One denying the legality of a tax should have a clear and
certain remedy, and where he cannot interfere by injunction, an
action to recover back is the alternative unless he waits until the
state commences an action and subjects himself to penalties and
risks.
Courts have been too slow to recognize implied duress, in
payment of taxes, where payment thereof would result
disadvantageously.
Where, in addition to money penalties for delay in payment of a
tax, there is forfeiture of right to do business and risk of having
contracts declared illegal in case of nonpayment of disputed tax,
the payment is made under duress.
Where a state officer receives money for a tax paid under duress
with notice of its illegality, he has no right thereto, and the
name of the state does not protect him from suit.
Where a state statute provides for refunding taxes erroneously
paid to a state officer, it contemplates a suit against such
officer to recover the taxes paid under protest and duress.
The facts, which involve the right to recover payments for taxes
paid under duress and what constitutes duress, are stated in the
opinion.
Page 223 U. S. 285
MR. JUSTICE HOLMES delivered the opinion of the Court.
This is an action to recover taxes paid under duress and
protest, the plaintiff contending that the law under which the tax
was levied is unconstitutional. A demurrer to the declaration was
sustained by the circuit court. The tax is a tax of two cents upon
each one thousand dollars of the plaintiff's capital stock. Session
Laws of Colorado, 1907, c. 211. The plaintiff is a Kansas
corporation. The greater part of its property and business is
outside of the State of Colorado, and of the business done within
that state but a small proportion is local, the greater part being
commerce among the states. Therefore it is obvious that the tax is
of the kind decided by this Court to be unconstitutional, since the
decision below in the present case, even if the temporary
forfeiture of the right to do business declared by the statute be
confined by construction, as it seems to have been below, to
business wholly within the state.
Western Union Telegraph Co.
v. Kansas, 216 U. S. 1;
Pullman Co. v. Kansas, 216 U. S. 56;
Ludwig v. Western Union Telegraph Co., 216 U. S.
146. The defendant did not argue that the tax could be
maintained, but contended only that the payment was voluntary, and
that the defendant is not the proper person to be sued.
It is reasonable that a man who denies the legality of a tax
should have a clear and certain remedy. The rule being established
that, apart from special circumstances, he cannot interfere by
injunction with the state's collection of its revenues, an action
at law to recover back what he has paid is the alternative left. Of
course we are speaking of those cases where the state is not put to
an action if the citizen refuses to pay. In these latter, he can
interpose his objections by way of defense; but when, as is common,
the state has a more summary remedy, such as
Page 223 U. S. 286
distress, and the party indicates by protest that he is yielding
to what he cannot prevent, courts sometimes perhaps have been a
little too slow to recognize the implied duress under which payment
is made. But even if the state is driven to an action, if at the
same time, the citizen is put at a serious disadvantage in the
assertion of his legal, in this case of his constitutional, rights,
by defense in the suit, justice may require that he should be at
liberty to avoid those disadvantages by paying promptly and
bringing suit on his side. He is entitled to assert his supposed
right on reasonably equal terms.
See Ex Parte Young,
209 U. S. 123,
209 U. S. 146.
If he should seek an injunction on the principle of that case and
of
Western Union Telegraph Co. v. Andrews, 216 U.
S. 165, he would run the same risk as if he waited to be
sued.
In this case, the law, besides giving an action of debt to the
state, provides that every corporation that fails to pay the tax
shall forfeit its right to do business within the state until the
tax is paid, and also shall pay a penalty of ten percent for every
six months or fractional part of six months of default after May 1
of each year. It may be that the forfeiture of the right to do
business would not be authoritatively established except by a
quo warranto provided for in a following section, but
before or without the proceeding, the effect of the forfeiture
clause upon the plaintiff's subsequent contracts and business might
be serious (
see Ludwig v. Western Union Telegraph Co.,
216 U. S. 146),
and, in any event, the penalty would go on accruing during all the
time that might be spent before the validity of the defense could
be adjudged. As appears from the decision below, the plaintiff
could have had no certainty of ultimate success, and we are of
opinion that it was not called upon to take the risk of having its
contracts disputed and its business injured, and of finding the tax
more or less nearly doubled in case it finally had to pay. In other
words, we are of opinion that the payment
Page 223 U. S. 287
was made under duress.
See Gaar, Scott & Co. v.
Shannon, decided this day,
post, p.
223 U. S. 468.
The other question is whether the defendant is liable to the
suit. The defendant collected the money, and it is alleged that he
still has it. He was notified when he received it that the
plaintiff disputed his right. If he had not right, as he had not,
to collect the money, his doing so in the name of the state cannot
protect him.
Erskine v. Van
Arsdale, 15 Wall. 75.
See Poindexter v.
Greenhow, 114 U. S. 270. It
is said that the money, as soon as collected, belonged to the
state. Very likely it would have but for the plaintiff's claim,
assuming it to remain an identified trust fund, but the plaintiff's
claim was paramount to that of the state, and even if the collector
of the tax were authorized to appropriate the specific money and to
make himself debtor for the amount, it would be inconceivable that
the state should attempt to hold him after he had been required to
repay the sum. Moreover, it would seem that the statute
contemplated the course taken by the plaintiff, and provided
against any difficulty in which the Secretary of State otherwise
might find himself in case of a disputed tax. For it provides by ยง
6 that, "if it shall be determined in any action at law or in
equity that any corporation has erroneously paid said tax to the
Secretary of State," upon the filing of a certified copy of the
judgment, the auditor may draw a warrant for the refunding of the
tax, and the state treasurer may pay it. We must presume that a
judgment in the present action would satisfy the law.
Judgment reversed.