Opinion
This case having been heard by the Court of Claims, the court, upon the evidence and the report of a commissioner, makes the following special findings of fact:
1. The plaintiff is a citizen of the United States, a resident of Dothan, Alabama, and a cotton farmer.
2. July 7, 1941, the Senate of the United States passed a resolution, known as S.Res. 136, which reads as follows:
"Resolved, That the bill (S. 1628) entitled 'A bill for the relief of S.R. Brackin,' now pending in the Senate, together with all the accompanying papers, be, and the same is hereby, referred to the Court of Claims, in pursuance of the provisions of an Act entitled 'An Act to codify, revise, and amend the laws relating to the judiciary,' approved March 3, 1911; and the said court shall proceed with the same in accordance with the provisions of such Act and report to the Senate in accordance therewith."
3. The Act of Congress approved April 21, 1934, 48 Stat. 598, 7 U.S.C.A. §§ 701-723, commonly known as the Bankhead Cotton Act, was passed to aid in the restoration of the cotton industry to a sound commercial basis by creating an effective balance between the production and consumption of cotton.
That act imposed a tax on the ginning of cotton which was not exempt from the tax, at the rate of 50% of the average central market price per pound of 7/8-inch Middling Spot cotton, but in no event less than 5 cents per pound of lint cotton. The Secretary of Agriculture was directed by the act to proclaim the average central market price of lint cotton, which was the basis for determining the rate of the tax.
4. The act required that each bale of cotton after ginning be identified by a bale tag attached by the ginner, indicating whether the cotton was exempt from tax or the tax had been paid. If the producer elected to store the cotton, a lien card was attached and the cotton could not be disposed of until a tax-free or tax-paid bale tag had been affixed thereto.
5. Cotton producers were entitled to file application for tax-exemption certificates representing the amount of cotton which could be ginned free of tax, and the producers delivered to the ginners from time to time an appropriate number of tax-exemption certificates in exchange for tax-free bale tags.
6. The amount of tax exemption to which a cotton producer was entitled was determined by formulae set forth in the act. After exhausting his tax-exemption certificates, a producer could either pay the prescribed tax to the ginner in cash or he could place his cotton in storage subject to the lien for the tax, or he could purchase further tax-exemption certificates from other cotton producers at prices prescribed by the Secretary of Agriculture as the official transfer rate. This price was sufficiently below the tax rate to represent a fair price to the seller and a substantial saving to the buyer of the certificates.
On May 25, 1934, the tax rate was fixed at 5.67 cents per pound of lint cotton and the certificate transfer rate at 4 cents. On June 18, 1935, the tax rate was increased to 6 cents per pound and the transfer rate raised to 5 cents. On October 21, 1935, the tax rate was reduced to 5.45 cents per pound and the transfer rate lowered to 4 cents.
7. Under the Bankhead Cotton Act an allotment of tax-exemption certificates was made to each cotton farm, upon application filed in accordance with prescribed regulations. The operator of the farm or his authorized agent signed the application, which showed each producer's share of the cotton crop on the farm. When the application was granted tax-exemption certificates were issued on a pro rata basis to and in the name of each producer on the farm, except where, upon the request of the producers concerned the certificates were issued to, administered by, and accounted for by, a trustee.
8. Tax-exemption certificates could be transferred or assigned, in whole or in part, in such manner as the Secretary of Agriculture prescribed. The regulations permitted producers to transfer certificates, for which they had no use, to other cotton producers, and the transactions were duly recorded in the appropriate county office of the Agricultural Adjustment Administration. The rates of transfer were established from time to time by the Secretary of Agriculture.
9. To facilitate the transfer of certificates between producers, when such transfers could not be made by direct contact, the Secretary of Agriculture established a series of three national surplus cotton tax-exemption certificate pools. These pools operated as a convenient medium through which farmers wishing to buy cotton produced in excess of their allotments could deal with farmers who desired to sell certificates for which they had no present need. The moneys collected by the pools belong to, and were distributed to, the farmers who had placed their surplus certificates therein for disposition, after deducting a small amount for the administrative expenses of the pool.
10. The remittances made by purchasers of certificates from each pool were deposited by the pool manager in the United States Treasury, and payments to the participants in the pools were made by Government checks. No funds received in connection with the pools were covered into the general fund of the Treasury, and the United States did not profit or receive any benefit from the operation of the pools.
11. Tax-exemption certificates could be offered for sale only when the producers to whom they had been originally issued had suffered a complete or partial crop failure or had produced an amount of cotton less than their baleage allotment under the Bankhead Cotton Act, and the only persons eligible under the regulations to purchase such certificates were cotton producers who had exhausted the certificates issued to them and needed further certificates to cover the ginning of their cotton.
12. Certificates were tendered to the national surplus cotton tax-exemption certificate pools under trust agreements, which provides that the persons tendering the certificates covered by the agreement appointed the manager of the pool as trustee to hold all right, title, and interest which the producers had in the certificates listed in the agreement and authorized the manager to sell from the pool, at such prices and under such terms as were established form time to time by the Secretary of Agriculture, any amount of certificates not in excess of the total amount surrendered by such persons and all other persons executing similar agreements. The agreement further provided that the manager should sell such certificates, or so many thereof as could be sold during the period in which the pool was operated for sales to cotton growers making application for certificates, and that all expenses incident to the operations of the pool should be paid by the manager (except the salary of the manager) and deducted from the gross receipts of the pool, the net balance remaining to be distributed pro rata to the producers who contributed to the pool on the basis of the ratio which the poundage of the certificates surrendered by each such participant under his trust agreement bore to the total poundage of certificates received from all producers participating in the pool. The trust agreement specified that the pool could be continued or closed at the discretion of the Secretary of Agriculture.
13. Producers who desired to buy cotton tax-exemption certificates form the pools forwarded with their orders for certificates, money orders, cashier's checks, or certified checks, made payable to the order of E.L. Deal, Certificate Pool Manager, and by him endorsed for deposit in the Treasury to the account of G.F. Allen, Chief Disbursing Officer, Division of Disbursement. The funds were deposited in a special trust account.
14. After all funds with respect to a particular pool had been collected and deposited in the special account and the pool had been closed, the expenses of operating the pool were computed and paid, and a payment factor was computed. A check was then issued to each producer who had contributed certificates to the pool in an amount representing his proportionate share of all sales made by the pool, less a small amount for administrative expenses. These payments were made by United States Treasury check.
15. It was the duty of cotton ginners who received cotton tax-exemption certificates from cotton producers to forward such certificates at periodic intervals to appropriate Collectors of Internal Revenue, together with a report showing, among other things, whose and what cotton was covered by the certificates surrendered. This procedure was followed by the ginners.
16. The records of the Department of Agriculture show that in the aggregate $22,423,479.94 was paid for cotton tax-exemption certificates bought through the three national surplus cotton tax-exemption certificate pools. This amount, together with $30,314,399.76, the estimated amount paid for certificates purchased locally, brings the total amount paid for certificates during the two years in which the Bankhead Act was in effect approximately $52,737,879.70.
In addition to moneys paid for cotton tax-exemption certificates, $1,562,097.69 was paid as taxes on the ginning of cotton under the Bankhead Act. Refunds of such taxes were authorized to be made by the Bureau of Internal Revenue in accordance with the provisions of the Second Deficiency Appropriation Act, fiscal year 1938, 52 Stat. 1114, 1150.
17. January 25, 1934, the plaintiff entered into a written contract with Henry A. Wallace, Secretary of Agriculture, for and on behalf of the United States, known as the "1934 and 1935 Cotton Acreage Reduction Contract," which is plaintiff's Exhibit 1.
March 21, 1935, the plaintiff executed what was known as the "1935 Supplementary Document Relating to 1934 and 1935 Cotton Acreage Reduction Contract Entered Into in 1934," which is plaintiff's Exhibit 2.
The plaintiff complied with the provisions of the 1934 and 1935 Cotton Acreage Reduction Contract for the year 1935.
All exhibits referred to herein are made a part of these findings by reference.
18. On June 4, 1935, the plaintiff in this case made an application for cotton tax-exemption certificates in connection with a farm consisting of 480 acres located in Henry County, Alabama, and thereafter received five cotton tax-exemption certificates representing 13,255 pounds of lint cotton which could be ginned free of the tax imposed by the Bankhead Cotton Act. The plaintiff used these tax-exemption certificates. However, the plaintiff produced cotton in excess of his allotment, and on November 14, 1935, he purchased from the 1935 pool three tax-exemption certificates representing 8,655 pounds of lint cotton for which he made payment to the pool manager by cashier's check in amount of $346.20, dated November 14, 1935, and drawn on the Headland National Bank, Headland, Alabama. These tax-exemption certificates were purchased at the rate of 4 cents per pound. The plaintiff paid no money to the Collector of Internal Revenue.
At the time the plaintiff purchased the tax-exemption certificates to cover the 8,655 ponds of taxable lint cotton, red tax-lien cards had been attached to that cotton.
19. At the time of the purchase of the three-tax exemption certificates referred to in the preceding finding, each certificate was completed so as to show that it was issued in the name of S.R. Brackin, the plaintiff, and was dated November 14, 1935.
The cashier's check with which the plaintiff purchased the tax-exemption certificates was endorsed by the Treasurer of the United States, "This check is in payment of an obligation to the United States and must be paid at par. W.A. Julian, Treasurer, U.S."
20. May 27, 1939, the plaintiff filed a claim with the Commissioner of Internal Revenue for the refund of the sum of $800, which included the amount claimed in this case, to-wit, $346.20. The claim was rejected by the Commissioner of Internal Revenue by letter dated August 28, 1939 (Exhibit Y to stipulation), the second paragraph of which reads as follows: "The amount for which refund is claimed does not represent tax paid to a collector of internal revenue, therefore, there is no authority in law under which favorable consideration may be given to this claim. The Second Deficiency Appropriation Act, Fiscal Year 1938, provides for the refunding of all amounts collected by any collector of internal revenue as tax under the Bankhead Cotton Act of 1934. No provision is contained in the Act which would authorize the refund of amounts expended in the purchase of cotton tax-exemption certificates." J. Hubert Farmer, of Dothan, Ala., for plaintiff.
J.H. Sheppard, of Washington, D.C., and Samuel O. Clark, Jr., Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, both of Washington, D.C., on the brief), for defendant.
Before WHALEY, Chief Justice, and LITTLETON, WHITAKER, JONES, and MADDEN, Judges. JONES, Judge.
This action is based upon a resolution of the United States Senate (S.Res. 136, 77th Congress, 1st session) authorizing this court to inquire into the claim of the plaintiff and make a report to the Senate of the facts and circumstances relating thereto. Accompanying the resolution was Senate Bill 1628, 77th Congress, 1st session, for the relief of S.R. Brackin. At the same time there was submitted another resolution (S.Res. 286, 76th Congress, 3rd session) transmitting a bill of a general nature (S. 963, 76th Congress, 3rd session) which covered the same subject matter.
The jurisdiction and procedure are under Section 151 of the Judicial Code, 28 U.S.C.A. § 257. Plaintiff files his petition within the time required by the Code.
The plaintiff seeks to recover the amount paid for tax-exemption certificates issued under the Bankhead Cotton Act, 48 Stat. 598.
For the period involved the act imposed a tax at the rate of 5.45 cents per pound upon the ginning of cotton form the 1935-1936 crop produced and marketed in excess of the amounts allotted by the Secretary of Agriculture. The amount of cotton exempt from tax was fixed under the terms of the act at 10,500,000 bales for the year involved.
50 per centum of the average price at central markets, but not less than 5 cents per pound.
United States v. Butler, 297 U.S. 1, 56 S.Ct. 312, 80 L.Ed. 477, 102 A.L.R. 914.
The requirements of the law could be satisfied either by the payment of the amount of the tax or by the surrender of tax-exemption certificates which were transferable. Upon receipt of payment in cash or upon the furnishing of a tax-exemption certificate bale tags were issued. Cotton could not be moved into commerce without a bale tag affixed thereto.
If a farmer produced more than his allotted share of what it was estimated the market would absorb in any one year, this extra production was classed as surplus cotton. The farmer who produced it had a choice of three courses: (1) He could sell it in the open market, in which event he paid the tax; (2) he could purchase the tax-exemption certificates from a farmer who had not produced the amount of his quota, or from a pool of such certificates, and in this manner have his surplus portion of the commodity move immediately into commerce; or (3) he could take the surplus production home and store it on his farm or in a public warehouse without paying the tax and could include it within his quota for the following year and thus market it without tax payment.
If a farmer produced less than his market allotment he could dispose of his excess certificates in one of two ways: (1) He could surrender the excess certificates to a pool established by the Secretary of Agriculture, in which event he would participate proportionately in the net proceeds of the sale of certificates made by the pool manager to farmers who had produced more than their allotment; or (2) with the approval of the county agent he might sell them to another farmer, if one could be found in his locality who had produced more than his allotment, in which event he received the full proceeds of the sale without any deduction for expenses. Thus whether the individual farmer voluntarily joined the pool or chose to sell his excess certificates to another farmer, in neither event did the Government have any interest in the proceeds.
The plaintiff produced cotton in excess of his allotment and on November 14, 1935, he purchased from the 1935 pool tax-exemption certificates at the rate of 4 cents per pound to cover the amount of his excess production, paying therefor by check made payable to E.L. Deal, Certificate Pool Manager. It was endorsed by him for deposit in the Treasury to the account of G.F. Allen, Chief Disbursing Officer of the Division of Disbursement, and the funds were deposited in a special trust account.
The Bankhead Cotton Act was repealed February 10, 1936, 49 Stat. 1106.
The Supreme Court has not passed directly upon the constitutionality of the Bankhead Cotton Act. True, in the case of United States v. Butler, 297 U.S. 1, 56 S.Ct. 312, 80 L.Ed. 477, 102 A.L.R. 914, the Supreme Court held that the processing tax provisions in the Agricultural Adjustment Act of 1933 were invalid. In that act, 48 Stat. 31, 7 U.S.C.A. § 601 et seq., however, the taxes were levied on the processing of the entire commodity, with a drawback on that portion which flowed into foreign markets. The resulting funds were used to make benefit payments to farmers who limited or curtailed production. Emphasis was placed on reduced production. The first powers conferred on the Secretary of Agriculture in the 1933 act were "to provide for reduction in the acreage or reduction in the production for market, or both, of any basic agricultural commodity." § 8(1). The court held that the processing fees were intimately linked to control of production which the court held to be a local matter and without the scope of Congressional powers.
The Bankhead Cotton Act provided for tax on the ginning of the excess or surplus production only. It was to be collected only if the surplus was to be marketed or moved into commerce. Its first stated purpose was "to promote the orderly marketing of cotton in interstate, and foreign commerce." It placed emphasis on commerce. The second Agricultural Adjustment Act, known as the Agricultural Adjustment Administration Act of 1938, 52 Stat. 31, 7 U.S.C.A. § 1281 et seq., followed largely the same pattern as the Bankhead Act. It provides penalties on the marketing of surplus production. It also emphasizes commerce.
In United States v. Darby, 312 U.S. 100, 113, 61 S.Ct. 451, 456, 85 L.Ed. 609, 132 A.L.R. 1430, it was held that the power of regulating interstate commerce extends even to the point of prohibiting it. We quote: "While manufacture is not of itself interstate commerce the shipment of manufactured goods interstate is such commerce and the prohibition of such shipment by Congress is indubitably a regulation of the commerce. The power to regulate commerce is the power 'to prescribe the rule by which commerce is to be governed.' Gibbons v. Ogden, 9 Wheat. 1, 196, 6 L.Ed. 23. It extends not only to those regulations which aid, foster and protect the commerce, but embraces those which prohibit it."
In the case of Mulford v. Smith, 307 U.S. 38, 59 S.Ct. 648, 83 L.Ed. 1092, the Supreme Court upheld the provisions of the Agricultural Adjustment Administration Act of 1938, which levied a penalty of 50% on the marketing of tobacco produced in excess of he quotas allotted to producers, on the ground that Congress had provided for the levy in the exercise of its power to regulate interstate commerce. The penalties levied under the provisions respecting tobacco in the Agricultural Adjustment Administration Act or 1938 were similar to the so-called taxing provisions of the Bankhead Cotton Act. The levies in each act were authorized under the same powers and were enacted for the same purpose. In order for plaintiff to be entitled to recover from the general fund of the Treasury, as for taxes illegally assessed and collected, it would be necessary to hold the taxing provision of the Bankhead Cotton Act invalid. We are not inclined to so hold. In the light of the decision in the Mulford and Darby cases, supra, we do not think the plaintiff was justified in assuming that the Bankhead Act was unconstitutional.
However, it is not necessary to rest the decision on this question. Whether the act was valid or invalid, we do not think the United States Government is legally obligated to pay to the plaintiff such sums out of the general Fund of the Treasury. The plaintiff paid no tax. He simply purchased tax-exemption certificates.
The million five hundred thousand tax-exemption certificates were issued by the Secretary of Agriculture to cover an equal number of bales of cotton. The Commissioner of Internal Revenue collected all taxes. If anyone held any exemption certificate for a bale of cotton no tax was paid to or collected by the Commissioner on such bale. The exemption certificates were allotted to individual farmers and became the property of such farmers. They were negotiable.
The plaintiff chose to purchase these exemption certificates at 4 cents per pound rather than pay the tax of 5.45 cents per pound.
Under the terms of the act 10,500,000 bales of cotton were not taxed, and if only that number of bales had been produced and marketed in 1935 no tax would have been collected. Both the selling and the pooling of the certificates were a redistribution or a reallotment of tax-free cotton.
The records of the Department show that during the time the act was in effect $22,423,479.94 was paid for tax-exemption certificates purchased from the pool. The manager of the pool estimated that an additional $30,314,399.76 was paid locally by farmers dealing with each other, and which did not go into the funds of the pool, but was paid directly by farmers who produced more than their allotment to farmers who produced less than their allotments. $1,562,097.62 was paid in money as taxes.
If payment is to be made out of a treasury that did not benefit to purchasers from the pool their is practically the same reason for payment to farmers who dealt directly with each other. If there was compulsion in the one case there was compulsion in the other.
The sums collected on the cotton that was produced and marketed in excess of 10,500,000 bales were taxes, intended and collected as such, and as such went into the general fund of the Treasury. All these collections were returned to the taxpayers by direct appropriation. The proceeds of the sale of the tax-exemption certificates were an entirely different fund.
The regulation under which the tax-exemption certificate pool was established show that the pool was established--September 5, 1934, after the cotton picking season began--for the benefit of the producers and to prevent some of them from becoming victims of speculators. They show conclusively that the money was not collected in taxes, but simply placed in a fund and each holder of a certificate given in exchange for surrendering his certificate to the pool an evidence that he had an undivided interest in the proceeds of the pool. The regulations stipulate that the money was to be used first for the payment of the expense of operating the pool and the balance was to be distributed share and share alike among the holders of the certificates in proportion to the number surrendered by them. The funds were established in a special account. In no other way could vouchers or warrants be issued without additional appropriate action on the part of the Congress. In fact, the regulations show the establishment of such special account.
B.A. 19C, September 5, 1934.
The Government collected no tax in connection with the tax-exemption certificates. Not one penny of the amount paid into the pool went into the general fund of the Treasury of the United States. Taxes are collected by the Commission of Internal Revenue or under his direction. The pool funds were controlled by the Secretary of Agriculture.
The United States had no pecuniary interest in the fund as such. Its officers were merely trustees of a fund belonging to others.
It will be noted that the bill which was transmitted in connection with the resolution provides for appropriation out of the general fund of the Treasury as for a Government obligation. The petition filed by plaintiff pursues this same objective. There is no such legal obligation on the part of the Untied States Government.
Whether the plaintiff has any legal interest in the pool trust fund, or in the balance thereof if any part of it remains undistributed, is not before the court and is therefore not determined. Nor does the court pass upon the question of whether any moral obligation exists.
Attention is called to the fact that a suit is pending in the United States District Court for the District of Columbia (Thompson et al. v. Deal et al., 67 App.D.C. 327, 92 F.2d 478) on similar facts against the pool manager to recover from him as manager of the pool.
Attention is also called to the fact that the Congress in 1938 made provision for a refund to all those who had paid the tax in money, 52 Stat. 1114. No provision was made in such measure for the use of the fund to pay those who had purchased tax-exemption certificates.
Accordingly the plaintiff's petition should be dismissed.
It is so ordered.
It is further ordered that the special findings of fact and conclusion of law and the accompanying opinion of the court be transmitted to the Senate in accordance with the Act of March 3, 1911, 36 Stat. 1087, 1138, Sec. 151, Judicial Code, 28 U.S.C.A. § 257, amending the Act of March 3, 1887, 24 Stat. 505, 507.
WHALEY, Chief Justice, and LITTLETON, Judge, concur.
MADDEN, Judge (concurring).
I concur in the result for the reasons which I have expressed in my concurring opinion in the Crain and Wilson v. United States case, No. 45300, 44 F.Supp. 321, decided this date reading as follows: "I concur in the result reached by the Court. I would place that result upon the ground that no showing has been made to us sufficient to overcome the presumed constitutionality of the Bankhead Act. Since the invalidity of that Act is the major premise of plaintiff's claim, I think we are not faced with the question of whether or not the exaction which plaintiff seeks to recover is a tax, or whether, tax or something else, it would be recoverable if it had been illegally exacted. I would, therefore, not decide those questions."
WHITAKER, Judge (dissenting).
I dissent for the reasons stated in my dissenting opinion in Crain and Wilson v. United States, No. 45300, this day decided, reading as follows:
"I am unable to agree with the majority. I think the demurrer should be overruled. "The purpose of the Bankhead Cotton Control Act was to restrict the production of cotton, not to raise revenues; but it sought to accomplish this purpose through the exercise of the taxing power. In order to restrict the production of cotton, it levied a prohibitive tax on cotton produced in excess of the farmers' quota. "It made provision for satisfying this tax in two ways: (1) by payment of it in money; or (2) by payment of it in tax-exemption certificates, which could be purchased from a farmer who had not raised his quota, either directly or through the pool; but, whether the tax was satisfied in money or in certificates, it was liability for a tax that was discharged. Whatever it cost a taxpayer to discharge his liability for the tax, I think he is entitled to recover. "It makes no difference that the defendant received no pecuniary benefit from the transaction. It was not looking for pecuniary benefit. It was seeking the restriction of the production of cotton. This result was accomplished. To accomplish it cost the plaintiffs the sum for which they sue. It was a sum exacted from them under the taxing power of the defendant. As Justice Sutherland said in United States v. Updike, 281 U.S. 489, 494, 50 S.Ct. 367, 369, 74 L.Ed. 984, 'Certainly it would be hard to convince such a person that he had not paid a tax.' See, also, Stahmann v. Vidal, 305 U.S. 61, 59 S.Ct. 41, 83 L.Ed. 41. "If the allegation in the petition that the Act was unconstitutional is true, I think it states a good cause of action and that the demurrer should be overruled. "I have no doubt that it was unconstitutional under the authority of the Butler 1 case. Both the Bankhead Act and the first Agricultural Adjustment Act contained the same vices denounced by the Supreme Court in that case. "The Fifth Circuit Court of Appeals held the Act unconstitutional in United States v. Moor, 93 F.2d 422, as did also the Court of Appeals for the District of Columbia in Thompson v. Deal, 67 App.D.C. 327, 92 F.2d 478. In Stahmann v. Vidal, supra, the Supreme Court assumed, but did not decide, it to be unconstitutional. "The taxes having been exacted under an unconstitutional statute, I think the plaintiffs are entitled to recover if the allegations of their petition are proven. "Wherefore, I think the demurrer should be overruled."