Porto Rico Mercantile Co. v. Gallardo

• Decision Date: 07 July 1925
• Docket Number: No. 1828.,1828.
• Citation: 6 F.2d 526
• Parties: PORTO RICO MERCANTILE CO. v. GALLARDO, Treasurer of Porto Rico.
• Court: U.S. Court of Appeals — First Circuit

6 F.2d 526 (1925)

PORTO RICO MERCANTILE CO. v. GALLARDO, Treasurer of Porto Rico.

No. 1828.

Circuit Court of Appeals, First Circuit.

July 7, 1925.

Nelson Gammans, of New York City, for appellant.

Archibald King, of Washington, D. C. (H. P. Coats, of San Juan, Porto Rico, on the brief), for appellee.

Before BINGHAM, JOHNSON, and ANDERSON, Circuit Judges.

BINGHAM, Circuit Judge.

This is an appeal from a decree of the federal District Court for Porto Rico, dismissing, on its merits, a bill in equity brought by the Porto Rico Mercantile Company, a West Virginia corporation having its principal place of business in New York City, against Juan G. Gallardo, treasurer of Porto Rico, a citizen of the United States domiciled and residing in Porto Rico, to enjoin him from enforcing the collection of certain sums claimed to be due the people of Porto Rico from the plaintiff as unpaid income and excess profits taxes assessed against it for the years 1918, 1919, and 1921.

The bill alleges that the amount in controversy exceeds the sum of $3,000, exclusive of interest and costs; that the tax assessed for the year 1918 was $1,715.36, of which $1,443.71 was the normal and $271.60 the excess profits tax, that for 1919 was $1,978.60, of which $1,722 was the normal and $256.60 the excess profits tax, and that for 1921 was $2,140.24, of which $1,573.20 was the normal and $567.04 the excess profits tax; that the defendant threatened to seize and sell plaintiff's property to satisfy the tax; that the defendant required the plaintiff to make a return, and it did so under protest, and, feeling aggrieved by the tax assessed, applied to the treasurer and board of review and equalization for abatement as required by the statutes of Porto Rico; that the statutes under which the defendant purports to have acted are illegal and void, and the taxes were assessed without authority of law; that the plaintiff had no income, gross or net, arising in Porto Rico during the years 1918, 1919, and 1921, except $16,408.19 collected for storing molasses for the Sugar Products Company, less expenses connected with the service; and that plaintiff had no adequate remedy at law to enforce its right.

It appears from the evidence that the plaintiff, a West Virginia corporation, had its principal place of business in the city of New York and a branch office in Porto Rico in charge of a general manager; that it bought molasses from sugar centrals in Porto Rico and Santo Domingo by which it was manufactured; that the contracts of purchase for the greater part of the molasses were made by the plaintiff in New York City; that a small part of the molasses manufactured by centrals in Porto Rico was contracted for there; that it owns and maintains in Porto Rico tanks having a capacity of 1,000,000 gallons; that molasses obtained from centrals in Porto Rico is stored in these tanks and shipped on steamers to New York; that the greater part of the molasses purchased from centrals in Santo Domingo is shipped to Porto Rico and stored in the same tanks as that procured in Porto Rico, to await shipment to New York; that the balance of the molasses obtained in Santo Domingo is shipped directly to New York; that no molasses is manufactured or sold by the plaintiff in Porto Rico; that all sales of molasses by the plaintiff are made in New York; that the taxes assessed for the years in question are based upon and include the entire net income of the plaintiff from sales of molasses in New York, procured in Porto Rico and Santo Domingo.

It also appeared that the company received some income in 1918 and 1921 from the storage of molasses in its tanks in Porto Rico for another molasses company, and that in 1921 it received income from the sale and disposition of old tank cars that it had, which sums were taken into account in assessing the taxes for those years.

At the trial in the District Court the defendant disclaimed any right to include in the taxes for these years the net income derived from the sales of molasses procured at Santo Domingo, and offered evidence tending to show what he claimed to be the fair proportion of the net income attributable to the Santo Domingo molasses.

The court below held that the plaintiff had no adequate remedy at law to test the validity of the taxes as assessed under the laws of Porto Rico; that the government of Porto Rico could rightly tax the plaintiff on all of its net income received from molasses procured in Porto Rico and sold in New York; that, inasmuch as the molasses brought to Porto Rico from Santo Domingo was stored by the plaintiff in tanks containing Porto Rico molasses, and the income derived therefrom could not be distinguished, the plaintiff could not complain of the percentage system adopted by the officials of Treasury Department in determining the proportion of the income fairly attributable to the molasses procured from these two places, the apportionment being on the basis of the proportion of the amount paid for the Porto Rico molasses to the amount paid for all the molasses sold by the company.

If the District Court had jurisdiction in equity to pass upon the merits, it is evident that its order dismissing the bill was erroneous to the extent, at least, that it was shown that the taxes assessed for these years included the net income derived from sales in New York of molasses purchased in Santo Domingo, which the defendant concedes Porto Rico had no right to tax.

In this state of the case the first question to be considered is whether the remedy at law was inadequate, so that the District Court had jurisdiction in equity.

Act No. 80, of 1919, which is the law under which the taxes of 1918 and 1919 were assessed, provides in sections 58 to 67, inclusive, that a taxpayer, who is aggrieved by the decision of the Treasurer in assessing a tax, may apply to the Treasurer for reconsideration, and, if he gets no satisfaction, apply to the Board of Review and Equalization; and, if he gets no satisfaction there, shall then within a limited time pay the tax imposed, under protest, and within ten days thereafter proceed against the Treasurer before the competent district court. And Act No. 43 of 1921, sections 45 to 47, inclusive, provides for similar action by an aggrieved taxpayer, the material difference being that he is given twenty days, instead of ten, after payment of the tax under protest in which to institute a complaint against the Treasurer in the competent district court to recover the same.

After the suit is in court it is evident that the procedure and defenses permitted are the same as those laid down in Act No. 17 of the Laws of Porto Rico of 1920, which is a general law covering actions brought in Porto Rico against the Treasurer to recover taxes. In section 6 of that Act, it is provided:

"That at any time that The People of Porto Rico shall show, through a certificate issued by the Treasurer, that the taxpayer complainant has not paid any other tax subsequently thereto, within the time fixed by law, he shall be deemed to have withdrawn his suit with costs and with the indemnity fixed in Section 4 of this Act taxed against him."

In West India Oil Co. v. Gallardo, Treasurer, 6 F.(2d) 523, decided by this court June 12, 1925, it was held that the right to bring suit under such conditions was not a plain and...