These test suits, brought in the Court of Claims and based upon the same facts, seek to establish the right of some petitioner to recover the value of internal revenue stamps-$17.28 affixed by Liggett & Myers Tobacco Company to four boxes containing 96 pounds of tobacco, which it manufactured and sold to Massachusetts for free distribution to patients in Boston State Hospital, an institution maintained by the Commonwealth and alleged to be a government instrumentality immune from federal taxation.
During January, 1932, federal statutes directed-
'Upon all tobacco and snuff manufactured in or imported into the United States, and hereafter sold by the manufacturer or importer, or removed for consumption or sale, there shall be levied, collected, and paid * * * a tax of 18 cents per pound, to be paid by the manufacturer or importer thereof.' 'The Commissioner, with the approval of the Secretary, shall prescribe and publish all needful rules and regulations for the enforcement of this Act (chapter).' Revenue Act 1926, 44 Stat. 9, c. 27, §§ 401(a), 1101, U.S.C., Tit. 26, §§ 700(a), 701, 1049, 1350, 1691(a), 26 U.S.C.A. §§ 700(a), 701, 1049, 1350, 1691(a).
Treasury Regulations No. 8 (1928 Ed.) in force at the same time provided:
Art. 43: 'The rate of tax on tobacco and snuff now in force is 18 cents per pound. * * * Such tax is imposed on all chewing and smoking tobacco. * * * The tax accrues on such manufactures upon removal from the factory or place where they were made, or upon sale prior to such removal, and is to be paid by the manufacturer thereof by the affixing of stamps before removal. * * *' Art. 52: 'Each package containing a statutory quantity of tobacco or snuff (see article 45) shall, before removal from the bonded factory premises where made, have affixed thereto the proper internal-revenue stamps or stamps of such denomination as will cover fully the tax on the net weight of the contents. * * *' Art. 94: 'No manufacturer of tobacco, snuff, cigars, or cigarettes will be permitted to close his factory with material or finished product unstamped on hand. * * *' Art. 152: 'Every person who removes from any manufactory, or from any place where tobacco or snuff is made, any manufactured tobacco or snuff without the same being put up in proper packages, or without the proper stamp for the amount of tax thereon being affixed and canceled as required by law; or if the same be intended for export, without the proper export stamp being affixed; shall for each such offense, respectively, be fined not less than $1,000 nor more than $5,000, and be imprisoned not less than six months nor more than two years.'
The Court of Claims found-
Liggett & Myers Tobacco Company is engaged in the business of manufacturing and dealing in tobacco. It maintains a bonded warehouse for storing such products. The established internal revenue procedure was to affix the required stamps upon manufactured tobacco before removal from the factory. In January, 1932, the company received from Massachusetts an order to deliver 96 pounds of tobacco to the Boston State Hospital, an institution owned and maintained by the Commonwealth. The company complied by shipping from its bonded warehouse four packages to which revenue stamps amounting to $17.28 had theretofore been affixed. This was distributed to patients without charge. Hospital patients, when able, pay for treatment. The hospital performs useful public service. A bill for $30.62-price of the tobacco including tax-was paid by the Commonwealth.
And the Court held that operation of the hospital by the Commonwealth is not the performance of an essential governmental function; that such operation is not of a strictly governmental character, since it does not 'embody some kind of control over persons or things which can be exercised only by a sovereign power.' And for that reason the conclusion was that no immunity from federal taxation had been shown. All of the petitions were dismissed.
Here counsel for the Commonwealth submit that the maintenance of the hospital is a true governmental function entitled to immunity; also that the tax in question was laid upon the sale of the tobacco and amounted to an imposition upon the Commonwealth. They rely upon the principle approved in Panhandle Oil Co. v. Mississippi ex rel. Knox, 277 U.S. 218, 222, 48 S.Ct. 451, 452, 72 L.Ed. 857, 56 A.L.R. 583, Indian Motocycle Co. v. United States, 283 U.S. 570, 578, 51 S.Ct. 601, 604, 75 L.Ed. 1277, and Graves v. Texas Co., 298 U.S. 393, 56 S.Ct. 818, 80 L.Ed. 1236.