159 Syllabus SERVEL, INC., A CORPORATION, v. THE UNITED STATES UNITED MOTORS SERVICE, INCORPORATED, v. THE UNITED STATES* GENERAL MOTORS CORPORATION (AS TRANSFEREE IN COMPLETE LIQUIDATION OF WALTER J. BEMB, INC.) v. THE UNITED STATES * [Nos. 44848, 43929, 43947. Decided November 12, 1940] Capital stock tax and excess profits tax; constitutionality.—It is held that the provisions of sections 215 and 216 of the National Industrial Recovery Act, imposing interrelated taxes on domestic corporations, are constitutional, following the decisions in Allied Agents, Inc. v. United States, 88 C. Cls. 315; 308 U. S. 561; and Haggar Company v. Helvering, 308 U. S. 389. Same; declaration of value not arbitrary.-There is nothing arbitrary in requiring the corporation taxpayer to declare a value upon which it was willing to pay a tax and which it was willing to use as a basis in computing an excess-profits tax. Same; authority of Congress.-Congress possessed authority to lay an excise-capital-stock tax and to impose an excess-profits (income) tax on net income in excess of certain credits. Same. There was nothing arbitrary or capricious in the constitutional sense in the action of Congress in choosing to prescribe as the measure of the capital-stock-tax and the excess-profitstax credit of each taxpayer the value of the capital stock as declared by the taxpayer for the first taxable year under the statute; no one was better qualified to place an estimate upon the value of the stock than the taxpayer itself, and there was nothing prejudicial to such taxpayer nor to others in so providing in the statute. Same. Where the tax is imposed for the year after that in which the declaration of capital stock value is made, it is held that the taxpayer is not required to "guess" at anything, and there is nothing unconstitutional in the requirement that the valuation declared for the first taxable year under the statute cannot be changed. Same.-The value of stock in a going and operating concern is always based largely on an estimate of the amount of profit which it will make in future years. * Certiorari denied. Reporter's Statement of the Case 92 C. Cls. Same; intention of statute.-The intent of the statute levying the capital-stock tax was that a fair valuation of the capital stock should be stated, and the capital-stock-tax statute was purposely so framed in connection with the excess-profits-tax statute as to encourage the statement of a fair value and to tend to make it unprofitable to avoid taxation; the statutory provisions enacted for this purpose were just and fair and not arbitrary nor unreasonable. Allied Agents v. United States, 88 C. Cls. 315. Same. It is impossible to adjust many taxes so that they will apply with uniformity to each and every taxpayer. Same. Where the N. I. R. A. Act under which the capital-stock tax was first levied was adopted on June 16, 1933, and the first taxable year for which the capital-stock tax was imposed was the entire year ending June 30, 1933, and where the Revenue Act of 1934 was adopted on May 10, 1934, and the first taxable year for which the capital-stock tax was imposed thereunder was the entire year ending June 30, 1934; it is held that the tax was measured not in accordance with the length of time that the corporation taxpayer was in business but according to the value of its capital stock; there was nothing retroactive in this provision and it was not so arbitrary or discriminatory as to make it unconstitutional. Mr. Leland T. Atherton for plaintiff in case No. 44848. Chadbourne, Hunt, Jaeckel & Brown were on the briefs. Mr. Benjamin E. Jaffe for plaintiffs in cases Nos. 43929 and 43947. Mr. R. M. O'Hara was on the briefs. Mr. George H. Foster, with whom was Mr. Assistant Attorney General Samuel O. Clark, Jr., for the defendant. The facts sufficiently appear from the opinion of the court. GREEN, Judge, delivered the opinion of the court: The three cases above named all involve the same question and were submitted at the same time. In each of these cases the defendant demurs to the petition which is based primarily on an allegation that the capital-stock tax is unconstitutional and void. This presents the only question raised for determination. The question of the validity of the capital-stock tax has several times been before this court and other courts. In each instance it has been sustained. While the argument 159 Opinion of the Court presented on the hearing in these cases, in a general way, cannot be said to be new or to present any new objections to the tax, the manner of presentation is somewhat different and we have given the subject further consideration. The main argument made to show the invalidity of the tax is based on the fact that the taxpayer is required to declare the value of the capital stock in the first instance and that this value is taken as its value for the subsequent years involved, without any change being permitted except by reason of matters affecting the capital structure which are not involved in any of the cases before us. We do not think it is necessary to repeat here what we said in the case of Allied Agents v. United States, 88 C. Cls. 315, certiorari denied, although it may be well to amplify some of the statements of the opinion in that case. As we said therein, the fundamental error in the position taken by the plaintiff is in treating the capital-stock tax as having no connection with the excess-profits tax, and in the contention that the declared value is presumptively the actual value. That these contentions are incorrect is shown by what is said in Haggar Co. v. Helvering, 308 U. S. 389, in which the nature, purpose, and operation of the capitalstock tax and excess-profits tax is explained and declared as follows: Sections 215 and 216 of the National Industrial Recovery Act impose interrelated taxes on domestic corporations, namely, an annual capital-stock tax and an annual tax on profits in excess of 1212 per cent of the capital stock, calculated on the basis of the value of the capital stock as fixed by the corporation's return for the first year in which the tax is imposed. It will be observed that by § 215 (a) and (f) the declared value of capital stock which is made the basis. of computation of both taxes is not required to conform either to the actual or to the nominal capital of the taxpaying corporation; and that the declared value for the first taxable year, with the addition or subtraction of specified items of subsequent capital gains or losses is made the basis of the computation of both taxes in later years. The taxpayer is thus left free to declare any value of capital stock for its first taxable year which Opinion of the Court 92 C. Cls. it may elect, but since the declared value for the first year is a controlling factor for the computation of taxes for later years, the statute provides that the declaration once made cannot be amended. Because of the method of computation, increase or decrease in the declared value of capital, and of the corresponding tax, produces, as the case may be, a decrease or an increase in the tax on excess profits. While the constitutionality of the tax was not attacked in the case above cited, the clear implication of the opinion is that the tax was constitutional. The decisions of this court prior to and since the time when the opinion in the Haggar case, supra, was written are in entire accord with the views of the Supreme Court as stated above. There is nothing arbitrary in requiring the taxpayer, through its officers, to declare a value upon which it was willing to pay a tax and which it was willing to use as a basis in computing an excess-profits tax. Congress certainly possessed authority to lay an excise-capital-stock tax and to impose an excess-profits (income) tax on net income in excess of certain credits. This being so, we think it is obvious that there was nothing arbitrary or capricious in the constitutional sense in the action of Congress in choosing to prescribe as the measure of the capital-stock tax and the excess-profits-tax credit of each taxpayer the value of the capital stock as declared by it for the first taxable year under the statute. We have held, and the view has been supported by other courts, that no one was better qualified to place an estimate upon the value of the stock than the taxpayer itself, through its agents and officers, and that there was nothing prejudicial to such taxpayer or to others in so providing in the statute. Notwithstanding the decisions to the contrary, it is especially urged in the cases which we now have before us that where the tax is being imposed for the year after that in which the declaration of value is made the taxpayer is compelled to guess at the value of the stock in a subsequent year at his peril. As we have intimated in a prior opinion, this argument at first glance may seem plausible, but upon examination we think it will be clear that it is unsound. 159 Opinion of the Court The taxpayer is not required to guess at anything and if it makes a guess it is only in trying to so fix a value that it will result in paying the lowest amount of tax possible on capital stock or profits. The statute as it stood during the period involved simply required that a valuation be declared for the first year and that when this valuation is stated it cannot be changed. We see nothing unconstitutional in this. Congress permitted the plaintiff to choose for itself a valuation which it would put upon the stock for the purpose of computing a capital-stock excise tax and the excessprofits tax. The question as to whether the Government may base a tax upon the value fixed for a former year was considered and decided adversely to the plaintiffs herein in the case of LaBelle Iron Works v. United States, 256 U. S. 377, 391, in which the former wartime excess-profits tax was considered. This Act, under which the excess-profits tax was computed upon a statutory invested capital measured by the original cost of the property of the corporation instead of its value at the time the tax was levied, was attacked as unconstitutional. The basis of the argument was that the Act permitted no change on account of increase in value of property used and by reason thereof was arbitrary and caused unreasonable discrimination between the taxpayers upon which the excess-profits tax was imposed. But it was said in the opinion that certainly "Congress, in seeking a general rule, reasonably might adopt the cost basis." It is true that the question in that case was in reference to the validity of the excess-profits tax, but the basis of the tax was a valuation based on cost, and no change in this valuation was permitted in subsequent years. It was held that continuing the original valuation produced no arbitrary discrimination between taxpayers, and the tax was therefore constitutional. In the cases before us in which the taxpayer itself has an election as to the valuation of the property the rule would apply with even greater force. The argument made on behalf of plaintiffs on this point is somewhat singular in several respects. It is not a valid objection that the plaintiffs may have to consider the value 291825-41-CC-vol. 92——13 |