Lawrence v. Wardell

273 F. 405, 2 A.F.T.R. (P-H) 1427, 1921 U.S. App. LEXIS 1482, 2 A.F.T.R. (RIA) 1427

• Court: Court of Appeals for the Ninth Circuit
• Decided: May 2, 1921
• Docket: No. 3615
• Status: Published

Opinion

HUNT, Circuit Judge

(after stating the facts as above). By the statutes above cited Congress extended the provisions of the Revenue Law of 1916 to the Philippine Islands, and authorized the assessment and levies to be made by the administrative internal revenue officers of the Philippine government, but, instead of requiring the taxes when collected to be paid into the treasury of the general government of the United States, directed that they should accrue to the general government of the Philippine Islands. A like policy obtained and still obtains as to Porto Rico. The purpose of such legislation was to enable the governments of those islands, respectively, to have sufficient revenue to meet their needs and to receive the money through the most direct channels, and not have to await appropriation by Congress. The policy was not new. For example, in the island of Porto Rico, ever since the institution of civil government in May, 1900, customs duties collected have been turned over to the insular treasury by the collector of customs for the island, to be expended as required by law for the government and benefit of the island, “instead of being paid into the treasury of the United States.” Act of Congress April 12, 1900, § 4, Supplement R. S. U. S. vol. 2, p. 1128 (U. S. Comp. St. § 3752).

[1] The power of Congress, in the imposition of taxes and providing for the collection thereof in the possessions of the United States, is not restricted by constitutional provision (section 8, article 1), which may limit its general power of taxation as to uniformity and apportionment when legislating for the mainland or United States proper, for it acts in the premises under the authority of clause 2, section 3, article 4, of the Constitution, which clothes Congress with power to make all needful rules and regulations respecting the territory or other property belonging to the United States. Binns v. United States, 194 U. S. 486, 24 Sup. Ct. 816, 48 L. Ed. 1087; Downes v. Bidwell, 182 U. S. 244, 21 Sup. Ct. 770, 45 L. Ed. 1088.

When Congress enacted the Revenue Law of October 3, 1917, by section 5 (Comp. St. 1918, §■ 6336w) it saw fit to provide expressly that the provisions of the title should not extend to the Philippines or Porto Rico, and the local Legislatures were given power to amend, alter, modify, or repeal the income tax laws in force in the islands, respectively. The result was that under the act of 1916 the entire net income of every individual, a citizen or resident of the United States, resident in the Philippines, became taxable thereunder, but subject to the jurisdiction of the Philippines in respect to tax matters. But Congress, acting doubtless under the after-war needs, by the Revenue Act of 1918, changed the situation and made the net income of every individual citizen of the United States taxable, no matter where he resides. In the place of the taxes imposed by the act of 1916 (subdivision [a] section 1), and by the act of 1917 (section 1) the net income of “every individual” was subject to the rate prescribed (section 210); and in pjace of taxes imposed by subdivision (b), section 1, of the act of 1916, and section 2 of the act of 1917 (Comp. St. 1918, § 6336aaa), but in addition to the normal tax imposed by section 210 of the act the surtaxes prescribed should be collected.

[2] The comprehensiveness of the 1918 act is as great as language could make it, for it applied to the income of every individual, changing the rates, and obviously imposing taxes at the new rates, where no tax could have been imposed prior to the 1918 act. We are unable to infer that, by using the words “in lieu of,” Congress meant to tax only those incomes of individuals who had been subject to taxation under the two prior acts. It is more reasonable to hold that, where the individual was liable under the prior act of 1916, the new act of 1918 became the controlling standard. Where, by the act of 1917, he was relieved of the increased rates of that act, but had been subject to the 1916 act, he was covered by the provisions of the 1918 act, and in the event he was never before included he became liable under the very broad terms of the act of 1918. Section 260, supra, of che act of 1918, also leads to the conclusions indicated. The language there used discriminates, by making individuals who are citizens of a possession of the United States, yet not otherwise citizens of the United States, and who are not residents of the United States, subject to be taxed only as to income derived from sources within the United States. Unless such a person has income so derived, he Is not subject to the act.

[3] In the repealing clauses of the act of 1918, as quoted in the statement of the case, the act of 1916, as amended by the act of 1917, in force in the Philippines, was continued in force, except as might be otherwise provided by the local Legislature. As a general statute of the United States there was dear repeal, but as to the Philippines the act of 1916 was kept alive, as direct legislation by Congress with respect to the local affairs of the island, and not as a general statute of the United States.

A citizen of the United States residing in the Philippines becomes subject to the Income Tax Law under the act of 1918. By section 261,, supra, of that act, the tax shall be levied, collected, and paid in accordance with the act of 1916, as amended, returns to be made and taxes to be paid under title I of the act by “every individual who is a citizen or resident” of the island; the local Legislature having power as already defined. The citizen of the United States residing in the island is in much the same position as is a citizen of a state, where there is a state income tax. The fact of residence in the Philippines avails him no more than would the fact of residence in a state.

[4] Section 222 of the act of 1918, in providing for credits for taxes, makes the taxes computed under part II of the title subject to a credit (1) in the case of a citizen of the United States the amount of any income taxes paid during the taxable year to any foreign country upon income derived from sources therein, “or to any possession of the United States.” It is argued that a citizen of the United States, resident of the islands, is not subject to taxation under the 1918 act, because the return to the “possession” is not a return under the act of 1916, though it is a return under a local act. Section 222 allows to one residing in the Philippines a credit upon the tax computed under part II of the 1918 act, but there is nothing to indicate that there is exemption to the citizen residing in the islands. He may have paid to the island treasury such amounts as are due, but still be liable to the United States for a sum in excess of that paid in the islands.

The regulations of the Treasury Department (regulation 45, articles 1131, 1132) have b.een framed upon the construction which we have adopted; and, as credit appears to have been given to plaintiff for the amount of taxes which he had already paid in the Philippines, we think he cannot complain of the judgment rendered against him.

The judgment is affirmed.