Shaffer v. Carter

• Decision Date: 01 March 1920
• Docket Number: Nos. 531,580,s. 531
• Citation: 64 L.Ed. 445,40 S.Ct. 221,252 U.S. 37
• Parties: SHAFFER v. CARTER, State Auditor, et al. (two cases)
• Court: U.S. Supreme Court

252 U.S. 37

40 S.Ct. 221

64 L.Ed. 445

SHAFFER

v CARTER, State Auditor, et al. (two cases).

Nos. 531, 580.

Argued December 11 and 12, 1919.

Decided March 1, 1920.

Mr. Malcolm E. Rosser, of Muskogee, Okl., for appellant.

[Argument of Counsel from pages 38-43 intentionally omitted] Mr. Justice PITNEY delivered the opinion of the Court.

These are two appeals, taken under circumstances that will be explained, from a single decree in a suit in equity brought by appellant to restrain the enforcement of a tax assessed against him for the year 1916 under the Income Tax Law of the state of Oklahoma (Laws 1915, c. 107) on the ground of the unconstitutionality of the statute.

A previous suit having the same object was brought by him in the same court against the officials then in office, in which an application for an interlocutory injunction heard before three judges pursuant to section 266, Judicial Code, was denied; one Judge dissenting. Shaffer v. Howard (D. C.) 250 Fed. 873. An appeal was taken to this court, but, pending its determination, the terms of office of the defendants expired, and, there being no law of the- state authorizing a revival or continuance of the action against their successors, we reversed the decree and remanded the cause, with directions to dismiss the bill for want of proper parties. 249 U. S. 200, 39 Sup. Ct. 255, 63 L. Ed. 559.

After such dismissal the present defendant Carter, as state auditor, issued another tax warrant and delivered it to defendant Bruce, sheriff of Creek county, with instructions to levy upon and sell plaintiff's property in that county in order to collect the tax in question; and the sheriff having threatened to proceed, this suit was commenced. An application for an interlocutory injunction, heard before three judges, was denied upon the authority of the decision in 250 Fed. and of certain recent decisions of this court. The decree as entered not only disposed of the application but dismissed the action. Plaintiff, apparently unaware of this, appealed to this court under section 266, Judicial Code, from the refusal of the temporary injunction. Shortly afterwards he took an appeal under section 238, Judicial Code (Comp. St. § 1215) from the same decree as a final decree dismissing the action. The latter appeal is in accord with correct practice, since the denial of the interlocutory application was merged in the final decree. The first appeal (No. 531) will be dismissed.

The Constitution of Oklahoma, besides providing for the annual taxation of all property in the state upon an ad valorem basis, authorizes (article 10, § 12) the employment of a variety of other means for raising revenue, among them income taxes.

The act in question is chapter 164 of the Laws of 1915. Its first section reads as follows:

'Each and every person in this state, shall be liable to an annual tax upon the entire net income of such person arising or accruing from all sources during the preceding calendar year, and a like tax shall be levied, assessed, collected and paid annually upon the entire net income from all property owned, and of every business, trade or profession carried on in this state by persons residing elsewhere.'

Subsequent sections define what the term 'income' shall include; prescribe how net income shall be computed; provide for certain deductions; prescribe varying rates of tax for all taxable incomes in excess of $3,000, this amount being deducted (by way of exemption) from the income of each individual, and for one living with spouse an additional $1,000, with further deductions where there are children or dependents, exemptions being the same for residents and nonresidents; require (section 2) a return on or before March 1st from each person liable for an income tax under the provisions of the act for the preceding calendar year; provide (section 9) that the state auditor shall revise returns and hear and determine complaints, with power to correct and adjust the assessment of income; that (section 10) taxes shall become delinquent if not paid on or before the 1st day of July, and the state auditor shall have power to issue to any sheriff of the state a warrant commanding him to levy the amount upon the personal property of the delinquent party; and (by section 11):

'If any of the taxes herein levied become delinquent, they shall become a lien on all the property, personal and real, of the delinquent person, and shall be subject to the same penalties and provisions are are all ad valorem taxes.'

Plaintiff, a nonresident of Oklahoma, being a citizen of Illinois and a resident of Chicago, in that state, was at the time of the commencement of the suit and for several years theretofore (including the years 1915 and 1916) engaged in the oil business in Oklahoma, having purchased, owned, developen and operated a number of oil and gas mining leases, and being the owner in fee of certain oil-producing land, in that state. From properties thus owned and operated during the year 1916 he received a net income exceeding $1,500,000, and of this he made, under protest, a return which showed that at the rates fixed by the act, there was due to the state an income tax in excess of $76,000. The then state auditor overruled the protest and assessed a tax in accordance with the return; the present auditor has put it in due course of collection; and plaintiff resists its enforcement upon the ground that the act, in so far as it subjects the incomes of nonresidents to the payment of such a tax, takes their property without due process of law and denies to them the equal protection of the laws, in contravention of section 1 of the Fourteenth Amendment, burdens interstate commerce, in contravention of the commerce clause of section 8 of article 1 of the Constitution, and discriminates against nonresidents in favor of residents, and thus deprives plaintiff and other nonresidents of the privileges and immunities of citizens and residents of the state of Oklahoma, in violation of section 2 of article 4. He also insists that the lien attempted to be imposed upon his property pursuant to section 11 for taxes assessed upon income not arising out of the same property would deprive him of property without due process of law.

As ground for resorting to equity, the bill alleges that plaintiff is the owner of various oil and gas mining leases covering lands in Creek county, Okl., and that the lien asserted thereon by virtue of the levy and tax warrant creates a cloud upon his title. This entitles him to bring suit in equity (Union Pacific Ry. Co. v. Cheyenne, 113 U. S. 516, 525, 5 Sup. Ct. 601, 28 L. Ed. 1098; Pacific Express Co. v. Seibert, 142 U. S. 339, 348, 12 Sup. Ct. 250, 35 L. Ed. 1035; Ogden City v. Armstrong, 168 U. S. 224, 237, 18 Sup. Ct. 98, 42 L. Ed. 444; Ohio Tax Cases, 232 U. S. 576, 587, 34 Sup. Ct. 372, 58 L. Ed. 737; Greene v. Louisville & Interurban R. R. Co., 244 U. S. 499, 506, 37 Sup. Ct. 673, 61 L. Ed. 1280, Ann. Cas. 1917E, 88), unless the contention that he has a plain, adequate, and complete remedy at law be well founded.

This contention is based, first, upon the provision of section 9 of chapter 164, giving to the state auditor the same power to correct and adjust an assessment of income that is given to the county board of equalization in cases of ad valorem assessments, taken in connection with chapter 107 of the Laws of 1915, which provides (article 1, subd. B, § 2) for an appeal from that board to the district court of the county. In a recent decision (Berryhill v. Carter, 185 Pac. 93), the Supreme Court of the state held that an aggrieved income taxpayer may have an appeal under this section, and that thus 'all matters complained of may be reviewed and adjusted to the extent that justice may demand.' But the case related to 'correcting and adjusting an income tax reture,' and the decision merely established the appeal to the district court as the appropriate remedy, rather than an application to the Supreme Court for a writ of certiorari. It falls short of indicating—to say nothing of plainly showing—that this procedure would afford an adequate remedy to a party contending that the income tax law itself was repugnant to the Constitution of the United States.

Secondly, reference is made to section 7 of subdivision B, art. 1, c. 107, Laws Okl. 1915, wherein it is provided that where illegality of a tax is alleged to arise by reason of some action from which the laws provide no appeal, the aggrieved person on paying the tax may give notice to the officer collecting it, stating the grounds of complaint and that suit will be brought against him; whereupon it is made the duty of such officer to hold the tax until the final determination of such suit if brought within 30 days, and if it be determined that the tax was illegally collected, the officer is to repay the amount found to be in excess of the legal and correct amount. But this section is one of several that have particular reference to the procedure for collecting ad valorem taxes; and they are prefaced by this statement (page 176):

'Subdivision B. To the existing provisions of law relating to the ad valorem or direct system of taxation the following provisions are added.'

Upon this ground, in Gipsy Oil Co. v. Howard and companion suits brought by certain oil-producing companies to restrain enforcement of taxes authorized by the gross production tax law (Sess. Laws 1916, p. 102), upon the ground that they were an unlawful imposition upon federal instrumentalities, the United States District Court for the Western District of Oklahoma held that the legal remedy provided in section 7 of chapter 107 applied only to ad valorem taxes, and did not constitute a bar to equitable relief against the production taxes. Defendants appealed to this court, and assigned this ruling for error, inter alia; but they did not press the point, and the decrees were affirmed upon the merits of the federal question. Howard...