State of Okl. ex rel. Oklahoma Tax Commission v. Neely

• Decision Date: 20 June 1955
• Docket Number: No. 5-684,5-684
• Citation: 282 S.W.2d 150,225 Ark. 230
• Parties: STATE of OKLAHOMA ex rel. OKLAHOMA TAX COMMISSION, Appellant, v. F. S. NEELY, Appellee.
• Court: Arkansas Supreme Court

Page 150

282 S.W.2d 150

225 Ark. 230

STATE of OKLAHOMA ex rel. OKLAHOMA TAX COMMISSION, Appellant, v. F. S. NEELY, Appellee.

No. 5-684.

Supreme Court of Arkansas.

June 20, 1955.

Rehearing Denied Oct. 3, 1955.

Concurring and Dissenting Opinion Oct. 10, 1955.

Harper, Harper & Young, Fort Smith, R. F. Barry & E. J. Armstrong, Oklahoma City, Okl., for appellant.

Warner & Warner, Fort Smith, for appellee.

GEORGE ROSE SMITH, Associate Justice.

This is an action by the State of Oklahoma to recover income taxes in the amount of $9,292.91, with interest. The complaint contains three separate counts, one for the year 1948, one for 1949, and one for 1950. It is alleged that for each of those years the defendant failed to pay the Oklahoma income tax upon rentals received by him upon mining machinery located in that state. The defendant's demurrer to each count in the complaint was sustained by the circuit court, and the action was dismissed.

The basis question is whether Oklahoma can maintain a suit in the Arkansas courts for the recovery of taxes. By Act 73 of 1951 it is provided: 'Any State of the United States of America, or any political subdivision thereof shall have the right to sue in the courts of Arkansas to recover any tax which may be owing to it when the like right is accorded to the State of Arkansas and its political subdivisions by such State, whether such right is granted by statutory authority or as a matter of comity.' Ark.Stats.1947, § 84-3203. It is conceded that Oklahoma has a similar statute and thus meets the condition imposed by our law.

The appellee, relying upon Jacobus v. Colgate, 217 N.Y. 235, 111 N.E. 837, Ann.Cas.1917E, 369, contends that the statute should not be applied retroactively to a suit involving a tax liability that accrued before the effective date of the act. The appellant answers that a prospective application of the statute would merely limit its operation to suits filed after its passage, regardless of when the tax accrued. See Oklahoma ex rel. Okl. Tax Comm'n v. H. D. Lee Co., 174 Kan. 114, 254 P.2d 291.

Without determining the merits of this question we prefer to rest our decision upon the simpler premise that Oklahoma could have maintained this action even if the tax reciprocity statute had not been passed. In our opinion the oft-repeated dogma, that one sovereign does not enforce the revenue laws of another, is rapidly approaching a deserved extinction in those instances in which the dispute is not international but merely interstate.

The history of this rule is traced in a note in 29 Columbia Law Review 782. It originated in England in the latter part of the eighteenth century and is based largely upon two statements by Lord Mansfield, to the effect that one nation does not take notice of the revenue laws of another. The English cases of course involved the laws of nations rather than the laws of the American states. Too, in none of those cases was a foreign sovereign actually denied access to the English courts. Instead, the rule was announced in situations in which the courts elected to enforce commercial contracts despite the fact that they were in some way violative of the revenue laws of the country in which they were executed.

In America the fact that the rule was a familiar principle of law may well have deterred the status from seeking one another's assistance in the collection of taxes. At any rate, for whatever reason, in the American cases prior to the twentieth century the rule is seldom mentioned and is usually dictum. In 1905, however, North Carolina departed from precedent to the extent of permitting New Jersey to prove a tax claim in an insolvency proceeding. Holshouser Co. v. Gold Hill Copper Co., 138 N.C. 248, 50 S.E. 650, 70 L.R.A. 183. The court may have considered the doctrine not to have been involved, for the opinion did not mention it.

It was not until 1921 that the traditional rule was unequivocally applied by an American court of last resort as a ground for denying the assertion of a tax claim by a sister state. In State of Colorado v. Harbeck, 232 N.Y. 71, 133 N.E. 357, New York refused to entertain a suit brought by Colorado for the collection of inheritance taxes. The Harbeck decision is sometimes referred to as the leading case on the subject, and so it is in New York, where it has been often followed by the lower state and federal courts. Elsewhere, however, its adherents are few, and even in New York the law has been changed by statute. McKinney's Consolidated Laws of New York, Tax Law, § 249-t.

After the Harbeck decision the soundness of the ancient doctrine, by then a hundred and fifty years old, became increasingly the subject of reconsideration, at first in the law schools and later in the courts and legislatures. We have already cited an early law review note. In 1932 Robert A. Leflar painstakingly analyzed the entire question and demonstrated, we think unanswerably, that there is no reason whatever for one American state to reject another's suit for the recovery of taxes, absent some strong ground of local public policy or some inability to provide the remedy sought. Leflar, Extrastate Enforcement of Penal and Governmental Claims, 46 Harv.L.Rev. 193, 215 et seq.

The original rule, in its application to cases of international aspect, may well find some justification in one sovereign's reluctance to inquire into another's system of law or to risk the giving of affront by the denial of a sovereign demand. Obviously these considerations are without...