Chicago, Duluth & Georgian Bay Transit Co. v. Nims

• Citation: 140 F. Supp. 920
• Decision Date: 23 April 1956
• Docket Number: Civ. A. No. 13202.
• Parties: CHICAGO, DULUTH & GEORGIAN BAY TRANSIT COMPANY, an Indiana corporation, Plaintiff, v. Louis M. NIMS, State Commissioner of Revenue of the Michigan Department of Revenue, Defendant.
• Court: U.S. District Court — Western District of Michigan

140 F. Supp. 920

CHICAGO, DULUTH & GEORGIAN BAY TRANSIT COMPANY, an Indiana corporation, Plaintiff, v. Louis M. NIMS, State Commissioner of Revenue of the Michigan Department of Revenue, Defendant.

Civ. A. No. 13202.

United States District Court E. D. Michigan S. D.

April 23, 1956.

Lucking, Van Auken & Schumann, Howell Van Auken, Fred J. Schumann, Detroit, Mich., for plaintiff.

Thomas M. Kavanagh, Atty. Gen., T. Carl Holbrook, William D. Dexter, Donald K. Goulais, Asst. Attys. Gen., for defendant.

THORNTON, District Judge.

Chicago, Duluth & Georgian Bay Transit Company, an Indiana corporation, has brought this action against the State Commissioner of Revenue of the Michigan Department of Revenue to obtain relief against what it conceives to be threatened injury to it through the anticipated imposition of assessment of tax deficiencies.

The tax involved is the Michigan Sales Tax, which has been described by the Supreme Court of Michigan as

"a tax imposed upon the seller for the privilege of making retail sales within the State of Michigan and is measured by the gross proceeds of such sales." Detroit & Cleveland Navigation Company v. Michigan Department of Revenue, 342 Mich. 234, 238, 69 N.W.2d 832, 834.

Plaintiff asks this Court to declare said tax act inapplicable to it or, if applicable, that the act is violative of the commerce clause of the Constitution of the United States, Article 1, Section 8, Clause 3, and asks also that the Court grant appropriate relief.

Jurisdiction is invoked on two separate grounds. The first is diversity of citizenship, the requisite jurisdictional amount being present; the second is the presence of a federal question.

Defendant has filed a motion to dismiss which is the matter presently under consideration, as well as the matter of the propriety of a three-judge court. Argument has been presented by able counsel for both sides, and scholarly briefs submitted successively by said counsel, so that the Court has had the benefit of a thorough presentation of this preliminary phase of the controversy. After dealing with the bases of the defendant's motion to dismiss, we may find that we do not reach the question of a three-judge court. Such a court is asked only in the event we hold that the statute applies to plaintiff's sales, in which event plaintiff claims the statute to be unconstitutional. We therefore proceed to discuss the grounds urged by defendant in support of his motion.

Preliminarily we summarize the proceedings to date. Plaintiff's bill of complaint was filed on February 10, 1954. The next day it filed a motion for preliminary injunction. A motion to dismiss was filed by defendant on February 26, 1954. A hearing was had on March 15, 1954, and a preliminary injunction issued March 31, 1954. In the order granting the preliminary injunction it was provided that all proceedings in this action be stayed and held in abeyance pending decision by the Supreme Court of the State of Michigan in the case of Detroit & Cleveland Navigation Company v. Michigan Department of Revenue, 342 Mich. 234, 69 N.W.2d 832, hereinafter referred to as the D & C case, it having been represented to the Court by the parties to this litigation that the issues in that case were almost, if not exactly, identical to those in the instant case. The D & C case was decided in April of 1955, and in October of 1955 oral argument was had in this court on the motion to dismiss filed herein, after which the parties requested leave to file briefs, the last of which was submitted January 27, 1956.

In support of his motion to dismiss, the defendant urges, in substance: (1) that the suit is premature because no sales tax deficiency has been actually assessed against plaintiff, nor has plaintiff been notified of any such intent; (2) that in the event plaintiff should be so notified, it has available plain, speedy and adequate remedies under the sales tax act which it must exhaust before resorting to the Federal courts; and (3) that plaintiff's bill of complaint sets forth no grounds for substantive relief before this Court in the light of the decision in the D & C case, this last ground being advanced by amendment to defendant's motion to dismiss as originally filed.

There is no disagreement between the parties as to whether the assessment has or has not been made. It has not been made, nor has the notice of intention to levy been issued, in accordance with the statute. Defendant contends that until actual assessment there is no controversy existent in this cause. Plaintiff's contention is that there is such strong possibility of assessment that a court of equity has jurisdiction to intervene to prevent the threatened injury. Defendant's agents have made audits of plaintiff's books and there has been some indication that oral representations have been made of defendant's intention to levy deficiency assessments. Both parties have cited numerous authorities which each claims supports its contention with respect to the prematurity of this suit. Directly tied into the discussion of prematurity is the second ground urged by defendant in support of his motion to dismiss, namely, the necessity of plaintiff's exhausting the plain, speedy and adequate remedies available to it under the sales tax act. In opposition to defendant's contention on this ground plaintiff argues that if it must wait for the actual notice of intent to file the assessment, there are open to it under the laws of the State of Michigan certain procedures for contesting said assessment but, the plaintiff argues, these procedures are such that they do not provide a plain, speedy and adequate remedy within the meaning of 28 U.S.C.A. § 1341, which reads as follows:

"The district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State."

The third ground urged by defendant is the decision of the Michigan Supreme Court in the D & C case, supra. We deem it pertinent to discuss that decision briefly. The plaintiff there paid the sales tax after an adverse decision by the State board of tax appeals, and then brought suit in the court of claims to recover the amount paid. The court of claims found that plaintiff's sales were subject to the Michigan sales tax, and the Michigan Supreme Court affirmed. In that case the situation was that of the operation by plaintiff, a Michigan corporation, of a line of passenger ships over five routes, broken down into the Buffalo division; Cleveland division; Put-in Bay, Ohio, and Lake division; Midweek cruise; and Weekend cruise. In each of the first three divisions the ships involved either started from or arrived at destinations other than points in Michigan. In the Midweek cruise division, the steamer left Detroit and returned to Detroit, having stopped at Midland, Ontario, as well as two other Michigan ports. The Weekend cruise division left Detroit and returned to Detroit with stops having been made at two other Michigan ports. During the voyages in each division plaintiff sold food, liquor, postal cards and novelties. The sales were made in some cases in Michigan waters, some in Canadian and other waters. In computing the sales tax, calculation was made of the percentage of time spent by the vessels of each division in Michigan waters and such percentage was then applied to the gross amount received from sales of food, liquor, postal cards and novelties. Plaintiff there asserted that all sales on all trips were made in interstate or foreign commerce, and that the sales tax, despite apportionment, was violative of the commerce clause of the Federal Constitution. The Michigan Supreme Court was of the view that there was no violation of the commerce clause in this situation. It conceded that

"a tax based upon gross receipts is not valid, however apportioned, if the transaction taxed is essentially a part of, and inseparable from, interstate commerce. Where, however, the activity is deemed sufficiently `local' in character, it may be subject to a tax if that tax is properly

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