Zenith Dredge Company v. Corning, Civ. A. No. 1024.

• Court: United States District Courts. 7th Circuit. Western District of Wisconsin
• Writing for the Court: RABINOVITZ
• Citation: 231 F. Supp. 584
• Parties: ZENITH DREDGE COMPANY, a Minnesota Corporation, and Dunbar and Sullivan Dredging Company, a New York Corporation, Plaintiffs, v. George W. CORNING, Commissioner of Taxation for the State of Wisconsin, Defendant.
• Docket Number: Civ. A. No. 1024.
• Decision Date: 27 July 1964

231 F. Supp. 584

ZENITH DREDGE COMPANY, a Minnesota Corporation, and Dunbar and Sullivan Dredging Company, a New York Corporation, Plaintiffs,
v.
George W. CORNING, Commissioner of Taxation for the State of Wisconsin, Defendant.

Civ. A. No. 1024.

United States District Court W. D. Wisconsin.

July 27, 1964.

231 F. Supp. 585

Lyman T. Powell, Jr. of Powell, Sprowls & Gee, Superior, Wis., Montague, Applequist, Lyons, Nolan, Donovan & Knetsch, by Harry C. Applequist, Duluth, Minn., of counsel, for plaintiffs.

George Thompson, Atty. Gen., Harold H. Persons and James H. McDermott, Asst. Attys. Gen., Madison, Wis., for defendant.

RABINOVITZ, District Judge.

This is an action for declaratory relief, brought under 28 U.S.C.A. § 2201, for the purpose of determining whether or not the plaintiff corporations must withhold from their employees' wages State of Wisconsin income taxes.

The action is brought against the Commissioner of Taxation for the State of Wisconsin. Zenith Dredge is a Minnesota corporation; Dunbar and Sullivan is a New York corporation.

Jurisdiction of this Court exists by virtue of a federal question and sufficient amount in controversy, 28 U.S. C.A. § 1331, at least for the purpose of determining whether the Court has subject-matter jurisdiction.

Defendant filed a motion under Rule 12(d), Federal Rules of Civil Procedure, that this Court hear its defenses presented by answer prior to hearing the case on its merits. The Court will only consider the defense that this Court lacks jurisdiction over the subject matter of this action.

The basis of this defense is 28 U.S. C.A. § 1341, which provides as follows:

"The district courts shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State."

The plaintiffs each have a separate contract with the United States Government for the deepening and widening of the navigable channels of the Duluth-Superior Harbor, which is part of the interstate waters of the adjoining states of Minnesota and Wisconsin.

The employees of the plaintiffs, which include Wisconsin residents, in the course of their employment, work in both states.

The position of defendant is that the employees, resident and non-resident, are subject to the withholding of a part of their wages for state income taxes for that part of their wages earned in Wisconsin; and further, that as to the Wisconsin residents, their wages are subject to the withholding tax regardless of where earned.

231 F. Supp. 586

The position of the plaintiffs is that 46 U.S.C.A. § 601 prohibits such attempted taxation. Sec. 601 provides:

"* * * And provided further, that no part of the wages due or accruing to a master, officer, or any other seaman who is the member of a crew on a vessel engaged in the foreign, coastwise, inter-coastal, interstate, or noncontiguous trade shall be withheld pursuant to the provisions of the tax laws of any State * * *".

It should at the outset be noted that the declaratory judgment is directed against defendant's threatened assessment of the disputed taxes. Defendant has repeatedly sent letters and the required forms to plaintiffs, demanding payment of withholding taxes. At oral argument it was stipulated that no assessment has been made, and that no assessment would be made until the disposition of this matter, unless plaintiffs request that an assessment be made. Defendant is willing to let plaintiffs choose their own means of relief, provided it is not in the federal court.

It was agreed by both plaintiffs and the defendant that the determination of the question as to whether plaintiffs' employees are "seamen" will be dispositive of whether the challenged taxation is valid. However, because of the disposition that will be made of this case, it would be error to pass upon the question. Galfas v. City of Atlanta, 193 F.2d 931 (5th Cir. 1952). Accordingly, this Court expresses no opinion whatsoever as to whether plaintiffs' employees are seamen within the meaning of Sec. 601.

Plaintiffs' position can be summarized quite briefly. It is that a federal statute is involved over which this Court has primary jurisdiction; that plaintiffs are simply seeking a determination of fact, viz.: are their employees seamen within the purview of sec. 601?

SUBJECT MATTER JURISDICTION

The only issue before this Court is whether the State of Wisconsin provides a "plain, speedy and efficient" means whereby plaintiffs' claim may be heard.

What the argument of plaintiffs overlooks is the effect of a decision by this Court, were it to find its employees seamen under sec. 601. The necessary effect would be to prevent the collection of state taxes. Sec. 1341 removes this jurisdiction from the district courts.

In Helmsley v. City of Detroit, Michigan, 320 F.2d 476 (6th Cir. 1963), the plaintiff had exhausted all administrative remedies. The plaintiff brought an action for declaratory judgment that certain assessments of ad valorem taxes are in violation of the due process and equal protection clauses of the Fourteenth Amendment.

The Court of Appeals, in affirming the district judge's sua sponte dismissal for lack of jurisdiction, cited sec. 1341, and said, "Even though the plaintiff is not seeking to `enjoin, suspend or restrain the assessment, levy or collection of any tax under' the law of Michigan, it is the duty of a district judge to withhold relief by way of declaratory judgment where it appears that the taxpayer has an adequate remedy under state law."

The only ground for the plaintiffs bringing the present action is to avoid the payment of a tax.

Plaintiffs have argued that sec. 1341 is not applicable because they are not taxpayers. This is incorrect. Sec. 1341 does not refer to "taxpayers" but it relates to subject matter jurisdiction of this Court.

Further, under sec. 71.20(7), Wis. Stats., plaintiffs have the status of taxpayers. That section provides that, "Whenever any person is required to withhold any Wisconsin income tax from an employe, until such amount is deposited with the depository bank prescribed by sub. (4), the amount so withheld shall be held to be a special fund in trust for the state. The amount of such fund may be assessed and collected from such person by the department as income taxes are assessed and collected,

231 F. Supp. 587

and such collection shall not abate any penalty imposed under sub. (6)."

In asserting that this Court has primary jurisdiction because a federal statute is involved, the plaintiffs are in essence claiming that only in this Court may they have their federal rights asserted. Further, that they have a right to be in federal court.

Plaintiffs have cited England v. Louisiana State Board of Medical Examiners, 375 U.S. 411, 84 S.Ct. 461, 11 L.Ed.2d 440 (1964). That case is not in point. England was not a sec. 1341 case. It was an...