255 U.S. 288 (1921), Dawson v. Kentucky Distilleries & Warehouse Company

Citation:255 U.S. 288, 41 S.Ct. 272, 65 L.Ed. 638
Party Name:Dawson v. Kentucky Distilleries & Warehouse Company
Case Date:February 28, 1921
Court:United States Supreme Court

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255 U.S. 288 (1921)

41 S.Ct. 272, 65 L.Ed. 638



Kentucky Distilleries & Warehouse Company

United States Supreme Court

Feb. 28, 1921




1. The tax sought to be imposed by a law of Kentucky of fifty cents a gallon upon whisky either withdrawn from bond within the state or transferred in bond from the state elsewhere, although described as an "annual license tax" on persons engaged "in the business of owning and storing" whisky in bonded warehouses, is not an occupation tax, but essentially a property tax, tested by the local law. P. 291.

2. Being a property tax, it is void because it fails to comply with § 171 of the Kentucky Constitution, which provides that taxes shall be "uniform upon all property of the same class subject to taxation," whisky never having been classified separately and being taxed under another law on its fair cash value. P. 291.

3. To pay under protest and sue to recover is not such an adequate legal remedy against an illegal state tax as will prevent the federal courts from exercising their equitable jurisdiction to restrain enforcement if the right to recover back is uncertain under the state law when the injunction suit is begun. P. 295. § 162, Ky.Stats., considered.

4. An equitable remedy available in the state court is not lost by suing in a federal court. P. 296.

5. Under the amendment of Jud.Code § 266, which provides that

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proceedings in a federal court to restrain execution of a state statute shall in certain circumstances be stayed to await determination of a suit in a state court to enforce it, accompanied by a stay of proceedings under it, the stay granted in the state court must be sufficiently general to protect the suitors in the federal court from the irreparable injury against which they there sought protection. P. 296.

274 F. 420 affirmed.

Direct appeals under Jud.Code § 266 from orders granting interlocutory injunctions. The facts are stated in the opinion.

BRANDEIS, J., lead opinion

MR. JUSTICE BRANDEIS delivered the opinion of the Court.

On March 12, 1920, the Legislature of Kentucky passed and the Governor approved an act which imposed upon every person engaged in the business of manufacturing whisky or "in the business of owning and storing" the same in bonded warehouses within the state what was called an "annual license tax" of fifty cents a gallon upon all whisky either withdrawn from bond or transferred in bond from Kentucky to a point outside that state. Acts

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1920, c. 13. The act took effect by its terms on its approval by the Governor. At that time, there were stored in such bonded warehouses about 30,000,000 gallons of whisky worth in bond perhaps $1.50 a gallon. Much of this whisky was owned by citizens of other states, their ownership being evidenced by negotiable warehouse receipts. Shortly after the enactment of the statute, two suits were brought in the district courts of the United States for Kentucky to enjoin its enforcement. The first was brought in the Western District, by the J. & A. Freiberg Company, Incorporated, an Ohio corporation; the second in the Eastern District by the Kentucky Distilleries & Warehouse Company, a New Jersey corporation. The Attorney General of the commonwealth and the auditor of public accounts were made defendants in each. In the former, the Louisville Public Warehouse Company was also a defendant; in the latter, the commonwealth's attorney.

In the Freiberg case, it was alleged that the whisky was in a general bonded warehouse,1 that the owner wished to withdraw it for removal in bond to a general bonded

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warehouse in Massachusetts, and that the defendant warehouseman, acting under provisions of the Kentucky statute, refused to permit such transfer unless the tax in question was paid by the owner. In the Distilleries Company case, the plaintiff alleged that it had in its distillery warehouses large quantities of whisky, most of which was owned by others, that requests were being made daily either to withdraw lots from bond upon paying the government tax or to have them transferred in bond to other states, and that the defendants threatened to enforce heavy penalties if any such withdrawal or transfer was permitted without making payment of the fifty cents a gallon state tax. In each case, a motion for an interlocutory injunction was made and heard before three judges under [41 S.Ct. 274] § 266 of the Judicial Code. The substantial questions presented in the two suits were the same. The plaintiff contended in each that the Kentucky statute was void under both the state and federal Constitutions, and in each case the defendants, besides asserting the validity of the act, insisted, among other things, that the suit should be dismissed for want of equity because there was an adequate remedy at law. The district courts granted plaintiffs the motions, holding that there was no adequate remedy at law and that the statute was invalid under the constitution of the state because it was a property tax, was not uniform in its operation, and was confiscatory. The case comes here by direct appeal under § 238 of the Judicial Code. We shall consider first the validity of the tax.

First. The Attorney General concedes that the tax, if a property tax, is invalid, since it does not comply with the requirements of a property tax specified in § 171 of the state constitution. It is not "uniform upon all property of the same class subject to taxation,"2 and, though

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called an "annual" tax, was not intended to be such.3 He contends, however, that the tax is, as stated in the title of the act, a license tax upon "the business of manufacturing" distilled spirits and upon "the business of owning and storing such spirits in bonded warehouses." Section 181 of the state constitution authorizes license or occupation taxes, and statutes imposing such taxes measured by the amount of the product have been repeatedly sustained by its highest court. Raydure v. Board of Supervisors, 183 Ky. 84; Strater Bros. Tobacco Co. v. Commonwealth, 117 Ky. 604. Here, we are concerned only with the taxes which are alleged to be on "the business of owning and storing such spirits in bonded warehouses." The question is whether, as to such, this fifty cents a gallon tax is an occupation tax or is a property tax. The question is one of local law, so that a decision of it by the highest court of the state would be accepted by us as conclusive. But the validity of the statute does not appear to have been passed upon by any Kentucky court. We are therefore called upon, as were the district courts, to determine this question of state law.

The name by which the tax is described in the statute is, of course, immaterial. Its character must be determined by its incidents, and obviously it has none of the

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ordinary incidents of an occupation tax. Unlike the tax of one and one-fourth cents a gallon upon rectifiers sustained in Brown-Forman Co. v. Kentucky, 217 U.S. 563, and the tax of two cents a gallon upon distillers and warehousemen sustained in Green v. Taylor, Jr., & Sons, 184 Ky. 739, this tax is not upon the business or occupation of the warehouseman. A particular lot of whisky may pass through a dozen bonded warehouses without one of them being obliged to pay the tax. For the only warehouseman required to do so is he who has the whisky on storage at the time of its removal from bond (government) tax-paid, or when it is transferred in bond to another state. The tax is made primarily payable by the warehouseman, and, to secure its payment, the state is given a lien upon the warehouse and the whisky therein. But the warehouseman is a collection agency merely empowered to get reimbursement through subrogation to the state's lien on the whisky of others which ultimately bears the burden of the tax. Nor is the alleged business of merely...

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