United States v. Livingston

Decision Date18 November 1959
Docket NumberCiv. A. No. AC-174.
Citation179 F. Supp. 9
PartiesUNITED STATES of America and E. I. du Pont de Nemours and Company, Plaintiffs, v. Otis W. LIVINGSTON, James W. Crain, James H. Sullivan, J. A. Calhoun, Jr., and Francis M. Pinckney, individually and as constituting the South Carolina Tax Commission, Defendants.
CourtU.S. District Court — District of South Carolina


N. Welch Morrisette, U. S. Atty., Columbia, S. C., Charles K. Rice, Asst. Atty. Gen., H. Eugene Heine, Jr., and Lloyd J. Keno, Dept. of Justice, Washington, D. C., for plaintiff United States.

Roberts, Jennings, Thomas & Lumpkin, Columbia, S. C., Hugh K. Clark and Daniel F. Marple, II, Wilmington, Del., of counsel, for plaintiffs E. I. du Pont de Nemours & Co.

L. K. Olson and Herzel H. E. Plaine, Washington, D. C., and Allen M. Coker, Aiken, S. C., of counsel for Atomic Energy Commission.

T. C. Callison, Atty. Gen. of South Carolina, James S. Verner and James M. Windham, Asst. Attys. Gen., for defendant South Carolina Tax Commission.

Before SOBELOFF, Chief Judge, HAYNSWORTH, Circuit Judge, and TIMMERMAN, District Judge.

HAYNSWORTH, Circuit Judge.

In this action by the United States and E. I. du Pont de Nemours and Company against the members of the South Carolina Tax Commission, the plaintiffs seek an injunction against the collection of South Carolina sales and use taxes upon the use of purchased materials at the Savannah River Project, a facility of the United States, producing, under the direction of du Pont and the supervision of the Atomic Energy Commission, nuclear and related materials.


A preliminary question arises under a motion to dismiss in which the defendants assert that maintenance of the action is prohibited by statute1 and that, in any event, this court should stay its hand until the legal questions have been settled in the state courts.

It is not contended, however, that the United States is only a nominal plaintiff. From what will later appear, it is the real party in interest. The issue it tenders is not one of interpretation or general application of state laws, but of its own constitutional immunity from state taxation. Such an action in no way involves the evils at which the Act of August 21, 1937 was directed.2 It is apparent the Congress was concerned with the disparity between the rights of a citizen of a state, whose only means of litigating his disputed state tax liabilities was a suit for refund of prepaid taxes, and those of foreign corporations and nonresidents, doing business within the state and incurring tax obligations, who could obtain in the federal courts equitable relief denied to citizens of the state. No reference was made in the committee reports to actions by the United States seeking protection and recognition of its sovereignty. The administrative and judicial procedures for the adjustment and adjudication of private tax obligations to a state may be quite inappropriate to the resolution of questions of sovereignty and of sovereign immunity; at least, the two kinds of questions hardly may be said to be so comparable that procedural restrictions applicable to adjudication of the one should be held, by implication, to be applicable to the other.

There appears no good reason why the Congress should deny the United States the protection of the equitable powers of her own courts in a situation such as that with which we are now concerned, and it has been generally and broadly held that it did not do so when it enacted, as an amendment to § 24 of the Judicial Code (former § 41 of Title 28 U.S.C.A.), what is now § 1341 of Title 28 U.S.C.A. United States v. Woodworth, 2 Cir., 170 F.2d 1019; Board of Commissioners of Pawnee County, Okl. v. United States, 10 Cir., 139 F.2d 248; City of Springfield v. United States, 1 Cir., 99 F.2d 860; United States v. Okaloosa County, D.C. N.D.Fla., 59 F.Supp. 426.

The old notion that the sovereign is not bound by its legislative restrictions upon the exercise of remedial rights unless the legislative intention that it be so is expressly and clearly stated3 is greatly reinforced when application of the restriction to the particular action is far from the purpose and general intention of the Congress as disclosed in the reports of its committees. It is further strengthened by the fact that Congress made no provision for the use of the public moneys of the United States for the prepayment of contested state taxes, without which a suit for refund, the usual legal remedy provided by the states, is unavailable. Indeed, it has been held that a state remedy is not "plain, speedy and efficient," as to the United States, if its availability is conditioned upon a prepayment of the tax.4 Board of Commissioners of Pawnee County, Okl. v. United States, 10 Cir., 139 F.2d 248; City of Springfield v. United States, 1 Cir., 99 F.2d 860.

We conclude that 28 U.S.C.A. § 1341 does not deprive this court of jurisdiction of this action by the United States, by which it seeks protection of its sovereign immunity from taxation.

Were the United States seeking to avail itself of an exemption or privilege granted by the state, we might, nevertheless, feel constrained to withhold action until the state courts decided the limits of the state's exclusionary grants. United States v. City of New York, 2 Cir., 175 F.2d 75. Here the sole question is whether or not the United States is the real purchaser and user of the purchased articles so as to make their purchase and use immune from state taxation. That question arises under the Constitution of the United States and its answer is not dependent upon the resolution of any question of state law. It is our duty to consider the federal question, and there is no basis for a remission of the plaintiffs to the state courts.

The doctrine of abstention does not provide an escape from the duty of decision here. If South Carolina's sales and use tax statutes were subject to an interpretation which, if adopted by the Supreme Court of that State, would avoid the federal constitutional question, or even narrow or circumscribe that federal question, we well might stay our hand. Regard for the interest and sovereignty of the state and reluctance needlessly to adjudicate constitutional issues may require a federal District Court to abstain from adjudication if the parties may avail themselves of an appropriate procedure to obtain state interpretation of state laws requiring construction. Harrison v. N. A. A. C. P., 360 U.S. 167, 79 S.Ct. 1025, 3 L.Ed.2d 1152. The decision in Harrison, however, is not a broad encyclical commanding automatic remission to the state courts of all federal constitutional questions arising in the application of state statutes. N. A. A. C. P. v. Bennett, 360 U.S. 471, 79 S.Ct. 1192, 3 L.Ed.2d 1375. Though never interpreted by a state court, if a state statute is not fairly subject to an interpretation which will avoid or modify the federal constitutional question, it is the duty of a federal court to decide the federal question when presented to it. Any other course would impose expense and long delay upon the litigants without hope of its bearing fruit.

We have here no question of construction of the state statute. The use tax is laid broadly by § 65-1421 upon the "use or other consumption * * * of tangible personal property." The defendants are seeking to collect the tax in obedience to the direction of § 65-1361.15 which imposes the tax even though the purchaser and user be acting as agent of the United States or its instrumentalities.

There is in the statute a general exemption6 if imposition of the tax is prohibited by the state or federal constitutions. Legislatures, however, should not be presumed to lightly disregard constitutional limitations. General recognition of constitutional restraint is implicit in statutes which do not express it. Expression of that general recognition does not make ambiguous the statute's explicit command.

We find here no question of the construction of the state statutes. Indeed, the defendants do not suggest that any such question exists. They ask that we remit the parties to the state courts for an adjudication of the federal constitutional question. As we would defer to the state courts in cases involving questions of state law, we must perform our duty of decision in a case in which the only question is federal.

There is another reason that the restrictions of 28 U.S.C.A. § 1341 should be held inapplicable to this case and that the plaintiffs should not be remitted to the state courts. That the state court when ordering a refund of sales and use taxes would include in its judgment interest upon the overpayment, or otherwise compel the allowance and payment of such interest is, at least, doubtful.

In Paris Mountain Water Co. v. Woodside, 133 S.C. 383, 131 S.E. 37, the Supreme Court of South Carolina held that interest was allowable upon a refund of an overpayment of taxes and ordered its payment. A three judge federal court later examined the record and the briefs in Paris Mountain Water Co., found that the question had been fully submitted and adjudicated and concluded that the question was settled. Southern R. Co. v. Query, D.C.E.D.S.C., 21 F.2d 333.7 In February 1929, however, the Supreme Court of South Carolina held in Monarch Mills v. South Carolina Tax Commission, 149 S.C. 219, 146 S.E. 870, that a taxpayer could not recover interest upon refunded income taxes in the absence of specific statutory authorization.

The South Carolina Legislature reacted to the decision in Monarch Mills by promptly passing an act8 providing for the payment of such interest. It did not enlarge, however, the state's waiver of her immunity or her consent to be sued. Section 65-2662 of the South Carolina Code of 1952 permits actions against the state to recover taxes and penalties illegally collected. It does not expressly authorize actions for the recovery of...

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