Shannon v. Hughes & Co.

• Decision Date: 25 June 1937
• Citation: 270 Ky. 530,109 S.W.2d 1174
• Parties: SHANNON, Auditor of Public Accounts, v. HUGHES & CO.
• Court: Kentucky Court of Appeals

109 S.W.2d 1174

270 Ky. 530

SHANNON, Auditor of Public Accounts, v. HUGHES & CO.

Court of Appeals of Kentucky

June 25, 1937

Rehearing Denied Dec. 7, 1937.

Appeal from Circuit Court, Franklin County.

Action to recover taxes paid under protest, by Hughes & Company against Ernest E. Shannon, Auditor of Public Accounts of Kentucky. From a judgment for plaintiff, defendant appeals.

Affirmed in part, and reversed in part.

STITES and CLAY, JJ., dissenting.

B. M Vincent, Atty. Gen., and J. W. Jones, Asst. Atty. Gen., for appellant.

Stoll Muir, Townsend & Park and Wilson & Harbison, all of Lexington, for appellee.

REES Justice.

This is a companion case to James W. Martin, Commissioner of Revenue et al. v. Aniello Nocero, doing business as the Nocero Ice Cream Company, 269 Ky. 151, 106 S.W.2d 64, decided March 23 1937.

Hughes & Co., a corporation engaged in the business of manufacturing and selling ice cream and allied products, brought an action in the Franklin circuit court against the auditor of public accounts to recover the sum of $4,126.39, the amount of taxes alleged to have been paid by it, under protest, to the Commonwealth of Kentucky during the months of July and August, 1936, under and pursuant to the provisions of chapter 3 of the Acts of the General Assembly of Kentucky passed at its Third Extraordinary Session begun March 30, 1936 (Ky.St. § 4281d-1 et seq.). The plaintiff sought to recover the taxes paid on ice cream manufactured and sold by it on the ground that so much of the act as imposed a tax of 7 cents a quart on all ice cream sold in Kentucky was unconstitutional and void as being discriminatory and confiscatory. The circuit court adjudged that the challenged tax was invalid, and granted to the plaintiff the relief it sought. The defendant has appealed.

The evidence is even more voluminous than the evidence in the case of Martin v. Nocero Ice Cream Company, and equally convincing that the tax has had a ruinous effect on the ice cream business and has resulted either in wiping out the profits of the business entirely, even though conducted with ordinary efficiency, or reducing the profits to a level unreasonably low. Hughes & Co. manufactures ice cream at Lexington, Ky. and sells it throughout central Kentucky. During several months preceding the effective date of the act, its volume of sales showed a large increase over the sales made during the same period in the preceding year, but beginning on the effective date of the act, its sales declined to such an extent that the business, instead of producing a probable profit, will suffer a substantial loss during the year beginning July 1, 1936. A number of manufacturers of and dealers in ice cream from other sections of the state testified that the tax had reduced the volume of sales to such an extent that a profit could not be made. It was further shown that the decline was not temporary. Many witnesses testified that their sales declined proportionately more during October, 1936, than during the three preceding months. It is unnecessary to detail the evidence which is all to the same effect, and stands uncontradicted.

It is suggested that the evidence may not correctly reflect conditions in the ice cream business and the influence of the challenged tax thereon, but the record contains nothing which warrants a deduction that a true picture of the effects of the tax has not been presented. The defendant was represented by able attorneys who cross-examined all of the witnesses at great length, and the facts were fully developed. The record has been made, and we must accept it as it is.

The case, in so far as it involves the validity of the act in question, is controlled by Martin v. Nocero Ice Cream Company, supra, and that part of the judgment adjudging the act to be invalid is affirmed.

In the Nocero Ice Cream Company Case a recovery of the taxes that had been paid into the state treasury by the plaintiff in that action was not sought, but in the present case the appellee recovered the sum of $4,126.39, the amount of taxes it alleged it had paid under protest to the Commonwealth of Kentucky during the months of July and August, 1936. Appellant insists that even if the tax is unconstitutional and void, the appellee, having collected the tax from its vendees, is not entitled to recover it from the commonwealth. The proof shows that appellee added the tax to the price charged for its products, and thus collected the tax from its vendees and shifted to them the economic burden of its imposition. Ordinarily, one who involuntarily pays a tax imposed by an unconstitutional statute is entitled to a full refund upon mere proof of payment. Talbot v. Charlton's Ex'r, 247 Ky. 568, 57 S.W.2d 519; Coleman v. Consolidated Realty Company, 239 Ky. 788, 40 S.W.2d 387. However, the Legislature may, in the taxing act itself, restrict in certain respects the right of the taxpayer to recover. It may require him to pay the tax under protest, Talbott v. United Supply Company, 263 Ky. 95, 91 S.W.2d 1002; Talbot v. Charlton's Ex'r, supra; or it may require a showing that the applicant for the refund is the real taxpayer and has not shifted the tax to another. U.S. v. Jefferson Electric Manufacturing Company, 291 U.S. 386, 54 S.Ct. 443, 78 L.Ed. 859. In the Jefferson Electric Manufacturing Company Case the Supreme Court sanctioned the refusal to refund illegal taxes to one who, although he paid them, did not bear their burden. It is true that the court had under consideration in that case an act of Congress which required the claimant to prove that he had not shifted the burden of the tax as a condition precedent to his recovery. This was a legislative recognition of the principle that a taxpayer who is allowed the refund of a tax, the economic burden of which has been borne by another, has been unjustly enriched. The doctrine of unjust enrichment has received a wide application in tax cases even without the aid of a statute. The Supreme Court of Illinois in a number of decisions denied recovery of taxes paid under an unconstitutional statute levying a tax of two cents a gallon on gasoline, where it appeared that the claimant had collected the tax from his vendees, on the ground that recovery by the claimant would not inure to the benefit of the vendees. Richardson Lubricating Company v. Kinney, 337 Ill. 122, 168 N.E. 886; Standard Oil Company v. Bollinger, 337 Ill. 353, 169 N.E. 236; Standard Oil Company v. Bollinger, 348 Ill. 82, 180 N.E. 396. In Benzoline Motor Fuel Company v. Bollinger, 353 Ill. 600, 187 N.E. 657, refunds were permitted to a claimant who had kept accurate records of each customers' tax contributions, and had agreed with its customers to make proper refunds. Other cases in which refunds of taxes have been denied on equitable grounds, though the action was at common law, are: U.S. Paper Exports Association v. Bowers (C.C.A.) 80 F.2d 82, 84; Ralston Purina Company v. U. S. (Ct.

C1.) 58 F.2d 1065; First National Bank of Birmingham v. U.S (D.C.) 12 F.Supp. 301; New York Life Insurance Company v. Anderson (C.C.A.) 263 F. 527; People v. Ventura Refining Company, 204 Cal. 286, 268 P. 347, 283 P. 60; Cf. Bull v. U. S., 295 U.S. 247, 55 S.Ct. 695, 79 L.Ed. 1421; Lewis v. Reynolds, 284 U.S. 281, 52 S.Ct. 145, 76 L.Ed. 293; Myers v. Hurley Motor Company, 273 U.S. 18, 47 S.Ct. 277, 71 L.Ed. 515, 50 A.L.R. 1181; Ver Straten v. Goshen County, 35 Wyo. 67, 246 P. 916. In the Bowers Case the court said: "Although the action is at law against the collector, it is governed by equitable principles and is essentially an action for money had and received against the United States, out of whose treasury recovery will come in the end. Lewis v. Reynolds, 284 U.S. 281, 283, 52 S.Ct. 145, 76 L.Ed. 293; New York Life Insurance Company v. Anderson, 257 F. 576, 577 (D.C.S.D.N.Y.). Speaking of an action for money had and received, Lord Mansfield said, in Moses v. Macferlan, 2 Burr. 1005, at page 1010: 'It is the most favorable way in which he (the defendant) can be sued. He can...