Thursday, January 26, 2006
U.S. Draws Suit Over Taxation of Coca-Cola as Medicine
By ROGER M. GRACE By a MetNews Staff Writer
Here’s an idea: let’s raise funds to support the current war effort by enacting federal luxury taxes—placing them, for example, on medicines.
No, not seriously. However, just such a tax was included in the War Revenue Act of 1898, enacted to provide funds to support efforts in the Spanish-American War. (Other levies included one cent on every telephone call and a dollar on every barrel of beer.)
Contesting an application of the medicine tax to its product was the Coca-Cola Company, headquartered in Atlanta. Since Coke had been widely advertised as a remedy for headaches and nervous exhaustion, the U.S. Internal Revenue Department concluded (reasonably, it would seem) that it was a medicine. A tax was imposed of $1.75 on every gallon of Coke syrup shipped for use by soda fountains and an eighth of a cent on every five-cent ready-to-drink bottle of the beverage.
It was “under protest” that the Coca-Cola Company paid $10,858.86 during the first 13 months the new tax was in effect, then sued for a refund, insisting that Coke was simply a soft drink.
The action was filed in the City Court in Atlanta, and removed to the U.S. District Court for the Northern District of Georgia on May 1, 1900, on motion of the defendant, Harold A. Rucker, collector of internal revenue for Georgia. Rucker, by the way, had been born a slave, was a delegate from Georgia to the Republican National Convention in 1890, and was named to his post by President William McKinley in 1897.
The case went to trial in the courtroom of Judge William T. Newman, a Confederate war hero.
The government alleged that the ingredients in Coke included cola nuts, caffeine, coca leaves, and a trace of a product of those leaves, cocaine.
On June 11, 1901, Asa Candler, owner and president of the Coca-Cola Company, was called by the plaintiff as its first witness. George L. Bell, assistant U.S. attorney for the Northern District of Georgia, cross-examined him. Bell elicited from Candler an admission that his company had stopped touting Coke’s medicinal properties in 1898 in order to avoid the new tax, but that the formula had not changed from the earlier time when it was advertised as a curative.
This dialogue took place:
Q. Mr. Candler, you have not used any of the printed matter since the War Revenue Act of 1898, where you advertise that it relieves exhaustion, except in one or two instances, have you?
A. If we have, sir, then the officers of the government have been able to bring it in here, I reckon.
Q. Explain to the jury why you took that out.
A. So we would not be subject to the War Revenue tax.
Q. That was the reason?
A. Yes, sir.
Q. Was your idea that the change in your advertisements would affect the question?
A. We thought so.…
Q. The ingredients were not affected by the change in the advertisements?
A. Not a bit.
There was, of course, also testimony favorable to the plaintiff. Candler testified, as did chemist George Payne, that it would take 400 glasses of Coke to supply one grain of cocaine, which was then a standard medical dose. A government chemist, Charles Crampton, agreed.
Testimony showed what Coca-Cola syrup was comprised of: mostly sugar and water, with aromatics, phosphoric acid, lemon and vanilla, along with coca and cola, and less than half of one percent of alcohol (to preserve the syrup). Caffeine provided by the cola nuts was less than the amount in a cup of coffee or tea, and the alcohol was in too small a quantity to have an effect, according to testimony.
On June 14, 1901, a mistrial was declared based on the inability of the jury to reach a verdict. A unanimous vote was needed, and there was a lone hold-out for a verdict in favor of Rucker.
A second trial was to take place. More about that next week.
But before leaving 1901—the year this newspaper was founded—here’s an item about Coke from July 11 of that year in the Atlanta Constitution, datelined Newman, Ga.:
“Under the rigid enforcement of the Sunday ordinance in the city, the chief of police docketed a case against Dr. Paul Penniston for selling coca cola, from the soda fount in his drug store. On the trial of the case the proof showed that the parties to whom the coca cola was sold had the headache and the doctor had prescribed it. Several witnesses, including physicians and prescription clerks and habitual headachers, testified before the mayor that coca cola is a medicine and relieves headache. The mayor held that coca cola is a beverage, but can be used on Sunday under a physician’s prescription, and dismissed the case against Dr. Penniston as being no infraction of the Sunday ordinance.”
Copyright 2006, Metropolitan News Company
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