National Life Ins. Co. v. United States, 277 U.S. 508 (1928)

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National Life Ins. Co. v. United States

No. 228

Argued April 12, 1928
Decided June 4, 1928
277 U.S. 508

CERTIORARI TO THE COURT OF CLAIMS

Syllabus

The Revenue Act of 1921 provides that the gross income of a life insurance company shall be the gross amount of income received during the taxable year from interest, dividends, and rents, and that the net income upon which its income tax is to be assessed shall be the gross income less specified deductions, among which are (1) the amount of interest received during the taxable year from tax exempt securities, and (2) an amount equal to 4% of the company’s mean reserve funds, diminished, however, by the amount of the first deduction, the interest from tax exempt securities. In the case at bar, the petitioner company, though allowed the first deduction, comprising the interest from its exempt state, municipal, and United States bonds, was not advantaged thereby, for, since the same amount was subtracted in computing the second deduction, its tax was the same as if all of its securities had been taxable, and higher than it would have been if those that were tax-free had not belonged to it. The Act (§ 213) expressly disavows any purpose to tax interest upon obligations of the United States, and provides (§ 1403) that, if any of its provisions or the application thereof to any persons of circumstances be held invalid, the remainder of the Act, and the application of such provisions to other persons or circumstances, shall not be affected thereby.

Held:

1. The effect of the statutory computation of deductions was to impose a direct tax on the income of the exempt securities, amounting to taxation of the securities themselves. Pp. 519, 521.

2. The tax, insofar as it affects state and municipal bonds, was unconstitutional. P. 521.

3 The tax, insofar a it affects the United States bonds, was contrary to the manifest general purpose of the statute, which (§ 213) expressly disavowed any purpose to tax interest on such obligations and did not intend to subject them to burdens which could not be imposed on state obligations. P. 521.

4. Considering this, and the saving clause, abatement of the 4% deduction by the amount of interest received from tax exempt securities cannot be given effect against the petitioner under the circumstances disclosed, and petitioner is entitled to recover taxes paid. P. 522.

63 Ct.Cls. 256 reversed.

Certiorari, 275 U.S. 734, to a judgment of the Court of Claims dismissing a claim for taxes alleged to have been illegally collected.