West Pub. Co. v. McColgan

• Decision Date: 24 April 1942
• Docket Number: No. 22069-S.,22069-S.
• Citation: 46 F. Supp. 163
• Parties: WEST PUB. CO. v. McCOLGAN, Franchise Tax Com'r of California.
• Court: U.S. District Court — Northern District of California

46 F. Supp. 163

WEST PUB. CO. v. McCOLGAN, Franchise Tax Com'r of California.

No. 22069-S.

District Court, N. D. California, S. D.

April 24, 1942.

John W. Preston, of Los Angeles, Cal., for plaintiff.

Earl Warren, Atty. Gen., H. H. Linney, Asst. Atty. Gen., and James E. Sabine, Deputy Atty. Gen., for defendant.

ST. SURE, District Judge.

Plaintiff, a Minnesota corporation, sues defendant to enjoin enforcement of the California Corporation Income Tax Act of 1937, as amended, Stat.Cal.1937, c. 765, p. 2184, Stat.1939, c. 1049, p. 2902.

Plaintiff was notified by defendant that it was subject to and must file a return under the California Corporation Income Tax Act. Plaintiff replied denying liability under the Act. On March 1, 1941, defendant wrote plaintiff demanding that it file a return, or suffer the penalties prescribed by the Act which make failure to comply a misdemeanor punishable by a fine of not exceeding $5,000. On May 29, 1941, defendant mailed to plaintiff at its offices in St. Paul, Minnesota, three notices of levies of tax against plaintiff for the taxable year 1937, tax and penalties, $2,400, and the same amount for the taxable years of 1938 and 1939, a total of $7,200.

Plaintiff alleges in its complaint that it has not filed any application to transact or carry on its business in California, nor has it been granted a permit, or license, or any other authority, by the State, to carry on its business; that it has no property within the State; that it sends salesmen into the State to solicit orders for the sale of its books and other publications, which orders are sent to plaintiff at its principal office in St. Paul, Minnesota, for acceptance or rejection; that such orders are filled and the merchandise delivered to a common carrier, freight prepaid; that all such sales or transactions are, in fact, consummated, and deliveries of the goods or merchandise so ordered are made to the purchasers thereof, in Minnesota.

Plaintiff further alleges that the provisions of the California Corporation Income Tax Act deprive it of its property without due process of law, contrary to the 14th Amendment of the Constitution of the United States, and also that the provisions of the Act impose a direct burden upon, and a regulation of, commerce among the several states, contrary to the provisions of Article I, Section 7 and Article I, Section 8, Clause 3 of the Federal Constitution.

Plaintiff prays that by its judgment this Court declare void the levies heretofore made by defendant, seeking to invoke the Federal Declaratory Judgment Act, 28 U. S.C.A. § 400.

Defendant moves to dismiss upon the grounds that the Court lacks jurisdiction over the subject matter under the provisions of the 1937 amendment to section 41(1) of 28 U.S.C.A., and the Eleventh Amendment to the Constitution of the United States.¹

Section 24(1) of the Judicial Code, 28 U.S.C.A. § 41(1), provides that "no district court shall have jurisdiction of any suit to enjoin, suspend, or restrain the assessment, levy, or collection of any tax imposed by or pursuant to the laws of any State where a plain, speedy, and efficient remedy may be had at law or in equity in the courts of such State".

In interpreting the Eleventh Amendment the Courts have established the rule that an action cannot be brought against a state, either directly, or, when a state is a real party in interest, indirectly, through suit against state officers in their official capacity (American Barke Shoe & Foundry Co. v. Interborough Rapid Transit Co., D.C., 10 F.Supp. 512, affirmed, 2 Cir., 76 F.2d 1002, certiorari denied City of New York v. Murray, 295 U.S. 760, 55 S.Ct. 923, 79 L.Ed. 1702), unless there is a constitutional infringement of rights. Nevin v. Martin, D.C., 22 F.Supp. 836, affirmed 307 U.S. 615, 59 S.Ct. 1046, 83 L.Ed. 1497.

Section 23 of the California Corporation Income Tax Act, as amended by Stat. Cal.1939, Ch. 1049, § 17, reads as follows:

"No injunction or writ of mandate or other legal or equitable process shall issue in any suit, action or proceeding in any court against this State or against any officer thereof to prevent or enjoin the assessment or collection of any tax under this act, but any taxpayer claiming that the tax computed and levied against it pursuant to section 19 of this act is void in whole or in part may bring an action against the commissioner for the recovery of the whole or any part of the amount paid. Such action must be filed within four years from the last date prescribed for filing the return or within one year from the date the tax was paid, whichever period expires the later; provided, that no action shall be filed for the recovery of a deficiency assessment unless the taxpayer has made protest to the commissioner of the computation and levy complained of under the provisions of section 19 hereof.

"Within ninety days after the mailing of the notice of the commissioner's action upon any refund claim, or in case of an appeal to the State Board of Equalization from the disallowance of any refund claim, within ninety days after the mailing of the notice of the board's determination of the appeal, the taxpayer may bring an action against the commissioner on the grounds set forth in such claim for the recovery of the whole or any part of the amount claimed as an overpayment.

"If the commissioner fails to mail notice of action on any refund claim within six months after the claim was filed, the taxpayer may, prior to mailing of notice of action on the refund claim, consider the claim disallowed and bring an action against the commissioner on the grounds set forth in such claim for the recovery of the whole or any part of the amount claimed as an overpayment.

"Whenever under the provisions of this section an action is commenced against the commissioner, a copy of the complaint and the summons must be served upon the commissioner, or the assistant commissioner. At the time the...