through Mr.

Justice Blatchford, said :

“It would be a very dangerous principle to hold

that a thing prescribed by the Commissioner of

Internal Revenue, as a needful regulation under

the oleomargarine act, for carrying it into effect,

could be considered as a thing * required by law’

in the carrying on or conducting of the business

of a wholesale dealer in oleomargarine, in such

manner as to become a criminal offence punishable

under § 18 of the act.”

See also to the same efiect, United States v. Maid,

116 Fed. Rep. 650, 651; United States v. Blasingame,

116 Fed. Rep. 654.

The case of /x re Kollock, Petitioner, 165 U.S. 526,

533, did not present this point. That decision passed

RT a ae LECLERC LT EE ge” BO RI OT RE Sat

204

only upon the power of Congress to authorize the Com-

missioner of Internal Revenue to prescribe regulations

3s to marks, stamps and brands. An entirely different

question is involved in the attempt to invest the Com-

missioner with power to ‘ decide ' fiza/ly how an article

shall be taxed. No such judicial power can be granted

except to the courts.

This objection is peculiar to the Clif and McCray

cases. In the Cliff case, the package bore a tax-paid

stamp of one-fourth of one cent per pound (Cliff record,

p.8). The theory of the prosecution was that the pack-

age had not been “ stamped according to law,” within the

penal intent of section 11 of the act, because it did not

have a tax-paid stamp at the rate of ten cents per pound,

under the requirements of section 8. The theory of the

defense was that the tax required by section 8 on the

package in evidence was only one-fourth of one cent

per pound, because the oleomargarine was “ free from

artificial coloration that causes it to look like butter of

any shade of yellow.” The issue, therefore, was as to

whether or not the package in question contained ‘ ar-

tificial’ coloration within the true meaning of the act of

Congress. Upon this issue the facts were undisputed.

The government showed that the article was of the

color of June butter, and that this color was imparted

to it by the admixture of palm oil in its manufacture

(2b., p. 8). The defendant showed by competent testi-

mony that palm oil is a vegetable oil derived from the

fruit of a certain kind of palm which grows in East Africa,

that it is a wholesome, edible oil, containing all the

chemical constituents of butter, except butyrin, which

gives to butter its flavor, that it is used by the natives of

PMOL ———————

the country where it is produced to mix with their food,

that it is reddish-yellow in appearance and a very small

proportion of it is sufficient to produce the color of June

butter, that there is little, if any, difference between the

taste of oleomargarine made in this way and the taste

of butter, that it is quite as digestible as butter and is

very cheap, that the oleomargarine thus produced is

substantially the same article as good butter, and that

the nature of palm oil is such that its use és desir

able as an ingredient in the manufacture of olcomar-

garine aside from its yellow color (tb. pp. 1-12).

The government made no objection to this evidence,

and offered none to question or dispute it (/4.. p. 12),

except to show that the Commissioner of Internal

Revenue had finally decided that the use of palm ofl

in the manufacture of oleomargarine does constitute

‘ artificial ° coloration, and had instructed the prosecu-

ting witness, a Deputy Collector of Internal Revenue,

that oleomargarine thus produced is subject to the tax

of ten cents per pound (/., pp. 8-10).

The facts being wholly undisputed. there was pre-

sented a pure question of law. namely. whether the ad-

mixture of palm oil in the manufacture of oleomangarine

constituted * artificial ’ coloration within the meaning of

the act. The conviction necessarily was based upon

the assumption that this question had been foreckoed

by the decision of the Commissioner under authority of

section 14, and that the defendant Clifi was not enti-

tled to a judicial trial upon the question whether the

article he sold was or was not intended by Congress to

be taxed at the ten cent rate.

In the McCray case it was admitted by the govern-

well

qrent that the omby colicmiemg amacter commana’ 4 ee

package of clmcmmargarine Cheweine intecioad’ wae thie

wabversally weed ie the Conve’ Smaties ae vlien teen

ated was Comtaited im cteiatmery ntter wie Mind Seat

practascerd om thee ogecm amaninat axved wsewed ay Shee eeeteatien

tere of the cltecmmatg arietee oo question me ome ofl te ate

mentary and ancestry angtedlenme acomiing wt

formmedia wierd it tlhe cinsatee off aussie — Tie Connerriin

shomer of latevnal Kevemue had denidiad Chet Heit

cally colbert’ bactey ie wind ae & ccormnygeemenn pre ol thee

feamistverd garowthourt oftevonrnantg:wtiete erned Chae! ennai’ gered

wet looks Bke tamer of amy shade of palllow) a Ge

power to tar ollmomargetine commen geliyor

cooled Preetet ad ter cecittis | geet greta) teewecemtiestioane

i cronelied tort axuttlbvortine hee Ccentvottnsnanennnery al Boneceniel:

Reveswe wo to duis ond Gt oF HF HP te

acodiag to bis Geerction Me & aan @ jute

ofhcer, be bas wo pedicle maine We Geer ae

even be @ lawyer the ame) cet ager nel Heette me time

hee gareecermmmteed eo Dien dated after nett Hee stir se

her amg) cfbroroneee tho ariade axtedl vie dieesiteneent a tee naliptnerls

feo prediacinal fewinew —atdhead, Nee amiey dewiidle ane aimee

sqecettinnn ated Iewtaree sucvonedivngg: tee Thee iedidlit appar yetenny ofl

Rae series, Dibeonggth Comioreos amieg arccon the etFinaime of

thee ceaencietinnse che presternecnes of Ghee gremcemnmnecnn ath ah ot

| the powers tenmanety he Che adloyuntte coamitiiny oh te

we te

constitutional laws and may confer upon them the power

to determine the existence of facts as the foundation of

such action as may be necessary to give effect to the

declared purpose of Congress, it cannot delegate to any

officer or department of government the power to

‘decide’ finally what articles shall or shall not be

taxed.

According to the ruling of the Commissioner, the

word ‘artificial’ is made to include ‘natural, a

word of opposite meaning, for it is undisputed that the

yellow color of palm oil is a xatural color, and the ex-

ception would be, not of oleomargarine ‘ free from arti-

ficial coloration’ but of oleomargarine ‘free from colora-

tion. The established rule is that the intention to

tax in a particular manner must be expressed in clear

and unambiguous language, else it cannot be enforced,

and that words of exception are to receive a liberal

rather than a restricted construction, to the end that the

burdens imposed upon individuals may be confined

rather than extended. The rule together with its sup-

porting authorities is stated in Lidman v. Martinez,

184 U. S. 578, 583. See also Adams v. Bancroft,

3 Sumner, 384, 387; Schoenemann v. United States,

119 Fed. Rep. 584, 587; /nx re Southern Pac. Co.,

82 Fed. Rep. 311, 313; 87 Fed. Rep. 863; Matheson &

Co. v. United States, 71 Fed. Rep. 394, 395; Rice v.

United States, 53 Fed. Rep. 910, 911; Dean v. Charl-

ton, 27 Wis. 522, 526.

It is not contended that the invalidity of this provi-

sion contained in section 14 affects the other provisions

ofthe act. Omitting the clause or declaring the legal

rg hie? s Fe, Ses . 7 , " permenen

Pe!

~p' \

effect to be that the ruling of the Commissioner

is only presumptively correct, will leave the act

complete and harmonious. To the individual, how-

ever, will then be accorded a trial in due form

upon the issue whether palm oil or any other

natural product or colored butter does or does not

constitute ‘ artificial coloration’ within the true meaning

of the statute. Upon that question, we have been de-

nied a day in court; and, acting as an appellate tri-

bunal, this court will not determine that issue but order

it to be tried by the court below in accordance with the

usual practice.

¥.

EFFECT OF THE INVALID AMENDMENT UPON THE ORIGINAL ACT.

The power of Congress to lay a tax of two cents per

pound upon oleomargarine, as was done under section

8 of the original oleomargarine act, is not questioned in

these cases. It is true, in the Broadwell case, no tax

whatever had been paid; but this was upon the

ground that the amendment of May 9, 1902, being

void, no tax provision remained in force. This was

done for the purpose of presenting every phase of the

act, and not because the plaintiffs in error are not

willing to pay a fair tax to the national government.

Although an unconstitutional statute cannot, by mere

implication alone, operate to repeal a prior enact-

ment, still an expression of such an intention may as

well be contained in an unconstitutional statute as any

SARE CERRADO TORY

MELTS he Pee

other. Zims v. The State, 26 Ala. 165, 170; County of

Orange v. Harris, 97 Cal. 600, 602; Feople ex rel. v,

Fleming, 7 Colo. 230, 236; Meshmeter v. State, 11 Ind.

482, 489; Childs v. Shower, 18 lowa, 261, 272; Ely v.

Thompson, 3 A. KK. Marsh. 70, 73; Sudlivan v. Adams,

3 Gray, 476, 478; Campau v. The City of Detroit, 14

Mich. 276, 285; Devoy v. Mayor, Cc., of New York, 35

Barb. 264, 270; 36 N. Y. 449, 451; Céty of Portland vy.

Schmidt, 13 Oreg. 17, 20; Shepardson v. Milwaukee and

Beloit R. Co., 6 Wis. 605, 615; State ex rel. Rogers

v. Judge of County Court, 11 Wis. 50, 55. Anda

declaration that a prior statute is amended to read

in the language of the amendatory statute amounts

to an unequivocal expression of an intention to repeal

the original act so far as concerns any vitality distinct

from the amendatory act. /eople v. I ilmerding, 136

N. Y. 363, 369, per Mr. Justice Peckham; J/atter of

Estate of Prime, 136 N. Y. 347, 355; Goodno v. City of

Oshkosh, 31 Wis. 127, 129. Congress cannot be held

to have intended to prohibit oleomargarine provided

the Constitution will permit it to do so and by the same

act to tax it in case the prohibition were unconstitutional.

To so hold would be judicial legislation. Sprazgue v.

Thompson, 118 U. S. 90, 94; James v. Bowman, 190

U.S. 007, t4ts

CONCLUSION,

It results that sections 8 and 14 of the act of Congress

of August 2, 1886, as amended by the act of Congress

of May 9, 1902, should be declared unconstitutional for

the reasons above discussed, and that the judgment in

each case should be reversed.

WiiuiaM D. GUTHRIE,

MILLER OUTCALT,

Cuarves E. Prior,

Francis J. KEARFUL,

DeLavan B. COoLe,

Cuarces C. CARNAHAN,

For plaintiffs in error.

Washington, October Term, 1903.

|Ms107]

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