United States v. Constantine, 296 U.S. 287 (1935)

U.S. Supreme Court U.S. v. CONSTANTINE, 296 U.S. 287 (1935)

[Page 296 U.S. 287, 292]

to the graded excises on various forms of the liquor business prescribed by Rev. St. 3244, as amended, and the retention of the $1,000 tax in the 1926 act, which discarded the many existing excises on other business, evince a purpose to prohibit rather than to tax liquor traffic violative of state laws.

For reasons presently to be stated we find it unnecessary to decide whether the policy exhibited by the act at its inception was independent of the Eighteenth Amendment or in subvention of it.

Second. The court below and the respondent regard the administrative construction as persuasive that the section is penal in character. After the adoption of the Revenue Act of 1926 the Treasury ruled that the so- called tax of $1,000 was a penalty. [Footnote 7] Upon repeal of the Eighteenth Amendment the position was reversed; collectors were instructed to treat the item as a special tax; and the Department proceeded to prepare and distribute appropriate revenue stamps to be issued in token of its payment. We think the administrative practice has little bearing

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upon the question of the nature of the exaction. During the life of the Amendment collection was lawful whether the demand was for a tax or a penalty; and the classification by the administrative officers was therefore immaterial. Congress then had power, in the enforcement of prohibition, to impose penalties for violations of national prohibitory laws. [Footnote 8]

Third. The repeal of the Eighteenth Amendment renders it necessary to determine whether the exaction is in fact a tax or a penalty. If it was laid to raise revenue its validity is beyond question notwithstanding the fact that the conduct of the business taxed was in violation of law. The United States has the power to levy excises upon occupations,9 and to classify them for this purpose; and need look only to the fact of the exercise of the occupation or calling taxed, regardless of whether such exercise is permitted or prohibited by the laws of the United States10 or by those of a state. [Footnote 11] The burden of the tax may be imposed alike on the just and the unjust. It would be strange if one carrying on a business the subject of an excise should be able to excuse himself from payment by the plea that in carrying on the business he was violating the law. The rule has always been otherwise. The tax imposed by Rev. St. 3244, as amended, 12 affords an opposite illustration. That act imposes an excise, varying in amount, upon different forms of the liquor traffic. The respondent

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paid the annual tax of $25 thereby required, despite the fact that he was violating local law in prosecuting his business. Undoubtedly this was a true tax for which he was liable. The question is whether the exaction of $ 1,000 in addition, by reason solely of his violation of state law, is a tax or a penalty. If, as the court below thought, section 701 was part of the enforcing machinery under the Amendment, it automatically fell at the moment of repeal. [Footnote 13]

But even though the statute was not adopted to penalize violations of the amendment, it ceased to be enforceable at the date of repeal, if, in fact, its purpose is to punish rather than to tax. The only color for the assertion of congressional power to ordain a penalty for violation of state liquor laws is the Eighteenth Amendment, which gave to the federal government power to enforce nation-wide prohibition. [Footnote 14] That has been recalled; and the case must be decided in the light of constitutional principles which would have been applicable had the Amendment never been adopted. In the acts which have carried the provision, the item is variously denominated an occupation tax, an excise tax, and a special tax. If in reality a penalty it cannot be converted into a tax by so naming it, 15 and we must ascribe to it the character disclosed by its purpose and operation, regardless of name. [Footnote 16] Disregarding the designation of the exaction, and viewing its substance and application, we hold that it is a penalty for the violation of state law, and as such beyond the limits of federal power.

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Since 1878, the revised statutes have classified various forms of the liquor traffic for the payment of excises differing in amount according to the nature of the business. [Footnote 17] When the section exacting $1,000 additional from all persons engaged in the traffic in violation of state law was made a part of the revenue laws, the amount of the tax due by the respondent under Rev. St. 3244, as amended, was $25. The so-called excise of $1,000 is forty times as great. It is ten times as great as the annual tax under Rev. St. 3244, as amended, for wholesale liquor dealers and brewers, and fifty times as great as that imposed upon dealers in malt liquors. If the imposts under Rev. St. 3244, as amended, were fixed in amount in accordance with the importance of the business or supposed ability to pay, the exaction in question is highly exorbitant. This fact points in the direction of a penalty rather than a tax.

The condition of the imposition is the commission of a crime. This, together with the amount of the tax, is again significant of penal and prohibitory intent rather than the gathering of revenue. [Footnote 18] Where, in addition to the normal and ordinary tax fixed by law, an additional sum is to be collected by reason of conduct of the taxpayer violative of the law, and this additional sum is grossly disproportionate to the amount of the normal tax, the conclusion must be that the purpose is to impose a penalty as a deterrent and punishment of unlawful conduct. [Footnote 19]

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the grant of powers to the federal government by the Constitution.

We think the suggestion has never been made-certainly never entertained by this Court-that the United States may impose cumulative penalties above and beyond those specified by state law for infractions of the state's criminal code by its own citizens. The affirmative of such a proposition would obliterate the distinction between the delegated powers of the federal government and those reserved to the states and to their citizens. The implications from a decision sustaining such an imposition would be startling. The concession of such a power would open the door to unlimited regulation of matters of state concern by federal authority. The regulation of the conduct of its own citizens belongs to the state, not to the United States. The right to impose sanctions for violations of the state's laws inheres in the body of its citizens speaking through their representatives. So far as the reservations of the Tenth Amendment were qualified by the adoption of the Eighteenth the qualification has been abolished.

Reference was made in the argument to decisions of this Court holding that where the power to tax is conceded the motive for the exaction may not be questioned. These are without relevance to the present case. The point here is that the exaction is in no proper sense a tax but a penalty imposed in addition to any the state may decree for the violation of a state law. The cases cited dealt with taxes concededly within the realm of the federal power of taxation. They are not authority where, as in the present instance, under the guise of a taxing act the purpose is to usurp the police powers of the state. [Footnote 20]

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professed, may be read beneath the surface, and by the purpose so imputed the statute is destroyed. Thus the process of psychoanalysis has spread to unaccustomed fields. There is a wise and ancient doctrine that a court will not inquire into the motives of a legislative body or assume them to be wrongful. Fletcher v. Peck, 6 Cranch, 87, 130; Magnano Co. v. Hamilton, 292 U.S. 40, 44, 54 S.Ct. 599. There is another wise and ancient doctrine that a court will not adjudge the invalidity of a statute except for manifest necessity. Every reasonable doubt must have been explored and extinguished before moving to that grave conclusion. Ogden v. Saunders, 12 Wheat. 213, 270. The warning sounded by this court in the Sinking Fund Cases (Union P.R. Co. v. U.S.), , 718, has lost none of its significance. 'Every possible presumption is in favor of the validity of a statute, and this continues until the contrary is shown beyond a rational doubt. One branch of the government cannot encroach on the domain of another without danger. The safety of our institutions depends in no small degree on a strict observance of this salutary rule.' I cannot rid myself of the conviction that in the imputation to the lawmakers of a purpose not professed, this salutary rule of caution is now forgotten or neglected after all the many protestations of its cogency and virtue.

Mr. Justice BRANDEIS and Mr. Justice STONE join in this opinion. Footnotes

Footnote 1 'On and after July 1, 1926, there shall be levied, collected, and paid annually, in lieu of the tax imposed by section 701 of the Revenue Act of 1924, a special excise tax of $1,000, in the case of every person carrying on the business of a brewer, distiller, wholesale liquor dealer, retail liquor dealer, wholesale dealer in malt liquor, retail dealer in malt liquor, or manufacturer of stills, as defined in section 3244 as amended and section 3247 of the Revised Statutes, in any State, Territory, or District of the United States contrary to the laws of such State, Territory, or District, or in any place therein in which carrying on such business is prohibited by local or municipal law. The payment of the tax imposed by this section shall not be held to exempt any person from any penalty or punishment provided for by the laws of any State, Territory, or District for carrying on such business in such State, Territory, or District, or in any manner to authorize the commencement or continuance of such business contrary to the laws of such State, Territory, or District, or in places prohibited by local or municipal law.'Any person who carries on any business or occupation for which a special tax is imposed by this section, without having paid such special tax, shall, besides being liable for the payment of such special tax, be subject to a penalty of not more than $1,000 or to imprisonment for not more than one year, or both.' Revenue Act of 1926, c. 27, 44 Stat. 9, 95 ( 26 U.S.C.A. 192, 206).

Footnote 2 U.S.C. tit. 26, 1394 (26 U.S.C.A. 1394). The act imposes special taxes as follows: Brewers $100; manufacturers of stills $50, and $ 20 for each still or worm; retail dealers in liquors, $25; wholesale liquor-dealers $100; retail dealers in malt liquors $20; wholesale dealers in malt liquors $50.

Footnote 3 75 F.(2d) 928.

Footnote 4 Cleveland v. Davis, 9 F.Supp. 337; Green v. Page, 9 F.Supp. 844; Brabham v. Cooper, 9 F.Supp. 904; Liberis v. Nee, 10 F.Supp. 336; Senate Club v. Viley (D.C. Idaho) 12 F.Supp. 982; United States v. Arthover (D.C. N.D.Tex.). No. written opinion filed); United States v. Columbia Fruit Products Co. (D.C.E.D.Pa.) 10 F.Supp. 873.

Footnote 5 Revenue Act 1918, c. 18, 1001(12), 1005, 40 Stat. 1057, 1128, 1129; Revenue Act 1921, c. 136, 1001, 1004, 42 Stat. 227, 296, 298; Revenue Act 1924, c. 234, 701, 704, 43 Stat. 253, 326, 328 (26 U.S.C.A . 192, 206 and notes).

Footnote 6 Act of August 30, 1935 (Pub. No. 407, 74th Cong., 49 Stat. 1014).

Footnote 7 T.D. 3911 (July 30, 1926). 'Subject of internal revenue and prohibition taxes are (sic) divided into two classes:'1. Internal-revenue taxes proper-that is taxes generally recognized as such.'2. Those while in the nature of internal-revenue taxes, are, necessarily held to be penalties, 'and must be collected through the United States Courts.''The following list is classed as taxes:'Retail dealers in malt liquors, $20.00'Wholesale dealers in malt liquors $50.00'The following list is classed as penalties:"Under section 701 of the Revenue Act of 1926. A special tax of $1, 000 on any person carrying on retail business of dealer in malt liquors contrary to laws of state or territory.' ..."Those designated as penalties. Such taxes will be carefully scheduled, summarized, and reported to the United States Attorney for any action he may bring."

Footnote 8 Section 2 of the Eighteenth Amendment directed that the Congress and the several states should have concurrent power of enforcement by appropriate legislation. Compare National Prohibition Cases, 253 U.S. 350, 40 S.Ct. 486, 588; United States v. Lanza, 260 U.S. 377, 43 S.Ct. 141; Hebert v. Louisiana, 272 U.S. 312, 47 S.Ct. 103, 48 A.L.R. 1102.

Footnote 9 License Tax Cases, 5 Wall. 462.

Footnote 10 United States v. Yuginovich, 256 U.S. 450, 462, 41 S.Ct. 551; United States v. Stafoff, 260 U.S. 477, 480, 43 S.Ct. 197; United States v. One Ford Coupe, 272 U.S. 321, 327, 328 S., 47 S.Ct. 154, 47 A.L.R. 1025.

Footnote 11 License Tax Cases, supra.

Footnote 12 Supra, note 2.

Footnote 13 United States v. Chambers, , 54 S.Ct. 434, 89 A.L.R. 1510.

Footnote 14 See note 8, supra.

Footnote 15 United States v. LaFranca, 282 U.S. 568, 572, 51 S.Ct. 278.

Footnote 16 Macallen Co. v. Massachusetts, 279 U.S. 620, 625, 49 S.Ct. 432, 65 A.L.R. 866; United States v. One Ford Coupe, supra, 272 U.S. 321, 328, 47 S.Ct. 154, 47 A.L.R. 1025; Educational Films Corp. v. Ward, 282 U.S. 379, 387, 51 S.Ct. 170, 71 A.L.R. 1226.

Footnote 17 See note 2, supra.

Footnote 18 Compare Lipke v. Lederer, 259 U.S. 557, 562, 42 S.Ct. 549.

Footnote 19 Helwig v. United States, 188 U.S. 605, 613, 23 S.Ct. 427.

Footnote 20 Bailey v. Drexel Furniture Co., , 42 S.Ct. 449, 21 A.L.R. 1432; Hill v. Wallace, 259 U.S. 44, 42 S.Ct. 453; Linder v. United States, 268 U.S. 5, 17, 45 S.Ct. 446, 39 A.L.R. 229.