Western Union Tel. Co v. Query

• Citation: 142 S.E. 509
• Decision Date: 20 December 1927
• Docket Number: (No. 12338.)
• Parties: WESTERN UNION TELEGRAPH CO. v. QUERY et al., South Carolina Tax Commission.
• Court: United States State Supreme Court of South Carolina

142 S.E. 509

WESTERN UNION TELEGRAPH CO.
v.
QUERY et al., South Carolina Tax Commission.

(No. 12338.)

Supreme Court of South Carolina.

Dec. 20, 1927.

Cothran, J., dissenting.

Appeal from Common Pleas Circuit Court of Richland County; W. H. Townsend, Judge.

Action by the Western Union Telegraph Company against W. G. Query and others, individually and as members of and constituting the South Carolina Tax Commission. Order sustaining demurrers to the complaint, and plaintiff appeals. Affirmed.

The order of W. H. Townsend, circuit judge, sustaining the demurrers, was as follows:

In this action the plaintiff seeks to recover certain income taxes paid to defendants under protest, on the gronud that they were, it is contended, illegally exacted. The defendants demur on the ground that the complaint does not state facts sufficient to constitute a cause of action, in that it appears upon the face of the complaint (1) that the income taxes in question were assessed and collected in accordance with the statutes of this state; and (2) that in no event can the tax commissioners be held individually liable for a mistake in their construction of the tax laws; and I, at the hearing before me, suggested and heard argument on the third question, whether any action at law will lie to recover such taxes paid under protest, especially where, as in this case, the action is

[142 S.E. 510]

brought more than 30 days after such payment was made.

All counsel asked me not to dismiss the complaint on this third ground, without considering and deciding the first two questions specified and made in the written demurrers.

"The first and primary question at issue is the proper construction of the South Carolina Income Tax Act of 1922 as amended in 1921, 32 Statutes at Large, p. 896; 33 Statutes at Large, pp. 1177, 1178, as applied to foreign corporations, such as the Western Union Telegraph Company, doing business and receiving income from business done and transacted within the state of South Carolina as well as elsewhere.

"The controversy, as shown by the complaint and demurrer, may be stated briefly as follows: The plaintiff, a nonresident corporation, during the years in question—that is, 1921, 1922, and 1923—was engaged in business as a common carrier of intelligence doing business throughout the United States, including the state of South Carolina, its business therein consisting of both intra and inter state business. For each of said years the plaintiff submitted to the tax commission a return in accordance with the provisions of the Income Tax Act, in which return it was set forth that plaintiff had not received any net income for any of said years from operations or other sources within the state of South Carolina, and hence was not liable for any tax under said act. The defendants concede that the plaintiff did not receive or earn any net income from its intrastate business— that is, business begun and completed within the state—but they contend that a proper construction of the act requires the plaintiff to pay a tax upon its income derived not only from its intrastate business, but also upon such portion of the entire net income of the plaintiff's system as could be attributed to interstate business begun, continued or completed within the state of South Carolina. The contention of the plaintiff is that the tax applies only to income derived from intrastate business; that is, business done and completed within the state."

The plaintiff relies upon the construction given the words "business done within the state, " in the case of the Southern Railway Co. v. A. W. Jones et al., by Judge M. L. Smith, my predecessor as judge of this circuit, for which I have the highest regard, of date February 19, 1917, in construing the Annual License Tax Laws, title 3, art. 6, Civil Code of Laws of South Carolina 1912, which excludes transactions of interstate business or commerce, in determining the amount of gross earnings or receipts of the railway company for business done within the state, to be taken as the basis of assessing the annual license fee to be paid by the railway company for the privilege of doing business in this state (Pacific Express Co. v. Seibert, State Auditor, 142 U. S. 339, 12 S. Ct. 250, 35 L. Ed. 1035), and also on the recent case of Converse v. Northern Pacific Railway Co. (C. C. A.) 2 F. (2d) 959.

In the Converse Case, the Circuit Court of Appeals well said:

"We are unable to agree with the trial court that the above phraseology, when used in a taxing statute affecting the business of a carrier crossing the state line, must always be given the meaning which the Supreme Court gave it in the above [Seibert] Case. Obviously, the words themselves may mean either purely in trastate business or intra and inter state business which comes within the state. Therefore, whenever such terms are used in a statute, they must be construed in accordance with the intention of the Legislature in enacting the particular statute."

In the statute now under consideration, the state of South Carolina adopted the federal income tax law for the purpose of determining the amount of net income upon which income taxes are to be paid to this state—that is, for the purpose of fixing the amount of said income tax and the payment and collection thereof— with a provision that "foreign corporation, " such as this plaintiff, "doing business within this state, not required nor making returns to the government of the United States of income as accruing from business done and transacted within the state, shall make returns under oath to the tax commissioner of their incomes accruing from business done or transacted within the state by them * * * for the purpose of computing the amount of tax on their incomes due the state hereunder, " to the end that there shall be paid to the state 33¹/₃ per centum of the amount required to be paid to the United States government, subject to certain exemptions and deductions specified in the act, as income tax on account of such net income from business done or transacted within this state. See statute above cited, and Lancaster Cotton Mills v. S. C. Tax Commission, 132 S. C. 466, 129 S. E. 431; Santee Mills v. Query et al., 122 S. C. 158, 115 S. E. 202; Crescent Manufacturing Co. v. S. C. Tax Commission, 129 S. C. 480, 124 S. E. 761.

The intention is evident in the statute that the foreign corporation should pay to the state one-third of the income tax paid the federal government on net income from its business operations within the state, without making any distinction between intra and inter state transactions.

The statute now under consideration differs materially from the License Tax Act under consideration in Southern Railway Co. v. Jones, in that this statute lays a tax on only the net income from all business done within the state. "The tax only deals with that part of the fruits of 'interstate' commerce which remains as the net proceeds after all the immediate burdens of the commerce have been discharged, and such net profits are merged in the assets of the corporation." United States Glue Co. v. Town of Oak Creek, 161 Wis. 211, 153 N. W. 241, Ann. Cas. 1918A, 421, affirmed in 247 U. S. 321, 38 S. Ct. 499, 62 L. Ed. 1135, Ann. Cas. 1918E, 748. See, also, Peck v. Lowe, 247 U. S. 165, 38 S. Ct. 432, 62 L. Ed. 1049; Shaffer v. Carter, 252 U. S. 37, 40 S. Ct. 221, 64 L. Ed. 445; Bass, Ratcliff & Gretton, Lt., v. State Tax Commission, 266 U. S. 271, 45 S. Ct. 82, 69 L. Ed. 282.

The allocation of the proportion of net income to business done within the statute has not been questioned either before the tax commission, nor in this court, except in so far as it now argued that the statute prescribes no method for such allocation, citing Commonwealth v. P. Lorillard Co., 129 Va. 74, 105 S. E. 685, and on that ground it is contended the allocation is illegal. Our statute in section 2 requires such allocation to be made by the taxpayer in his returns to the tax commission; and, in case the taxpayer fails to make such allocation, the tax

[142 S.E. 511]

commission is required to make it; and in section 4 the commission is authorized to formulate and promulgate such rules and regulations as are necessary for the purpose of such allocation. Such provisions were absent in the Virginia statute; and such delegation of administrative power to the tax commission and its action thereunder is legal. Charleston Oil Co. v. Carter, 131 S. C. 466, 128 S. E. 8. Note the method of allocation adopted in New York. People ex rel. Alpha Portland Cement Co. v. Knapp, 230 N. Y. 48, 53, 129 N. E. 202.

I therefore conclude that the income taxes in question were assessed and collected in accordance with law, and the demurrer interposed to the complaint by the tax commission is sustained, and it is so ordered.

As to the demurrer by the individual tax commissioners, the plaintiff contends:

"A right of action exists at common law against a tax collector to recover money wrongfully or illegally collected by him and paid to him under protest. Elliott v. Swartwout, 10 Pet. 137, 9 L. Ed. 373; Sage v. U. S., 250 U. S. 38, 39 S. Ct. 415, 63 L. Ed. 82S; Smietanka v. Ind. Steel Co., 257 U. S. 1, 42 S. Ct. 1, 66 L. Ed. 99.

"Should it be held that an aggrieved taxpayer cannot sue the state to recover an income tax illegally exacted and paid under protest, then the members of the tax commission are personally liable for its unlawful collection, and they cannot take advantage of the state's immunity from suit. Ward v. Love County, 253 U. S. 17, 40 S. Ct. 419, 64 L. Ed. 751; Atchison, T. & S. F. R. Co. v. O'Connor, 223 U. S. 280, 32 S. Ct. 216, 56 L. Ed. 436, Ann. Cas. 1913C, 1050; Sage v. U. S., supra; Ex parte Young, 209 U. S. 123, 28 S. Ct. 441, 52 L. Ed. 714, 13 L. R. A. (N. S.) 932, 14 Ann. Cas. 764; Philadelphia, Atlantic & P. Teleg. Co. v. Collector, 5 Wall. 720, 18 L. Ed. 614; Osborn v. Bank, 9 Wheat. 738. 6 L. Ed. 204; Poindexter v....