Ford Motor Co. v. State

• Decision Date: 07 January 1935
• Docket Number: No. 6219.,6219.
• Citation: 65 N.D. 316,258 N.W. 596
• Parties: FORD MOTOR CO. v. STATE et al.
• Court: North Dakota Supreme Court

65 N.D. 316

258 N.W. 596

FORD MOTOR CO.

v.STATE et al.

No. 6219.

Supreme Court of North Dakota.

Jan. 7, 1935.

Syllabus by the Court.

1. Under North Dakota Laws 1919, c. 224, §§ 10 (c), 27, providing that for the purpose of assessing income taxes, the business of a foreign corporation within the state, when not otherwise more easily and more certainly separable from its total business, shall be held to mean such proportion of its total business as the property of the corporation within the state bears to its entire property, the ascertainment of business within the state by a comparison of gross sales in the state with total gross sales both within and without the state is unwarranted and the tax invalid.

2. For reasons stated in the opinion, it is held that section 22, c. 224, Laws 1919, which authorizes the state tax commissioner, when he has “reasons to believe that the amount of any income returned is understated,” to give “due notice to the person making the return to show cause why the amount of such return should not be increased, and upon proof that the amount has been understated” to increase the same, and which further authorizes the person so proceeded against to furnish sworn testimony and prove relevant facts and on application to be given a formal hearing by the tax commissioner and, if dissatisfied with his ruling, to appeal to the state board of equalization, did not apply to the assessments in question here so as to furnish an adequate administrative remedy for an illegal assessment.

3. Payment of an illegal and invalid income tax assessed by the state tax commissioner upon a foreign corporation whose business is conducted partly within and partly without the state of North Dakota cannot be deemed voluntary so as to defeat an action to recover it back, where the company, failing to pay the tax, would incur the risk of substantial penalties and interest charges and render its property within the state subject to seizure and its franchises subject to forfeiture.

4. A state cannot be held to the payment of interest on any claim against it unless bound by an act of the Legislature or by a lawful contract of its executive officers made within the scope of their duly constituted authority.

5. The state of North Dakota is not liable to pay interest on a claim for a refund of income taxes illegally assessed against, and paid into the state treasury by, a taxpayer under compulsion, since there is no legislative enactment which either directly or by implication imposes such liability on the state or evidences any consent on the state to pay such interest.

Appeal from District Court, Burleigh County; McFarland, Judge.

Action by the Ford Motor Company against the State and others. Judgment for plaintiff, and named defendant appeals.

Judgment modified, and, as so modified, affirmed.

Arthur J. Gronna, Atty. Gen., and Harold D. Shaft, Asst. Atty. Gen., for the State.

O'Hare, Cox & Cox, of Bismarck, for respondent.

CHRISTIANSON, Judge.

The plaintiff, a Delaware corporation, brought this action against the state of North Dakota, the state tax commissioner, and the state auditor for the purpose of recovering $55,580.58, which it is alleged plaintiff paid in excess of the income tax actually and legally due from it to the state of North Dakota for the years 1921 and 1922. The action is the result of a difference of opinion between the plaintiff and the then tax commissioner of North Dakota as to the proper basis of allocating or computing plaintiff's income for taxation.

It is alleged in the complaint that the plaintiff made due returns and paid its income tax for the years 1921 and 1922, but that the tax commissioner in 1923 made an additional assessment against the plaintiff for the years 1921 and 1922 aggregating $55,580.58, and that plaintiff “on or about July 16, 1923, involuntarily and for the purpose of avoiding penalties and forfeitures and as a result of the demand of the tax commissioner paid the said sum to the treasurer of the state of North Dakota under written protest.” It is further alleged that the plaintiff made due demand for a refund of said moneys, but that no action was taken by the tax commissioner; that thereafter and on or about January, 1929, plaintiff made a further demand in writing upon the tax commissioner for a refund of said sum, and that on January 23, 1929, the then tax commissioner in writing formally approved the application; that on April 5, 1929, the plaintiff filed with the state auditor such demand for payment, and that the same was rejected by the state auditing board on April 5, 1929. This action was instituted April 8, 1929. The defendant demurred to the complaint on the grounds: (1) That the complaint did not state facts sufficient to constitute a cause of action; and (2) that the court had no jurisdiction over the defendants or the subject-matter of the action.

The district court sustained the demurrer as to the defendants the state auditor and the tax commissioner, but overruled it as to the state of North Dakota. The state appealed to this court and contended that the complaint failed to state a cause of action and that the court had no jurisdiction over the state of North Dakota or the subject-matter involved because: (1) The state had not consented to be sued upon a cause of action such as that set forth in the complaint; and (2) that the statute under which the tax in question was imposed and collected prescribed a remedy whereby a taxpayer could obtain a refund of any income taxes illegally collected by the state, that the remedy so prescribed is exclusive, and that the plaintiff, having failed to pursue it, may not maintain an action.

Neither contention was sustained. This court held that an action for moneys had and received will lie against the state under section 8175, Comp. Laws 1913, and that the statutory remedy whereby a taxpayer might obtain a refund for income taxes illegally collected did not apply to the payments in question here. Ford Motor Co. v. State et al., 59 N. D. 792, 231 N. W. 883.

After the case was remanded to the trial court, the defendant interposed an answer. The case came on for trial and resulted in findings and conclusions in favor of the plaintiff. Judgment was entered accordingly, and the defendant has appealed. There is no dispute in the evidence. The controversy ultimately resolves itself into questions of law. The sections of the state income tax law (chapter 224, Sess. Laws 1919) that need to be considered in determining the controversy are these:

“Sec. 10. (a) There shall be levied, assessed, collected and paid annually upon the total net income received in the preceding calendar year from all sources by every corporation, joint-stock company or association organized in the state, no matter how created or organized, a tax of 3 per cent upon such total net income; and a like tax shall be levied, assessed, collected and paid upon the total net income received from all sources within the state by every corporation, joint-stock company or association organized or existing under the laws of any other state, the United States, or a foreign country. * * *

(c) When the income of any corporation, whether domestic or foreign, is derived from any business conducted partly within and partly without the state, the tax shall apply to that portion of the total net income which the business within the state bears to the total business within and without the state; and where such business within the state is not otherwise more easily and certainly separable from such total business within and without the state, business within the state shall be held to mean that proportion of the total business within and without the state which the property of such corporation within the state bears its entire property employed in such business within and without the state. * * *”

“Sec. 12 * * * (b) In the case of a corporation, joint-stock company or association organized, authorized or existing under the laws of another state, the United States, or a foreign country, the net income subject to the tax herein imposed shall be ascertained by deducting from its total net income from all sources:

First. All income derived from sources without the state;

Second. All the items enumerated under subsection (a) of this section, as applied to the business or property of any such corporation, joint-stock company or association within the state. * * *”

“Sec. 14. (a) The Commissioner shall make all assessment upon corporations, joint-stock companies, or associations subject to any tax hereunder, on or before the first day of May of each year, and shall certify the amount of the tax in each case to the State Treasurer on or before the first day of June following. On or before the fifteenth day of July the Treasurer shall make demand upon each such corporation, joint-stock company or association for the amount of the tax due as certified, and said tax shall be paid within ten days thereafter; provided, that any corporation, joint-stock company or association computing taxes upon the income of its fiscal year when such fiscal year does not correspond with the calendar year shall pay the taxes due under its assessment within one hundred and five days after the date upon which it is required to file its list or return of income for assessment, except in cases of refusal or neglect to make such return and in cases of erroneous, false or fraudulent returns in which cases the Commissioner upon discovery thereof, shall at any time within three years after such return is due make a return upon information obtained as provided for in this Act or by existing law; and the assessment made by the Commissioner thereon shall be paid by such corporation, joint-stock company or association immediately upon the notification of the amount of such assessment, and to any sum or sums due and unpaid after the 15th day of June in any year, or after one hundred and five days...