December 20, 1927. The opinion of the Court was delivered by
The plaintiff appellant is a foreign corporation. It made its income tax return, it appears, upon its intrastate business for the years 1921, 1922 and 1923, which returns did not show a net taxable income. It did not include any net income from its interstate operations carried on within the limits of this state. The tax commission, respondent, declined to accept these returns as made, and upon examination added thereto the net income as found by the commission, arising from interstate operations. The plaintiff paid this tax on July 11, 1924, under protest. The total amount paid was $10,823.42.
On November 30, 1925, this action was commenced against the commission as such, and against its members individually, seeking to recover of the tax commission and of its members individually, the amount so paid. It had, on March 27, 1925, filed with the commission a claim for a refund of the amount paid. It claimed in its complaint that it was not liable for any income tax, except in respect to the net income derived from business begun and completed within the state, and that, inasmuch as the business was carried on at an actual loss, it was not liable for any tax, and that the levy as made by the tax commission on any part of its interstate business was not legal and constituted a taking of the property of the appellant without due process of law, in violation of the Fourteenth Amendment of the Constitution of the United States, and also of the South Carolina Constitution, Art 1, § 5.
The appellant claimed that there was no method provided by statute for ascertaining the net income, and that the method improvised by the commission was without authority; that, in order to prevent the penalties to which it would have been subject under the terms of the Income Tax Act of this state of 1922, it paid the sums demanded for the three years named, under protest.
The appellant claims that it filed its claim in conformity with the Federal Income Act of 1921, § 1316 (26 USCA, § 157; U.S. Comp. St. § 5951), and claims that, by virtue of that Act, it had a right to bring this action.
The tax commission and its individual members demurred to the complaint upon the grounds that the complaint does not state facts sufficient to constitute a cause of action, in that it appears upon its face that the income taxes in question were assessed and collected in accordance with the statutes of this state. The parties have entered in the record the following as the issues, raised by the demurrer:
"(1) Whether, under the Income Tax Act of 1922, in arriving at the taxable net income of a foreign corporation
doing both an intra- and interstate business, a proportionate part of its interstate earnings, and earned in South Carolina, should be included, or is the taxable net income limited to the income derived solely from intrastate business.
"(2) Are the individual members of the South Carolina Tax Commission personally liable to plaintiff and subject to refund out of their individual and personal estates, an income tax, when, in their official capacity they construe the income tax law and collect a tax under such construction, if the Court thereafter decides that such construction was erroneous and the tax therefore improperly collected.
"(3) If a tax is collected by the South Carolina Tax Commission, which tax is not authorized by the Income Tax Act, then does the collection of such a tax under the circumstances set forth in the complaint deprive plaintiff of its property without due process of law."
The matter coming on to be heard before his Honor, Judge Townsend, the demurrers were sustained by him, and his order will be reported. His Honor held:
(1) That it is the intention of the income tax statute of this state that a foreign corporation should pay an income tax on the net income from its business operations within the state, without making any distinction between intra-and interstate transactions, and concluded that such taxes were assessed and collected in accordance with the law.
(2) In reference to the remedies given by statutes: That, inasmuch as the plaintiff has not brought this action within the 30 days limited after the payment of the tax by statutory provision, the suit may be dismissed from further consideration.
(3) That the individual members of the tax commission were not made liable by statute, and could not be made liable at common law.
The complaint was therefore dismissed.
From this order, this appeal was prosecuted by the plaintiff-appellant, and the appellant has grouped the exceptions as raising the following issues:
"I. (a) As to a nonresident carrier corporation, such as the plaintiff, engaged in both inter- and intrastate commerce, does the South Carolina Income Tax Law of 1922 authorize a tax on any part of the carrier's net income other than that arising from `within the state' operations; that is, intrastate business?
"(b) And if the Act intends to tax a proportionate part of interstate income, did it authorize the commission to assess and collect the tax which it did?
"II. Did the Legislature of South Carolina, in adopting the federal income tax law in toto as an integral part of the South Carolina Act, intend that the taxpayer should follow the provisions of the federal law with reference to the payment of taxes which the taxpayer believes to be illegal (that is, payment under protest), followed by claim for refund, and, if that is refused, then suit to recover?
"III. Has an aggrieved taxpayer a right of action against a tax collector individually and personally for taxes collected by him without warrant or authority of law, where the collection is made and the tax is paid involuntarily and under duress?"
The Income Tax Act of this state, of 1922, p. 903, provides:
"13. Income from Operations or Property in this StateLiable to Tax. — Where any person, firm or corporation operates and does business and receives income in South Carolina and another, or other states, such person, firm or corporation shall pay to the tax commission an income upon all net earnings accrued and received from operations or other sources in this state."
If there be statutory authority for exacting the tax, there can be no claim that the appellant has been deprived of his property without due process of law. The respondents have rightfully undertaken to tax net income arising from interstate operations conducted and transacted within this state. Atlantic Coast Line R. Co. v.Daughton, 262 U.S. 413; 43 S.Ct., 620; 67 L.Ed., 1051. That they had ample authority to do so is shown by reference to the act and by the authorities cited by his Honor, Judge Townsend.
It is most earnestly urged, and particularly under the case of Commonwealth v. Lorillard, 129 Va., 74; 105 S.E., 683, that, under a statute claiming to be similar to the statute here involved, as there is no method of allocation provided by statute, the taxing power could not devise a scheme of their own by which to determine how much of the total income was derived from business done in this state. His Honor, Judge Townsend, has pointed out in his order the difference between the statute in Virginia, upon which theLorillard case
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December 20, 1927. The opinion of the Court was delivered by
The plaintiff appellant is a foreign corporation. It made its income tax return, it appears, upon its intrastate business for the years 1921, 1922 and 1923, which returns did not show a net taxable income. It did not include any net income from its interstate operations carried on within the limits of this state. The tax commission, respondent, declined to accept these returns as made, and upon examination added thereto the net income as found by the commission, arising from interstate operations. The plaintiff paid this tax on July 11, 1924, under protest. The total amount paid was $10,823.42.
On November 30, 1925, this action was commenced against the commission as such, and against its members individually, seeking to recover of the tax commission and of its members individually, the amount so paid. It had, on March 27, 1925, filed with the commission a claim for a refund of the amount paid. It claimed in its complaint that it was not liable for any income tax, except in respect to the net income derived from business begun and completed within the state, and that, inasmuch as the business was carried on at an actual loss, it was not liable for any tax, and that the levy as made by the tax commission on any part of its interstate business was not legal and constituted a taking of the property of the appellant without due process of law, in violation of the Fourteenth Amendment of the Constitution of the United States, and also of the South Carolina Constitution, Art 1, § 5.
The appellant claimed that there was no method provided by statute for ascertaining the net income, and that the method improvised by the commission was without authority; that, in order to prevent the penalties to which it would have been subject under the terms of the Income Tax Act of this state of 1922, it paid the sums demanded for the three years named, under protest.
The appellant claims that it filed its claim in conformity with the Federal Income Act of 1921, § 1316 (26 USCA, § 157; U.S. Comp. St. § 5951), and claims that, by virtue of that Act, it had a right to bring this action.
The tax commission and its individual members demurred to the complaint upon the grounds that the complaint does not state facts sufficient to constitute a cause of action, in that it appears upon its face that the income taxes in question were assessed and collected in accordance with the statutes of this state. The parties have entered in the record the following as the issues, raised by the demurrer:
"(1) Whether, under the Income Tax Act of 1922, in arriving at the taxable net income of a foreign corporation
doing both an intra- and interstate business, a proportionate part of its interstate earnings, and earned in South Carolina, should be included, or is the taxable net income limited to the income derived solely from intrastate business.
"(2) Are the individual members of the South Carolina Tax Commission personally liable to plaintiff and subject to refund out of their individual and personal estates, an income tax, when, in their official capacity they construe the income tax law and collect a tax under such construction, if the Court thereafter decides that such construction was erroneous and the tax therefore improperly collected.
"(3) If a tax is collected by the South Carolina Tax Commission, which tax is not authorized by the Income Tax Act, then does the collection of such a tax under the circumstances set forth in the complaint deprive plaintiff of its property without due process of law."
The matter coming on to be heard before his Honor, Judge Townsend, the demurrers were sustained by him, and his order will be reported. His Honor held:
(1) That it is the intention of the income tax statute of this state that a foreign corporation should pay an income tax on the net income from its business operations within the state, without making any distinction between intra-and interstate transactions, and concluded that such taxes were assessed and collected in accordance with the law.
(2) In reference to the remedies given by statutes: That, inasmuch as the plaintiff has not brought this action within the 30 days limited after the payment of the tax by statutory provision, the suit may be dismissed from further consideration.
(3) That the individual members of the tax commission were not made liable by statute, and could not be made liable at common law.
The complaint was therefore dismissed.
From this order, this appeal was prosecuted by the plaintiff-appellant, and the appellant has grouped the exceptions as raising the following issues:
"I. (a) As to a nonresident carrier corporation, such as the plaintiff, engaged in both inter- and intrastate commerce, does the South Carolina Income Tax Law of 1922 authorize a tax on any part of the carrier's net income other than that arising from `within the state' operations; that is, intrastate business?
"(b) And if the Act intends to tax a proportionate part of interstate income, did it authorize the commission to assess and collect the tax which it did?
"II. Did the Legislature of South Carolina, in adopting the federal income tax law in toto as an integral part of the South Carolina Act, intend that the taxpayer should follow the provisions of the federal law with reference to the payment of taxes which the taxpayer believes to be illegal (that is, payment under protest), followed by claim for refund, and, if that is refused, then suit to recover?
"III. Has an aggrieved taxpayer a right of action against a tax collector individually and personally for taxes collected by him without warrant or authority of law, where the collection is made and the tax is paid involuntarily and under duress?"
The Income Tax Act of this state, of 1922, p. 903, provides:
"13. Income from Operations or Property in this StateLiable to Tax. — Where any person, firm or corporation operates and does business and receives income in South Carolina and another, or other states, such person, firm or corporation shall pay to the tax commission an income upon all net earnings accrued and received from operations or other sources in this state."
If there be statutory authority for exacting the tax, there can be no claim that the appellant has been deprived of his property without due process of law. The respondents have rightfully undertaken to tax net income arising from interstate operations conducted and transacted within this state. Atlantic Coast Line R. Co. v.Daughton, 262 U.S. 413; 43 S.Ct., 620; 67 L.Ed., 1051. That they had ample authority to do so is shown by reference to the act and by the authorities cited by his Honor, Judge Townsend.
It is most earnestly urged, and particularly under the case of Commonwealth v. Lorillard, 129 Va., 74; 105 S.E., 683, that, under a statute claiming to be similar to the statute here involved, as there is no method of allocation provided by statute, the taxing power could not devise a scheme of their own by which to determine how much of the total income was derived from business done in this state. His Honor, Judge Townsend, has pointed out in his order the difference between the statute in Virginia, upon which theLorillard case was predicated, and our statute, and has rightly reached the conclusion from the nature of the act, that the tax commission had authority to make the assessment and collect the tax. Having found that the tax was rightfully assessed and levied, a discussion of the other matters is largely academic.
Had the Federal Income Tax Act of 1921 and the rules and regulations promulgated by the Department of Internal Revenue in pursuance of such act, been adopted without any provisos, this Court would have to look to that act in all of its terms for deciding any question arising under it. It was adopted, however, in totidem verbis, "for the purpose of determining the amount of net income, upon which income taxes are to be paid under the provisions of this act, and for the purpose of fixing the amount of the said income tax the payment and collection thereof." Acts of the General Assembly of S.C. 1922, p. 897, § 2. This
act does not purport to give any rights or provide any remedies other than as stated in the declaration of its objects, which are to determine the amount of net income, to fix the amount of income tax, and provide for its payment and collection. Although adopted in its entirety, it is adopted for these specific purposes only.
The Federal Act of 1921, Section 1318 (26 USCA, § 156; U.S. Comp. St. § 5949), does not permit a suit to be brought until a claim for a refund has been filed with the commission, nor within six months from the date of the filing, unless the commissioner renders a decision within that time, nor after the expiration of five years from date of payment.
These provisions relating to the remedy are outside of the purview of the adoption of the federal statute, and, even if they had been adopted, they would have no effect in these instances, for the reason that we have found that the tax had been rightfully levied. In this connection, it might not be amiss to say that a remedy by statute was not provided to give relief to the plaintiff in this case. The Civil Code of South Carolina, Vol. 3, p. 215, § 512, provides that taxes charged upon the books of the county treasurer might be paid under protest and a suit brought within 30 days thereafter, and not afterwards. The Act of 1923, p. 28, provides that in cases where license taxes are required to be paid, the same might be paid to the tax commission under protest, and that the same might be recovered by suit brought within 30 days thereafter against the tax commission. It will be seen therefore that no statutory remedy was provided. In these circumstances, the collection of the tax could have been stayed by injunction. WareShoals Manufacturing Co. v. Jones, Comptroller, 78 S.C. 211;58 S.E., 811.
As to whether suit could be brought against the individual members of the tax commission, we content ourselves with and adopt the reasoning of his Honor,
Judge Townsend, adding that the South Carolina Tax Commission is clothed with dual powers. The duty in the first instance, to levy the tax, gives the nature of a quasi judicial capacity, and then it is clothed with the duty of collecting the tax, and it would be unduly hampering the members of the commission in the discharge of their duties, if their dual duties could be separated to make them liable for the collection of a tax which they, as the tax commission, had imposed. It is doubtful if any competent persons could be found to undertake to discharge the duties of this important office if they knew beforehand that they would be liable in a civil action for any mistakes of judgment that they made.
Nothing that we have said, however, shall be construed to mean that an officer attempting to collect a wholly illegal tax, which he must know to be illegal, would be protected from the consequences of this act. The authorities are clear on this point.
The judgment is affirmed.
MR. CHIEF JUSTICE WATTS and MESSRS. JUSTICES BLEASE and STABLER concur.
MR. JUSTICE COTHRAN dissents.
MR. JUSTICE COTHRAN: I dissent upon the grounds: (1) That the state has no authority to levy a tax on interstate commerce in any form whatever. Miller v. Ry. Co.,146 Miss., 422; 111 So., 558. Postal Co. v. Adams, 155 U.S. 688;15 S.Ct., 268, 360; 39 L.Ed., 311. Crew Levick Co.v. Penn., 245 U.S. 292; 38 S.Ct., 126; 62 L.Ed., 295.
(2) That the state has not in the Act of 1921 attempted to levy an income tax upon receipts from interstate business, but has expressly limited it to receipts from intrastate business.
(3) That, if it could be held that the act authorized a tax upon a proportionate part of the interstate business handled in this state, no method is provided for the ascertainment of such proportion.