Opinion
Action by the Chicago Telephone Supply Company against the United States to recover the amount of excess profits tax paid for the year 1935.
This case having been heard by the Court of Claims, the court, upon a stipulation of the facts and the evidence adduced, makes the following special findings of fact:
1. The Chicago Telephone Supply Company is a corporation organized and existing under and by virtue of the laws of the State of Indiana, with its principal office and place of business in the City of Elkhart, Indiana.
2. For the year 1935 plaintiff filed its income and excess profits tax return on March 7, 1936. This return reported a net income of $163,881.44, upon which an excess-profits tax of $5,213.66 was computed and an income tax of $22,533.70. The total tax thus reported was paid in installments on March 15, June 15, September 15, and December 15, 1936. The excess-profits tax was based on the amount of $476,865.25, this being the amount reported on the return as the adjusted declared value as shown in the capital stock tax return for the year 1935.
3. On July 30, 1935, plaintiff filed its capital stock tax return for the year ended June 30, 1935. This return reported the declared value of the capital stock as of June 30, 1934, as $430,000 and the adjusted declared value of the entire capital stock as of June 30, 1935, as $509,980.79. On this return the sum of $509 as capital stock tax was paid. Later the Bureau of Internal Revenue adjusted the declared value by eliminating a deduction of $19,969.22, producing an adjusted declared value of $529,950.01. Thereupon, an additional capital-stock tax of $20 was assessed and paid.
4. On February 15, 1937, plaintiff filed a claim for refund, a copy of which is attached to the stipulation of facts filed herein on January 24, 1940, marked "Exhibit A," and is by reference made a part hereof. Said claim was rejected February 9, 1938, following the filing of the suit herein.
5. The correct net income of the plaintiff for the year 1935 was $163,181.84 and the correct income tax $22,437.50. The correct computation of the adjusted declared value for the year 1935, on the basis of the Commissioner's interpretation of the Revenue Act of 1934, namely, that the taxpayer is bound by the initial declaration of value of its capital stock regardless of the actual value of the capital stock, is as follows:
Declared value (1934) .............
$430,000.00
Paid-in surplus and contribution to capital during year1934 ........
28,044.73
1934 net income ....................
123,143.04
581,187.77
Less: dividends paid in 1934 ........
48,000.00
Adjusted declared value ........
533,187.77
Based on such value, the correct excess-profits tax for 1035 is $4,826.66.
6. The plaintiff corporation was organized in January 1929 under the laws of the State of Indiana, with authorized capital of $200,000, divided into 2,000 shares of $100 par value. The corporation is a successful manufacturer of telephone and radio parts. Its net income for the years 1933 to 1938 was as follows:
1933 .
$122,156.07
1934 ..
123,143.04
1935 ..
163,181.84
1936 ..
225,532.08
1937 ..
148,777.97
1938 ..
146,783.30
7. The actual value of the capital stock of the plaintiff at all times during the years of 1934 and 1935 was in excess of $1,310,000. Edward J. Metzdorf, of Chicago, Ill., for plaintiff.
Samuel O. Clark, Jr., Asst. Atty. Gen. (Robert N. Anderson, Fred K. Dyar, and George H. Foster, all of Washington, D.C., on the brief), for defendant.
Before WHALEY, Chief Justice, and GREEN, LITTLETON, and WHITAKER, Judges.
GREEN, Judge.
This suit is to recover the amount of excess profits tax paid for the year 1935. There is no dispute as to the facts in the case, and the sole issue presented is whether when the taxpayer has declared the value of its capital stock, pursuant to section 701 of the Revenue Act of 1934, 26 U.S.C.A. Int.Rev.Acts, page 787, such value must be used as the basis of excess profits taxes for a subsequent year, notwithstanding it is established that the real value of the capital stock was greatly in excess of the amount declared; and if so construed, are the statutory provisions imposing the tax constitutional?
The question involved in the instant case was fully discussed and considered in the three cases of Servel, Inc. v. United States (United Motors Service v. United States, and General Motors corporation v. United States), Ct.Cl., 25 F.Supp. 466, wherein an opinion was this day rendered. These cases involved the validity of the capital stock tax; but as we have heretofore held, with the approval of the Supreme court, the capital stock tax and the excess profits tax are so interrelated that they cannot be properly considered separately. They are in fact a combination, the effect of which cannot be determined by consideration of only one of them. The opinion rendered in the three cases to which reference is made above, covers fully every point now made in the case at bar.
The plaintiff contends that the word "value" as used in the statute means "actual value," and that since the basis of the tax under this construction is the declared actual value, the clause in subsection (f) of section 701, which states that a "declaration of value cannot be amended," is limited to the declaration of value for the initial year and does not preclude an amendment for a subsequent year of an initial declaration of value which is untrue and substantially incorrect for such subsequent years; and that if the clause be otherwise construed it would create a conclusive presumption in violation of the Fifth Amendment to the Constitution, or, if the phrase "declared value" be construed to mean a declaration of value, then the basis of the tax is a fictitious value and the provisions of the Act are arbitrary and unconstitutional and delegate legislative power to private persons. It is probably unnecessary to say that this argument is based upon unsound foundation as it has been repeatedly held in the previous decisions of this court and may other courts, including the Supreme court, that the declared value need not conform to the actual value of the capital of the corporation. Cf. Haggar Co. v. Helvering, 308 U.S. 389, 60 S.Ct. 337, 84 L.Ed. 340, as quoted in the opinion on the three cases to which reference has been made above.
The statute also provided (as it then stood) that the declaration of value declared in the first return could not be amended, and plaintiff insists that if the provision is followed literally the statute is arbitrary and discriminatory and for that reason must be declared unconstitutional and void. This question also was fully considered in the three cases above cited, and the objection to the statute on this ground was held not well taken.
It may be well to note that in the instant case the plaintiff declared the value of its capital stock as of June 30, 1934, as $430,000, and the adjusted declared value of its capital stock as of June 30, 135, as $509,980.79. The plaintiff now says that the value of its capital stock at all times during the years 1934 and 1935 was in excess of $1,310,000. Such a gross discrepancy shows clearly that the plaintiff was making no effort to declare the true value of its capital stock but on the contrary to avoid being taxed in the manner intended by the statute. We repeat a statement we made with reference to a similar situation in the cases above cited--that if the plaintiff in its endeavor to avoid taxation made a false valuation of its stock, and as a result has paid a somewhat higher excess profits tax than it would if it had tried to conform to the statute by stating its value according to the best of the knowledge and belief of its officer,s the fault is not with the statute but in its own conduct. Nor is it any valid objection to the statute that it is so framed as to counteract in some degree efforts of this kind.
We hold that the objections of the plaintiff to the statute are not well taken and this conclusion has uniformly been upheld in a number of cases. The precise question involved in the instant case was passed upon in Stomberg-Carlson Manufacturing Co. v. McGowan, D.C., 32 F.Supp. 101 and Hornell Ice & Cold Storage Co. v. United States, D.C. 32 F.Supp. 468, decided adversely to the taxpayer.
In the Stromberg-Carlson Manufacturing Co. case, supra , the court said: " * * * the tax imposed in an adjustment year may not be said to be based on a valuation of capital stock that is arbitrary and unreasonable."
In the Hornell Ice & Cold Storage Co. case, supra, the opinion after elaborately discussing the statutes on all points holds that the Act is constitutional both as to the first year and the subsequent years.
Our conclusion is that the statute is constitutional, and that the plaintiff's petition must be dismissed. It is so ordered.