1. Where the state law permits an action at law for recovery of
a tax paid under protest, the taxpayer may pursue the same remedy
in the federal court if the requisite diversity of citizenship and
amount in controversy are present. P.
291 U. S.
28.
2. Existence of a statutory remedy to test the validity of a tax
appraisal by appeal to a particular state court, in which the party
opposed to the taxpayer will be the state itself, will not affect
the equity jurisdiction of the federal court to enjoin, since such
a proceeding, even if regarded as an action at law, would be
confined to the state court and would not be cognizable by the
federal court, either originally or by removal. P.
291 U. S.
29.
3. A proceeding in a state court, on appeal from a tax
appraisal, wherein the court has jurisdiction to determine not only
the valuation, but also the validity of the tax, and which is tried
as a case between the taxpayer and the state as adversary parties,
and results in a final judgment appealable to a higher court, is to
be classified as a judicial, rather than an administrative,
proceeding. P.
291 U. S.
29.
4. To such a proceeding the principle that administrative
remedies under state laws must be exhausted before an injunction
against state officers is sought in the federal courts on
constitutional grounds does not apply. P.
291 U. S.
34.
5. A bill to enjoin the imposition and collection of a state
inheritance tax as beyond the constitutional power of the state
held not premature, although the assessment had not yet
been completed, it appearing clearly by the allegations of the bill
that the defendant state taxing officials believed the tax valid
and would proceed to impose it if not restrained. P.
291 U. S.
34.
Reversed.
Appeal from a decree of the District Court, of three judges,
dismissing a bill to enjoin the Attorney General and the Secretary
of Revenue of the Commonwealth of
Page 291 U. S. 25
Pennsylvania from imposing and collecting an inheritance tax on
personal property left by a New York decedent, which, as the
plaintiff executor averred, had no taxable situs in the
Commonwealth.
MR. JUSTICE ROBERTS delivered the opinion of the Court.
The appellant, by a bill filed in the District Court for Eastern
Pennsylvania, sought to enjoin the appellees, who are officials of
the Commonwealth of Pennsylvania, from attempting to impose and
collect an inheritance tax. Diversity of citizenship and an amount
in controversy exceeding, exclusive of interest, $3,000, were
averred. The bill sets forth that Thomas B. Clarke, a citizen and
resident of the State of New York, died there in 1931 leaving a
will under which appellant qualified as executor; that, at and
before the time of Clarke's death, there was on exhibition in
Pennsylvania a collection of paintings owned by him, of the
estimated market value at the date of his death of $714,750; that
these paintings had been loaned
Page 291 U. S. 26
to the Pennsylvania Museum and School of Industrial Art, a
nonprofit corporation, so that they might be exhibited in the
museum of that institution; that the loan was negotiated orally,
and was for an indeterminate period, but the pictures were to be
returned to Clarke at any time upon his request. The bill then
quotes he Act of Assembly of Pennsylvania [
Footnote 1] whereby a transfer inheritance tax of a
specified percentage of value is laid upon transfers, by will or
the intestate laws, or property located within the Commonwealth,
from a decedent not a resident of the Commonwealth at the time of
his death; describes the procedure for the collection of the tax --
namely, that the Department of Revenue, whenever occasion may
require, shall appoint an appraiser to appraise the value of the
property, if subject to tax; appraisement shall be made after
notice to the interested parties; the appraiser shall report his
valuation in writing to the Department of Revenue; whereupon that
department is required to give notice to all interested parties,
and any person not satisfied with the appraisement may appeal to
the Court of Common Pleas of Dauphin County, which may determine
all questions of valuation and the liability of the appraised
estate for the tax. The bill recites the appointment of an
appraiser who duly notified the appellant of the proposed date of
his appraisement; the making of a return, under protest, pursuant
to instructions of the appellee Schnader, enumerating as property
within the Commonwealth at the decedent's death the seventy-nine
portraits in question, and denying taxable situs or taxability of
the property in Pennsylvania; a hearing by the appraiser, who
referred the question of taxability to the Department of Justice,
of which the appellee Schnader is the head, and, pending a decision
by him, postponed the appraisement indefinitely, and repeated
Page 291 U. S. 27
requests for an immediate determination of tax liability in
response to which the appellee Schnader orally advised the
appellant its claim of nontaxability in Pennsylvania would be
denied. The bill charges that, if the statute be construed to
impose an inheritance tax upon the paintings merely because they
were temporarily within the Commonwealth at the time of the
decedent's death, it is unconstitutional as depriving the appellant
of property without due process and denying equal protection of the
laws, in contravention of the Fourteenth Amendment, and, if the
statute be construed as not applying to the property, the
threatened appraisal, assessment, and collection by the defendants
will unconstitutionally deprive the appellant of property without
due process and deny it equal protection. It further charges that
the threat of appraisement, assessment, and collection, and the
unlawful failure and refusal of the appellee Metzger to issue a
waiver of taxes on behalf of the Commonwealth have caused and are
causing irreparable injury by interfering with the administration
of the estate in the Surrogate's Court of New York, preventing
distribution, compelling the executor to maintain large cash
reserves at a low rate of interest to cover a possible Pennsylvania
tax and costs of litigation, and also that the threatened tax
constitutes a possible lien and a cloud upon the title of the
plaintiff, interfering with the sale of the paintings as directed
by the will. The bill avers the absence of any adequate remedy at
law.
A temporary injunction was issued, an answer was filed admitting
the facts stated, and a statutory court of three judges was
convened and heard the case on the pleadings and an agreed
statement which is immaterial to the questions presented.
The answer asserted, and the court found, that the appellant had
an adequate remedy at law, as it could appeal from the
appraisement, when made, to the Dauphin
Page 291 U. S. 28
County Court, which has jurisdiction to pass on both the amount
of the tax and the legality of its imposition. The bill was
therefore dismissed for want of equity.
1. It is conceded that neither the statutes of Pennsylvania nor
the decisions of its courts permit an action at law for the
recovery of a tax paid under protest. If that procedure were
permissible in the state courts, the appellant could pursue the
same remedy in a federal court, there being the requisite diversity
of citizenship and amount in controversy.
Matthews v.
Rodgers, 284 U. S. 521.
Under the state law, the only remedy afforded one who has paid a
tax is an application for refund to the Board of Finance and
Revenue, an administrative body, but the action upon the claim is
final, and no court may review or set aside the board's decision.
[
Footnote 2] The District
Court, however, was of opinion that the taxpayer's right of appeal
from the appraisal to the Court of Common Pleas of Dauphin county
constituted such a remedy at law as ousted the jurisdiction of a
federal court of equity. The Act of Assembly [
Footnote 3] requires the appointment of an
appraiser whose duty is to report his appraisement in writing to
the Department of Revenue, which must then give immediate notice to
all parties interested, and continues:
"Any person not satisfied with the appraisement . . . may appeal
within thirty days to the Court of Common Pleas of Dauphin County,
on paying or giving security to pay all costs together with
whatever tax shall be fixed by the court. Upon such appeal, the
court may determine all questions of valuation and the liability of
the appraised estate for such tax, subject to the right of appeal
to the Supreme or Superior Court. "
Page 291 U. S. 29
The appeal must be entered in a state court specifically
designated by the statute, and is thus not an ordinary action at
law, but a statutory proceeding. The Commonwealth has conditioned
the right to implead it, upon resort to a forum of its choice. The
taxpayer cannot, therefore, though a nonresident, appeal from the
appraisement to a federal court. Moreover, in such cases, upon the
perfecting of an appeal, the Commonwealth becomes the adverse party
to the litigation in the Common Pleas Court (
Commonwealth v.
Taylor, 29A Dauph.Co.Rep'r 102;
Commonwealth v.
Taylor, 32 Dauph.Co.Rep'r 207), and this fact would prevent
removal of the case from the Dauphin County Court to a federal
court; Judicial Code, § 24, as amended; 28 U.S.C. § 41(1); Judicial
Code, § 28, as amended; 28 U.S.C. § 71, for the state is not a
citizen within the purview of these statutes which define the
jurisdiction of the federal courts and permit a removal to them
(
Stone v. South Carolina, 117 U.
S. 430;
Postal Telegraph Cable Co. v. Alabama,
155 U. S. 482;
Arkansas v. Kansas & Texas Coal Co., 183 U.
S. 185), nor is the controversy one arising under the
laws of the United States.
Tennessee v. Union & Planters'
Bank, 152 U. S. 454;
Chicago, R.I. & P. Ry. Co. v. Nebraska, 251 F. 279. As
the statutory remedy, if it be treated as an action at law, would
lie only in the state court and is not cognizable by the federal
courts either as an original action or by removal, its existence
cannot oust federal equity jurisdiction.
Smyth v. Ames,
169 U. S. 466,
169 U. S. 516;
Chicago, B. & Q. R. Co. v. Osborne, 265 U. S.
14,
265 U. S. 16;
Risty v. Chicago, R.I. & P. Ry. Co., 270 U.
S. 378,
270 U. S. 388;
Matthews v. Rodgers, supra, p.
284 U. S.
526.
2. Since the Dauphin County Court is empowered, upon appeal from
the action of the appraiser, to determine all questions, including
both valuation and liability for the tax, the contention is made
that its function is at
Page 291 U. S. 30
least in part administrative, and a suit for injunction may not
be entertained by a federal court prior to the decision of the
state court.
Prentis v. Atlantic Coast Line, 211 U.
S. 210;
Porter v. Investors Syndicate,
286 U. S. 461. The
statutes under consideration in those cases delegated legislative
power of regulation to an administrative body and vested a revisory
power in a court. As has repeatedly been held, the action of the
court in such a matter is legislative, rather than judicial, so
that one who has not pursued the legislative process to a
conclusion cannot turn to a court of equity for relief from a
regulatory order which is not the final word of the constituted
state authority. But other decisions make it clear that, while the
action of the appraiser in a case like the present is purely
administrative, the function of the court upon appeal is judicial
in character if, when the case is brought into the court, the
Commonwealth becomes plaintiff and the taxpayer defendant, and the
action is tried as an ordinary action, resulting in a judgment
which is final and binding on the parties, subject only to appeal
to a higher state court, as permitted by the act. This renders the
proceeding judicial, and gives it the character of a suit or action
at law.
In
Boom Co. v. Patterson, 98 U. S.
403, it appeared that the state law authorized the Boom
Company to exercise the right of eminent domain. The statutes
required an application to a court for the appointment of
commissioners to appraise the value of the land to be taken. Should
the award of the commissioners prove unsatisfactory to the company
or to the landowner, an appeal lay to the district court, where the
cause was to be entered by the clerk as a case upon the docket, the
owner of the land being designated plaintiff and the corporation
seeking condemnation defendant. The act required the court to
proceed to "hear and determine said case in the same
Page 291 U. S. 31
manner as other cases are heard and determined in said court." O
f this procedure it was said (p.
98 U. S.
406):
"The proceeding in the present case before the commissioners
appointed to appraise the land was in the nature of an inquest to
ascertain its value, and not a suit at law in the ordinary sense of
those terms. But when it was transferred to the District Court by
appeal from the award of the commissioners, it took, under the
statute of the state, the form of a suit at law, and was
thenceforth subject to its ordinary rules and incidents. The point
in issue was the compensation to be made to the owner of the land
-- in other words, the value of the property taken. No other
question was open to contestation in the District Court."
To the same effect,
see Searl v. School District No. 2,
124 U. S. 197;
Mason City & Ft. Dodge R. Co. v. Boynton, 204 U.
S. 570.
In
Delaware County v. Diebold Safe Co., 133 U.
S. 473, the question was as to a proceeding for the
collection of a claim against the county. The statute directed that
any person having a claim against a county should file it with the
county auditor, who should present it to the Board of
Commissioners, and they were required to examine the claim and
allow it in whole or in part. No court was to have original
jurisdiction of any claim against a county, but, if the claimant
felt aggrieved by the decision of the commissioners, he might
appeal to the circuit court of the county. Thereupon the auditor
was to make a transcript of the proceedings before the board and
deliver it to the clerk of the court. The appeal was to be docketed
like other cases pending in the court, heard, and tried as an
original cause. This Court said (p.
133 U. S. 486)
that, although the proceedings of the county commissioners are, in
some respects, assimilated to proceedings before a court, and the
commissioners' decision, if not appealed from, is not
Page 291 U. S. 32
subject to collateral attack, yet the proceedings are in the
nature not of a trial
inter partes, but of an allowance of
disallowance, by officers of the county, of a claim against it. The
court added that
"the trial in the circuit court of the county was 'the trial' of
the case at any time before which it might be removed into the
circuit court of the United States. . . ."
Chicot County v. Sherwood, 148 U.
S. 529, involved procedure for the collection of county
bonds. State legislation declared that a county could not be sued
or proceeded against in any court except as in the act provided.
Demands against the county were to be presented to the County Court
for allowance or rejection. From the order of that court, appeals
were allowed as provided by law. If in any such appeal the judgment
of the county court was reversed, the reversal was to be certified
by the superior court to the county court, which was required to
enter it as its own judgment. This Court said (p.
148 U. S.
532):
"If, however, the presentation of a demand against the county,
duly verified according to law, to the county court thereof,
'
for allowance or rejection,' is not the beginning of a
suit, or does not involve a trial
inter partes, it is then
only a preliminary proceeding to a suit or controversy which, by
the appeal of either side, is or may be carried to an appellate
court, before which there is an actual trial between the parties
interested. The right to maintain this revisory trial in the state
court . . . will be sufficient to maintain a like suit by original
process in a federal court where the requisite diverse citizenship
exists."
In
Smith v. Douglas County, 254 F. 244, it appeared
that a Nebraska statute imposed a tax on inheritances for the
benefit of the county of the decedent's residence at a stipulated
rate upon the appraised value of the property. The method of
levying the tax was that the county judge appointed an appraiser to
report the valuation to the
Page 291 U. S. 33
judge, who then fixed the value and the amount of tax and gave
notice to all interested parties. Anyone dissatisfied with the
judge's finding might appeal within sixty days to the County Court
upon filing bond to cover costs and the tax which might be fixed by
the court. The statute provided that county courts should have
jurisdiction "to hear and determine all questions in relation to
all taxes arising under this article." It will be noted how closely
the procedure resembles that prescribed with respect to the tax in
controversy. It was held that the proceeding was
ex parte
until it reached the county court; but thereafter became a
controversy
inter partes, and the court's action in
determining all questions in relation to the tax was not merely
administrative, but judicial.
If the Dauphin County Court were by the Act of Assembly granted
only the right to revise the valuation of the appraiser and
precluded from considering any other question, its proceedings
would be purely administrative, and the contention that the
appellant had failed to pursue to the end its administrative remedy
would be sound (
Upshur County v. Rich, 135 U.
S. 467) at all events where the valuation is a subject
of controversy.
The court below relied upon
Keokuk & Hamilton Bridge Co.
v. Salm, 258 U. S. 122,
where a bill to enjoin collection of a state tax was held to lack
equity. That case is, however, distinguished by the fact that,
before resorting to any court. the taxpayer could have appealed to
the board of review to correct the assessment of which he
complained, and the record failed to show that he had pursued the
administrative remedy so afforded him (p.
258 U. S.
125).
The Acts of Assembly of Pennsylvania direct the Department of
Revenue to collect and the Attorney General to bring suit for the
amount of the tax, if it is not paid within one year of assessment.
If, therefore, the appellant
Page 291 U. S. 34
should omit to take an appeal to the Dauphin County Common Pleas
Court, the assessment would become final and the appellant liable
to suit for the amount of the tax. [
Footnote 4] As the Commonwealth is the plaintiff in the
action, the cause could not be removed for reasons already
stated.
We are of opinion that, upon the making of the appraisement, the
administrative procedure is at an end, and the appellant can
thereafter resort to a federal court of equity to restrain further
action by the state officers if in violation of constitutional
rights.
3. The question, then, is whether the bill was prematurely
filed. In view of what has been said, the appellant's cause of
action in equity will not, strictly speaking, arise until an
appraisement is made and certified to the Department of Revenue and
notice of the fact is given appellant. However, in view of the
allegations of the bill, we are not inclined to hold the suit
premature. The bill charges that the Secretary of Revenue has
refused to issue a waiver of tax, and that the Attorney General has
notified the appellant and the state's appraiser the property is
subject to the tax, and the appellant's claim for exemption will be
denied. The Commonwealth's law officers plainly intend to perform
what they consider their duty, and will, unless restrained, cause
the assessment and imposition of the tax. The action, the legality
of which is challenged, thus appears sufficiently imminent and
certain to justify the intervention of a court of equity.
Compare Pennsylvania v. West Virginia, 262 U.
S. 553,
262 U. S. 592.
Moreover, no purpose would be served by dismissing the bill if, as
we hold, the moment the proposed assessment is made, another suit
may be instituted in the federal court.
Page 291 U. S. 35
[
Footnote 1]
Act of June 20, 1919, P.L. 521; 72 Purdon's Penna.Stats. § 2301,
as amended by Act of June 22, 1931, P.L. 690.
[
Footnote 2]
Act of April 9, 1929, P.L. 343, Art. V, § 503; 72 Purdon's
Penna.Stats. § 503.
[
Footnote 3]
Act of April 9, 1929, P.L. 343, § 1202; 72 Purdon's Penna.Stats.
§ 1202.
[
Footnote 4]
Act of April 9, 1929, P.L. 343, §§ 203(h), 1406; 72 Purdon's
Pa.Stats. §§ 203(h), 1406.