Thursday, October 25, 2007
Federal Judge Rejects M&M’s Contentions on Stamp Tax
By ROGER M. GRACE
The Merchants’ and Manufacturers’ Assn. of Los Angeles was embroiled in a battle in 1898 withWells, Fargo & Company, a nationwide express company (which had operated the short-lived but legendary Pony Express). Under the War Revenue Act of June 13, 1898, designed to raise funds for the Spanish American War, express companies were obliged to stick a one-cent stamp on each receipt for goods accepted for shipping.
An action brought against Wells Fargo by the U.S. District Attorney’s Office, at the behest of the M & M, sought a civil penalty of $50 for refusing to ship a package for a customer—the M & M’s secretary, Felix Zeehandelaar—because he wouldn’t supply a one-cent stamp. That was an obligation of the company, the M & M insisted, as discussed here last week.
Resolution of the case came on Nov. 9, 1898. U.S. District Judge Olin Wellborn, a former U.S. congressman from Texas, sustained a demurrer without leave to amend. Both sides, Wellborn declared, had misperceived the issue as being whether the customer or company had to pay for the stamp.
“I have carefully examined the pleadings, and am satisfied that no such question is presented,” his opinion says. It quotes from the act as follows, with omissions by me:
‘It shall be the duty of every…express company…to issue to the shipper…from whom any goods are accepted for transportation, a bill of lading, manifest, or other evidence of receipt and forwarding for each shipment received for carriage and transportation.…; and there shall be duly attached and canceled…to each of said bills of lading, manifests, or other memorandum…a stamp of the value of one cent….Any failure to issue such bill of lading, manifest, or other memorandum…shall subject such…express company…to a penalty of fifty dollars for each offense….”
Wellborn’s opinion declares:
“It will be seen, from even a cursory reading of this clause, that the duty which it imposes upon the express company is to issue a bill of lading only where ‘goods are accepted for transportation,’ or ‘for each shipment received for carriage and transportation.’ The complaint not only fails to allege that the company accepted for shipment the package in question, but the implication is to the contrary. Whatever may be the liability of an express company to a shipper, on account of its refusal to accept goods offered for carriage and transportation, such refusal is not a violation of the revenue law. The penalty of said law is incurred only where a company accepts goods so offered, and then refuses to issue for them a bill of lading….”
Furor over the one-cent stamp raged nationwide. Agreeing with the position the M & M unsuccessfully advanced here was the Supreme Court of Michigan. On Dec. 6, 1898, it upheld an order the state attorney general had obtained requiring that American Express affix stamps, at its own expense.
Looking at the same language Wellborn did, the Michigan opinion concludes that once a customer “delivers the package to the company, and pays or tenders the usual charges…[t]his ends the shipper’s duty,” and at that point, “it is as much the duty of the company to place the stamp upon the receipt and cancel it as it is to issue the receipt.”
The company insisted that it had simply raised its rate by one-cent per item. The opinion terms this “but an evasion and a subterfuge to avoid the terms of the act.”
On April 16, 1900, the final word was spoken as to the permissibility of a carrier passing on the cost of the stamp to the customer. It was permissible. That was the holding of the United States Supreme Court, in a 7-2 opinion, reversing the Michigan high court decision.
“A stamp duty is embraced within the purview of those taxes which are denominated indirect, and one of the natural characteristics of which is, although it may not be essential, that they are susceptible of being shifted from the person upon whom in the first instance the duty of payment is laid,” Justice Edward White wrote.
The California Supreme Court on April 6, 1901, affirmed a judgment the state Office of Attorney General had secured against Wells Fargo barring it from refusing to accept any package based on failure of the customer to proffer a stamp or make payment of a penny. The 5-2 opinion tries to distinguish the U.S. Supreme Court decision by saying that there, the issue was the reasonableness of a one-cent rate hike, while here, there was no increase in the shipping rate but a conditioning of performance by the company even though the base shipping charge was paid.
A rehearing was granted. The justices thought about it for nearly a year and, on Feb. 17, 1902, confessed: “We see no ground upon which the two cases can be distinguished,” proceeding to follow the federal high tribunal’s pronouncement.
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