Stratton's Independence,
LTD. v. Howbert, 231 U.S. 399 (1913)
This action was brought in
the district court of the United States by Stratton's Independence,
Limited, a British
corporation carrying on mining operations in the
state of Colorado upon mining lands owned by itself, to recover certain
moneys paid under protest for taxes assessed and levied for the years
1909 and 1910 under the provisions of
the corporation tax act, being 38
of the act of August 5, 1909
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This case presents three
questions to the Supreme Court. The second question (II) and its answer
are fatal to the assertion that "compensation
for labor" is "income"
as defined in the 1909 Tax
Act.
The resulting judgment
having been removed by writ of error to the circuit court of appeals,
that court certifies that the following questions of law are presented
to it, the decision of which is indispensable to a determination of the
cause, and upon which it therefore desires the instruction of this
court:
'I. Does 38 of the act of Congress
entitled, 'An Act to Provide Revenue, Equalize Duties, and Encourage
the Industries of the United States, and for Other Purposes,' approved
August 5, 1909 (36 Stat. at L. p. 11, chap. 6, U. S. Comp. Stat. Supp.
1911, p. 741), apply to mining corporations?
'II. Are
the proceeds of ores mined by a corporation from its own premises
income within the meaning of the aforementioned act of Congress?
'III. If the proceeds from ore sales are
to be treated as income, is such a corporation entitled to deduct the
value of such ore in place and before it is mined as depreciation
within the meaning of 38 of said act of Congress?' [231 U.S. 399,
408] The provisions of 38 are set forth in the margin.1
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The mining corporation has
receipts (revenue) from the sale of this ore. This revenue is "the proceeds from ore sales".
The question is simple: Is this revenue "income" according to the definition
of income in the 1909 Tax Act?
It seems to us that the
first two questions certified must be
answered in the affirmative principally for two reasons.
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Yes. The mining corporation's
proceeds (revenue) from the sale of the ore is "income" according to the definition
of income in the 1909 Tax Act.
| First, because mining
corporations are within the general description
of 38, which comprises 'every corporation,
joint stock company, or
association organized for profit, and having a capital stock
represented by shares , . . . and engaged in business in any state or
territory of the United States;' and, secondly, because the
act
specifies those classes of corporations that are to be exempt from its
operation, and mining corporations are not among them. |
Yes. The mining corporation's
revenue from the sale of the ore is "income"
because the mining corporation
is described in the 1909 Tax Act.
The importance of this
Supreme Court
question and answer can be found by examining the question and
the obverse answer.
ob·verse n. 3.
Logic. The counterpart of a proposition
obtained by
exchanging the affirmative for the negative quality of the whole
proposition and then negating the predicate: The obverse of “Every act
is predictable” is “No act is unpredictable.”
American Heritage Electronic Dictionary
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If: A because X;
Then: NOT A because NOT X
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'II. Are the proceeds of
ores mined by a corporation
from its
own premises income within the meaning of the aforementioned act of
Congress?
|
| Yes. The
mining corporation's
revenue from the sale of the ore "is income"
because the mining corporation
is
described in the 1909 Tax Act. |
'II. Are the proceeds of
ores mined by a Natural
Person from his
own
premises income within the meaning of the aforementioned act of
Congress?
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| No. The Natural Person's revenue from
the sale of the ore "is
NOT income" because the Natural Person is
NOT
described in the 1909 Tax Act. |
If: A because X;
Then: NOT A because NOT X
If: income because corporation;
Then: NOT income because NOT corporation. |
Let us move along to the
"definition" of the Stratton case quoted in subsequent Supreme Court
cases.
The sale outright of a
mining property might be fairly described as a mere conversion of the
capital from land into money. But when a company is digging pits, sinking
shafts, tunneling, drifting, stoping, drilling, blasting, and hoisting
ores, it is employing capital and
labor in transmuting a part of the realty into personalty, and
putting it into marketable form. The very process of mining is, in
a sense, equivalent in its results to a manufacturing process.
And, however the operation shall be described, the transaction is indubitably 'business'
within the fair meaning of the act of 1909; and the gains derived from it are properly
and strictly the income from that business; for 'income' may be defined as the gain
derived from capital, from labor, or from both combined, and here we
have combined operations of capital and labor.
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When a detailed explanation
of something is presented, often, in a form of efficiency of
presentment, the Context is assumed and no longer stated.
This is the shortcut that we
all use in speech and
communication.
"What
color is
that?" (car?).
(That car is)
"Red."
The context can become
unwieldy. When this happens statements of context is ended, and
context is assumed to be known.
This opens the door to obfuscation by those intent upon clouding the
truths of an issue.
The following parse makes
the point of
context in brackets every time the context is assumed:
| The transaction is
indubitably [corporate] 'business'
within the fair meaning of the [corporate tax] act
of 1909; and the [corporate] gains
derived from it
[the corporate business] are properly
and strictly the [corporate net] income
from
that [corporate] business; for
[corporate net] 'income' may be
defined
as
the [corporate] gain
derived
from capital, from labor, or from both
combined, and here we have combined operations of capital and labor.
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As pointed out in the
previous (Flint v. Stone Tracy) case:
Flint v. Stone Tracy, 220
U.S. 107 (1911)
As was said in the Thomas Case,
supra, the requirement to pay such
taxes involves the exercise
of privileges, and the
element of absolute and unavoidable demand is lacking. If business is not done in the manner
described in the statute, no tax is payable.
...
There
is substantial
difference
between the carrying on of business by the corporations taxed, and the
same business when conducted by a private firm or individual.
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The mining corporation digs
holes in the ground and extracts ore. The mining corporation then
sells this ore. The mining corporation has
receipts (revenue) from the sale of this ore. This revenue is "the proceeds from ore sales".
The question asked: Is this revenue "income"
according to the definition
of income in the 1909 Tax
Act? The answer given: Yes
A Natural Person
digs
holes in the ground and extracts ore. A Natural Person
then
sells this ore. A Natural Person
has
receipts (revenue) from the sale of this ore. This revenue is "the proceeds from ore sales".
The question asked: Is this revenue "income"
according to the definition
of income in the 1909 Tax
Act? The answer given by obverse
logic: NO!
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