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corporation

plaintiff

Related Cases

Liggett & Myers Tobacco Co. v. U.S., 82 Ct.Cl. 328, 13 F.Supp. 143, 36-1 USTC P 9044, 17 A.F.T.R. 39

Facts

Liggett & Myers Tobacco Company, a corporation engaged in manufacturing tobacco, received an order from the Commonwealth of Massachusetts for tobacco to be delivered to the Boston State Hospital. The tobacco was delivered with the required internal revenue stamps affixed, and the Commonwealth paid for the tobacco. Liggett & Myers later filed a claim for a refund of the tax paid on the tobacco, arguing that the tax was invalid as the tobacco was distributed free to patients as part of governmental operations. The claim was disallowed, leading to the current case.

About January 25, 1932, the plaintiff filed with the collector of internal revenue at St. Louis, Mo., a claim for the sum of $17.28, the amount of the stamps used in payment of the tax on the tobacco shipped to the hospital, alleging as the basis for the claim that the tax so sought to be recovered was paid by the plaintiff on tobacco sold and delivered by it to the commonwealth of massachusetts, which was by said state, in pursuance of the laws thereof, distributed without charge to inmates of a state owned and operated institution as an instrumentality of government.

Issue

Whether the federal tax on tobacco sold to the Commonwealth of Massachusetts for distribution in a state hospital is valid against the state.

The question involved in the case is whether the federal tax on such tobacco is valid as against the state.

Rule

The exemption of state agencies and instrumentalities from national taxation is limited to those which are of a strictly governmental character and does not extend to those which are used by the state in the carrying on of an ordinary private business.

The exemption of state agencies and instrumentalities from national taxation is limited to those which are of a strictly governmental character, and does not extend to those which are used by the state in the carrying on of an ordinary private business.

Analysis

The court analyzed whether the operation of the Boston State Hospital constituted an essential governmental function. It concluded that the state was not exercising sovereign powers in operating the hospital, as similar facilities could be established by private individuals or corporations. Therefore, the operation of the hospital did not qualify for immunity from federal taxation.

The operation of the hospital not being essential to the execution of the governmental functions of the state and not one which the state only could carry on, it follows that no immunity from taxation has been established and that the petition in each of the three cases must be dismissed.

Conclusion

The court dismissed the petitions for refund, ruling that the federal tax on the tobacco was valid and that the operation of the hospital did not constitute an essential governmental function exempt from taxation.

It is so ordered.

Who won?

The United States prevailed in the case, as the court found that the federal tax on the tobacco was valid and that the operation of the hospital did not qualify for tax immunity.

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