Birch v. McColgan

• Citation: 39 F. Supp. 358
• Decision Date: 09 June 1941
• Docket Number: No. 1430-B.,1430-B.
• Court: U.S. District Court — Southern District of California
• Parties: BIRCH v. McCOLGAN, Franchise Tax Commissioner of California, et al.

39 F. Supp. 358

BIRCH v. McCOLGAN, Franchise Tax Commissioner of California, et al.

No. 1430-B.

District Court, S. D. California, Central Division.

June 9, 1941.

COPYRIGHT MATERIAL OMITTED

George Acret, of Los Angeles, Cal., for plaintiff.

Earl Warren, Atty. Gen., and H. H. Linney, and Valentine Brookes, Deputy Attys. Gen., for defendant State officers.

No appearance for other defendants.

Before MATHEWS, Circuit Judge, and HOLLZER and BEAUMONT, District Judges.

MATHEWS, Circuit Judge.

This is an action by A. Otis Birch against nine State officers of California, namely, Charles J. McColgan, Franchise Tax Commissioner, Paul Peek, Secretary of State, Earl Warren, Attorney General, George R. Reilly, Fred E. Stewart, R. E. Collins, William G. Bonelli and Harry B. Riley, members of the State Board of Equalization, and John F. Dockweiler, District Attorney of Los Angeles, County; and against four other defendants, namely, Birch Securities Company, a Nevada corporation, Birch Holding Company, a Delaware corporation, M. Estelle C. Birch and R. R. Landrum. The complaint prays for interlocutory and permanent injunctions restraining the State officers from enforcing against Birch Securities Company the California Bank and Corporation Franchise Tax Act¹ (General Laws, and Supp. 1939, Act 8488), on the ground that the Act is unconstitutional; and, on the same ground, restraining Birch Securities Company, its officers and directors, from complying with the act or submitting to its enforcement. The State officers have moved to dismiss the action for lack of jurisdiction and for failure to state a claim for which relief can be granted.² The application for an interlocutory injunction and the motion to dismiss the action have been heard and are now to be determined by this court, constituted as provided in § 266 of the Judicial Code, 28 U.S.C.A. § 380.

Pertinent sections of the California Bank and Corporation Franchise Tax Act are §§ 4, 5, 11, 13, 25, 27, 30, 31 and 32. Pertinent provisions of § 4 are in subdivisions (3), (4) and (5) thereof:

"(3) With the exception of financial corporations, every corporation doing business within the limits of this State and not expressly exempted from taxation by the provisions of the Constitution of this State or by this act, shall annually pay to the State, for the privilege of exercising its corporate franchises within this State, a tax according to or measured by its net income, to be computed, in the manner hereinafter provided, at the rate of 4 per centum upon the basis of its net income for the next preceding fiscal or calendar year. * * *

"(4) Any corporation organized to hold the stock or bonds of any other corporation or corporations, and not trading in such stock or bonds or other securities held, and engaging in no other activities than the receipt and disbursement of dividends from such stock or interest from such bonds, shall not be considered a corporation doing business in this State for the purposes of this act.

"(5) Every corporation not otherwise taxed in pursuance of this section and not expressly exempted by the provisions of this act or the Constitution of this State shall pay annually to the State a tax of twenty-five dollars."

Section 5 defines the term "doing business" as "actively engaging in any transaction for the purpose of financial or pecuniary gain or profit." Section 11 defines the term "income year" as "the calendar year or the fiscal year ending during such calendar year, upon the basis of which the taxpayer's net income is computed," and defines the term "fiscal year" as "an accounting period of twelve months or less ending on the last day of any month other than December."

Section 13 provides: "Every bank and corporation subject to the tax imposed by this act shall, within two months and fifteen days after the close of its income year, transmit to the franchise tax commissioner a return in a form prescribed by him, specifying, for the income year, all such facts as he may by rule, or otherwise, require in order to carry out the provisions of this act."

Section 25 provides:

"As soon as practicable after the return is filed, the commissioner shall examine it and shall determine the correct amount of the tax. If the commissioner determines that the tax disclosed by the original return is less than the tax disclosed by his examination he shall mail notice to the taxpayer at its post-office address (which must appear on its return) of the additional tax proposed to be assessed against it. * * *

"Within sixty days after the mailing of said notice the taxpayer may file with the commissioner a written protest against the levy of the proposed additional tax, as computed by the commissioner, specifying therein the grounds upon which the protest is based. * * *

"If no such protest is so filed the amount of the tax shall be final upon the expiration of said sixty-day period. If a protest is so filed it shall be the duty of the commissioner to reconsider the computation and levy of the tax complained of, and if the taxpayer has so requested in its protest, it shall be the duty of the commissioner to grant said taxpayer, or its authorized representatives, an oral hearing. After consideration of the protest and the evidence adduced in the event of such oral hearing, the commissioner's action upon the protest shall be final upon the expiration of thirty days from the date when he mails to the taxpayer notice of his action, unless within that thirtyday period the taxpayer appeals in writing from the action of the commissioner to the State Board of Equalization. * * *

"When a deficiency has been determined and the tax has become final under the provisions of this section, the commissioner shall mail notice and demand to the taxpayer for the payment thereof, and such tax shall be due and payable at the expiration of ten days from the date of such notice and demand.

"A certificate by the commissioner or of said board, as the case may be, of the mailing of the notices specified in this section shall be prima facie evidence of the computation and levy of the deficiency in tax and of the giving of said notices."

Section 27 provides: "If, in the opinion of the commissioner, or the State Board of Equalization, as the case may be, there has been an overpayment of tax, penalty or interest by a taxpayer for any year for any reason, the amount of such overpayment shall be credited against any taxes then due from the taxpayer under this act, and the balance shall be refunded to the taxpayer. * * * No such credit or refund shall be allowed or made after four years from the last day prescribed for filing the return or after one year from the date of the overpayment, whichever period expires the later, unless before the expiration of such period a claim therefor is filed by the taxpayer. * * *"

Section 30 provides:

"No injunction or writ of mandate or other legal or equitable process shall issue in any suit, action or proceeding in any court against this State or against any officer thereof to prevent or enjoin the assessment or collection of any tax under this act but any taxpayer claiming that the tax computed and levied against it pursuant to section 25 of this act is void in whole or in part may bring an action against the commissioner for the recovery of the whole or any part of the amount paid. Such action must be filed within four years from the last date prescribed for filing the return or within one year from the date the tax was paid, whichever period expires the later; provided, that no action shall be filed for the recovery of a deficiency assessment unless the taxpayer has made protest to the commissioner of the computation and levy complained of under the provisions of section 25 hereof.

"Within ninety days after the mailing of the notice of the commissioner's action upon any refund claim, or in case of an appeal to the State Board of Equalization from the disallowance of any refund claim, within ninety days after the mailing of the notice of the board's determination of the appeal, the taxpayer may bring an action against the commissioner on the grounds set forth in such claim for the recovery of the whole or any part of the amount claimed as an overpayment."

Section 31 provides:

"At any time within three years after the determination of liability for any tax, penalties, and interest, or any installment thereof, the commissioner may bring an action in a court of competent jurisdiction in the county of Sacramento in the name of the people of the State of California to collect the amount delinquent, together with penalties, and interest * * *. The Attorney General or the counsel for the commissioner must prosecute such action, and the provisions of the Code of Civil Procedure, relating to the service of summons, pleadings, proofs, trials, and appeals are applicable to the proceedings, herein provided for. * * *

"At any time within which an action can be brought to collect any delinquent amounts as provided in the preceding paragraph, the commissioner may collect the tax, together with penalties and interest, in the following manner: The commissioner shall seize any personal property owned by the bank or corporation against whom the tax is assessed, and thereafter sell at public auction such property so seized, or a sufficient portion thereof, to pay the tax due hereunder, together with any interest, and any penalty or penalties imposed hereby for such delinquency, and any and all costs that may have been incurred on account of such seizure and sale. * * *"

Section 32 provides:

"(a) If any tax * * * due and payable upon notice and demand from the commissioner, together with penalties and interest thereon, is not paid on or before six o'clock p. m. on the last day of the eleventh month following the due date of such tax * * * if the delinquent taxpayer be a foreign bank or corporation its corporate powers, rights and privileges shall be...