*PETER AMBROSINI, riff, in Err.,

v.

UNITED STATES.

(See S. C. Reporter’s ed. 1-8.)

War revenue — exemptions — liquor-tax bonds.

Bonds required to be given, to the state of Il¬ linois and city of Chicago as a condition precedent to the issue of a liquor license were exempted from the stamp tax require¬ ment of the war revenue act of 1808 (30 Stat. at L. 448, chap. 448), either as bonds Issued by a state or city within the meaning of the exemption conferred by § 17 of that act, or by virtue of the proviso in that sec¬ tion that it was thereby intended to exempt the state and municipalities in respect of the exercise of strictly governmental func¬ tions.

[No. 14.]

Argued and Submitted December 4, 1901. Decided October 20, 1902.

TN ERROR to the District Court of the -L United States for the Northern District of Illinois to review a judgment imposing a fine on a finding of guilty of an offense under the war revenue act. Reversed and remanded, with a direction to quash the indictment.

See same case below, on motion to quash indictment, 105 Fed. 239.

Statement by Mr. Chief Justice Fuller: This was a writ of error brought to re¬ verse a judgment of the district court im¬ posing a fine on a finding of guilty of an of¬ fense under § 7 of the act of Congress entitled “An Act to Provide Ways and Means to Meet War Expenditures, and for Other Purposes” ( 30 Stat. at L. 448, chap. 187 U. S. U. S., Book 47.

44S), otherwise known as the war revenue act of 1898. The indictment contained two counts. The first charged that defendant on August 30, 1898, executed a certain bond in the penal sum of $3,000 to the people of the state of Illinois without affixing to the bond a 50-eent revenue stamp, alleged to be required by said act of Congress. The sec¬ ond count charged that defendant on August 30, 1898, executed a certain bond to the city of Chicago in the penal sum of $500 with¬ out affixing thereto a 50-cent revenue stamp, alleged to be required by the act. The bonds were set forth in extenso. A motion to quash the indictment was made and over¬ ruled, and, a jury being waived, the cause was submitted to the court for trial, defend¬ ant found guilty, and sentenced to pay a fine. The opinion is reported, 105 Fed. 239.

Sections 6, 7, and 17 of the act are as follows:

“Sec. (1. That on and after the first day of July, eighteen hundred and ninety-eight, there shall be levied, collected, and paid, for and in respect of the several bonds, deben¬ tures, or certificates of stock and of indebted¬ ness, and other documents, instruments, matters, and things mentioned and described in schedule A of this act, or for or in re¬ spect of the vellum, parchment, or paper upon which such instruments, matters, or things, or any of them, shall be written or printed by any person or persons, or party who shall make, sign, or issue the same, or for whose use or benefit the same shall be made, signed, or issued, the several taxes or sums of money' set down in figures *against

the same, respectively, or otherwise specified or set forth in the said schedule. . . .

“Sec. 7. That if any person or persons shall make, sign, or issue, or cause to be made, signed, or issued, any instrument, document, or paper of any kind or descrip¬ tion whatsoever, without the same being 4 49

3-5 Supreme Court of

duly stamped for denoting the tax hereby imposed thereon, or without having there¬ upon an adhesive stamp to denote said tax, such person or persons shall be deemed guilty of a misdemeanor, and upon convic¬ tion thereof shall pay a fine of not more than one hundred dollars, at the discretion of the court, and such instrument, docu¬ ment, or paper, as aforesaid, shall not be competent evidence in any court.”

“Sec. 17. That all bonds, debentures, or certificates of indebtedness issued by the of¬ ficers of the United States government, or by the officers of any state, county, town, municipal corporation, or other corporation exercising the taxing power, shall be, and hereby are, exempt from the stamp taxes required by this act: Provided, That it is the intent hereby to exempt from the stamp taxes imposed by this act such state, county, town, or other municipal corporations in the exercise only of functions strictly be¬ longing to them in their ordinary govern¬ mental, taxing, or municipal capacity: Pro¬ vided further, That stock and bonds issued by co-operative building and loan associa¬ tions whose capital stock does not exceed ten thousand dollars, and building and loan associations or companies that make loans only to their shareholders, shall be exempt from the tax herein provided.”

Schedule A contained this provision: “Bond: For indemnifying any person or persons, firm, or corporation who shall have become bound or engaged as surety for the payment of any sum of money, or for the due execution or performance of the duties of any office or position, and to account for money received by virtue thereof, and all other bonds of any description, except such as may be required in legal proceedings, not otherwise provided for in this schedule, 50 cents.”

The bonds, to which it was alleged the stamps should have been affixed, were bonds required by the laws of Illinois to be given as a condition of the issue of licenses to

keep dramshops *or sell intoxicating liquors in the state of Illinois and in the city of Chicago.

Sections 1, 2, and 5 of an act of the general assembly of the state of Illinois, entitled “An Act to Provide for the Licensing of and against the Evils Arising from the Sale of Intoxicating Liquors,” read:

“Sec. 1. That a dramshop is a place where spirituous or vinous or malt liquors are retailed by less quantity than 1 gallon, and intoxicating liquors shall be deemed to include all such liquors within the meaning of this act.

“Sec. 2. Whoever, not having a license to keep a dramshop, shall, by himself or another, either as principal, clerk, or serv¬ ant, directly or indirectly, sell any intoxi¬ cating liquor in any less quantity than 1 gallon, or in any quantity to be drank upon the premises, or in or upon any adjacent room, building [,] yard, premises, or place of public resort, shall be fined not leas than 50

the United States. Oct. Term,

twenty dollars [$20] nor more than one hun¬ dred dollars [$100], or imprisoned in the county jail not less than ten nor more than thirty days, or both, in the discretion of the court.”

“Sec. 5. No person shall be licensed to keep a dramshop, or to sell intoxicating liquors, by any county board, or the author¬ ities of any city, town, or village, unless be shall first give bond in the penal sum of $3,000, payable to the people of the state of Illinois, with at least two good and sufficient sureties, freeholders of the county in which the license is to be granted, to be approved by the officer who may be authorized to is¬ sue the license, conditioned that he will pay to all persons all damages that they may sustain, either in person or property, or means of support, by reason of the person so obtaining a license selling or giving away intoxicating liquors. The officer taking such bond may examine any person offered as security upon any such bdnd, under oath, and require him to subscribe and swear to his statement in regard to his pecuniary ability to become such security. Any bond taken pursuant to this section may be sued upon for the use of any person, or his legal representatives, who may be injured by rea¬ son of the selling or giving away any intox¬ icating liquor by the person so licensed, or by his agent or servant.” 2 Starr & C. Anno. Stat. (III.) 2d ed. 1586, chap. 43.

*By article 5, chapter 24, of the statutes

of Illinois concerning cities*— it was pro¬ vided :

“Sec. 1. The city council in cities, and president and the board of trustees in vil¬ lages, shall have the following powers:

“Fourth. To fix the amount, terms, and manner of issuing and revoking licenses.

“Forty-sixth. To license, regulate, and prohibit the selling or giving away of any intoxicating, malt, vinous, mixed, or fer¬ mented liquor, the license not to extend be¬ yond the municipal year in which it shall be granted, and to determine the amount to be paid for such license: . . . Provided,

further, That in granting licenses, such cor¬ porate authorities shall comply with what¬ ever general law of the state may be in force relative to the granting of licenses.

. . . “Ninety-sixth. To pass all ordi¬

nances, rules, and make all regulations proper or necessary to carry into effect the powers granted to cities or villages, with such fines or penalties as the city council or board of trustees shall deem proper:

. . .” 1 Starr & C. 2d ed. 689, chap. 24.

The Revised Code of Chicago of 1897 pro¬ vided: “The mayor of the city of Chicago shall, from time to time, grant licenses for the keeping of dramshops within the city of Chicago to persons who shall apply to him in writing therefor, and shall furnish evi¬ dence satisfying him of their good character. Each applicant shall execute to the city of Chicago a bond, with at least two sureties,

187 U. S.

Ambrostnt v. United States.

to be approved by tbe city clerk or city col¬ lector, in the sum of $500, conditioned that the applicant shall faithfully observe and keep all ordinances in force at the time of the application or thereafter to be passed during the period of the license applied for, and will keep closed, oil Sundays, all doors opening out upon any street from the bar or room where such dramshop is to be kept; and that all windows opening upon any street from such bar or room shall, on Sun¬ days, be provided with blinds, shutters, or curtains, so as to obstruct the view from such street into such room. No applica¬ tion for a license shall be considered until such bond shall have been filed.” 1 Rev. Code 1897, p. 253, chap. 39, art. 1.

cific regulations of the traffic, and provided that licenses might be revoked by the mayor for violation of “any provision of any ordi¬ nance of the city council relating to intoxi¬ cating liquors, or any condition of the bond aforesaid.”

The conditions of the bond in the sum of $3,000 to the people of the state of Illinois were substantially in the words of the stat¬ ute. The conditions of the bond in the sum of $500 to the city of Chicago were some¬ what more stringent than the language of the municipal Code.

Messrs. T. A. Moran and Levy Mayer

submitted the cause for plaintiff' in error:

The war revenue act of June 13, 1898, must be strictly construed as against the government.

United States v. Isham, 17 Wall. 496, 21 L. ed. 728; Hartranft v. Wiegmann, 121 U. S. 609, 30 L. ed. 1012, 7 Sup. Ct. Rep. 1240; American Net & Twine Co. v. Worthington, 141 U. S. 468, 35 L. ed. 821, 12 Sup. Ct. Rep. 55; Tlugus v. Strickler, 19 Iowa, 413; Ash’s Annotated Internal Revenue Laws, p. 360, note C.

There are exempted, by necessary impli¬ cation, those cases to which the statute can¬ not constitutionally apply.

Endlich, Interpretation of Statutes, p.

247. § 179; Opinion of the Justices, 41 N.

II. 553; Prather v. Pritchard, 26 Ind. 65.

The bonds in question are exacted in favor of the people by the laws and ordinances regulating the sale of intoxicating liquors, and are therefore instrumentalities of the state.

United States v. Owens, 100 Fed. 70; 31 Chicago Legal News, 247.

The state has the supreme and absolute control of the issuing and granting of li¬ censes for the sale of intoxicating liquors within its borders, unhampered by restric¬ tions of the Federal government.

License Cases, 5 How. 504, 12 L. ed. 256 ; Mugler v. Kansas, 123 U. S. 623, 31 L. ed. 205, 8 Sup. Ct. Rep. 273; Kidd v. Pearson, 128 U. S. 1, 32 L. ed. 346, 2 Inters. Com. Rep. 232, 9 Sup. Ct. Rep. 6; Qiozza v. Tier- nan, 148 U. S. 657, 37 L. ed. 599, 13 Sup. Ct. Rep. 721; Re Hoover, 30 Fed. 51.

The war revenue act imposes excise taxes on transactions, irrespective of who 187 U. S.

5, 6

in the first instance is required to pay the

same.

Western U. Teleg. Co. v. Texas, 105 U. S. 460, 26 L. ed. 1067 ; Nicol v. Ames, 173 U. S. 509, 43 L.ed. 786, 19 Sup. Ct. Rep. 522; Jones v. Keep, 19 Wis. 390.

A state has no power, either directly or indirectly, by taxation or otherwise, to in¬ terfere with any of the means, instrumental¬ ities, or agencies used by the Federal gov¬ ernment in the exercise of its sovereign pow¬ ers.

M’Culloch v. Maryland, 4 Wheat. 316, 4 L. ed. 579; Weston v. Charleston, 2 Pet. 449, 7 L. ed. 481; Dobbins v. Erie County, 16 Pet. 449, 10 L. ed. 1027 ; Western U. Teleg. Co. v. Texas, 105 U. S. 460, 26 L. ed. 1067 ; Palfrey v. Boston, 101 Mass. 329, 3 Am. Rep. 364; Newark City Bank v. Fourth Ward Assessor, 30 N. J. L. 13; Nave v. King, 27 Ind. 356; 1 Desty, Taxn. p. 73.

Conversely, the Federal government can¬ not interfere by taxation with the means, instrumentalities, or agencies used by the state in the exercise of its sovereign powers.

The Collector v. Day, 11 Wall. 113, sub norn. Buffington v. Day, 20 L. ed. 122; United States v. Baltimore & O. R. Co. 17 Wall. 327, 21 L. ed. 599; State ex rel. Lakey v. Carton, 32 Ind. 6, 2 Am. Rep. 315; Warren v. Paul, 22 Ind. 281 ; Sayles v. Davis, 22 Wis. 225; Fifield v. Close, 15 Mich. 505; McGovern v. Hoesback, 53 Pa. 176; Sampson v. Barnard, 98 Mass. 359; SUrncman v. Smith, 40 C. C. A. 581, 100 Fed. 600; Warwick v. Bettman, 102 Fed. 127, Affirmed in 47 C. C. A. 185, 108 Fed. 46; United States v. Owens, 100 Fed. 70, 31 Chicago Legal News, 247.

Assistant Attorney General James M. Beck argued the cause and filed a brief for defendant in error:

It is within the power of the state of Il¬ linois, as a police regulation, to make the sale of liquor a privilege; but such sales are equally within the taxing power of the United States.

License Tax Cases, 5 Wall. 462, 18 L. ed.

A liquor licensee has no more direct con¬ nection with the government than a corpo¬ ration which receives its charter, together with pecuniary or other aid, from the United States, and which is sometimes used by the United States for governmental pur¬ poses, such as the carriage of the mails or the transportation of troops, etc. ; and yet such corporation was held to be taxable on the ground that it was not an agency or instrumentality of the state.

Union P. R. Co. v. Peniston, 18 Wall. 5, 21 L. ed. 787; Thomson v. Union P. R. Co. 9 Wall. 579, 19 L. ed. 792.

Cases in which the power of taxation has been withheld are predicated upon the fact that the things taxed are the direct prop¬ erty or acts or agencies of the state, and are not things done by an individual at the com¬ mand of the state as an incident of police regulation.

United States v. Baltimore & 0. R. Co. 17 Wall. 322, 21 L. ed. 597; Pollock v.

51

6-8

Farmers’ Loan c€ T. Co. 157 U. S. 429, 39 L. ed. 759, 15 Sup. Ct. Rep. 673.

There may be persons having relations with the government, who are not neces¬ sarily agencies of the government.

Whitehouse v. Langdon, 10 N. H. 331.

The clear distinction between a taxable subject which may be affected by legal reg¬ ulations, and the direct agencies of tne state, is plainly pointed out by this court in Knowlton v. Moore, 178 U. S. 41, 44 L. ed. 909, 20 Sup. Ct. Rep. 747, where the court, while conceding that the right to regulate successions is vested in the state, yet held that inheritance duties could be imposed by Congress.

The indisposition of this court to extend this implied constitutional restriction of the taxing power is further illustrated by United States v. Perkins , 163 U. S. 625, 41 L. ed. 287, 16 Sup. Ct. Rep. 1073, where a bequest by a citizen of New York state to the United States was held subject to the state inher¬ itance law.

Mr. Chief Justice Fuller delivered the opinion of the court:

By the dramshop act the general assembly of Illinois legislated, as was stated in the title of the act, “against the evils arising from the sale of intoxicating liquors,” not by prohibiting the traffic altogether, but by regulating it in protection of the public. The act concerning cities authorized munici¬ pal action subject to the general law.

The legislation was enacted in the exer¬ cise of the police power for the safety, wel¬ fare, and health of the community, and it is conceded that that power is a power re¬ served by the states, free from Federal re¬ striction in any particular material here.

The act and the ordinance required these bonds to be given as prerequisites to the issue of licenses permitting the sale. The licenses could not be issued without compli¬ ance with this condition precedent. The statute expressly provided that no license should be granted “unless he shall first give bond in the penal sum of $3,000,” and the ordinance, that “no application for a license shall be considered until such bond shall have been filed.”

The bonds were obviously intended to se¬ cure the proper enforcement of the laws in respect of the sale of intoxicating liquors;

[71* the prompt payment of fines and penalties; a remedy for injuries in person, property, or means of support; and the protection of the public in divers other enumerated par¬ ticulars. The granting of the licenses was the exercise of a strictly governmental func¬ tion, and the giving of the bonds was part of the same transaction. To tax the license would be to impair the efficiency of state and municipal action on the subject and as¬ sumes the power to suppress such action. And considering license and bond together, taxation of the bond involves the same con¬ sequences. In themselves the bonds were not mere incidents of the regulation of the traffic, but essential safeguards against its

Oct. Term,

evils, and governmental instrumentalities of state and of city, as authorized by the state, to insure the public welfare in the conduct of the business, although the busi¬ ness itself was not governmental. They were not mere individual undertakings to secure a personal privilege as suggested by the court below, but means for the preser¬ vation of the peace, the health, and the safety of the community in compelling strict observance of the law, and remedying inju¬ rious results.

The general principle is that, as the means and instrumentalities employed by the general government to carry into opera¬ tion the powers granted to it are exempt from taxation by the states, so are those of the states exempt from taxation by the gen¬ eral government. It rests on the law of self-preservation, for any government whose means employed in conducting its strictly governmental operations are subject to the control of another and distinct government exists only at the mercy of' the latter. Nel¬ son, J., The Collector v. Day, 11 Wall. 113, sub nom. Buffington v. Day, 20 L. ed. 122.

Viewed in the light of that general prin¬ ciple, we think it clear that Congress, lest the broad language of schedule A, “and all other bonds of any description,” might lit¬ erally cover bonds such as those in question, and in avoidance of controversy in that re¬ gard, exempted them by § 17, wherein it was declared that it was intended “to ex¬ empt from the stamp taxes imposed by this act, such state, county, town, or other mu¬ nicipal corporations in the exercise only of functions strictly belonging to them in their ordinary governmental, taxing, or mupici- pal capacity.” True, this language was used in a proviso, and the "enacting clause

exempted bonds “issued by the officers of . . . any state, county, town, municipal

corporation, or other corporation exercising the taxing power;” but as the bonds were required by the state and the city, and were issued for the benefit of the public, and not for the benefit of the individuals who exe¬ cuted them, it appears to us that they came fairly within the meaning of the clause, as¬ suming that they were covered by schedule A. The question is whether the bonds were taken in the exercise of a function strictly belonging to the state and city in their or¬ dinary governmental capacity, and we are of opinion that they were, and that they were exempted as no more taxable than the licenses. Either they were exempt, apart from the proviso, because, in the sense of the statute, issued by the state and city, or the proviso so far qualified the language of the enacting clause as to exempt them in exempting the state and city in respect of the exercise of strictly governmental func¬ tions.

We conclude, therefore, that they were not taxable within the statute. United States v. Owens, 100 Fed. 70; Stirneman v. Smith, 40 C. C. A. 581, 100 Fed. 600; War¬ wick v. Bettman, 102 Fed. 127, 47 C. C. A.

187 TJ. S.

Supreme Court of the United States.

Schwartz v. Duss.

8-11

185, 108 Fed. 46; People v. City, 31 Chi¬ cago Legal News, 247.

Judgment reversed and cause remanded, with a direction to quash the indictment.

Mr. Justice Harlan did not hear the ar¬ gument, and took no part in the decision.