SPECTOR MOTOR SERVICE, Inc., v. WALSH, Tax Com‘r.
No. 34.
Circuit Court of Appeals, Second Circuit.
Dec. 24, 1943.
As Modified March 18, 1944.
139 F.2d 809
Cyril Coleman, of Hartford, Conn. (Israel Nair and Nair & Nair, all of New Britain, Conn., and Day, Berry & Howard, of Hartford, Conn., on the brief), for plaintiff-appellee.
Before L. HAND, CLARK, and FRANK, Circuit Judges.
CLARK, Circuit Judge.
This appeal by the Connecticut State Tax Commissioner brings up for consideration the validity of the Connecticut Corporation Business Tax of 1935,
Plaintiff pioneered in the development of the “two-way haul” of goods between St. Louis, Missouri, and New York City, that is, the system whereby trucks which have come East with freight are supplied with another load for the return trip after a minimum holdover at the terminals. As developed, this involved the collection of freight in less than truckload amounts at certain eastern terminals, where it was sorted and the loads consolidated and placed in the returning trucks. Hence in 1934 and in 1935, plaintiff leased terminals for its exclusive use in Chicago, Illinois, and New Britain, Connecticut, in addition to those already in existence in St. Louis, Missouri, and New York City; and later it leased another in Bridgeport, Connecticut. It has also acquired agency terminals, where it has the use of terminal facilities of some other carrier, in certain cities in Massachusetts, Rhode Island, and New Jersey. Plaintiff utilizes about 150 trucks for its interstate hauling, almost all of these being leased from its corporate affiliate, the Wallace Transport Company of Illinois. For shipments less than truckloads these trucks are loaded and unloaded at the terminals, to or from which the goods are brought or delivered by separate pickup or cartage trucks, some leased from local truckers and some owned by plaintiff. Thus, at the New Britain terminal plaintiff has five such pickup trucks, all owned by it on conditional bills of sale.
At the New Britain terminal plaintiff has 17 employees, and at the Bridgeport terminal 10, including loading, accounting, and sales personnel. Bills, as well as wages of employees, are usually paid by draft on plaintiff at Chicago, although some cash is kept in New Britain for incidental expenses. Plaintiff has a bank account in Bridgeport for collections made by its drivers, but no Connecticut employee is authorized to disburse this money. That is left entirely in the control of plaintiff‘s main administrative offices in Chicago, which handle all matters relating to rating and billing. Plaintiff has no real estate in Connecticut; its total physical assets there—outside of the pickup trucks—amount to only some $1,500 or $2,000 of office equipment in the two terminals. Between one-third to one-half of the dollar volume of plaintiff‘s business, however, originates in Connecticut.
When plaintiff negotiated for the lease of the New Britain terminal, the lessor, as a precaution in case of future litigation regarding the lease, required the company to qualify as a foreign corporation doing business in the state and to designate the Secretary of State as its agent for service of process. Plaintiff then paid the annual statutory fee of $50 and has since maintained its qualification, paying this yearly fee. It has not applied for or received the certificate of public convenience and necessity from the Connecticut Public Utilities Commission which is a prerequisite for the doing of local business as a motor common carrier.
The Connecticut Corporation Business Tax Act of 1935,
There follow special and ingenious provisions as to allocation of net income in the case of business carried on partly without the state.
This objective is still further emphasized by
The district court, relying on certain precedents hereinafter discussed, held that if this tax applied to a wholly interstate business it would be an undue burden thereon, contrary to Art. 1, § 8, of the United States Constitution, and hence indulged in the presumption of validity to interpret the statute as applicable only to those corporations which carried on an intrastate business. This we think is to warp the meaning beyond permissible limits. The broad sweep of the language imposing the tax and the subordinate provisions for careful allocation of the tax between business within and without the state seem to us to disclose unmistakably an intent to make the tax applicable in a case such as this. Indeed, the commission which recommended the tax envisaged its application to interstate business and carefully discussed its validity in the light of that premise. Rep., Connecticut Temporary Commission to Study the Tax Laws, 1934, 455, 456, 483; and cf. Stanley Works v. Hackett, 122 Conn. 547, 190 A. 743. It seems to us fairer to hold, as we do, that the statute was intended to apply to the allocated local business of corporations situated as was the plaintiff and then to face directly the main issue whether the tax is in fact an unconstitutional burden on interstate commerce.
The traditional dogma is that a state cannot tax interstate commerce, the business which constitutes such commerce, or the privilege of engaging in it. Cooney v. Mountain States Telephone & Telegraph Co., 294 U.S. 384, 55 S.Ct. 477, 79 L.Ed. 934; Matson Nav. Co. v. State Board, 297 U.S. 441, 56 S.Ct. 553, 80 L.Ed. 791; New Jersey Bell Telephone Co. v. State Board of Taxes, 280 U.S. 338, 50 S.Ct. 111, 74 L.Ed. 463. And the fact that some of the business is intrastate justifies a tax only on that part and not upon either the interstate business or the whole business without discrimination. Cooney v. Mountain States Telephone & Telegraph Co., supra. In the past years, however, many exceptions have served increasingly to limit this strict rule. As was said in Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 254, 58 S.Ct. 546, 548, 82 L.Ed. 823, 115 A.L.R. 944: “It was not the purpose of the commerce clause to relieve those engaged in interstate commerce from their just share of state tax burden even though it increases the cost of doing the business. ‘Even interstate business must pay its way,’ Postal Telegraph-Cable Co. v. Richmond, 249 U.S. 252, 259, 39 S.Ct. 265, 266, 63 L.Ed. 590.”
Hence we now find that the person who conducts an interstate business is subject to a property tax on the instruments employed in the commerce, Western Union Tel. Co. v. Massachusetts, 125 U.S. 530, 8 S.Ct. 961, 31 L.Ed. 790; Adams Express Co. v. Kentucky, 166 U.S. 171, 17 S.Ct. 527, 41 L.Ed. 960; Old Dominion S. S. Co. v. Virginia, 198 U.S. 299, 25 S.Ct. 686, 49 L.Ed. 1059, 3 Ann.Cas. 1100, and if the instruments are used both within and without the state, a fairly apportiоned tax is permitted. Pullman‘s Palace-Car Co. v. Pennsylvania, 141 U.S. 18, 11 S.Ct. 876, 35 L.Ed. 613; Cudahy Packing Co. v. Minnesota, 246 U.S. 450, 38 S.Ct. 373, 62 L.Ed. 827. And a domestic corporation is taxable on its earnings from interstate as well as intrastate commerce. United States Glue Co. v. Town of Oak Creek, 247 U.S. 321, 328, 38 S.Ct. 499, 62 L.Ed. 1135, Ann.Cas. 1918E, 748; Atlantic Coast Line R. Co. v. Doughton, 262 U.S. 413, 420, 422, 43 S.Ct. 620, 67 L.Ed. 1051; Matson Nav. Co. v. State Board, supra. Again, the assets of a foreign corporation engaged in interstate commerce have been held taxable not only by the state in which they have acquired a business situs, First Bank Stock Corp. v. Minnesota, 301 U.S. 234, 57 S.Ct. 677, 81 L.Ed. 1061, 113 A.L.R. 228, but also by the state in which the corporation has a commercial domicile. Wheeling Steel Corp. v. Fox, 298 U.S. 193, 56 S.Ct. 773, 80 L.Ed. 1143. Finally, a franchise tax may be imposed, measured by the net income from business done within the state, including such portion of the income derived from interstate commerce as may be justly attributable to business done within the state by a fair method of apportionment. Underwood Typewriter Co. v. Chamberlain, 254 U.S. 113, 41 S.Ct. 45, 65 L.Ed. 165; Bass, Ratcliff & Gretton, Ltd. v. State Tax Commission, 266 U.S. 271, 45 S.Ct. 82, 69 L.Ed. 282; cf. Hans Rees’ Sons v. North Carolina, 283 U.S. 123, 51 S.Ct. 385, 75 L.Ed. 879; Butler Bros. v. McColgan, 315 U.S. 501, 62 S.Ct. 701, 86 L.Ed. 991. Even a tax measured by gross receipts fairly
When, however, a corporation is engaged within a state solely in interstate commerce, it must be conceded frankly, and this is the basis of the thoughtful conclusion of the court below, that the Supreme Court to date has held it immune from net income taxation by that state. In 1925, in Alpha Portland Cement Co. v. Massachusetts, 268 U.S. 203, 45 S.Ct. 477, 69 L.Ed. 916, 44 A.L.R. 1219, the Court, Mr. Justice Brandeis dissenting, held invalid a Massachusetts excise tax measured in part by net income when applied to a company doing no intrastate business, but having a considerable amount of interstate business within the state, where it maintained a large office and a sales staff. This followed Ozark Pipe Line Corp. v. Monier, 266 U.S. 555, 45 S.Ct. 184, 69 L.Ed. 439 (Mr. Justice Brandeis dissenting at some length) and was, in turn, followed in 1933 in Anglo-Chilean Nitrate Sales Corp. v. Alabama, 288 U.S. 218, 53 S.Ct. 373, 77 L.Ed. 710, where Mr. Justice Cardozo wrote the dissent for himself and Justices Brandeis and Stone. Here the Court rejected the additional argument, stressed in the dissent, that the corporations had qualified to carry on intrastate business though they had not in fact done so.
If that wеre the whole story or if further our duty were limited to picking the closest unoverruled analogy in reported cases and following that blindly and mechanically, we should hold that these cases, and particularly the Alpha Cement case, had foreclosed all further discussion. But that is far from the whole story; the trends noted above have gone further in several specific cases fundamentally close to this and in divisions in the Court itself, which are certainly not without significance in forecasting the future course of the law. And our function cannot be limited to a mere blind adherence to precedent. We must determine with the best exercise of our mental powers of which we are capable that law which in all probability will be applied to these litigants or to others similarly situated. If this means the discovering and applying of a “new doctrinal trend” in the Court, Perkins v. Endicott Johnson Corp., 2 Cir., 128 F.2d 208, 217, 218, affirmed 317 U.S. 501, 63 S.Ct. 339, 87 L.Ed. 424, this is our task to be performed directly and straightforwardly, rather than “artfully” dodged. The Attitude of Lower Courts to Changing Precedents, 50 Yale L.J. 1448, 1459. As was said recently with rare prescience by Judge Parker in the controversial issue as to the constitutionality of the required flag salute: “Under such circumstances and believing, as we do, that the flag salute here required is violative of religious liberty when required of persons holding the religious views of plaintiffs, we feel that we would be recreant to our duty as judges, if through a blind following of a decision which the Supreme Court itself has thus impaired as an authority, we should deny protection to rights which we regard as among the most sacred of those protected by constitutional guaranties.” Barnette v. West Virginia State Board of Education, D.C.S.D.W.Va., 47 F.Supp. 251, 253, affirmed 319 U.S. 624, 63 S.Ct. 1178, 87 L.Ed. 1628. We must then decide how far we think, at this point of time, the Alpha Cement decision controls this case.
In addition to the general course of decisions on state taxes, we shall examine certain specific trends disclosed by the Court and more directly applicable to the present issue. In so doing we must bear in mind at all times that the emphasis of the present Court in tax problems is on practical considerations. The trend is away from the automatic condemnation of taxes by formal, preconceived, and antiquated rules. As was said in Wisconsin v. J. C. Penney Co., 311 U.S. 435, 445, 61 S.Ct. 246, 250, 85 L.Ed. 267, 130 A.L.R. 1229: “We must be on guard against imprisoning the taxing power of the states within formulas that are not compelled by the Constitutiоn but merely represent judicial generalizations exceeding the concrete circumstances which they profess to summarize.”
First, we should note the now established and undenied power of a state to impose a registration or license fee on those using motor vehicles in the state, although engaged in interstate commerce, or
If a highway tax based on the difficult and uncertain formula of mileage within the state is to be sustained, it is clear that similar taxes, based on other formulas which are less arbitrary than that of mileage, must be equally valid. The formula used in the case at bar, for example, would be a fairer means of measuring the tax owed by a foreign corporation. It would seem, therefore, that constitutionality would be ensured for the present tax as applied to interstate trucking if the legislature clearly showed that it was intended to provide funds for the benefit and upkeep of the highways. Realizing this, it would be myopic of us to ignore practicality and demand that the legislature actually make this verbalization, without meaning to the taxpayer, to validate the measure. Of course, the Connecticut legislature could easily and properly make the statement, for it appears that in normal times from 33 to 47 per cent of the state‘s revenues went into the highway fund. Rep., Connecticut Temporary Commission to Study the Tax Laws, 1934, 29-56; Rep., Connecticut Commission Concerning the Reorganization of the State Departments, 1937, 149, 150. Hence, even as the tax now stands, we can expect one-third to nearly one-half the receipts to be used for the highways.
Next, we note that the present attitude of the Supreme Court to interfere only most reluctantly with a legislative scheme for apportioning income to business within and without the state, Butler Bros. v. McColgan, supra, leaves the distinction between a permissible and an assertedly unpermissible allocation under the Alpha Cement case a barren one, indeed. In the Butler Bros. case it refused to accept detailed accounting expositions showing that the allocation fraction erred by including actual interstate income in the intrastate income figure. It virtually discarded the Hans Rees’ decision, supra, in which a fraction was overturned, and made a definite statement that in the future only fractions which were clearly arbitrary would be reviewed.
In practical result, therefore, the Supreme Court does now tacitly sanction the taxation of the net income from interstate commerce of a foreign corporation which does both intrastate and interstate business. A state, under the pretense of taxing income of a corporation from intrastate business, can apply a fraction to total income in order to determine intrastate income; and the result achieved is taxable, whether actual interstate income is included or not, as long as the fraction is not openly arbitrary. In Ford Motor Co. v. Beauchamp, 308 U.S. 331, 60 S.Ct. 273, 84 L.Ed. 304, Texas levied a franchise tax on the Ford Company, which was engaged in both intrastate and interstate business. The tax was allegedly based on the proportion of capital assets of the Company located in Texas, and an allocation fraction was used to reach a figure of over twenty-three million dollars. Although the Company showed that the actual value of its Texas assets was only some three millions, the tax was upheld by the Supreme Court, with only Mr. Justice McReynolds dissenting. The logical conclusion would appear to be that, provided a mere minimum of intrastate business is discovered, a substantial tax may be levied on the interstate income; while if such minimum is not discovered, no tax can be collected no matter how large is the interstate income actually developed within the state—a reductio ad absurdum in a field where we are instructed to be highly practical.
Next we must observe that at least a minority, and possibly more, of the present Court is committed to the view, expressed most forcibly by Mr. Justice Cardozo, dissenting, in Anglo-Chilean Nitrate Sales Corp. v. Alabama, supra, that the tax is properly levied on a concern which has qualified to dо intrastate business, even though it is not actually so engaged. This is in line with the consistent view of the Court in construing a tax of this kind to
The district court made note of this argument, but held it inapplicable because plaintiff was not fully authorized to do business within the state unless and until it had the certificate of public convenience of the Connecticut Public Utilities Commission for the operation of intrastate trucks. But such regulations are of a police nature, comparable to licensing of motor vehicles, and can hardly be considered as affecting the fundamental franchise of the state to carry on a local business, which is the privilege upon which the tax is levied. A corporation when it becomes a local entity must, of course, submit, like all others, to numerous and increasing regulations for the public welfare; and its duty to pay taxes, once it is properly within the state, should not be made to depend upon its compliance with all such regulations.
Finally, and perhaps most important of all, are the broad trends in favor of the state-taxing power shown of late by the present Court. Perhaps most important is the announcement of the view, following that of Justice Brandeis dissenting in the three controversial cases upon which this judgment particularly rests, that it is the duty of Congress, not of the courts, to protect interstate commerce against the evils of unfair state taxation. This view has been most cogently expressed by Mr. Justice Black in persuasive dissents in Gwin, White & Prince v. Henneford, 305 U.S. 434, 59 S.Ct. 325, 83 L.Ed. 272, and J. D. Adams Mfg. Co. v. Storen, 304 U.S. 307, 316, 58 S.Ct. 913, 82 L.Ed. 1365, 117 A.L.R. 429. Thus, in the Gwin case, supra, 305 U.S. at page 455, 59 S.Ct. at page 335, 83 L.Ed. 272, he said: “I would return to the rule that—except for state acts designed to impose discriminatory burdens on interstate commerce because it is interstate—Congress alone must ‘determine how far [interstate commerce] * * * shall be free and untrammelled, how far it shall be burdened by duties and imposts, and how far it shall be prohibited.’ [Welton v. Missouri, 91 U.S. 275, 280, 23 L.Ed. 347].” By 1940, Mr. Justice Black had been joined by Justices Douglas and Frankfurter in dissent in McCarroll v. Dixie Greyhound Lines, 309 U.S. 176, 189, 60 S.Ct. 504, 510, 84 L.Ed. 683, where they said: “Unconfined by ‘the narrow scope of judicial proceedings’ Congress alone can, in the exercise of its plenary constitutional control over interstate commerce, not only consider whether such a tax as now under scrutiny is consistent with the best interests of our national economy, but can also on the basis of full exploration of the many aspects of a complicated problem devise a national policy fair alike to the States and our Union.”
There can be no question that this view so compellingly expressed will have increasing weight in the deliberations of the Court and, even if it is not accepted by the majority in full, will tend to prevent the invalidating of taxes on formal grounds. We have already pointed out the increasingly favorable attitude of the Court towards gross receipts taxes. A commentator, cited supra, who considers the present Court to stand four to three against the proposition of judicial lack of power in the premises, with two justices not yet recоrded, goes on to say that these circumstances “seem to foreclose any probability that taxes on gross receipts from interstate transportation and communication will be condemned on formal grounds, if otherwise unobjectionable,” and that “the Court will probably sustain such a tax if it does not threaten interstate commerce with a heavier burden than local commerce, or in some other manner threaten an unfair or unreasonable burden on interstate commerce.” Lockhart, 57 Harv. L.Rev. at 95.
It is perhaps these developments within the Court which led Mr. Chief Justice Stone, speaking for a unanimous court, to say, by way of dictum, it is true, but nevertheless apparently advisedly: “In any case, even if taxpayer‘s business were wholly interstate commerce, a nondiscriminatory tax by Tennessee upon the net income of a foreign corporation having a commercial domicile there, cf. Wheeling Steel Corp. v. Fox, supra [298 U.S. 193, 56 S.Ct. 773, 80 L.Ed. 1143], or upon net income derived from within the state, Shaffer v. Carter, 252 U.S. 37, 57, 40 S.Ct. 221, 227, 64 L.Ed. 445; [State of] Wisconsin v. Minnesota Mining Co., 311 U.S. 452, 61 S.Ct. 253, 85 L.Ed. 274; cf. People of State of New York ex rel. Cohn v. Graves, 300 U.S. 308, 57 S.Ct. 466, 81 L.Ed. 666, 108 A.L.R. 721, is not prohibited by the commerce clause on which alone taxpayer relies.” Memphis Natural Gas Co. v. Beeler, 315 U.S. 649, 656, 62 S.Ct. 857, 862, 86 L.Ed. 1090. The broad sweep of this language is noteworthy. It is not limited to a tax at the commercial domicile. (Defendant has claimed that plaintiff has a commercial domicile within the state, but we agree that its commercial domicile is in Chicago.) On the contrary, there is the flat statement that even if the taxpayer‘s business is wholly interstate commerce a nondiscriminatory tax by a state upon net income derived from within the state is not prohibited by the constitutional provision.
Here this tax certainly cannot be considered discriminatory. It is levied on all corporations carrying on business within the state, local corporations paying at the same rate as foreign ones, and with most careful provisions for the ascertainment of only income produced within the state. Indeed, if we should strike down the tax against plaintiff, we would be discriminating against intrastate business, which would still have its burdens to pay under the tax and which is just as much entitled to constitutional protection from discrimination as interstate commerce, as the dissents of Mr. Justice Brandeis and Mr. Justice Black, cited above, in particular have pointed out. As a matter of faсt, such an action by us would mean that a corporation which does a vast business within the state will escape completely from contributing to the expenses of the state. There will also be offered to large interstate commerce corporations the possibility of escaping state income taxation, since the main office and the domicile of the corporation can be set up in a state with no such taxes, and the business can be kept strictly interstate. The record in this case shows how skillfully the plaintiff is avoiding heavy taxation not merely by its choice of domicile, but even by the location of its affiliate, the owner of its trucks, in a state, Illinois, where licensing fees are favorable and reciprocity is had with other states. This business, of course, competes with the interstate railroads. Its comparative immunity from taxation seems neither equitable nor desirable—at least until and unless Congress so determines.
It is objected that if Connecticut can levy this tax then all states through which plaintiff‘s trucks operate can levy a somewhat similar tax, and plaintiff will be burdened by the iniquity of multiple taxation. There seem two ready answers tо this suggestion. The first is that the record does not suggest that other states are making such levies, and it will be time enough to consider the problem of multiple taxation when and if it arises. Henneford v. Silas Mason Co., 300 U.S. 577, 587, 57 S.Ct. 524, 81 L.Ed. 814. The second is that if in fact other states can show as rational a basis for taxation on this business as is here shown there seems no reason why plaintiff, like its competitor railroads, should not pay the taxes so properly assessed. Mr. Justice Black has well expressed this idea in his dissent in Gwin, White & Prince v. Henneford, supra, 305 U.S. at page 448, 59 S.Ct. at page 331, 83 L.Ed. 272: “A business engaging in activities in two or more States should bear its part of the tax burdens of each. If valid, non-discriminatory taxes imposed in these States create ‘multiple’ burdens, such ‘burdens’ result from the political subdivisions created by our form of government. They are the price paid for governmental protection and maintenance in all States where the taxpayer does business. A State‘s taxes are not discriminatory if the State treats those engaged in interstate and intra-state business with equality and justice.”
We conclude, therefore, that the levy upon plaintiff is only of a nondiscriminatory tax upon income fairly attributable to interstate business in this state and that as such it is not prohibited under the commerce clause of the United States Constitution. Plaintiff also urges that the tax is invalid as violating both federal and state due process. We need add nothing to what we have already said save to notice a particular objection of improper delegation of legislative power to the commissioner. While this is urged on both federal and state grounds, it is said that the state rule is especially strict. State v. Stoddard, 126 Conn. 623, 13 A.2d 586; Connecticut Baptist Convention v. McCarthy, 128 Conn. 701, 25 A.2d 656. But the Connecticut court relies strongly and almost exclusively on decisions of the Supreme Court of the United States, and we do not believe it intends to adopt a peculiar local rule. Plaintiff‘s objection is directed particularly to the power accorded the commissioner under
We should hesitate in this proceeding to declare even the broader alternative so defective as to make the tax unconstitutional. We have seen how unwilling the Supreme Court is to upset a method of allocation unless it is shown improper by “cogent evidence.” Butler Bros. v. McColgan, supra. The method here, even down to the objected to alternative, was worked out by a very able commission in the light of what seems to have been considerable experience elsewhere;5 and the provisions particularly objected to are additions, made after the general principle has first been stated, which, together with the further relief and appeal sections, constitute an unusual and significant attempt to avoid unfairness or injustice in special cases. But the commissioner has found the more explicit alternative to be applicable, and we are not disposed to quarrel with that administrative determination. Where “use of tangible personal property” ends and personal service begins may be often difficult to decide; at least it seems not unreasonable to сonclude that a trucking business requires preeminently the use of trucks. The fact that for another purpose the Connecticut court has held “service” to be “the predominant feature” of the furnishing of food in a restaurant, Lynch v. Hotel Bond Co., 117 Conn. 128, 131, 167 A. 99, 100, does not particularly help us here. As a matter of fact, the method here employed appears to have produced a result anything but harsh in the light of the large amount of plaintiff‘s business which originates in this state.6 We think this objection not well taken. Cf. Smolowe v. Delendo Corp., 2 Cir., 136 F.2d 231, 240, certiorari denied 64 S.Ct. 56; Stanley Works v. Hackett, supra.
A final objection to the levy is that the commissioner, in adding to plaintiff‘s federal net income “interest and rent paid” during the year, as provided in
When the commissioner first came to apply this provision to the “purchased transportation,” he felt, and was so advised by the State Attorney-General, that he should deduct from truck rentals the expenses assignable to salaries and wages, gasoline,
Jurisdiction of the Federal Court. In its opinion the district court said, 47 F.Supp. at page 674: “It is agreed that no plain, speedy and efficient remedy may be had in the state courts either by appeal, Lathrop v. Norwich, 1930, 111 Conn. 616, 151 A. 183, or by injunction, Waterbury Savings Bank v. Lawler, 1878, 46 Conn. 243.” It also made extensive findings of fact and conclusions of law to support this holding. These followed plaintiff‘s complaint, which contained not оnly usual jurisdictional allegations covering its constitutional claims, the diverse citizenship of the parties, the amount in controversy, and the applicability of
Notwithstanding this concurrence of view and desire of the parties for a complete adjudication, it is our duty to make an independent reëxamination of the question. The Act of August 21, 1937, 50 Stat. 738, amending
In the Huffman case the Court did not decide whether the statutory prohibition against tax injunctions applied also to declaratory judgments, but held that the previously existing discretionary power in the federal courts as to award of relief to a taxpayer applied to require dismissal of an action for such a judgment, without decision on the merits, when state law, with the right of appeal to the Court, afforded adequate protection to the taxpayer. The Court stressed, 319 U.S. at page 298, 63 S.Ct. at page 1073, 87 L.Ed. 1407, that “interference with state internal economy and administration” was at the base of this restraint in granting relief. Where that reason is lacking, it would seem proper to a federal court to act, in the absence of a definite prohibition by Congress; indeed, the Court has held that even а definite prohibition against suits to restrain collection of federal taxes, now
Turning now to the plainness of the remedy available in the state courts, we find a considerable and definite line of authorities, applied in tax proceedings as well as generally, holding that one who accepts the remedy of appeal provided by a statute has thereby agreed to its validity and cannot at the same time challenge its legality. In addition to the Lawler case cited by the district court are Holley v. Sunderland, 110 Conn. 80, 86, 147 A. 300, 302; Young v. West Hartford, 111 Conn. 27, 149 A. 205, 207; Coombs v. Larson, 112 Conn. 236, 246, 152 A. 297; Chudnov v. Board of Appeals, 113 Conn. 49, 51, 154 A. 161, 164; and National Transp. Co. v. Toquet, 123 Conn. 468, 196 A. 344, 348. The rule has also been applied in a case where the state officials themselves sued to collect a tax. Spencer, State Treasurer, v. Consumers’ Oil Co., 115 Conn. 554, 559, 162 A. 23. It appears not to prevent an action for a declaratory judgment, National Transp. Co. v. Toquet, supra, although this alone is hardly an effective remedy in view of the drastic penalties provided by the statute for the nonpayment of the tax. On the other hand, in a still later case, Connecticut Baptist Convention v. McCarthy, 128 Conn. 701, 25 A.2d 656, the court held unconstitutional the very act which it had declined to review in Holley v. Sunderland, supra, citing the Holley case without comment, and with no suggestion of its over-ruling this line of authorities.
In a case arising before any of the cases cited, Underwood Typewriter Co. v. Chamberlain, 92 Conn. 199, 102 A. 600, the court had held provisions for appeal to the superior court in a 1915 tax statute there under consideration sufficiently separable to allow a testing of the validity of its application to the appellant after the latter had paid the tax under protest. The appeal provisions there were similar to those provided in many instances both as to town and state taxes, and not greatly different from the provisions of the 1935 statute,
Turning now to the availability of the injunctive process, the Connecticut court has refused it in the Lawler case, supra, cited by the district court, and in other cases involving town taxes, including Wilcox v. Town of Madison, 106 Conn. 223, 137 A. 742, 743, which appears to be the last authoritative statement of the rule. The court there said that it had refused to adopt the rule resting jurisdiction “solely upon the illegality or invalidity of the tax,” but instead had required a showing of threat of irreparable injury and lack of adequate remedy at law. It cited several cases where the remedy had been refused, and stated that it was aware of only two cases where it had been granted, Seeley v. Town of Westport, 47 Conn. 294, 36 Am.Rep. 70, a “flagrant case” of a tax against neither “the proper person nor the proper estate,” and hence without the general rule, and City of New London v. Perkins, 87 Conn. 229, 87 A. 724, where a city, legally exempt from taxation and required to operate a ferry, was allowed to enjoin the tax collector of a neighboring town from selling for taxes land used for the ferry‘s public landing. Even the possibility of appeal under the statute might be held to preclude an injunction here. Moreоver, precedents in actions against towns are not helpful in view of the state‘s immunity from suit.
No action of any kind against state taxing officials has been found, although the Underwood case, supra, does suggest that the statutory appeal should apply to make an injunction unnecessary. Against whom it should be directed is not stated. In any event, therefore, the plaintiff‘s right to an injunction is far from plain.
The state‘s immunity from suit also makes inapplicable another line of cases holding that a town tax paid under protest is under duress, so that a suit will lie against the town for its refund. Shaw v. City of Hartford, 56 Conn. 351, 15 A. 742; H. E. Verran Co. v. Town of Stamford, 108 Conn. 47, 49, 142 A. 578; Pitt v. City of Stamford, 117 Conn. 388, 167 A. 919. It seems at least doubtful whether any state official can be found who would be personally liable for a refund of the tax. In the very early case of Thames Mfg. Co. v. Lathrop, 7 Conn. 550, town selectmen were held liable in trespass for a seizure of property for a tax invalid because of their failure to perform a ministerial act. This case was distinguished and limited in Phelps v. Thurston, 47 Conn. 477, where liability was denied and the court said, at page 486, that the plaintiff might have paid his tax and “an action of assumpsit against the town would have been a plain and effective remedy.” No other case applying this principle even against town taxing officials has been discovered. In Hubbard v. Brainard, 35 Conn. 563, 576, decided by a divided court and reversed on another ground in Collector of Internal Revenue v. Hubbard, 12 Wall. 1, 79 U.S. 1, 20 L.Ed. 272, recovery under the first federal income tax law was allowed against the collector of internal revenue, which, of course, is only the modern federal rule, as we discussed in Hammond-Knowlton v. United States, 2 Cir., 121 F.2d 192, 194, 195, certiorari denied 314 U.S. 694, 62 S.Ct. 410, 86 L.Ed. 555.
If personal liability were to be spelled out here, it would be difficult to decide upon whom the burden should rest. While the tax commissioner computes the tax, the 1935 statute provided in
Of course, we recognize that the Connecticut Supreme Court of Errors is not at all foreclosed by these decisions from finding some remedy available or, indeed, clear. That is its undoubted province. Ours is decidedly more limited. We are bound to accept state law as we find it, and can hardly justify exposition which adds by assuming only to clarify. Since we do not find a definitive state determination, we must conclude that the state remedy depends upon “the problematical outcome of future consideration,” and hence that jurisdiction exists for our judgment herein. Judgment reversed for the entry of a judgment for defendant on the merits.
L. HAND (dissenting).
Section 418c of the Connecticut “Corporation Business Tax Act of 1935” imposes an excise upon the “franchise for the privilege of carrying on or doing business within the state.” The plaintiff has asked no leave of the state to do its business, and needs none; nor has it a “commercial domicile” within the state which would draw upon itself the state‘s taxing powers. Moreover, some parts of the statute are clearly inapplicable to it: e.g.
It seems to me clear that we are therefore not yet justified in supposing that the distinction between an excise upon a federal activity, and an excise upon some contributing activity has ceased to exist. If I were free to start afresh, I should not myself make that distinction; it is derived, I believe, either from the actual decision in McCulloch v. Maryland, 4 Wheat. 316, 4 L.Ed. 579, or from the gloss that later cases have put upon it, depending on how seriously one takes certain parts of the оpinion. I think it a barren way to treat the distribution of power in a federation like ours to say that, if a state can tax a national activity, it follows that it must have the power to cripple or frustrate it. If I could, I should hold that, while Congress had a paramount power to prevent just that—or while in plain cases possibly the courts might themselves intervene—in ordinary situations the states were free to tax all activities within their borders provided they did so equitably. The prevalent
I do not forget that the tax at bar is not levied upon an activity of the government, like the tax involved in Mayo v. United States, supra, 319 U.S. 441, 63 S.Ct. 1137, 87 L.Ed. 1504. Maybe there is a distinction between a governmental activity and an activity of individuals, like interstate commerce, though both are equally protected by the Constitution; it is certainly true that, as to regulation of interstate commerce, the notion of the paramountcy of Congress has already gained great headway. However, I can find no such incursion into the field of taxation, except in dissents; and while the doctrine I should like to see prevail may make its first advance in the “direct” taxation of interstate commerce, there appears to me to be great difficulty in finding an excuse for such a beginning that does not swallow the whole doctrine. Up to the present, so far as I can see, the immunity of interstate commerce from such taxation as such has rested upon the same considerations which still prevail as to the immunity of an activity of the United States. Moreover, the arguments which have been at times put forward—mistakenly in my opinion—to justify the second, apply equally to the first: I mean that all federal powers were expressly granted by the states, and that they have a representation in Congress which the nation has not in their legislatures.
It is always embarrassing for a lower court to say whether the time has come to disregard decisions of a higher court, not yet explicitly overruled, because they parallel others in which the higher court has expressed a contrary view. I agree that one should not wait for formal retraction in the face of changes plainly foreshadowed; the higher court may not entertain an appeal in the case before the lower court, or the parties may not choose to appeal. In either event the actual decision will be one which the judges do not believe to be that which the higher court would make. But nothing has yet appeared which satisfies me that the case at bar is of that kind; and, as I have said, I can see no good reason for making any distinction between one kind of federal activity and another. The way out is in quite another direction, and includes both. Nor is it desirable for a lower court to embrace the exhilarating opportunity of anticipating a doctrine which may be in the womb of time, but whose birth is distant; on the contrary I conceive that the measure of its duty is to divine, as best it can, what would be the event of an appeal in the case before it.
L. HAND
CIRCUIT JUDGE