U.S. v. State Tax Commission of State of Miss.

• Decision Date: 13 December 1974
• Docket Number: No. 73-3034,73-3034
• Citation: 505 F.2d 633
• Parties: UNITED STATES of America et al., Plaintiffs-Appellees, v. STATE TAX COMMISSION OF the STATE OF MISSISSIPPI et al., Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 633

505 F.2d 633

UNITED STATES of America et al., Plaintiffs-Appellees, v. STATE TAX COMMISSION OF the STATE OF MISSISSIPPI et al Defendants-Appellants.

No. 73-3034.

United States Court of Appeals, Fifth Circuit.

Dec. 13, 1974.

James Holmes Haddock, Jackson, Miss., Carl F. Andre, A. F. Summer, Atty. Gen. of Miss., Jackson, Miss., for defendants-appellants.

Robert E. Hauberg, U.S. Atty., James B. Tucker, Asst. U.S. Atty., Jackson, Miss., Wallace H. Johnson, Asst. Atty. Gen., Lands Div., Larry G. Gutterridge, Jacques B. Gelin, Dept. of Justice, Washington, D.C., for plaintiffs-appellees.

Before COLEMAN, CLARK and RONEY, Circuit Judges.

COLEMAN, Circuit Judge:

This is an appeal by the Mississippi State Tax Commission and the Sheriff of Neshoba County from a judgment granting a permanent injunction against the assessment and collection of sales and contract taxes from the Mississippi Band of Choctaw Indians, the Chata Development Company, and the Choctaw Housing Authority. The District Court held that under the federal Constitution and a state exemption hereinafter described the Tribe and its instrumentalities were exempt from such taxes.

We reverse, with directions to dismiss the complaint for lack of jurisdiction.

FACTS

In 1965, to take advantage of low rent federal housing programs, the Mississippi Band of Choctaw Indians acted to establish the Choctaw Housing Authority.

In 1968, the Mississippi Legislature specifically exempted from sales tax 'sales to the Mississippi Band of Choctaw Indians, but not to Indians individually', Section 8, Chapter 588, Miss.Laws, 1968. Exempting one group from the payment of taxes which other groups are required to pay, with no rational basis stated, raises substantial 'equal protection' specters. For the purposes of this litigation the validity of the exemption is assumed, but that is an assumption only. In any event, the statutory exemption was granted solely to 'the Mississippi Band of Choctaw Indians', with nothing said as to any separately identifiable agencies or subsidiaries or instrumentalities of the Band.

In 1970, at the request of the 'tribal council', the Chata Development Company was incorporated under the laws of Mississippi as a non-profit corporation but for the purpose of engaging in certain aspects of the construction business (Chata is an ancient method of spelling 'Choctaw').

In 1971, Chata made a contract with the Choctaw Housing Authority to build some fifty houses for $696,772. On September 9 of that year the Tax Commission instructed Chata to file a return and pay the sales taxes required of a contractor. The 'tribal council' replied by letter, claiming the benefit of the 1968 exemption.

In October, the Tax Commission informed Chata that neither it nor the Housing Authority (as distinguished from the Mississippi Band of Choctaw Indians) were exempt from sales tax on purchases and filed its notice of tax lien and judgment in the sum of $19,161.23, solely against Chata, the non-profit corporation. On November 4, 1971, on the tax lien filed, the Tax Commission instituted garnishment proceedings against Chata.

There was no request filed with the State Tax Commission for a hearing, see sources cited in Section 27-65-45, Miss.Code, 1972. There was no suit in the Chancery Court for refund, or appeal to the Supreme Court, as authorized by Section 27-65-47, Miss.Code, 1972, and predecessor statutes. The remedial procedures provided by Mississippi law were wholly bypassed.

On May 18, 1972, the United States rode into the fray. It brought suit on behalf of the Mississippi Band to enjoin the Tax Commission from assessing, collecting, and attempting to collect sales taxes from the Development Company and the Authority. The suit also sought to have declared null and void the tax lien entered against Chata.

The District Court found that the United States was not the real party in interest (Rule 17(a), Federal Rules of Civil Procedure), allowed Chata Development Company, against whom the taxes had been assessed, to join the suit as the real party plaintiff, held that the Mississippi Legislature had exempted the Choctaw Band from the taxes in question, and permanently enjoined the defendants:

(1) from assessing, collecting, or attempting to collect any taxes levied by the provisions of the Mississippi State Tax law from the Mississippi Band of Choctaw Indians, Chata Development Company, and Choctaw Housing Authority:

(2) from assessing, collecting, or attempting to collect from any material men and suppliers furnishing materials to the Mississippi Band, Chata, or the Choctaw Housing Authority any tax under 10108, Miss.Code Ann., 1942;

(3) from proceeding further to collect the $19,161.23 alleged due in the cause then pending in Neshoba County Circuit Court;

(4) the tax lien was declared null and void.

Appellant State Tax Commission argues that the United States had no lawful authority to bring this action, that the District Court lacked jurisdiction of the parties and the subject matter, and that if a controversy existed it was for state administrative and judicial determination, rather than federal.

When this suit was initially filed, the United States asserted jurisdiction on 28 U.S.C. 1345 and 1362. In order for 1345 to apply, suit must be brought by the United States, or one of its agencies or officers thereof. However, the District Court found that the United States was not the real party in interest and ordered that the Chata Development Company, a Mississippi corporation, be joined as a party plaintiff. Chata was joined, and the suit proceeded.

Whether Chata, the corporation, was obligated to pay the sales taxes required of it as the building contractor was the real issue in the case. As already indicated, Rule 17(a), Fed.R.Civ.P. requires that every action be prosecuted in the name of the real party in interest. The United States sought to meet this requirement by alleging that the suit was brought on behalf of the Mississippi Band of Choctaw Indians, that Chata 'is an instrumentality and subsidiary of the Tribe, established by tribal resolutions'. In any event, the United States sought no recovery for itself but only on behalf of a corporate taxpayer.

The United States knew that it could not lend its name to a suit for the benefit of private litigants, United States v. San Jacinto Tin Company, 125 U.S. 273, 8 S.Ct. 850, 31 L.Ed. 747 (1888); State of Wisconsin v. First Federal Savings & Loan Association, 7 Cir., 1957, 248 F.2d 804, cert. denied 355 U.S. 957, 78 S.Ct. 543, 2 L.Ed.2d 533; Wright, Law of Federal Courts, 68 (2d Ed., 1970).

This presents a problem because Chata had no contract with the Mississippi Band of Choctaw Indians, the group named in the statute as the beneficiary of the exemption. Moreover, Chata, as the contractor, was a corporation, chartered under Mississippi law. The benefits and privileges of such a charter had been sought and obtained when there could have been no doubt about the status imposed upon corporations by law. The law of Mississippi is that a corporation 'is an entity separate and distinct from its stockholders', Illinois Central Railroad Company v. Mississippi Cotton Seed Products Company, 166 Miss. 579, 148 So. 371 (1933). Thus in an effort to avoid the taxes which Mississippi corporations are required to pay, Chata has cast itself in the untenable role of claiming the benefits and denying the burdens of the status which its incorporators voluntarily sought.

The Mississippi rule is the same as the general rule, that a corporation is a creature of the law and it is a legal personality, separate and apart from that of its owners, Berger v. Columbia Broadcasting System, 4 Cir., 1972, 453 F.2d 991, cert. denied 409 U.S. 848, 93 S.Ct. 54, 34 L.Ed.2d 89; Burnet v. Clark, 287 U.S. 410, 53 S.Ct. 207, 77 L.Ed. 397 (1932); Overstreet v. Southern Railway Company, 5 Cir., 1967, 371 F.2d 411, cert. denied 387 U.S. 912, 87 S.Ct. 1700, 18 L.Ed.2d 634. The corporate fiction is not to be disregarded because of mutuality of corporate names, stockholders and officers. The fact that one entity owns all the stock in the other is not determinative. The test is whether Chata as a corporation actively owned and conducted its own business, Overstreet v. Southern Railway Company, supra.

Chata's directors are all members of the Band but the testimony revealed that 'the tribe is not the corporation' and that the Tribal Council is not the same as the Chata Development Company. The testimony further revealed that 35% Of Chata's employees were not Indians and that the houses being built could be occupied by those who are not Indians.

In these circumstances, applying Mississippi law, we hold that Chata was an entity 'separate and distinct' from the Mississippi Band of Choctaw Indians, the group named as the beneficiary of the exemption in Mississippi's Sales Tax statutes. The United States was attempting to lend its name to a suit on behalf of a private corporation and was not the real party in interest. When it so held, the District Court was right.

In the absence of a justiciable interest on behalf of the United States, 28 U.S.C. 1345 conferred no jurisdiction.

Neither is 28 U.S.C. 1362, of any jurisdictional assistance. Chata Development Company is not an Indian Tribe or Band. Even looking through the corporate form to the individual Indian incorporators would not help, for 1362 contains no general grant of jurisdiction for a suit merely because an Indian is a party, 1 Moore's Federal Practice, 0.74(2.-2).

Since this is a Mississippi tax, imposed on the commercial activities of a Mississippi corporation, we detect no federal question in this case.

This does not eliminate all of the serious jurisdictional questions.

There is a specific Act of Congress, 28 U.S.C. 1341, which reads as follows:

'The district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State...