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to be considered is whether or not this Government had the right to invade the States and take therefrom money that, under the Constitution, it had no right to take from any citizen of the State.

And now, gentlemen, may I introduce Mr. Burton Smith, of the New York bar, who will discuss the matter.

Senator STANFIELD. Mr. Smith.

STATEMENT OF BURTON SMITH, OF THE NEW YORK BAR

Mr. BURTON SMITH. In reply to Senator Bayard's question, this resolution is intended to permit the Supreme Court not only to pass on the legality of this tax but also to render judgment for each State for the amounts collected in that State. The records show the amount paid, in the published report of the Commissioner of Internal Revenue, so the amount paid would not be difficult to determine. It would be a very simple problem.

Under the Constitution, Article I, section 2, subsection 3, "Representatives and direct taxes shall be apportioned among the several States

ac

cording to their respective numbers," and Article I, section 9, subsection 4, "No capitation or other direct tax shall be laid unless in proportion to the census or enumeration herein before directed to be taken." An ad valorem tax is not and can not be a per capita tax, but prior to the income tax case many lawyers believed that the inhibition against a direct tax applied only to real property. In the income tax case, however, Mr. Chief Justice Fuller said (158 U. S. 601823):

"The Constitution does not say that no direct tax shall be laid by apportionment on any other property than land; on the contrary, it forbids all unapportioned direct taxes, and we know of no warrant for excepting personal property from the exercise of the power

And in reviewing the whole decision the court says, on page 637:
"Our conclusions may therefore be summed up as follows: * * *

"Second. We are of opinion that taxes on personal property, or on the income of personal property, are likewise direct taxes."

While the income-tax case was a majority decision, it has since been recognized again and again by unanimous court, and a constitutional amendment permitting tax on income has been passed recognizing the ruling in that case as firmly established in our jurisprudence, and it may be noted in this connection that this amendment provides for tax on income, but makes no provision for direct tax on property, thus showing the mind of the lawmakers and adherence to the doctrine that a direct or ad valorem tax on personal property by the Federal Government is unconstitutional.

RIGHTS OF STATES

It has been decided by the Supreme Court of the United States that escheat is to the State (Hamilton case, 161 U. S. 256). Furthermore, the State has the right to make itself trustee or administrator for the taxpayer in such a case as this. Fifteen States have done this, and to come within the resolution others must do so. (Savings Institute v. Malone, 221 U. S. 660.)

As this tax was an ad valorem tax, it could have been collected in the first instance by the State, and had the United States and each State had a taxing officer who collected for both, and apportioned the taxes, the amount of taxes collected in each State should have been delivered to each State.

Furthermore, questions of taxation are especially within the province of the sovereign, and the State is as much entitled to protect its citizens from illegal tax collections as it is to protect them in questions of the health of its citizens, diversion of the water, and kindred subjects; and the right of the State to act in such cases is recognized.

In the case of Georgia v. Tennessee Copper Co. (206 U. S. 230) the right to protect from noxious gases was recognized, and in the case of Wyoming v. Colorado (259 U. S. 419) and numerous other cases the water proposition was discussed. All of these cases are cited by Mr. Chief Justice Taft in the case of North Dakota v. Minnesota (68 L. ed. 342, 346; 263 U. S. 365, 375).

The wealth of a State consists in the combination of its authority to tax and the tax-paying ability of the people. Where an outside power has collected a tax which did not belong to that power, it has literally put its hand into the pocket of the State. The only way under our Constitution for a State under those circumstances to recover what was improperly taken from it is to ask the

Federal Government for its return, and the effect of that request coupled with escheat provisions is to declare the amount which does not go to the claimants to be a State tax duly levied and collected; it is a levy of a tax by the State.

JURISDICTION OF THE SUPREME COURT

The United States Supreme Court has original jurisdiction in this case, and in any case where suit is brought by a State against the United States or by the United States against a State. (Minnesota v. Hitchcock, 185 U. S. 373.)

CONCLUSION

In this case we asked for no appropriation, but simply ask that the limitations be waived, protest waived, and that the States be given an opportunity to test their rights in court.

This is thoroughly in accord with precedent, as is shown by the case of U. S. v. Hvoslof (237 U. S. 1). That was a suit brought in 1913, and a recovery under the Federal statutes was allowed for taxes illegally paid during 1898 and other It was brought under the act of 1912, and it appears that a prior act had authorized recovery by parties who paid the taxes and that suit by a taxpayer was decided adversely because there had been no protest. The act of 1912 waived protest and limitations.

years.

Richard Olney, Attorney General, acting in his official capacity in connection with the application for a rehearing in the Income Tax case and reported in that case (Pollock v. Farmers Loan & Trust Co., 158 U. S. 601-606), said:

"Second. Though of minor consequences, it is certainly relevant to point out that if the new exposition of the Constitution referred to is to prevail, the United States has under previous income tax laws collected vast sums of money which on every principle of justice it ought to refund, and which it must be assumed that Congress will deem itself bound to make provision for refunding by appropriate legislation."

The States of Oregon, West Virginia, and Delaware have passed legislation directing their respective governors to retain counsel to propound to the Federal Government the claims of the State for this tax. Eighteen other States by appropriate legislation and executive action have done the same thing, and we thus appear before you representing 21 States. We simply ask an opportunity to determine whether this tax was legally paid. Various isolated efforts have been made to bring this before the Congress, but for the first time it has been brought in the present form, and these States confidently believe that after consideration the Senate will determine that this great Government, of which these States are a component part, has no need, however great may be its obligation, to levy an illegal or unconstitutional tax; that it has no need to retain a tax heretofore illegally collected; and that when it becomes apparent that the property of a citizen has been thus taken in violation of the law and of the Constitution the Government will restore the property thus wrongfully taken. The wealth of the country is ample to meet the demands of the Government and to meet them in a legal way. We believe you will say there can be no palliation or excuse for the deliberate withholding of property admittedly taken in violation of the Constitution, and we believe you will determine that the fact that the Government has long delayed this act of common justice is the greater reason why it should act promptly, and the fact that large sums are involved is but the measure of its former injustice and affords no reason whatever for the refusal to redress this wrong. An individual would never be heard to say, "I have wrongfully taken your property, but I have taken so much that it will embarrass me to make restitution"; and this Government in common sense and common justice should never make the excuse that the wrong was so extensive, the number of citizens despoiled or the amount of property taken so great, that restitution is now impracticable or impossible.

A similar resolution, Senate Joint Resolution 28, was introduced in the Seventieth Congress. It was referred to the Claims Committee, by whom it was favorably reported to the Senate. The resolution was passed by the Senate and hearings were held on it by the Ways and Means Committee of the House.

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Mr. HASTINGS, from the Committee on the Judiciary, submitted the

following

REPORT

[To accompany H. R. 10341]

The Committee on the Judiciary, having considered the bill (H. R. 10341) to amend section 335 of the criminal code, reports the same favorably to the Senate without amendment and recommends that the bill do pass.

The purpose and the effect of this legislation is set out in the following excerpt from House Report No. 1699, Seventy-first Congress, second session:

This bill is one of a series of bills recommended by the National Commission on Law Observance and Enforcement appointed by the President and the bill as amended has the approyal of that commission as well as of the Attorney General. The communication from the Attorney General inclosing the recommendation of the National Commission on Law Observance and Enforcement is printed herewith and made a part of this report, as follows:

Hon. GEORGE S. GRAHAM,

OFFICE OF THE ATTORNEY GENERAL,
Washington, D. C., May 24, 1930.

Chairman Committee on the Judiciary,

House of Representatives, Washington, D. C.

DEAR MR. CHAIRMAN: Having received requests from members of your committee for further expressions of opinion upon several bills pending before your committee intended to relieve congestion in the courts, particularly H. R. 10341, H. R. 9985, and H. R. 9937, I asked the National Commission on Law Observance and Enforcement to consider the subject. I am just in receipt of a letter from the chairman of the commission presenting the commission's suggestions on these measures, copies of which are inclosed for the information of your committee.

The commission has given very careful consideration to these measures, and speaking for this department, I accept their conclusions on the various points that have been under consideration, and hope that they will receive favorable consideration from your committee.

Respectfully,

WILLIAM D. MITCHELL,
Attorney General.

NATIONAL COMMISSION ON LAW OBSERVANCE AND ENFORCEMENT,
Washington, D. C., May 23, 1930.

Hon. WILLIAM D. MITCHELL,

Attorney General, Washington, D. C.

MY DEAR MR. ATTORNEY GENERAL: The commission to-day considered in extenso the various bills pending before the Committee on the Judiciary of the House of Representatives growing out of the recommendations contained in its report to the President, dated November 21, 1929, and the supplemental report, and additional bills growing out of the subject matter dealt with in these reports. As a result of the discussion, I was directed to advise you that the commission feels that among the bills so far suggested, its recommendations would be most effectively carried out by the passage of the following bills, modified as suggested in the attached memorandum: H. R. 10341, H. R. 9985, and H. R. 9937.

I am, very truly yours,

GEO. W. WICKERSHAM, Chairman.

MEMORANDUM OF BILLS PENDING IN HOUSE OF REPRESENTATIVES APPROVED AS APPROPRIATE TO CARRY OUT RECOMMENDATIONS OF NATIONAL COMMISSION ON LAW OBSERVANCE AND ENFORCEMENT

H. R. 10341, changed as follows:

I

Page 1, line 10, leave out the words "not" to "turpitude," inclusive.

Page 2, line 5, leave out the whole line.

Page 2, line 6, leave out the words from the beginning of the line to "law," inclusive.

The substantive part of the bill would then read as follows:

"All offenses which may be punished by death or imprisonment for a term exceeding one year shall be deemed felonies. All other offenses shall be deemed misdemeanors: Provided, That all offenses the penalty for which does not exceed confinement in a common jail, without hard labor for a period of six months, or a fine of not more the $500, or both, shall be deemed to be petty offenses; and all such petty offenses may be prosecuted upon information or complaint."

H. R. 9985 changed as follows:

II

Page 2, line 5, strike out the word "single."

Page 2, line 7, after "of" insert "not more than one gallon of."

Page 2, line 8, omit after the word "of "-that is, omit the words "small quanties of."

Page 2, line 9, after "section" insert "in an amount not exceeding one gallon." Page 2, line 13, omit the words "small quantities of” and insert, after the word "of," "not exceeding one gallon of."

Strike out lines 14 and 15 and insert instead "not habitually engaged or employed in violation of the law."

The proviso in the Jones law would then read as follows:

66

'Provided, That any person who violates the provisions of the national prohibition act, as amended and supplemented, in any of the following ways: (1) By a sale, by a person not engaged in habitual violation of the law, of not more than one gallon of liquor as that word is defined by section 1 of title 2 of said act; (2) by unlawful making of liquor, as that word is defined by said section, in any amount not exceeding one gallon, where no other person is employed; (3) by assisting in unlawfully making or unlawfully transporting of liquor, as above defined as a casual employee only; (4) by unlawful transporting of not exceeding one gallon of liquor, as above defined, by a person not habitually engaged or employed in violation of the law, shall for each offense be subject to a fine of not to exceed $500 or to be confined in jail without hard labor not to exceed six months, or both."

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