On February 1, 1949, Leslie Salt Company, being in need of funds to meet maturing bank loans and for working capital, borrowed $3,000,000 from the Mutual Life Insurance Company of New York and $1,000,000 from the Pacific Mutual Life Insurance Company. As evidence of the indebtedness Leslie Salt delivered to each insurance company its '3 1/4% Sinking Fund Promissory Note Due February 1, 1964' in these amounts. The question presented is whether these instruments are subject to the documentary stamp taxes laid on 'all bonds, debentures, or certificates of indebtedness issued by any corporation * * *.' under §§ 1800 and 1801 of the Internal Revenue Code of 1939, 26 U.S.C.A. §§ 1800, 1801.
The Commissioner of Internal Revenue held the tax applicable, considering the two instruments to be 'debentures' within the meaning of § 1801. However, in a tax recovery suit instituted by Leslie Salt, following payment of the tax under protest and the Commissioner's denial of a refund, the District Court and the Court of Appeals held the instruments not to be 'debentures' or otherwise subject to stamp taxes. We brought the case here, 349 U.S. 951, 75 S.Ct. 885, 99 L.Ed. 1276, to resolve the uncertainty left by lower court decisions as to whether § 1801 applies to corporate notes of this type.
Except as to amounts and payees, the two instruments in question were in identical terms, having these principal features: (1) each instrument carried the promissory note description already indicated; (2) each had a maturity of 15 years; (3) each carried interest of 3 1/4% payable August 1 and February 1 of each year on the unpaid balance; and (4) each was subject to the terms of an underlying agreement containing elaborate provisions for the protection of the note holders. Among those provisions was one under which each insurance company could require Leslie Salt to convert its note, which was typewritten on ordinary white paper, into a series of new notes in denominations of $1,000 or multiples thereof, 'either in registered form without coupons or in coupon form, and in printed or in fully engraved form.' This option has not been exercised by either note holder.
These transactions with the two insurance companies constituted a variety of 'private placement,' a method of corporate financing which, because of its economies and conveniences, has become popular since the enactment of the Securities Act of 1933, 15 U.S.C.A. § 77a et seq. The Government claims that these notes are taxable under § 1801 either as 'debentures' or 'certificates of indebtedness.' The taxpayer, on the other hand, contends that these terms, undefined in the statute, do not include notes of the type here in issue. Taking the statute in light of its legislative and administrative history, we agree with the taxpayer's contention.
'Debentures' and 'certificates of indebtedness', along with other kinds of corporate securities, have been subject to stamp taxes since 1898, except for the period between 1902 and 1914. 'Promissory notes' were also subject to stamp duties from 1898 to 1901 and from 1914 until 1924, when the tax was repealed; it has never been re-enacted. The tax on 'promissory notes,' however, was always carried in a section separate from that containing the tax on 'bonds, debentures, or certificates of indebtedness', and was always at a rate lower than the tax on those instruments. Since promissory notes, debentures, and certificates of indebtedness all serve the same basic purpose-that is, as evidence of a debt-this former legislative distinction between promissory notes and the other instruments assumes significance in determining whether the present notes are taxable. For unless the earlier statutes were intended to impose two taxes on the same instrument, which we should not assume, or the present tax on debentures and certificates of indebtedness is broader in scope than that in effect in 1924, of which there is no indication, it would seem to follow that these notes should not now be taxed if they can be said to fall within the class of 'promissory notes' on which the tax was repealed.