ERROR to the Circuit Court for the District of Maryland.
The State of Pennsylvania, by certain acts, as expounded by the Supreme Court of that State, taxed 'money owing by solvent debtors, whether by promissory note, penal or single bill, bond or judgment,' imposing three mills on the dollar of the principal, payable out of the interest. And where the money was due by a railroad corporation, they made it the duty of the president, or other officer of the company who paid the coupons or interest to the holder, to retain the amount of the tax.
The United States, also, by certain acts, laid what is known as the income tax.
The first tax of this kind was imposed by the act of Congress passed August 5th, 1861. The 49th section of that act directed that there should be levied and collected upon the annual income of every person residing in the United States, from whatever source derived, a tax of 3 per cent. on the amount of the excess of such income over $800; and upon the income, rents, or dividends, accruing upon property, &c., owned in the United States by any citizen residing abroad, a tax of 5 per cent.
The next act was passed July 1st, 1862, and the 90th section of it directed that there should be levied and collected a tax of 3 per cent. on the annual income of every person residing in the United States, over $600 and under $10,000; and when exceeding $10,000, a tax of 5 per cent.; and upon the income of citizens residing abroad, a tax of 5 per cent. The next section provided that the portion of income derived from interest on bonds, or other evidences of indebtedness of any railroad company, which should have been assessed and paid by said companies, should be deducted from that prescribed in the previous section; and the 81st section directed that this tax on the bonds and evidences of indebtedness should be paid by the companies, and that they might deduct the same on the payment of interest to the bondholders.
The next act-one more particularly bearing on one part of this case-was that of June 30th, 1864. This act directed the levy and collection of a tax of 5 per cent. upon the excess of income of every person residing in the United States, or of any citizen residing abroad, over $600 and under $5000; 7 1/2 per cent. over $5000 and not exceeding $10,000; and a tax of 10 per cent. over $10,000. Subsequent sections provided for the deduction from all payments on account of interest arising out of bonds of railroad companies, as in the act of July 1st, 1862, and enacted that the payment by the company of the said duty so deducted from the interest, should discharge the company from that amount of interest on the bonds 'so held by any person or persons whatever,' except where the companies might have contracted otherwise.
In this state of the statutes of Pennsylvania and of the United States, Jackson, an alien resident in Ireland, brought suit, in the court below, against the Northern Central Railway Company, a company incorporated by the State of Maryland, to recover the amount of certain coupons attached to bonds issued by the company and held by him. The form of them was as follows:
'The Northern Central Railway Company will pay to the bearer, January 1, 1865, thirty dollars, being a half year's interest on bond No. 1827, for one thousand dollars.
'J. S. LIEB, Treasurer.'
The plaintiff proved a demand of payment, at the company's office in Baltimore (where the coupons were payable), and that the company offered to pay the amount of them, deducting a tax of 5 per cent. per annum to the United States, under the acts of Congress; and a further tax of three mills per dollar of the principal of each bond asserted to be due to the State of Pennsylvania, but would not pay more. Offer of such payment was refused. He also gave in evidence charters incorporating the Northern Central Railway Company by the State of Maryland, and by that of Pennsylvania, and rested.
The defendant then gave in evidence the articles of consolidation of four railroad companies, one of which had been incorporated by the State of Maryland, and the three others by the State of Pennsylvania, embracing a line of road extending from Baltimore, in Maryland, to Sunbury, in Pennsylvania, about a third or fourth of the whole road only being in the former State.