Brief for the United States — Illinois Ex Rel. Gordon v. United States

Supreme Court brief1946

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“Opinions RE ac a en ae 5 oe are 1

ETTORE ELD A SE A eos 1

Question presented het wate cae s aes 2

‘Statutes involved__ 2. _....-..- : . :

, Statement... -... Soe rl a =

, Summary: of argument __-..-- --. 2. s ee h

“ Argament: -

I. Federal insurance contributiofs taxes and federal une:

» + ployment compensation taxes are debts within the

‘ meuning of Section 3446 of the Revised Statutes : i

IT. Under Section 3466 of the Revise Statutes the United

States is entitied to prior payment ofits claims for |,

taxes —__- eet te —— ehahoeee 32

Conclusion —-.2° BIOS ie Teta Se Aen nae Ze 34

Appendix... __- ANP Athens S eee 35

1 FATIONS

- Cases: . . ;

Bramicell vy. U.S. Fidelity Co. 280 UL SANBs 8 RR

Cook County Nat. Bank vo United States. WTULS 445 15

Ever Krisp Food Products Co. ln re, 307 Mich. 820-11, 29, 32

* Florida y. Melton, 273 VU. 8.12__ 07 ea 22.

French vy. Toman, 375 UA. 389 2 . 2s

.. _Melvering vo Davis, 8301 US. 6 Z ; =~ AOC2h, 20

Lerman v. Lincoln Noreity Ca.. WO Nd. Eq. 144 - 11, 30,32

Metlon vy. Michigan Prust Co. 271 Ul S: wae : f= 15,37

New York vy. Macian, 288 US. 2h M1 1254

Parks v. Central Door & Lhr. Co. 167 Ore. 363 11

: Poonlé for the Use of Fran is BR. Murphy, Dircetor of Lu Ler :

Vv. Chicago Waste & Tertile Ca., No rer i ; p nas

Prive v. United States, 260 US. 4020 2-22 a Qs, 1-19

. * Rirard y Rijou’ Furniture Co, OT ROD BAL tieditied: €S

Ro 1728 _ ; : - . 11,30

‘ Spokane Counti ¥. United Sintes, 270 1 “S. SU, aa bt a, 3

_ Stéward Machine Cov. Daris, 3O1 US. ats Teen |

Stripe v. United States, 260 TS. 408 7g 08 12

‘United Siates y. Emory. BAUS. a” eeae 16, 18, 19

United Star sy Guaranty Tr, Co, 2800 SATS 15, 14h

GST727 46-93 “eo

hte aha

+ Pare. ;

‘ . a

esl ieee

. IL .

ry 2 Q

Cases—Continhed. Page

Wnited States v. Marcen, 307 U. 200. -..--..6 ee

United States v. New York, Pre : 8; BIO: . wx 10, 23, 24, 26, 27

United States v. Oklahoma, oe U. s 2538 ansaid 43

United States v. Teras, 314 U.S. 480... 7 F 11, 12, 14,3

UnitedStates v. Waddill Co., 323 U. 8. B58... . 10.30/31, 33, B4

White Plains Oil Corp., Matter of, 287 N. : V4). 10, 28, 31

Wire Wheel Corp. vy. Ae oge Bank & Trust Co.. 30 F. 2d 318,

certiorari denied, 27h U. 87: Snes ale 14

Statutes: . ‘

linois Unemypl winent Compensation Act (Jonés Ulinots

Statutes Annotated (1944), Sex "8. 45.1728—45.161 a 26; 3:3

Internal Revenue Code: ° ' eke

Chapter 9, as amended (26 U.S.C! 1400, 1600) nee e 4 o

Revenue Act of 1926-¢. 27, 44 Stat. 9:

See, 600 : 13

Ser, So0° rit : een tes 13

See. S05. * wide: pte i OR oe I. 3

Sev. 1100 fe ore d 3 ola BS 14

Revenue Act ‘of 1934, ¢. 277, 48 Stat. 680, See, 6072-2. 31,38

» Revisecke-Statutes, See. 3466°°31 UL S.C. 191 ). 8, 12, 14, 35

‘Social Security Act. ¢. mg 49 Stat. 620: * .

“See. 801 (42 028. C1001) Bs : 5 sel de cs rca

Nee. 802 (42 US. US 1002) B--o-ag an Se

Sec, 864 (42 UL S.C) Lond) ES RR EM em ea

Sec. SOT (42 UL S.C 1007) a Rs ney 12, 31 x

oO 44 UL . «. 1101) Rano ete ee RAL ACT 9, 37

Sec. 902 (42. U. 8. 1102). Ae:

Uy roa 95 (42 S.C. 1LO5) ait ee eee rae --. 13, 38 |

Miscellaneous : he Woe

iH. Rep. No. 615, 74th Cong., Ist Sess. p. 3 (1939-2 Cum.

Bull. 600) hc ies SO Sk Sirah Beh A Se Leen aes 21

Tiinois Attorney General’ s Opinions, 19389, No. 37, pp. 135, is Zs

S. Rep. No. 628, 74th Cong., Ist Sess. pp. 12-13 (1989-2 Cum.

WME. WOE Pnercscucanns ye

ame « ~ eee etme = oe eH ows eee eee

Treasury Regulations 47, Art. 23- “

Ine Supreme Court of the United States

. Oc TOBER T I RM, LOAD

No. 749 os

PEOPLE OF THE StaTe Wor Eniixois, Ex Rev.

Roperr L, Gor s,. Director oF LABOR, PET\-

TIONER |

; Ges.

THE UNtrep Srares or AMERICA. .

ON WRIT OF CERTIORARI TO THE SPEPREME COURT OF THE

STATE (OF ILLINOIS ;

> a

BRIEF FORK THE UNITED STATES

OPINIONS: BELOW

‘The Circuit Court of Cook County, Illinois”

rendered no option. The opinion of? the Su-

_preme Court of Illinois (R. 4f-54) is reported

in 391 Ill. 29. Gat Ee

nae 7URISDICTION |

The judgment of the Supreme Court of Llinois .

ts rendered on, September 17, 1945. (See R.

* 41, 50.) The time for filing a petition for a writ’

of certiorari was extended by the Court until

January 16, 1946. (R. 56.) ‘Phe petition for a

a e

)

writ of certiorari was filed January 15, 1946, and

was granted February 25, 1946. (R. 56.) The

jurisdiccion of this Court is invoked wider ‘See-

tion. 237 (b). of the Judicial Code, as ame ences by

the Act of February 13, 1925

; QUESTION PRESENTED

Whether the claim of the United States against

the Advertising Review Publishing Company ‘for’

“unpaid capital stogk taxes, insurance contribu-

tion taxes, and unemployment ° compensation

taxes, is entitled to. prior payment by virtue of

Section 3466 of the Revised Statutes over state

claims against the company for unpaid unemploy-

ment compensation contributions levied by Tlli-

nois statute. |

STATUTES INVOLVED

The statutes involved are printed in the Ap-_

“pendix, infra, pp. 35-39.

STATEMENT

The facts? may be stated as follows:

On January 9, 1939, tlie Advertising Review

Publishing Company, a corporation, male a gen-

eral assignment of all its property and assets to

William Fisher, as trustee for the benefit of its

creditors. ‘The ‘triistee” converted the assets to

‘The Circuit Court. of Cook County ‘made some ndings

of fact (R. 1-15), but they are not complete with respect

to the. issue before the Court. Other facts ‘appear in the

ple radings and i in the opinion gf the Supreme C ourt of Hlinois.

eash, realizing the amount of $1,734.40 therefor,

whieh has.since been reduced to €1010.81, (CR.

17-18.) | | |

The Collector of Internal Revenue filed claims

with the trustee for capital stock tax and penalty

for 1939 in the sum of $58.73, plus interest at 6% ;

for federal unemployment coinpensation taxes

and penalties for the year 1938 in the amount of

$1,284.36, together with jiterest at 6% from Jan-

uary 11, 1940; and for federal insurance contri-

butions taxes and penalties for the period

commencing. October 1, 1937, and ending De-

-cember 31, 1998, in a total amount of $1,065.52,

with interest at 60> from January 6, TAC.

‘(R. 2.) |

The Director ‘of yee of the Sate of iiiaote

also filed with the trustee claims for unemploy-

ment compensation cantributions due the State of

Illinois for the year 1938 in the amount of

$721.29, with ‘interest at 1° per month from

January 25, 1939. (R:3.) .

On February 11, 1942, the tnistee filed a com-

plaint in interpleader in the Cireait Court of

. Cook: County, . Illinois, naming the Collector of

Internal Revenue and the Director of Labor as

defendants “ma asking instructions from the

Court as to: the disposition -of the’ funds in his

hands. (R.. 1-4.) By order entered pursuant to

stipulation the United States of America Was _

made a patty defendant anil the ‘Collector of

Internal Revenue, was dismissed as a_ party. °

(R. 4-5.) . . |

On April 2 2, 1948, the Director of Labor filed.’

a complaint in the Cireuit- Court to foreclose a

Matutory lien for unemployment contributions —

under Section, 26 (a) of fhe Illinois Unemploy-

ment Compensation Act. -(R. 8-16.) On March |

23, 1943, notice of this ‘lien had been tiled with.

the Office of the Recorder of Deeds, ¢ ‘ook - ‘ounty,

Illinois. (R. 11, 15-16.)

The two proceedings were. consolidated CR, 16)

and by decree dated February 18, 1944, the funds

in the amount of $1,010.81, remaining in the

hands of the trustee affer.payment of proper ex-

penses and, ‘costs of administration, "were ime

pounded with the Clerk ‘of. the Court and. the

trustee was discharged (R. 17-19). By order

entered February 29, 1944, the Circuit Court de-

eided that the lien of the Director of Labor be

given priority to ‘the extent of 96°; of the funds

on deposit with the Clerk and that the United

States have priority as to-the 10% remaining.

(R. 19.) | |

The: United States appealed from this order to

the Appellate Court for the First District of Ih- 3

nois, and on motion of the Director, the eayse Was

transferred to the’ Supreme Court of [linois on

Jurisdictional grounds. (R. 19, 42.)

a) \

On May 23, 1945, the Supreme Court filed its

opinion reversing the Circuit Court CR. 21-33

and rendered judgme ut ordering the Cire it-Court

to enter a deeree that the United: States is ene’

titled to priority of payme nt to the extent of the

funds on deposit and ordering distribution ace urd-

ingly (R. 34). : ta

On Tuite 16, 1945, the Director of Labor. filed

a ager for reheaying, (R. 35-40.) «On Sep- |

tember 1945, the’ Supreme Court of Tinos -

denied ae petition for rehearing (RR. 40), anid at.

» the same time filed a modified opinion (R. 41-31),

which, however, did not alter its directions to the

Cirenit Court to enter a decree that the Ciited.

States is entitled to prtority. to the extent of the

amounts on deposit.(R. 54). 7

SUMMARY OF ARGUMENT

I Sig

The claims of the United States for federal in-

suranve contributions and fede al uncmplovipent

‘compensation taxes, unless expressly xeluded by

Congress from the purview of Section 3466 of the |

_ Revised Statutes, .are debts due the U nited States

within the meaning of that section. ‘Phere is ne

2 Both tice oliatinnd a moditied opinions Geeited not

only the instant-case but also thatsof People for. the Use of

Francis B: Murphy, Director of Labor vy. Chicago Waste

Vertile Co, No, 28474, now pending before this Court as No.

750, The modified opinion contained cman res prine ipally -.

relating to the latter case. .

express provision in the Social Seéurity” Act, un-

_der-which these tax claims arose, relinquishing the |

priority, accorded to debts due the United States

by Section 3466, with respect to these taxes. On

the coritrary, Congress prescribed-in the Act that

all available methods of collection, of which See-

tion 3466 is orie, should apply to these taxes.

Nor is there any provision in the Social Secu-

rity Act, dealing with the acquisition of independ-

ent security by the United States or the distribu-

. tion of the assets of an insolvent taxpayer, whic h

is inconsistent with Section 3466.

‘ Nor may any intent to relinquish feder ‘al, pri-

ority be implied from the fact that the federal

taxes and state contributions were both imposed

in connection with a program to provide a social

' security system. Congress has indicated no policy.

of permitting states te collect contributions to the

detriment of the federal revenue, which Section

3466 is designed to assure. P

The provision for allowawce of a credit, not in

_ excess of 90°(, against the federal unemployment

compensation tax equal to the amounts paid by an’.

employer to a state as contributions under a state

law does not alter the nature of the federal tax,

whatever its final amount, as a tax entitled to pri-

ority under Section 3466, nor does it elevate the

contributions payable to the state to the dignity

of a aang claim. Moreover, since no ¢redit

——————e : -

‘

for state payments is allowable against the fed-

eral insurance contributions tax, the prierity of

this tax is not impaired in any event, if any infer-

ence should be drawn that. the credit) provision

affects the .priority of the federal unempl vinent

compensation taxes. e

Finally, thé claim of the State for contributions

is not tantamount to'a claim of the United States,

so as to share equally with the claims of the United

States under: Section 3466 im the distribution of

the insolvent, debtor’s estate. 6°

I[.

The debtor in this case was insolvent within

the meaning of .Section 3466 and the state had

only: an inchoate’ general lien for .the amount

of the contributions due it. Consequently, since

the claims of the United States against the debtor

‘for capital stock, insu ‘ance contributions, and

unemployment coupensation taxes are debts due

the United States, these claims are, under the ex-

ieee language of Section 3466, to be satistied first.

ARGUMENT

FEDERAL INSURANCE CONTRIBUTIONS TAXES AND FE))-

ERAL UNEMPLOYMENT COMPENSATION. TAXES ARE

DEBTS WITHIN THE MEANING OF SECTION 3466 OF

THE REVISED STATUTES :

‘This case is concerned with the question

‘whether claims of the United States for capital

687727 -46-—--2

stock, federal insurance contributions, and federal

unemployment compensation taxes have priority:

under. Section 3406 of the Revised Statutes

(Appendix, infra, p. 35) over a state claim, for

unemployment compensation contributions, » The

Supreme Court of Ilinois held that the claim of

the United States for insurance contributions

taxes ($1,065.52, plus interest) had priority under

that. section over the claim of the ‘State’

(R. 50-51 ) and since this amount excpeded the

entiré amount.of the debtor's property available:

for djstribution ($1,010.81) (R. 18), it awarded *

the gmount to the United States (R. 54).

The State of Hlinvis contends that the lawer

couft erroneously applied the priority statute to

‘social seciirily”’ taxes ‘on the ground that such

taxes were not intended by “Congress to be

_meluded within the . scope of Section S466.

(Br. 10-26.) Thus, although the Supreme Court

of Illinois ‘confined itself to a decision that the

United States had priority for federal insurance

contributions taxes alone, the State apparently

does not distinguish these. taxes from federal

unemployment compensation taxes. We eontend

that both kinds of taxes are, debts within yhe~

meaning of Secti ion 3406,.and, in any évent, tha

* The opinion of the Supreme Sous of Tlinois did not

diseuss the claim of the United States for capital stock taxe~

in the amount of $58.73, plus interest, but it will be clear fromiy

what is said above that these taxes also are entitled to priotty

over the State's claim. ;

the contributions taxes are clearly soscas the

lower court held.

‘The federak insurance ‘contribntions taxes are

for the period’ commencing October 1, 3957 and

ending December 31. 1938. and they arose under

Tithe VIIT of: the Social Security: Act of bY,"

“Section SOL of this title (Appendix, i fra, ppo3o-

* 36) levied ap income fax on employees equal to a

pereentage of wages received in employment and

Section SOF (Appendix, dafra, pp. 36-37 ) levied

an exeise tax on emploxers equal te a percentage

of wages paid in employment. Phe employecs”

_ tax was required to be withfield by the employer

fren Wages paid the emplovee and te be paid

by the employer to the Collector of Tnternmal -

Revenne. Section Sov C Api nidix, datray pe OB),

These taxes will sometimes herematter be re-

ferred to as Title VIED taxes.

The federal-unémplovment compensation fades |

are for the year 1938 and they arose under the

provisions of Tithe IN oof the Social Security

Act. Section 901 of this tithe (Appendix, sufra,

Por 1950 and suceeeding \ewrs these taxes are Hiposed by

‘the Federal Insurance Coytributions Act. Chapter i Sub-

chapter A. Internal Revenue Code. as amended (2 Us. ©.

1400, ef seg.d: which superseded Tithe VADD of the Social Se-

curity, Act. as

* For 130 ana subsequent vears these taxes are levied hy

the Federal Unemplosment Tax Vet, Chapter 9, Subchapter

C, Internal Revenue Code. as amerided (z6 US. CL 1600 +7

ego). Which superseded Pitle EX of the Social Security: Net.

°10

p. 37) imposed an excise tax on employers of

-eight or more persons equal to. a -percentage of

wages paid with réspect to employment. Against .

this tax, the employer was permitted by Section

902 (Appendix, infra, pp. .37-38) ‘to credit an.

qnount,not in excess of 90°) of the tax, re present: -

ing the contr ibutions “paid by him” into an unem-

ployment compensation fund maintained ' by a

state ander a. federally approved unemploymeit

compensation law. These taxes. will sometimes

“hereinafter be referred to as Title IX taxes.

As this Court has alre; idy held, both the Title

VILE and Title IX taxes are valid taxes, both

are paid into the Treasury like internal revenue

collections genetally and are not earmarked in

any way. Helvering v. Davis, 301 U.S. 619, 635;

Steward Maehine Co, v. Davis, 301 U. S. 5a,

574; United States v.\New York, 315 U. 8. 510.

In view of this Court's decision in United States.

v.. Waddill Co., 323 U.S. 353, that Section 3466

applied to give the claim of the United States for

federal unemployment. cympensation (Title IX)

taxes priority over a landlord’ s rent len and a

~ claim for municipal taxes, it can not be seriously

argued now that federal tax claims ‘arising under

either Title VIII or Title IX of the Social

Security Act are net debts within the meaning

of Section 3466.5. While the Court was not ‘asked

* Other courts also have held that federal sociad security

taxes are-entitled to be paid in full ahead of other claims

to decide whether the federal claim was superior

to the claim of the State of Virginia for unem-

ployment compensation contributions, this: point

being conceded, it seems apparent that the pri-

ority accorded the United States’ claim under.

Se¢tion 5406 over other claims would necessarily

extend to a state’s*claim for une mployment con-

tributions (which at least was not a speeitic and

perfected lien).’ Clearly federal taxes could not.

be a “debt” Within the meaning of that seetion

so as to bar the claims éf some ereditors and not

those of others.

Apart from the Waddill Co. case, however,

which, we think should -be decisive, it is well

settled that federal (taxes are debts within the

under Section 3466 of the Revised Statutes. Marterof Whit

Plains Oi Corp., 237 N.Y. M41: ln re Ever Wrisp Food

Products Co. 307 Mich. 182 aLerman vy. Lincoln Novelth Co.

130 N. J..Eq. 144; Parks v. Central Poor & Lbr. Ce a

363; Contra: Rivard | v. Bijou Furniture Co. 67 R. | §

modified. 68 R. 1.358.

In this case the State of Hlinois does not argue that its

lien for unemployment compensation contributions: was spe-

cific and perfected prior to the general assignment for the

benefit of creditors, at which time the priority of the Unite I

States arose, and apparently concedes the point thit it had ho

lien which would take precedence over the claims of the

United States under Section 3466, if that section is held te

apply to the claims.

oHowever, it is. not conceded by the United St: ites that a

“prior specific afd perfected lien woud defeat the ‘priority

of the United States under Section 3466.) See Ver York.

Maclay, 288 U.S. 290; United States vy. Tewas. 314 US, 480:

United States v. Waddill’ Co., supra. Tw the companion

case, No. 750, we argue that a prior specific lien does not ditest

the United States of priority under.Section 3466. 9

meaning Gf Section 3466 (Price v. United States,

269 U.S. 492, 499; Stripe yo United States, 269

U.S. 508) and claims for such taxes have- been

accorded prioritt over competing state and local

tax age (Spokane County Vv. United States,

279 UL SL 80; New York vy. Maclay, ~S8 UL S..290:

United States vu Texas, 314 U.S. 480). If the

conditions of Section 3466 are otherwise satisfied,

as we shall show they are here, the claims of the — -

United Stafes for federal insurance contributions

and uneniployment compensation taxes (and capi-

tal Stock taxes as well) fall within the direction of

Section 3466 that “the debts due’ “the United

States shall be first satistied.”” ’ |

Consequently, only if Congress has otherwise |

provided that the federaj insurance contributions

taxes orthe unemployment compensation taxes_

are to be excepted from the absolute phiorit?

vranted by Section 3466, can there he: justification

for excluding such taxes from the scope of that:

section. But there is nething in the express terms |

of either Title VEIL or Tithe IN of the Social

Security Act which relinquishes priority as to

federal taxes. accruing under those titles. On

the contrary, instead of showing a policy. of

stricling the methods by which sucig taxes may

be collected, Congress. has provided for the atop

tion, of all available methods 6f collection to these

taxes. Section 807 (¢) of .the Social Secarity

Act (Appendix, iafra, p. 37) provided; with re--

spect to Title VILL taxes:

a. _P a

All provisions of flaw, ine jud ing penalties,

applic: ible with respeet to any tax in eRe

by section 600 or section SOO of the Revenue

—_—-

« 607 of the Revenue Act of 1954, shall, inso-

« far as applicable and not ine Msistent with

the provisions of this title, be. applicable

Witharespeet to. the taxes: Imposed by this.

title. _ ? ; ;

A: similar provision With respect to Unie Inployme nt

compensation: MTitle IN) ;.taxes (making appli-

cable to such taxes, ieee the provisions of law

ten with respect to any tax imposed only hy Section

H00 of the Revenne Act of 1926, 027, 44 Stat. 9),

appears in Section 905 1b) «of the Social See unity,

Act | Appendix, sufra, p. 38):

Section SOO of the Revernne Act of 1920, imposes

tlie re of provide iia

; Ail internal revenue laws re ols ttine to the

assessment and - collection of - taxes “are

title (Title ViTT—Stamp Taxes], so far as

applicable. for the purpose of collecting

stump taxes omitted throteh mistake or

fraud from any instrument, deeument,

paper, writing, pareel, package, or article

hated herem,

he less and. while there is ne special provistén in

connection With tliat sec tion alone re latiug to. col-

lection proeedu tres; Article 23 of ‘Treasury Regula-

+ ‘ Py

| documentary stamp taxes A Section S65 (hy):

+4 . Act of 1926, dnd the provisions of section © >

hereby exténded tesand made a part of thits

Section: GOU imposes eXcise: taxes’ oi certain ar-

fions 47° (March, 1926, revision), promulgated

under Section 600 and 903 of the Revenue Act of

1926, provided in part: '

Tn collecting the-exe ise taxes the commis:

_ _ sioner has the benefit of all existing inter-

* ‘nal revenue laws. * * *

And Section, 1100: of the’ Revenins’ kak of 1926

‘ provides witht respect to both Sections G00 and

All administrative, special, or stanip pro-

Visions of law, including the law relating

_ to’ the assessment of taxes, so far as appli-

capable, ‘are hereby extended to and made a_

part of this Act. od) Fle ;

Section 3466 of the Revised Statutes is plainly

a law relating to the coliection of taxes in the spe-

cial situation of insolv ency, and under the quoted

provisions of the Revenue Act ‘of 1926, that see-

tion would liave been available to the United

. States as a collection measure in the case of excise.

and stamp taxes levied by Sections 600 and 800 of.

that Act. Cf. Unite: States v. Téxas, supra; and.

see Wire Wheel Co. v. Fayctte Bank & Trust Co.,

30. F, 2d 318 (C. C. A.-7th), certiorari denied, 279

U. S.-873, where 'a ciaim for federal excise taxes

on automobiles was held entitled to priority under

Bection 3466. It follows that Section 3466 1s also

available as a collection remedy with respect to

the Title VIII and IX taxes. . ae

- “Thus, instead of repudiating Section 3466, Con-

gress took pains to.show that the United States

decisions of this Court holding that Seetion S466 -

a“

“could iivoke Lie section “as a hie us ‘af scouring

collection Moya an insolvent taxpayer of the taxes

imposed by the Social Security Nets, This. result,

of course, should’ also follow logieadly from the

is to be construcd liberally to effeetiiate its -pur-

ose. of Securing adequate public revenues, Cited

Slates Vv" » Emory, lay. ‘: 493 426. ‘

The State ites { Br. 10-11 ie Cool?’ c onnky Nat.

Bank vy. U nited States, 107 U.S. $455 Mellon

init Trust Co., 27V.U. S. 23603 Cited States

_ Guaranty Tr. Co,, 2B U. ges wn’ Usted

States ve Mainéen, 307 TS. 200, as author ity that

in implied inte Htion to be ugai oder: tLprierity

under Section S466 may be drawn from neon

sistent provisions of, hother stitute. ILowever.-

euch ol { those deeisions turned on specitic, prove

sions. of -the statute there unieler conside vatbon,

which have no counterpart in the Social Security

Act, and eid not involve the ext raordinary Chadian

Which seenis to be mj ide here that Se. tion BAG is

inapplicable only against a. particular class of

creditors; viz. the States” “Thus. in ¢ ‘ook County

Nai. Bank vo United States, supra, Mivolvings

claims against an Insolvent national brik. tet

ne am

“Since the State's argument: Is ye edicated entingly upon

the joinit interest of the Feder: land Séaté governments ui

the social security prog Te and that aa ecli ne nt wo aladdin

ho application to privatebeneditors, the State's argunient in

pligithy recognizes that Seption 5 166 Is applicab Ne ugreuiist all

private creditors, 2

~ OSTILZT.— 46

{

x .

only did the act authorizing the formation of na

tional banks establish the names tn whieh ther

assets were te de clistyabiate dit placed ti receiver

ship, bat also the United States hy statute had’ the

right to dematiadl atid: receive stich “Security ts tHe

Seeretary of the Treasies thomght satisfactory fo

amounts depostted by the United States in ‘nea

tional banks. bn aidditton, for ATTY deficheney

thy: SECUETY deposited tes SCOTLEO al beanrk’s Hoies,

the Unried States gwiis te have a paramount dies

_ on ablits assets. win View of these provisions, th

"Court held tliat Congress intended the United

States to look > for* security: for its clatins els:

“where than to Section 24606 it the ease of mation!

banks, and accordingly that Seetion S466 Tid ae

application: when oa tational. Inti, beeame ae

solvert. te |

In Uiited States Vv. Guarenty Tr. Co. csapie,

the Court held that ‘claims of the United States

for loans made to carriers under the Transporta

tion Act of 1920 were not te have priority, on twe

grows: First, the purpose of the Net) which was te

establish the general credit of carriers needing

Funds, and thus te preserve the transportation

system, would: be defeated by giving priority ‘te

the debts due the United States, sinee other per

sons woidd be reluctant ‘to extend-eredit-to ea

riers if their claims were to be subordinate te

those of the United States; second, Congress gave

specific evidence’of its purpose not te rely capon

| .

Section 3466 for repayment of the advanees, since

lequate security. for the loans made by the

United Statés was either required by iawoor left

to the diseretion of the President.

Thee statutory provisions tnider which this

Court ferred that Congress dlidh not intend See

fion HOG to apply te the claims in these. citses

are not found in the instant ease. The (provistons

of the Social Security Aet are tot de signed te

establish the credit of a taxpayer-debter with the

publie venerally. as Was tie of the statute under

wintch loans were made by the Utiited Stites in:

the Guaranty Te. @€e., Cease tor do they direct

how the estate of an inselvent debter liable for

federal contributions or tnemploynieat taNes is

to be distributed.’ Neither are there provisions

* The other two, cases relied ob seen entirely iorelevant te

the question herve, Dndlaited States 0. Meer ns spre it Wate

heldonty that Seetion 466 ts mapplte ‘able tow general ela

in bankruptey transferred te the Cnited States. or te whith

the United States was subrogated. after the filru of a pets

tion in bankraptey, because the rights of creditors are fixed

as of the dateof filing Che petition, The. “ie at bar iivelves

no sueh question. M Hon ve Michiqan Trist Ca. supra,

involved a claim ofthe Directar Gone ral of R: vilread i agreitint

an insolvent estate. “The Court held that Seetion S168 did

hot apply fo give the Director's chun pr iovity hecause he was

subject toa statute whith contined his substantive rights te

those whie hoaccarrier world Lave had. “To have permitted a

preference uncer Section S466 ca right which A CAPr her could

not have) would ha€e conttic ted with the spicit anek broad

Spurpose of that statue. OP. 20.) There is.cof corre. ne

sini statute here. restricting the substantive right. of the

United States.

in oa under which. the United States could

provide itself with independent security for pay’

_mentof such taxes. In fact, the taxing provisions

of the Social Security Act are intended to operate |

primarily on selvent persons and there is ne

special provision for the case where a taxpayer

becomes insolvent. Section 3466 operates solely

in the latter situation. In. consequence there is

no basis for an inference that Congress intended

to waive the priority of the United States under

Section 3466 for collection of Title VITL and Title

IX taxes in cases where the t taxpayer has become ,

insolvent. . or.

> The x reasoning of United States v. Emory, 314 —

U. 8. 423, confirms. this conclusion. In that case

a majority of this Court heid-that the provisions

of the National Housing Act did not impliedly

relinquish the priority under Section 3466, other

wise attaching to claims due ‘under the Housing

Act, even though the objective of the Act was te

stimulate the building. trades and increase em-

ployment. © ‘The Court said (pp. 482-833

The National. Heusing Act contains. no ref.

erence to the liquidation of estates of in-

sc solvent borrowers, and eonsequently no di-:

rect Inconsistency with See. 3466 is pos-

sible. The purpose of Title ‘Ll was not the

strengthe ning of the general evedit,of prop-

erty owners, but ,the stimulation of the

building trades by affording assurances to

lending institutions in order to induce them’

| aes ly

to make Joans for prope ity improvements.

No security was required of the borrowers,

—and the interest charge.was low... Quily the

plainest inconsisteney would warrant our

tien of so clear a “command as th: ito See.

bas 3466. We think such inconsisteney ts ns

withing here.

Moreover, in-ng case of whieh we dre await

has this. Court ever dimpled an mitention to aban

don priority: under Seetion 2466 with. respeet to:

claims arising under a revenue, statute. lideed,

it seems that.only the clearest Congresstonal tan-

cuage could compel such a result in the ease of a

tax, since the, funetion of Seetion S466 1s) the:

assurance of the public revenue OS pohkane County

v. United State: S, 219 . SO, 2: Prier Vv, United

finding an implied exception to the py rae.

States, 269 U, 49? 5002 os Sehey iN

Unite d States v. pee y, S14-UL SS. 2b: The

dissenting opinion’ in United States v.. Kasey,

supra (pe 435), deemed it of special significances

that the National Housing Act there before the

Court ‘is not a revenue measure,”

Despite the fact that there are no provisrons in

the Social Security Act, dealing, either with the

taking of security by, the United States or’ the

distribution of the assets ef an insolvent taxpayer,

Which «ould be construed as inconsistent with thy

provisions of Section 3456, the States argues that

it is ineompatible with the general. policy, and

social objectives. evidenced in the Social Security

Act to give priority to federal tax Claims under

that Act over state Claims for contributions aris-

ing under a state amemployment. compensation

statute. The-State’s claimeappears to’ be in sunr

‘mary that in enacting the Social Security Act

Congress deemed the accumulation of state fuiids

for unemployment compensation to be of such

paramoyst importance that it intended tt relin-

—qnish the Section 3466 priority with respect te

the federal taxes. (See Br. 12-13.) “As already

pointed out, only the plainmest evidence of) such

an intention would suffice to remove the priority

afforded the federal claims by Section S466. Net

‘only is such evidence lacking here, ft on the

contrary Cao ress lias provided, SOO NM PG, hp. ar,

14, that all available collection measures are appli

cable to the federal taxes. .

In any case, it is not to be inferred that (‘or

gress was concerned primarily with accumudating

state unemployment contributions funds at the

expense. of federal funds. The Social Security

Act did not legislate with respect to state unem

‘ployment compensation funds alone. It set up :

system for payment by the United States of old

‘age benefits (Title IL), and authorized the appro:

priation of amounts annually as grants to the

states (whose plans conformed to the standards

set up in the’ Act), for old age assistance (Title.

I), for administration of unemployment compen-

sation laws (Title TIT), and im aid of dependent

2] as Ae

children ( Title TV). maternal-and child welfare ..

(Title V), publi ie Health’CPithe VI). and the blind

(Title.X). Manmifestly such a preeram required

farge federal funds- and Congress levied the Tith

~~ MIL and PX taxes te provide additional gener: al

> reverme, white h. when: appropriated, World Vapopeds

funds te carry out this prowram. See fieleeriaeg

Davis, Sip) ves Ste ward Meael ine Co. \. Pdarris,

supra, Lhe fact th: ee operess cleetmead it in the

public interest for states te accumulate: rivera los

ment compensation ftrnds maw be admirttesl brat

it was alse in the’ jtublie iriterpest “ter sheeurpeatelsate

federal revenue. +

ry . ;

Thi Veit of the need: Por reterdie, te tinpliesation

that Coneress dnitended te abanden its lone exist

ine prorlies of assunme the federal revennes, by

tuaking its claims payable first from, the ass ts of

As HE. Rep. Noo 61, Tith Cong. Dt Sess pds

Crum. Bull. goa ota, states :

of “ae Net | lends with four qicnper sttbyect

Ode oe urity, teniplowse ent Canker penis ttieate, seretnpeit \

for children, and public health. “The subjects are all

% lermedy rebated, at! bee guess coneernedl With i yet aitii-ers

or depetidienen Peete thie ceolg=tobiite: iat. trapeortast

Step mia well-rounded, unithed, longorange wregrita ter

social “eCHPIEN,

AS alneads pointed out. the anounts collected as tives

vnder the Act were not earmarked, but wert’ iite the general

funcls of the Treasury, The Net contatned the iit heer its fest

appropri: ations to he made to carry out the prev tstons of thie

Net. but separate uy? prope jon* wets Were neeessary.. See

Steward Mochine Cacv, Davis, SOL US. BAS. STE TT SPs,

DS Dele rinden, is: ME LS. 10. Eh Sy :

an insolvent taxpayer, arises from the fact ‘that

jit encouraged the states to collect! &ntributions

for ati inempToyment compensation fund and that

“the burden on the Federal Treasury tial have

been lightened to some extent the reby.-

Nor can the prevision for allowance ofa ovedik

against the ‘Tithe IN texeés be construed as a Cor

gressional direction that the federak.taxes and -

thé state contributions shall share pro rafa in ar

insolvent estate. Tithe IX levies a federal tas

on eniplovers tn the first “PASt tee Dart pre Vits a

credit: against this tax, up te 90°, thereot, of

amounts actually pad) to the state as contri

butions. However. until payrient is Pade tea?

state, ne credit ts allowable and the entire fedeca!

tax is payable te the United States.> As this

eitieuliaeaiuns

2S. Rep. No. 6zs. Fath Cone. dst Sess.. pp. dy 2. cbse

Cum. Bull. ©) a ea states with PEspect to the ‘redit :

This credit. however. is allowed onky up te 96 percent of

the Federal tax, le pereent being payable cite the

Feleral Treasury in any event.

Thes tar offset device is modeled after the Proviso!

iif the Federal estate tar law. under eich a credit j-

allowed Hp te Se percent ef the Federal tax for amount- Set

aig under State inheritance tax law, With a uniforn

tax and this offset device, emplovers im all States will be

‘put Dna ath apts il con pe titive position, No State ean gain

any aivantage through failing to establish an unen

ployment compensate mosystem, *° *.

Cf. Florida v. Mellon. 273 , # Me, B | ae eit Tomer “ourt suis

tained thie validity of the federal estate tax and yr credit

provition, irrespective ef whether or not the S06) credit

against the federal tax for payments of state inheritance tas

* was or could be taken in a particular case.

te.

Court

Bs U.

The amount ,of the tax assessable under

Seéction GOL is: definite and fixed, once the

declared in United States v. New York,

“S. 510, SIT: ..

Single variable, the total of the wages paid

during the yeay. is determined, Arthough

the employer is free to obtain a eredit

against it by contyibuting to his state fund,

it cannot becsaid that) it is any less a tax

because the employer has fatled, either,

through choice or dack> of reseuprees, te

make stieh a contribution. Either the state

ar the federal government must provide

the thomey too meet the requirements of

reef to the unemployed. By lis cout

nitions te the Stategan employer has div,

niinished the. demand upog the finaneral

resourees of the feaeral goversduent. Dut -

be his failure te eentribute, the emplover,

has inereased this demand amd sharpened

ethe necessity. for obtaining the revenues

required to satisfy at. The effort by the.

United) States te Obtain the revenue by

denying the credit mmst be regarded as the

levying of a tax and noeteas the exaetion

of a penalty.

~*~

Conseeuently, the fact that Congress provided

for the reduction of Title EX taxes by the eredit

does not alter the nature of the tax, nor does —

it minimize the importance of this tax to the

Federal’ Government as ao revenue producing

measure,

. |

The provision for the credit means No more

than that Congress was willing for the Federal

Government to sarrender:such part of the amount.

(but not in excess of gO", ) it might. otherwise

collect as revenue under Tithe IN, as. was equal

to the amount collected by a state under its own

laws. It does not sigmfy any intention to clevate

the amounts which the state collects to the status

of federal taxes, or to dest roy the clear distinetion

hetween the claim of a state for contributions:

and that of the Federal Goverment. for the taxes

due it, whieh this Court) recognized in. United

States v. New York, "215 U.S. 510. And. ce:

tainly the provision. for allowance of ad oredit

against the Title IX taxes in certain Ciel

stances does. not evidence a broad purpose gen-

erally. to relinquish priority as to the Title IX

tax remaining due after: the allowable credit is

deducted, or’as to the full amountcof the Title

VIII taxes, which are unfettered by any provision

for credit of state contributions.

Furthermore, the eredit is not allowed to the

state but ently to the employer who is liable for

the federal tax. The. state's -right ist only to

colleet whatever amount is due as contributions

under its own Jaw. It neither benefits from the

credit nor is concerned with the allowance or

amount thereof. The credit is purely a federal

matter, “Accordingly, the state would seem to’

have no standing to argue that the credit pro-

att

EE oo

~o——e

~—-

a=)

Vision incorporates: the contributions Inpesca fy

its own law inte the federal systen: of taxes...

In any event. if the conclusion candd be reached

that Congress intended to relingttish the sriovity

Tithe PN taxes on the theory that the state

contributions are in the same Class heesise thes

may be eredifed gigs inst such taney the reasoning

Supporting sue hha CORE lisiens woul 1 le init ga) Tre its |

to the Tile VY U1 "Phe Ge taxes are not ve

dueible by a credit ae stad erttirery adeno. Pies

are provided forcan oa diffeyent tithe of the Net

pnd were levied fora different purpose than were

tlie Tithe IX taxes, a rig Ve Daves, supra. .

Ani inipolie ation arising from the eredit provision

-in the case ol Title IN hanes that portray has

“

been surrendered certainty euniet be earnied over?

toa different kind of tix, “Ach Neh is het subject te

the credit. Yet the State's argubuent otist extend

toa claimed waiver of federal priority with re-

spect -to Tithe VIET taxes. This necessarily role

lows because the federal claim under “Pitte VEL

is sufficiently large to exhaust all of the available

junds. : Eo

If, by its assertion that the claima of the Pie ite

is tantamount toa claim of the United Sn Hes '

heeause it serves a federal purpose (See Br 1s

22-93), the State means to imply that ts elaine \

has the status of a debt due the United States

Within Section 3466, we deny the siiuvestlon,

The claim of the State arose unde “one of its own

. 26

laws. The United States could not evforce such a-

claim; and hence the claim of the State does not

have the status of a debt due the Cuited States, as

do the federal .taxes, fer purposes of Section

3466. | ’

Age the stiite contributions which were

‘“l to create an Nem ployme nt compensation.

_fund,.to be held by the-Seeretary of the Treasury,

upon Which the State could draw for compensa,

tion’ payments to its own citizens, may have re-

‘lieved the Federal Government of appropriating

amounts from its own revenue fer that purpose,

this cireimstauce does net convert the contribu-

tions collected by the State into federal taXes, Dor

evidence an intention on the part of Congress that

the contributions are te be. subject to the same

collection procedures as are the federal. taxes.

‘The intention.to depart so Mlically from the well

defined distinction between federal and state taxes,

. and the sovereign authoritres which collect them.

would have to be evidenced by more than a general

assertion that a common social objective underlies

both. Cf. United States. v. ane York, supra.

* The Niinoia U nemployment Compensation Act, effective

July 1, 1937 (Laws of -1937, p. 571: Jones THinois Statutes,

_-Annotated (1944), Secs. 43.128 45.161), pursaant to which

employers of éight or more for the vears 1937-1959. and en

ployvers of six or more for the vear.1940 and thereafter (Se -

2 (3)) became liable to pay “contributions” to the State ab,

spécitied rates which respect to wages s payable for employ

ment,

Although this case involved the priority and al-

lowance of claims under. the Bunkrupte vy Act,

establishes that the claims of the United States

for Title VIL and Tithe IX ‘taxes and the claim

of a state for contributions are separate and dis-

tinct claims. It is also implicit in that decision

that the claims of the United States are to be

‘preferred ever those of fhe state for contributions,

since the method of computing the allowable credit

“approved therein assumed that the United: States

“was entitled to receive 10% of the. Title IX tax

"actually due (rather than ee 10°, of the amount

available for distribution), even though this re- °

sulted in the..state receiving less than it would

otherwise be entitled to, if. the other method of

computation had been followed The contention

here that the claims of the United States and the

State should share equally is clearly Inconsistent

with the New York Case.

Indeed the State’s position is self-contradictory,

for although the State argues that the state con-

nena are so much like the federal. taxes as

o preclude ‘the application of ‘Section, 23466 to

ie priority to the federal taxes, yet at the same

time it contends-that the state’ contributions are

sufficiently distinct from the federal taxes as to

take priority over them by y irtue of the lien given

by State law.

Moreover, to classify the State’s claim as ot: fed-

eral origin would seriously interfere with, and .

probably definitely. prevent, the states from exer-

cising therr°own notions of relative. priorities.

Some states accord higher priorities to their own «

real property taxes than they do to their social

security taxes, * 5 the *stute- SOC ail security taxes

should be recognized as federal levies: the ‘Vv would

- necssarily. be.accorded the same, priorities as

other foder: ul taxes. ,

The right a the states to “establish relative pri-

orities for differen, kinds of their own taxes ine.

* dicates the danger, inisvent in. ihe State’s argu

ment here, that'a waiver of Beder: al priority in

favor of state social security 4 taxes may redound

“instead to the benefit of some other kind of state

levy.. Thus the Federal Gove ‘rnment nright stand

aside for a state social -security claim, but the

cinéney could be used instead to satisfy a ditferent

state claim = which\had a higher priority. under-s

state law, Of. Spokane County vi United Sates,

r 279 U. Pw. si), ¢ 91. °, % .— .

Our position in this ease is fully supported by

Matter of White Plains Gil Corp., 287 N.Y. 141.

There an inso:vent corpor ation made an ASSIgh-

nent of its assets for the benefit of creditors.» The’

United States ‘presented . claims for. feder al imsur-

ance wontributions taxes and une mplos ment taxe>

and the State of New York presetijed a claim fe:

4 This is true in Hlinois: Fre nek v. Zoman. 375 TL, 389. 39°;

Moreover, the ‘Director's lien wili be junior te other Stat

clams which are earlier in) time. lilinois Attorney General s

Opinions, 1939, No. 37; pp. 135, M43,

unpaid wnemplovmedrit comipensint ion contributiarts,

The right of the United States to full priority of

payment of the Insurance eoutributions PNes due,

‘it. was not challenged. p. 14), nor did the State

vontend that the Title IX claim was net entitled:

te priority under Section S46 Tt argued, liow-

ever, that this clami should be allowed Gnuly tor

- 10% of the‘total amount since the contributions,’

due the state’ but unpaid, should he’ credited

against the Tithe IX claim té the extent of 90°

-* . thereof. The New York Court o'f Appeals ungni-,

-mously rejected. this contention and held that the

“U nited States Was entitled to full priority foxy all

of the Title IN taxes die it even though: if the

estate were solvent, the’ federal clainy Would be

~ reduced to 10% , and even though by asserting

the full aniount. of its’ claim nothing whatever re-

mained for payment of the State claim,

Also, in Tn re Ever Krisp Pood Products Co,

307. Mich. 182, the court held that the elaitas of

the United States for Tithe VITE and Tithe TN

‘taxes and, for capital stock taxes had priority ime

der Section 3466 of the Revised Statutes over a

claim for state contributions of th e Michigan U

employment > Compensation — Commiissiet. “AL

5 « though the Commission contended that Seetion:

4 §=t66 Was’ Inapplicable 1 + the United. States claim

» “in view of the cong réssiottal itent EXP resse “lin

the social security act (}), 195), “the Gaurt ‘did

hot diseuss the contention but re sted its decision

on the ground that the United States had’ prdority

because the claim of the Commission Wis het stip

‘ported by. a prior specific and perfected lien. See

“also Lerman v. Linvoin Novelty Co., 130 N. J. Eq.

144, in which it was held that the claim of the

United States’ for social security tax had priority

under Section 3466 over all state ‘claims, including

a claim for unemployment insurance contribu-

tions. -And ef. United States v. Waddill Co., 328

“U.S. 353) in whieh it was conceded that the claim

of the Virginia Unemployment Compensation

Commission for contributions was subordinate to

that of the United States for unpaid federal un-

employment compensation taxes.

Rivard v. Bijou Furniture Co., 67 R. I. 251

modified in 68 R. I. 358, is contrary to our pogi-

tion here. Th lower court recognized that its de-

cision conflicted with the Rivard case but declined

to follow it. “We believe the Rivard decision is

erroneous for reasons’ already given. The eoneln-

sion was there reached that a state claim for un-

employment compensation contributions was el-

titled to share pro rata with federal insurance

contributions taxes and capital stock taxes, despite

the provisions of Section 3466 that the federal

debts. are to be satisfied first. It is not clear

whether the Supreme Court of Rhode Island

meant to hold that Section 3466 did not apply to

the federal claims at all ’* (see 67 R. I, 259, where’

the court said: “It is therefore our opinion that

* Such a holding could scarcely be made j in the case of the

capital stock taxes, which of course have now the Femotest

connection with the state contributions.

_ said sec, 4466 is inapplicable in. thiscase to the:

claims now under consideration’’*), or whether,

as the sevond opinion, 68 R. DT. 35k seems to indi-

‘eate, the theory of the court was that the state

’ ¢ontributions were intended by Congress to be. on

a par with the federal’ insurance contributions

taxes and other federal taxes under Section 3466."

But'im either eventsthe court ordered a distriba-.

tion of the insolvent estate In a way contrary to

the provision by Congress. There is neither justi-

fication for ignoriine Section 3466 entirely nor for

amending the section by adding state claims for

contributions to the-class cf debts having priority _

under Section 3466.

The decisign is not in harmony with this Court's

decisions in United States v. Waddill Co, supra,

and United States v. New York, supra, as has

been seen; and in denying priority to the federal

tax claims over state claims for contributions, it

conflicts with Maller of White Plains Oi Corps

1 The court also held that the part of the federal and state

claims representing employees’ taxes and contributions were

Special trust funds held by the employer for the United

- States and the State, respectively, and were payable even

ahead of afy claims ander Sectign 3466. In the.instant case

the record does not show whether any part of the federal

insurance contributions tax represented employees taxes col.

lected by the employer, aut to the extent that the’ claim of

the United States may have covered employees’ taxes, it ts

clear that this is payable first, since the employer held the —

- employees" tax as a special fund in trust for the United States.

_ See Sections 802 and 807 (c) of the Social Security Act and

* Section 607 of the Revenue Act of 1934 (Appendix, infra,

pp. 36, 37, 38-39).

J2 ; ‘

supra; In-re Ever Krisp Food Products Co.

supra; and Lerman ve. Lincoln Novelty Co., supra,

which we believe apply the correet. rule.

It is therefore submitted that not only the elaim

of the United ‘States for federal insuré anee -Con--

_ tributions taxes, asthe lower court held, but also’ |

its claim for federal une mploynient compensation

_ taxes as Well, are debts due the United States

within the meaning of Section 3466 of the Revised

Statutes. The-State has not argued that the claim

_ bor rapital stock: tax is not a debt: it is assumed

that it concedes this. peint, since it makes no argu-

ment te the contrary. In any case, this Claim, as a

tax, is a debt entitled to priority: under Section

S406: as the decisions of this Court: cited above

make plam,

* | If F

PNDER SECTION 2466 OF THE REVISED STATUTES THE

UNITED STATES ISCENTITLED TO PRIOR PAY MENT OF

ITS CLAIMS FOR TAXES

The foregoing. argume nit shows that the capital

stewek taxes, federal inSuUranep contribitiotis taxes,

and federal unemployment ce mpensateon: taxes

owing to the United States dy: the Advertisin®

Review Publishing Company are debts within the

meaning of Seefion 3466 and if the debtor was ii-

solvent. the lariguige of that section requires that

these taxes are, to be first satisfied out of the

debtor's assets. xe 4 : |

-—__—

setesfv the insurance contributions ¢ax alone.

eat es Se

In January, “1939, the debtor here made a volun,

_tary assigupient. of all tts assets to a’ trustee for

ethe benefit. of eveditors’ This of course cousti-

tuted an act @fansolve ne yywithin she meaning of

Section 3466 Cef. United States vi Waddill Co.,

—~_ 328 U.S. 353; Bram well v. US. Fide itu Co., 269

U.S. 483: Uiuited States v. Of lahoma; X1TULS

93) and’ the State makes ne contention ty the

contrary, i'd

Although! the State relies on the lien given ou

by state law as entithing it to priority Ji the

event that Section 3456 does not apply cto the

~ daims of the United States for social Seeurity ;

taxes >) ( Br. 26-28). the State Inakes Ho conten

tion that if Section 3466: does apply to the clans * ,

of the United States for Tithe VIELE and JPitie

1S taxes, as we have shown it does, its tren Was

specifie and perfected. on the date or. the volun-

tary assignment, at which ‘time the ‘priority of

.the United States attached. ¢ lndeed, prior te

the time of the assignment the State haat taken

no action whatever with respeed to the Ren : iven

‘it by Section 26 (a) of the Unemployment Com-

pensation, Act of Illinois (Jones [linois Statutes

S As pointed out ‘above, the United States also had a stall

claim for capital stock tax, which is net affected by the State’

, argument with respect to the insurance contributions and

cuplovment compensation taxes and whieli is a debt in any ~

event within Séction 3466, The claim for capital stock tax

has priority under Section 3466, therefore, wholly without

regard to whether or nét priority is-accorded to The federal’

contributions. and employment taxes.

Annotated (19-44), See. 45.154), although subse-

quent thereto it did institute a suit to foreclose

the liens Tt is well settled that an inchoate

lien of this sort does not defeat the priority es

~ tablished in favor of the federal claims by Section

3466, as the State. apparently concedes, United

States v. Waddill Co., 323 U. S: 353; United

. States v. Teras, 314 U.S. 480; New York vy.

Maclay, 288 U.S. 290; Spokane County ve United

States, 279 U.'8. 80.50 |

CONCLUSION

In view of the foregoing, the judgment ‘of the

Supreme Court of [linvis should be affirmed.

- Respectfully submitted, pear

J. Howarp McGravi,

Solicitor. General,

Spwari Key, ;

Acting Assistant Attorney General.

J. Lovis Monarcu,

er HELEN GOODNER, ;

Special Assistants to the Attorney General.

Marcu 1946.

APPENBDIN

Revised Statutes:

Sree. 406. Whenevey any persen in

debted to the Uiited States is isofwveut:

or whenever the estate of any deceasod:

debtor, in the hands of tha executers or

administrators, is insufficent te pay ad

the debts due from: the deceased. the debts

due te the Uited States shal be tir-t

satisfied: and the priority hereby estab

lished shall extend as well te cases Qin

Which a debtor, not having sufficient prop

erty te pay all his debts, miakes a velun-

tary phere thereot, or in which the:

estat#and effeets of an absebmeline, eon

eealed, or absent debtor are attache by

process’ of dew. as to cases in wiiel ab

act of bankruptey is commutteed. ool U.

S.C. 191.)

Social Seairity Act, e931, 49 Stat. 620:

—

Speco. SOL In addition to other taxes,

there shall -be levied, collected, said peid >

upen the income of every imadividual a tas

equal to the following percentages of the

“wages (as defined in seetion STL) received

by him after December 31, 1936. with re

spect to employment (as defined in section

S11) after such date:

(1) With respect te employment during

the calendar vears 1937, 1988. and 1959,

the rate shall be 1 per centum..

(2) With respect to employment during

the calendar years 1940, 1941, and 1942, the

rate shall be 11.4 per eentum,

(p>)

(3) With respeet to employment dtiring

the calendar vears 1943, 1944, and, 1945,

the rate shall be 2 per’centum. — .

(4) With respeet to employment during.

the calendar vears 1946, 1947. and 104s

the rate shall be 265 per-eentum.

(5) With respeet to emploviment after

December 31. TAS. the rate shalbbe 3) pe

eentum, (42 Ul S.C. 1001.)

eo Sec. SOL (ai The tax Ii posed hy see

thot SOD shall be eallected by the elnpioyver

of the taxpaver, by dedueting the ameunt

of the tax from: thee wages as and. when

paid Evers emplaver required so tod

deet the fax is hereby made liurble for th

pasinent of sieli tax, and is hereby inden

Hified agaist the claims and demands ot,

ans person forthe amountiof anv such pay

ment mete by such emplover, * > °

(208.0. 1002.)

See. SO4, Tn adikition ote other taxes.

every emplover shall pity can excise. tax,

with respeet to having- individuals ‘in fis

employ, equal te the following percentage

of the wages (as defined in) section STP.

paul by him after Decetnber AI. 1936, with

respeet te employment ‘Cas defined in seco.

tion S11) after such date: cae

(1) With respect to employment diuting.

the calendar vears 1937, 1988, and 1939, the

rate shall be 1 per centum. a

(2) With respect to employment during

the calendar vears 1940, 1941. and 1942, the

rate shali be 11. per centum.

_ (3) With respeetto-employment during

the calendar vears 1945, 1944, and 194%.

the rate shall be 2 per centum.

(4) With respect to employment during

the calendar vears 1946, 1947, and 1948.

the rate shall be 21% per centum. = .

Pe)

(>) With relpect to employ me nt satter

December 31, 1948, the rate shall be 3) per

-centum, (42 0, s. C. 100-4. )

Sec, SOT, * *

Ce) ATL provistotis of lsaw, nichadint pen

alties, haplicabls With respect toe anv tax

Inport by ; aeetion GOO Or ser Ther SOO of the

Revenue Act of 1926. and the provisions of

cseetion (607 of the Revenue Aet of bad,

shall tusefar as applicable and not imean

sisterit with the provisions of this tithe, be

appheable with. vespeet to ee 1h

posed by this tithe. ¢42 U, C', 1007.)

Sere. YOR, On and pe ie Patol ¥,. 1936,

every emplover Cas defined in Section G07)

shail pay foreach calendar weer an excise

tax, with respeet te havin iudivictite!s ih

his eaiplon, equal to the folhownig percent

ees of the total waces Cas defined i see:

tron 907) pavarble: Dy * him — af

the time oof payment WIth respeet te en.

plovinent? Cas defined om section oor during

such calendar vear:

(1) Witha respeet to cetplovines” durin

the calendar vear 1936 the rate shall be

1 per centum: | ean ale

(2) with respect to emplovment during

the calendar vear LOST the rity shall

percentums ; |

(3). With respect te emplovment otter

December 3], 1937, Fg rate saad) be oper

eentum. (42 COS. Cod)

Sec. 902. The tie meve credit

against the tax imposed by section GOV the

amotint of contpibutions, with respect to

employment durmg the taxable vear. paid

by ‘lie (before the date of tiliive om

tum for the taxable veard into an uffeni

ployment) fund) under a’ State: law. | Fhe

total eredit allowed to a taxpayer under

‘ 38

this section for all. contributions paid into

unemployment funds with respect to em-

ployment during such taxable vear = sha!!

not. exceed 90 per centum? of the, tax

against which it is credited, and credit shalt

be allowed only for contributions mac

under the laws’ of States certified | for: the

taxable year as provided in section 903.

(42 U.S. «, 1102.) ae

SEC ° 905. ; ya :

(b) Not later than Januarv: 31, next

following the.close of the taxable year,

each employer shall make a return of the.

tax under this title for such taxable vear.

‘Each such return shal! be made under

oath, shall be filed with the colleetor of

internal revenue for the distri¢t in which

is located the principal place -of business

of the employer, or, if he has no principal

place of business in the United States, then

‘with. the collector at Baltimore, Maryland,

aid shall contain such information and be

made in such manner as the: Commissioner

of Internal Revenue, with the approval of

the Secretary of the Treasury, may by regu

ations prescribe. All provisions of law

(including penalties) applicable in respect

of the taxes imposed by section 600 of the

Revenue Act of 1926, shall, insofar as not

inconsistent with this title, be applicable

in fespect of the tax imposed by this

tite. * *. * (42.0. 8. C, 1105. )

Revenue Act of 1934; ¢. 277. 48 Stat. 680.

Src. 607. ENrorCEMENT OF LIABILITY FOR

TaXes COLLECTED.

Whenever any person is required to =

lect of withhold any internal-revenue tax

from any other person and. to pay such

tax over to the United States, the amount

t °

- of tax so collected of with held shall be held

to be a speeial fund in trust for the United.

States. The amount of sueh find shall

be assessed, collected, and paid in the same

-manner and subject to the same provRions

and limitations. (including pen: ties) as

are apphéable with respect to the tades

from whieh such fund arose, °°

4 as 1

SUPREME COURT OF THE UNITED STATES. |

oa .

= _*

No. 749.--OctonprR Tern, 1945. :

-— ++ yo - - o .

People of the State of Tlinois. er)

rel Robert Th. Gordon, Rirector On Wik GF. Covtinvees ck

{

of Labor, Petitioner, - the Supreme Court of the

State of Tinos

The United States of America

{April 22, 1946.) °:

“Mr. Justice Buse delivered the opinion of the Court

» In this case the Stpreme Court of Hhinois held that certain

tix claims of the. federal government agaist an iiselvent tax

payer must be satisfied in full before thte Statesef Pits cas

recover amounts due as taxes uoder its | Hemplowmierst Copiapen-.

sation Act. 391 Hh 29 This dCision’ isssubstantialls in conthet

with that of the Supreme Cour: of Rhode Island in 2

Bijou Furniture Com fay ~6¢-.R. J. 231, 68 KR. 1.258. and

granted certiorari to resalve this couttiet Rige? ;

The claim of the United States is for’ federal

compensation taxes under Tithe Y and federal insurat

Hotis taxes under ‘Fitie & ef thie Social seviuritan. Act, 4 Stat. t

The priority claime:d by the “United oStates rests om Hoos bes

Which provides ino part that ‘Wiienever ais

the United States 2 2.2. not Raving sufficient puopcrtact i

. . ; = ee °

all his debts, tnakes. a voluitar ass anitienl to] } , e

‘the debts due to the Uiited Sil va shiall tie first sctis

The state cohgedes that the facts: here hh

tax claims withisna the orestie ral PLOT ITN) POV ISON fc oS tat

The faXpaver while insolvent had qaade a veliwitas

Pall his property for the hbenetit of erediters A J

settled that taxes are debt. witht the meaning of S

Ungicd: States vii Wadill, 323 UL-S. 355. 355 Phy staat L

contention is that the Social Security Net evinops a |

P . ' B ee ‘

impowe fo free state Unenipbovinent tex ehapos (

Pe cy . 7 . . ° . md ’ nt tnd

Orv Mrovisions of Seeton oO f66,

: a Ie 2 :

4 rat? “rt ¢ 4) vy : ,

e . it cs"of nea sigen rt | eh t

. . ‘ ° ‘

‘

, ; - & yy ’ . ; ¢ ° 4 .

PA People af State of Tlitntis, eaore!. Geordon Vs. ( nited Ntates

; ! Z S

The State draws its inft renee not, frony un express declarat ;

of Congressional pgirpose, but trom what it deetis to be ti

ituplieations behimed the general seheme—ot the Social Seon:

‘Act. The, coptengion as that enforeement of priorities Over sti:

unemployment compensation tax clains would weaken star

" employment compensation funds and thus’ tend to trusty:

huinifest, purpose of Congress 1% foster in “the national vite

“sotuidl yy: “tinancial anil stable stati unemployment COM persia!

i systems The state points to the following as shdwing Wont ‘

intercst in-state systems. Title & of ‘the ‘Social Security A eitl-i

tains provisions intended to indyive States to set up sound w

~ ployment vommpensation in accordance with Congressional):

scribed-sttmdards. To this end state “s¥stemis that meet tie

standards: are permitted to, build. up their own. funds. by eu.

thon from’ employers’ within: the state of GO, of the tax

emplovers would otherwise have to passto the federdl gavernu:

‘ "State funds mast be paid vito the United States Treasnrys. t

credited tt,a ‘special fund. and ean be withdrawn only f

Ing uMeniplowment: benetits. fF urthermore, *the federal “pe

as . . . ’ be '

of ubenrployment compensation. taxes ean be aused to Help st ;

“pas administrative .expenses. Anil Uongress, simene? passat :

the original Act, has eaeted legislation cuarantoeine the solv.

“of state funds os Stat. TOO, AL of these facets, and sopie ot

to which the state refefs, are sad toe show that the param:

purpose of the soeial se GUrit) v legislation was ‘to treat umenip

vent relief as a. rroblem_ to be solved by the federal’ goverm

by ats assumption, of the ‘primary burden of making state syste

a Sie CESZ

We agree that the witehed see urity jegisl: ation provides al net v

for actomplishing state and tederal] unempiovmenit relief Svster

integrated in plan, function, and ‘purpose, and that sonnd s'

- SY stems are essential to complete suceess of thre & oOnaression: il pl

- Bat we e annot agree that Congress. thereby intended in effet

- amend Section 3466, by. making its priority, provisions inaippl at

to state’ eo cOeNe of tax claims For while. the.stafe and

eral goveyhments were. to cooperate. the underlying Dhilosos

‘of the federal Act was ta keep the state and federal systems +

-arhtely adimitiisteped: The Ad nowhére indicates a purpe.

treat a state tnenrplovment claim as the state‘ here nrees

treat its claim- ‘tantamount to a claim of the-doaited Stat

® . ” i ‘

' Peop ‘ f State if Tit Rois, os i (i 7 co (nated Stat

s r : : ,

Furthermore, Sections SO 6 amd ph he fed \

and the provisions (fh y neorporatod fy Peberes aie appre

to social ‘Seeurity taxes all other. provistons of | ehatinas

retiedios: are qQicaus.stert ” Seri; Seenurit® Au Wi

there is nocevideny@ that Conggeas: in thie sections had Sect

S400? speentioally Qa online. tliess provistois it dfeate that Cong

intended, so far as practicable, io apply to soeial scturity te

ail of the remedios avaikable to the federal government Coll

arity othe Y taxes “Section 34606 provides one of these r hi

Sitter, as his been imeddeated. ¢t is met. ieonsistent with. el

ye CNP ress language ur purpyss oF fe Sowin) Seeurité A

hist Pict ab popebie 1 here eee.

; Previons desions of this Conrt reli ab on by tle ’state de

Support dis gontention Phot) cas Misc@iar 1 he nt

Section $466 dii not gi (hited States prierity ove® ct

other ty pes clams, aba. ge abise Lat Nets weit feud

COMTI Patan SQons to] tint Srieonsisien? Wet (ntted States pt

‘

Gok County Aatondl i Gngtid States, 107 1s. 4

United Nt ot . ‘tare fy Pris! fosp ir sig’ | Soden

Unrated Séat : PTY Pa ae SS 40 431-482. “We find 10 #

Invousisteney her Agel Clonty the plamést o ts SDE tet au

Warrant ovr tinding am amplied exception Jie weteration.,

élear, a command as iat of & “bit Cited States i

supra, AB ; 2 a eee, PAT

Me, Adustice HACKSON Cov Kk Bo pert in the consideraty 4

Cisiun of this ease 7 SOin Sve a 7 :

, ff

. s ‘ .

. : ‘ee :

o . . :

. Ps ; ae °

; . . : \ y .

mi; e@ ¢

. 7 , 7 s

eg : ;

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