If a distiller uses material for distillation in excess of the
estimated capacity of his distillery, according to the survey made
and returned under the provisions of the law regulating that
subject, but, in the regular course of his business, pays the taxes
upon his entire production, he cannot be again assessed at the rate
of seventy cents on every gallon of spirits which the excess of
material used should have produced, according to the rules of
estimation prescribed by the internal revenue law.
The court below found the following facts:
Robert P. Pepper, was a distiller within the seventh district in
the State of Kentucky, and the surveyed capacity of his distillery
was 151 82/100 bushels per day. During the months of May, June,
July, and August, 1873, he produced spirits in excess of the
surveyed capacity to the number of 2,261 1/4 gallons, on which a
tax was payable amounting in the aggregate to the sum of
$1,582.86.
The surveyed capacity of the said distillery was duly reported
to the Commissioner of Internal Revenue, and the spirits produced,
including the said excess, were drawn from the receiving cistern
and placed in the government warehouse attached to the distillery,
and were duly reported and assessed, and bonds for the payment of
the tax was given according to law, all of which was duly reported
to the Commissioner of Internal Revenue.
Afterwards the commissioner made an assessment of seventy cents
per gallon for all the spirits produced in excess of the surveyed
capacity during the months of May, June, July, and August, and
directed the defendant Stoll, collector of the seventh district, to
collect the same.
This assessment was made under the twentieth section of
Page 97 U. S. 439
the Act of June 6, 1872, and was made for the same spirits upon
the same number of gallons, and for the same amount for which the
taxes had already, under the first regular reports, been assessed
and secured by bond, and which have since been paid, so that a
collection of this assessment by the Commissioner of Internal
Revenue would enforce a double payment of the tax upon the
spirits.
In the production of spirits in excess of the estimated capacity
no evasion of law was intended, and no benefit was derived from it
by Pepper, the plaintiff, but the distillery was run beyond its
surveyed capacity with the knowledge of the government officers,
including the collector.
On the 9th of January, 1874, the defendant, after having made
demand of the plaintiff for payment of the amount assessed for the
said excess, and the plaintiff having refused payment, seized one
hundred and fifty barrels of spirits belonging to the plaintiff,
and containing 6,497 1/2 proof gallons, and after advertising the
same for ten days, sold the whole lot at Frankfort, the place of
seizure, for the sum of $1,798.70, being the amount of taxes
assessed, inclusive of costs and penalties.
Said plaintiff before and at the time of seizure, and at the
sale, in writing, protested to the defendant against the said
proceedings, and notified him that he would hold him liable, and at
the time of the sale of the said spirits the plaintiff was present,
and warned bidders that the sale was illegal, and he would hold the
purchasers responsible for the value of the whiskey.
Before this suit was brought, the plaintiff appealed to the
Commissioner of Internal Revenue, according to law, for the
correction of the said assessments as erroneous and illegal, and
the said appeal was rejected. The spirits seized were, at the time
of the seizure and up to the time of sale, of the market value of
fifty-five cents per gallon, and of the aggregate value of
$3,573.62. The court being of opinion that the second assessment by
the Commissioner of Internal Revenue was not authorized by law, but
that the plaintiff could not recover more than the amount actually
collected, with interest at the rate of six percent per annum, gave
judgment that he recover the sum of $1,887.43, with interest
thereon at the rate of six percent
Page 97 U. S. 440
per annum from the twenty-fifth day of November, 1874, until
paid, and his costs.
The collector then sued out this writ of error.
MR. CHIEF JUSTICE WAITE delivered the opinion of the Court.
The question in this case is whether, if a distiller uses
material for distillation in excess of the estimated capacity of
his distillery according to the survey made and returned under the
provisions of the law regulating that subject, and in the regular
course of his business pays the taxes upon his entire production,
he can be again assessed at the rate of seventy cents on every
gallon of spirits which the excess of material used should have
produced, according to the rules of estimation prescribed by the
internal revenue law. There is no pretense of bad faith. No evasion
of the law was intended, and no benefit was derived by the
distiller from what was done. He paid taxes on his entire
production, and the second assessment was made upon precisely the
same number of gallons that he had reported in his regular reports.
The enforcement of this assessment, if made, will operate as double
taxation, and nothing more.
The case arises under sec. 20 of the Act of July 20, 1868, 15
Stat. 133, as amended June 6, 1872, 17
id. 244, and which
is as follows:
"That on the receipt of the distiller's return in each month,
the assessor shall inquire and determine whether the distiller has
accounted for all the grain or molasses used, and all the spirits
produced by him in the preceding month. If the assessor is
satisfied that the distiller has reported all the spirits produced
by him, and the quantity so reported shall be found to be less than
eighty percent of the producing capacity of the distillery as
estimated under the provisions of this act, an assessment shall be
made for such deficiency at the rate of seventy cents for every
proof gallon. In determining the quantity of grain used, fifty-six
pounds shall be accounted as a bushel, and if the assessor finds
that the distiller has used any grain or molasses in excess of the
capacity of his distillery as estimated under the provisions of
this act, an assessment shall be
Page 97 U. S. 441
made against the distiller at the rate of seventy cents for
every proof gallon of spirits that should have been produced from
the grain or molasses so used in excess, which assessment shall be
made whether the quantity of spirits reported is equal to or
exceeds eighty percent of the producing capacity of the distillery.
If the assessor finds that the distiller has not accounted for all
the spirits produced by him, he shall, from all the evidence he can
obtain, determine what quantity of spirits was actually produced by
such distiller, and an assessment shall be made for the difference
between the quantity reported and the quantity shown to have been
actually produced, at the rate of seventy cents for every proof
gallon,
provided that the actual product shall be assumed
to be in no case less than eighty percent of the producing capacity
of the distillery, as estimated under the provisions of this act or
under the act to which this is an amendment."
Before any distiller can commence business, some person
designated by the Commissioner of Internal Revenue must make a
survey of his distillery, "for the purpose of estimating and
determining its true spirit-producing capacity for a day of
twenty-four hours." Act of 1868, sec. 10, 15 Stat. 129, amended by
sec. 12, Act of 1872, 17
id. 239. There is nothing in any
act of Congress which requires a distiller to call for a resurvey
unless he wishes to reduce his production, 15 Stat. 138, sec. 30,
but the Commissioner of Internal Revenue may at any time direct a
new survey if he is satisfied that the one already made is "in any
way incorrect or needs revision." 17
id. 239, sec. 12.
There is nowhere in the internal revenue law any express
prohibition of production in excess of the estimated capacity. The
requirement of taxes to the extent of eighty percent of the
capacity was intended the guard against the danger of frauds which
might arise if underproduction was allowed; but as the entire
product goes from the distillery to the warehouse, and is there
taxed without any deduction, it would seem that if more than the
estimated quantity was produced, the government could have no just
cause of complaint. A continued overproduction would be evidence to
the Commissioner of an incorrect survey which might need revision,
but if the distiller does not escape taxation, the government
suffers no loss.
The particular section under consideration evidently relates
Page 97 U. S. 442
alone to the assessment and collection of taxes, and not to the
punishment of offenses. A distiller's books and his monthly returns
should truly state the quantity of spirits he has produced. This
section requires that upon the receipt of these returns, the
designated officer shall inquire and determine whether all the
material used and the spirits produced have been accounted for. If
he is satisfied that the production has been correctly reported, he
must next inquire whether it equals or exceeds eighty percent of
the estimated producing capacity of the distillery, and if it does
not, make an assessment for the deficiency at the rate of seventy
cents a gallon -- the theory of the law being that a distiller must
at all events pay taxes upon eighty percent of his producing
capacity.
If, however, the officer finds that the distiller has not
accounted for all the spirits he has produced, he must, from such
evidence as he can obtain, determine what quantity was actually
produced and make an assessment for the difference between the
quantity reported and that shown to have been produced at the rate
of seventy cents a gallon; but in no case can the actual product be
assumed to be less than eighty percent of the producing capacity of
the distillery. Thus far, clearly only the assessment of taxes is
indicated.
There remains to be considered the provision specially
applicable to this case, and that is where the officer finds that
the production is in excess of the estimated capacity of the
distillery. If this is an offense, it is certainly no more heinous
than that of not accounting for all spirits actually produced, and
as to which provision is here made only for an assessment of the
tax for the deficiency. It would seem, therefore, that the object
of this part of the section must have been to secure the collection
of the tax, and not to impose a penalty for overproduction. The
provision is found immediately following that which requires the
officer to determine whether the distiller has accounted for all
the material used and all the spirits produced. For the purpose of
verifying the return as to the quantity produced, he applies the
statutory rule of production to the quantity of material used, and
for the purpose of verifying the report of material used, he
reverses the process and reduces the product to material. If he
becomes satisfied that the returns are correct
Page 97 U. S. 443
and that there has been no excess of material used, he simply
inquires whether the product equals or exceeds eighty percent of
the estimated producing capacity of the distillery, and if it does,
his work is done. The law is satisfied in such cases if the actual
production equals or exceeds eighty percent of the producing
capacity of the distillery or, what is the same thing, eighty
percent of the statutory estimate of the producing capacity of the
material used, for in making the survey, the statutory estimate of
production from the material is applied, and the estimated capacity
of the distillery in gallons indicates exactly the estimated
quantity of material that will be used. But if an excess of
material is used, a different rule is to be applied, and the tax
for the excess is not to be paid on the actual product, but on what
it should have been according to the statutory estimate of the
producing capacity of the material. It was to insure the payment of
the tax upon the excess of material at this rate that we think this
provision was introduced. We cannot believe that double taxation
was intended, for that would be introducing into a section of a
statute apparently intended only to regulate the assessment of
taxes in several classes of cases, a penal provision as to one of
the classes which did not apply to the others, and when there was
seemingly no cause for the unfavorable discrimination. The
provision is relieved from the charge of being superfluous by the
fact that it imposes a tax upon the production of the excess of
material at what it should have been according to the statutory
estimate of the capacity of the material, and not upon what it
actually was.
Judgment affirmed.
