De Pauw University v. Brunk

• Citation: 53 F.2d 647
• Decision Date: 12 November 1931
• Docket Number: No. 1525.,1525.
• Parties: DE PAUW UNIVERSITY v. BRUNK, State Treasurer, et al.
• Court: U.S. District Court — Western District of Missouri

53 F.2d 647 (1931)

DE PAUW UNIVERSITY v. BRUNK, State Treasurer, et al.

No. 1525.

District Court, W. D. Missouri, W. D.

November 12, 1931.

COPYRIGHT MATERIAL OMITTED

John C. Meredith (of Meredith & Harwood) and Justin D. Bowersock (of Bowersock, Fizzell & Rhodes), all of Kansas City, Mo., for complainant.

Manvel H. Davis, George W. Meyer, and Emory H. Wright, all of Kansas City, Mo., for defendants.

Before VAN VALKENBURGH, Circuit Judge, and REEVES and OTIS, District Judges.

PER CURIAM.

One Frank L. Hall in his will bequeathed the residue of his estate to the Fidelity National Bank & Trust Company in trust for De Pauw University, an institution of learning situated in Indiana. Steps having been taken by proper Missouri state officers to collect an inheritance tax on this bequest, a bill was filed in this court by the University asking that these officers be restrained from proceeding further. Certain of the defendants named in the bill have moved for its dismissal. The motion to dismiss is based upon two general grounds: First, that this court has no jurisdiction of the case; and, second, that the bill does not state facts entitling the complainant to equitable relief. This motion is the matter now before the court.

1. It is asserted by complainant that this court has jurisdiction in that the case arises under the Constitution of the United States. Title 28, section 41(1) (a, b), U. S. C. 28 USCA § 41(1) (a, b). It is asserted also that this court has jurisdiction by reason of the fact that the controversy is between citizens of different states.

We consider first whether there is a constitutional question in the case.

Article 21 of chapter 1 of the Revised Statutes of Missouri for 1929 provides for an inheritance tax, fixes the various rates at which it shall be levied, establishes the machinery for assessment and collection, and declares that certain transfers of property shall be exempt. The section covering exemptions (Section 602, R. S. 1929) is as follows: "When any property, benefit or income shall pass to or for the use of any hospital, religious, educational, Bible, missionary, scientific, benevolent or charitable purpose in this state, or to any trustee, association, or corporation, bishop, minister of any church, or religious denomination in this state, to be held and used and actually held and used exclusively for religious, educational, or charitable uses and purposes, whether such transfer be made directly or indirectly, the same shall not be subject to any tax, but this provision shall not apply to any corporation which has a right to make dividends or distribute profits or assets among its members."

The theory of the bill is that section 602 exempts the bequest for the benefit of the complainant. Should the present case be tried upon the merits, the sole question will be as to the construction of section 602, and particularly whether the exemption therein granted extends to a bequest to a Missouri trustee for the benefit of a nonresident educational institution.

The procedure for the assessment and collection of the inheritance tax under the Missouri law is this: The probate court of the county where the estate is administered is given in the first instance jurisdiction to determine as to a given bequest whether it is taxable and, therefore, whether it is exempt. It is given jurisdiction to determine the amount of the tax due and who shall pay it. These provisions are embodied in section 585.

In section 580, it is provided that when the tax is paid two and one-half per cent. thereof shall go to the probate judge for his fees.

It is the contention of complainant that the effect of section 580 is to invalidate section 585, and indeed totally to destroy the only provision in the law providing for the determination of the amount of the tax due, and whether a bequest is exempt. The argument is that since the probate court alone is given jurisdiction to assess the tax and determine incidental questions, and since the probate court is given a pecuniary interest in any tax collected, due process of law is thereby denied. Therein is the constitutional question said by complainant to be involved in this case.

It is our view that there is no substantial question here.

It has long been established that the Fourteenth Amendment imposes no restriction on the power of the states to tax the usual and proper objects of taxation within their jurisdiction. So far as taxation is concerned, the only restriction resulting from the "due process" clause is as to the manner in which the power to tax is exercised. 27 Am. Eng. Ency. of Law, 593. So far as taxation is concerned, due process of law is fully satisfied if at some stage in the proceeding the taxpayer has notice and opportunity to be heard. He may not have that opportunity until after the tax has been paid and he has brought suit to recover back, but, if he has it even then the due process provision is not violated. It is sufficient if his opportunity to be heard is before an administrative body only. He is not entitled as of right to a judicial hearing. The power of taxation is so essential to the maintenance of government that it is not to be handicapped by giving to every taxpayer as to every tax the right to a review in court.

The Missouri Inheritance Tax Law, although it gives to the probate court in the first instance jurisdiction to determine the amount of tax to be paid and by whom it shall be paid, provides, in section 587, for a review by the state circuit court of any question determined by the probate court. Section 587 is: "Any interested person * * * may file exceptions * * * such exception shall be determined by the court in a summary manner. Any person aggrieved by the judgment of the court as to the amount of liability for the tax may appeal to the court having jurisdiction of appeals * * * in case of appeal the appellant shall be required to give bond to the state in double the amount of the tax, interest, penalty and costs involved, conditioned to pay all taxes, interest and penalties assessed and costs taxed by the appellate court."

It seems clear to us that the effect of section 587 is entirely to negative the contention that this complainant is denied due process of law in the assessment and collection of the tax claimed. Even if complainant had received no notice of any hearing in the probate court, even if it had not been entitled to be there heard at all, even if in the probate court there had been an absence of every one of the essentials of due process, nevertheless if, at some later stage in the proceedings, it is accorded due process, including a full and a fair hearing of its claim that the bequest to it is exempt, it cannot assert that its property has been taken from it or is likely to be taken from it in violation of the Fourteenth Amendment. The Supreme Court of the United States many times has said that due process is satisfied if its usual requisites are present at any stage in a tax proceeding. Thus it was said in Pittsburgh, etc., Ry. Co. v. Board of Public Works, 172 U. S. 39, 45, 19 S. Ct. 90, 95, 43 L. Ed. 354: "in matters of taxation, it is sufficient that the party assessed should have an opportunity to be heard, either before a judicial tribunal, or before a board of assessment, at some stage of the proceedings."

It is true that a right to review an assessment made may be so circumscribed with restrictions, so burdened with possible penalties, as that it might be held to be insufficient to satisfy the requirements of due process. But that is not the case here. The right to review given by section 587 is not burdened with impossible or unreasonable conditions. The only condition is that the taxpayer shall give a bond in double the amount of the tax, interest, penalty, and costs involved. The inheritance tax law does not provide for interest until after nine months from the due date of the tax. It does not provide for any penalties eo nomine. It provides only for interest at the rate of 6 per cent. after nine months and at the rate of 1 per cent. per month after twelve months. Certainly it cannot be said that there is a denial of due process merely because an appeal bond is required and because after twelve months a higher rate of interest is provided for. Moreover, by section 578, R. S. Mo. 1929, the probate court may abate the payment of any interest until the assessment has become final. If there is an appeal to the circuit court, the assessment is not final until that court has acted. In no event, therefore, may complainant say an appeal by it is prevented until it first shows a refusal by the probate court to abate interest or to extend the time for the beginning of interest.

2. We do not agree that complainant is denied due process of law even in the probate court solely by reason of the pecuniary interest of that court in the result.

The probate court, so far as inheritance tax matters are concerned, is not a judicial tribunal. It is an administrative agency. It is not uncommon for states to commit to courts administrative functions. The assessment of a tax and its collection are administrative matters. The function assigned to the probate court is that of the assessment of the tax. The function assigned to the circuit court is that of the ordinary board of tax appeals. It has never before been suggested, so far as we know, that a taxpayer is denied due process of law because of any interest or prejudice which the assessor may have.

The field of taxation is distinct from the field of ordinary proceedings in courts of law. While it is essential to due process of law in the usual judicial proceeding that the judge shall be disinterested and impartial, it is not essential to due process of law that an administrative officer shall be disinterested and impartial. The due process clause, both in the Fourteenth and in the Fifth Amendments, are to be construed in the light of the law...