PORTO RICO TAX APPEALS

• Decision Date: 07 January 1927
• Docket Number: 1908,and 1951-1978.,No. 1904,1924,1923,1940-1949,1904
• Citation: 16 F.2d 545
• Parties: PORTO RICO TAX APPEALS. INSULAR MOTOR CORPORATION v. GALLARDO, Treasurer, and forty-two other cases.
• Court: U.S. Court of Appeals — First Circuit

16 F.2d 545 (1926)

PORTO RICO TAX APPEALS INSULAR MOTOR CORPORATION v. GALLARDO, Treasurer, and forty-two other cases.

Nos. 1904, 1908, 1923, 1924, 1940-1949, and 1951-1978.

Circuit Court of Appeals, First Circuit.

September 25, 1926.

On Rehearing, January 7, 1927.

Francis G. Caffey, of New York City (George W. Study, of New York City, and Cay. Coll y Cuchi and Gustavo Cruzado Silva, both of San Juan, Porto Rico, on the brief), for appellants Insular Motor Corporation and others.

Carroll G. Walter, of New York City (Vicente Zayas Pizarro, of Ponce, Porto Rico, on the brief), for appellants Forteza and others.

Carroll G. Walter, of New York City (J. Henri Brown, of San Juan, Porto Rico, on the brief), for appellants Valdez and others.

Nelson Gammans, of New York City (Benicio Sanchez Castano, of San Juan, Porto Rico, on the brief), for complainant appellants.

Russell H. Brennan, of Washington, D. C., and J. A. Lopez Acosta, Asst. Atty. Gen. (George C. Butte, Atty. Gen., on the brief), for appellee.

Before BINGHAM, JOHNSON, and ANDERSON, Circuit Judges.

JOHNSON, Circuit Judge.

All these cases raise the question whether the District Court of the United States for Porto Rico had equitable jurisdiction, because the complainants did not have a plain, adequate, and complete remedy at law.

July 28, 1923, the Porto Rican Legislature enacted a law whose title is "The Excise Tax Law of Porto Rico." Under title 2, part 1, § 20, the act (No. 68) provided for the levying and collection, at one time only, of an internal revenue tax upon a long list of articles "produced, manufactured, sold or consumed in Porto Rico."

Section 33 of the act is as follows:

"The tax hereby prescribed on articles for sale, use, consumption or exhibition in Porto Rico, except as provided in section 29 of this act which relates to the tax upon articles manufactured or produced in Porto Rico shall be levied as soon as they are on the market in possession of a dealer or commission merchant or the representative thereof in this island, who shall be responsible for the payment of said taxes upon transferring said articles to another dealer or consumer, or upon acquiring them or having them in his possession, and who shall pay such taxes in one of the two following forms in accordance with such regulations as the treasurer of Porto Rico may prescribe for the purpose: (a) Upon acquiring the taxable articles and having them in his possession, by making entries of receipt and delivery in the stock and receipt and delivery book, and by simultaneously paying the tax by cancelling the corresponding stamps on an internal revenue invoice; or (b) as he disposes of the taxable articles. Persons acquiring taxable articles through channels other than the aforesaid dealers or commission merchants or their representatives, shall pay said taxes as soon as they obtain possession of the articles and in accordance with the definition of ad valorem contained in this act.

"Dealers shall be responsible for the payment of said taxes when they sell any taxable article to a consumer. The consumer shall be responsible for the payment of said tax when he acquires taxable articles, if such tax shall not have been paid."

Section 35 provides in part as follows:

"From and after the date on which this act takes effect, every person, who, by himself or through his agents or representatives, acquires taxable articles for sale or transfer to another merchant or consumer, and on which the taxes specified by this act have not been paid, shall keep in his commercial establishment, from which it shall not be removed, except by authorization of the treasurer of Porto Rico, an official book wherein entries shall be made of all taxable articles at the time they are acquired, and the corresponding entry at time of selling or otherwise disposing of them, and further, furnish all other information that the treasurer of Porto Rico may by regulation prescribe for the purpose of determining the value and other circumstances in connection with such articles."

Some of these cases pray for an injunction to restrain the treasurer of Porto Rico from collecting taxes levied under the provisions of this act.

By an act approved August 20, 1925, the Legislative Assembly of Porto Rico enacted a law to supersede the act of 1923, but providing that taxes due under the law repealed should remain in force and the treasurer of Porto Rico be empowered to make collection thereof in the same manner as provided in the repealed laws. Under this act of 1925 a tax was authorized to be levied upon a long list of articles "sold, transferred, used or consumed in Porto Rico." The tax imposed by this act is attacked as illegal in the other cases and an injunction is sought to prevent its collection.

June 23, 1924, the Legislative Assembly of Porto Rico passed a law entitled "an act providing for the payment of taxes under protest," etc. (No. 9), as follows:

"Section 1. Whenever a taxpayer believes that he should not pay a tax or part thereof because he understands that it is illegal, excessive or wrongful, he shall, however, have the obligation to pay the same in full upon request of the collector of taxes of his district, or of the official in charge of the collection of taxes, and shall ask the said collector or the said official in charge of the collection of taxes, should he desire to make any claim, to endorse the tax receipt specifically stating whether the said protest refers to the whole or to a part of the tax paid under protest, and setting forth the exact amount protested. The said endorsement shall be signed by the taxpayer and by the collector or officer in charge of the collection of taxes.

"Section 2. After payment is made, the collector of taxes or the official in charge of the collection of taxes, shall cover the sum collected into the treasury of Porto Rico, reporting to the treasurer the total amount of the tax, as well as the part thereof paid under protest.

"Section 3. The moment that a tax paid under protest is received, the part thereof not protested, if there be any, shall be considered as all other receipts from taxes, the amount of which is to be applied to the obligations of the insular government, and in the case of property taxes the part of said tax pertaining to the respective municipalities pursuant to law, shall be paid over to them. The protested part shall be covered into a special fund to be known as `Taxes Paid under Protest Trust Fund.'

"Section 4. A taxpayer who shall have paid under protest the whole or part of any tax shall, within a term of not to exceed thirty days from and after the date of payment, sue the treasurer of Porto Rico in a court of competent jurisdiction to secure the return of the amount protested. The treasurer of Porto Rico, through the Attorney General or through the official designated by the latter from his department, shall answer the said suit within the term granted by law for the filing of answers and shall make therein, in their order, allegations to strike out particulars of the complaint and demurrers.

"When the case is ready for trial the court before which the action is pending shall fix the day for the trial thereof without the necessity of a request from the parties, first serving due notice on them.

"When final decision is rendered, if favorable to the taxpayer, the treasurer of Porto Rico shall proceed to return to him the amount directed in the decision to be charged against the fund `Taxes Paid under Protest Trust Fund,' referred to in section 3 hereof.

"If the decision be favorable to the people of Porto Rico the treasurer shall cover from the fund known as `Taxes Paid under Protest Trust Fund,' into the proper fund such amount of the tax as directed by the court in its decision, turning over to the respective municipalities the proportion established by law in cases of property taxes.

"Section 5. Either party may appeal to a higher court by filing in the court a quo his appeal within ten days after the decision is rendered, as provided by section 4 of this act: Provided, that if the taxpayer be the appellant he shall file, together with the petition for appeal and in the court appealed from, a bond in such sum as the court shall fix to answer for such costs, expenses, and damages as the people of Porto Rico might suffer by reason of said action.

"The said appeal shall be prosecuted pursuant to the provisions of law for appeals in civil cases, and the court of appeals shall hold the hearing with preference over any other matter pending before it.

"Section 6. Any taxpayer filing a suit against the treasurer of Porto Rico in accordance with the provisions of this act shall attach to the said suit a receipt for the tax paid under protest, or a certified copy of said receipt.

"Section 7. That the sum of fifteen thousand ($15,000) dollars or such part thereof as may be necessary is hereby appropriated, out of any funds in the insular treasury, not otherwise appropriated, for the payment by the treasurer of Porto Rico of such costs as by judgment of any competent court may be allowed to any taxpayer who shall have brought suit pursuant to this act.

"Section 8. Act No. 17 of May 13, 1920, as well as all laws or parts of laws in conflict herewith are hereby repealed: Provided, that any action, proceeding or right arising from and exercised under the act hereby repealed, shall continue under the protection and provisions thereof until its termination.

"Section 9. It is hereby declared that an emergency exists for the immediate taking effect of this act, and therefore the same shall take effect immediately after its approval."

This act does provide a plain, adequate, and complete remedy at law for the recovery of taxes paid under protest, and which was open to the appellants in all of these cases before us. The District Court so held, and we think this was correct.

In West India Oil Co. v. Gallardo (C. C. A.) 6 F.(2d) ...