Respondent, which is in the business of providing fishing
trawlers to commercial fishermen, sued in a Federal District Court
to enjoin the collection of social security and unemployment taxes
claimed by petitioner to be past due. Although petitioner adduced
evidence in support of his claim that there was an employment
relationship, the District Court found that such taxes were not, in
fact, payable and that their collection would destroy respondent's
business; and it permanently enjoined their collection.
Held: the suit for injunction was barred by § 7421(a)
of the Internal Revenue Code of 1954, and a judgment sustaining the
injunction is reversed.
Miller v. Standard Nut Margarine
Co., 284 U. S. 498,
distinguished. Pp.
370 U. S. 1-8.
291 F.2d 402, reversed.
Page 370 U. S. 2
MR. CHIEF JUSTICE WARREN delivered the opinion of the Court.
Fearing that the District Director of Internal Revenue for
Mississippi would attempt to collect allegedly past due social
security and unemployment taxes for the years 1953, 1954 and 1955,
respondent, in late 1957, brought suit in the District Court,
maintaining that it was not liable for the exactions and seeking an
injunction prohibiting their collection. The District Director,
petitioner herein, made no objection to the issuance of a
preliminary restraining order, but resisted a permanent injunction,
asserting that the provisions of § 7421(a) of the Internal Revenue
Code of 1954 barred any such injunctive proceeding. That section
provides:
"Except as provided in sections 6212(a) and (c), and 6213(a), no
suit for the purpose of restraining the assessment or collection of
any tax shall be maintained in any court."
The exception for Tax Court proceedings created by §§ 6212(a)
and (c) and 6213(a) was not applicable, because that body is
without jurisdiction over taxes of the sort here in issue.
Nevertheless, on July 14, 1959, the court, relying upon
Miller
v. Standard Nut Margarine Co., 284 U.
S. 498, permanently enjoined collection of the taxes on
the ground that they were not, in fact, payable, and because
collection would destroy respondent's business.
176 F.
Supp. 168. On June 14, 1961, the Court of Appeals for the Fifth
Circuit affirmed, one judge dissenting. 291 F.2d 402. We granted
certiorari to determine whether the case came within the scope of
this Court's holding in
Nut Margarine, which indicated
that § 7421(a) was not, in the "special and extraordinary facts and
circumstances"
Page 370 U. S. 3
of that case, [
Footnote 1]
intended to apply. [
Footnote 2]
368 U.S. 937.
Respondent corporation (hereinafter referred to as Williams) is
engaged in the business of providing trawlers to fishermen who take
shrimp, oysters, and fish off the Louisiana and Mississippi coasts.
It is the Government's position that these fishermen are the
corporation's employees within the meaning of §§ 1426(d)(2) and
1607(i) of the Internal Revenue Code of 1939, 26 U.S.C. (1952 ed.),
26 U.S.C. §§ 1426(d)(2) 1607(i), and §§ 3121(d)(2) and 3306(i) of
the Internal Revenue Code of 1954. These sections specifically
adopt the common law test for ascertaining the existence of the
employer-employee relationship. As stated in
United States v.
Silk, 331 U. S. 704,
331 U. S.
716,
"degrees of control, opportunities for profit or loss,
investment in facilities, permanency of relation and skill required
. . . are important for decision [under these statutes]."
If, under the involved circumstances of this case, the fishermen
were employees, respondent Williams is admittedly liable for social
security and unemployment taxes for the years in question.
[
Footnote 3]
The following facts, material to the question of the existence
of the employment relationship, were established. Williams provided
its boats to captains which it selected; they employed their own
crews and could fire them at will, but the relationship between
respondent corporation
Page 370 U. S. 4
and the fishermen was not ordinarily of short duration. The
catch was generally sold to Williams, which, in turn, resold it to
the DeJean Packing Co., a partnership closely allied to Williams
both by reason of integrated operation and substantially identical
ownership. The proceeds, after the deduction of expenses, were
divided among the captain, the crew, and the boat. Williams
received an additional share if it supplied the nets and rigging.
It extended credit to the captains and made it possible for them to
obtain credit elsewhere, and if a trip was unsuccessful and if the
captain or crew members no longer continued to operate a boat,
Williams absorbed the loss.
With respect to the existence of a recognized right of control
by the employer, as might be expected, the testimony was in
conflict. Petitioner introduced evidence to show that Williams
could effectively refuse ice to boats, and thus determine whether
they would go out, that the boats' times of return were sometimes
directed by the respondent corporation, that it could dictate the
nature of the catch, and that permission was needed to sell the
catch to someone other than respondent. And petitioner pointed out
that both respondent and its fishermen had, for other purposes,
represented that an employer-employee relationship existed.
[
Footnote 4] On the other hand,
the District Court here found, and the respondent now asserts, that
the corporation was wholly without any right of control.
Page 370 U. S. 5
Attempting to establish a basis for equitable jurisdiction, the
corporation maintains that it will be thrown into bankruptcy if
required to pay the entire assessment of $41,568.57. It is
undisputed that Williams itself is without available funds in this
amount, but the Government suggests that respondent has denuded
itself of assets in anticipation of its tax liability, that
DeJean's assets should be considered as belonging to respondent,
and that, in any event, the respondent corporation may pay the
assessment for a single quarter and then sue for a refund.
The object of § 7421(a) is to withdraw jurisdiction from the
state and federal courts to entertain suits seeking injunctions
prohibiting the collection of federal taxes. In
Miller v.
Standard Nut Margarine Co., supra, this Court was confronted
with the question whether a manufacturer of "Southern Nut Product"
could enjoin the collection of federal oleomargarine taxes on its
goods. Prior to the assessment in issue, three lower federal court
cases had held that similar products were nontaxable, and, by
letter, the collector had informed the manufacturer that "Southern
Nut Product" was not subject to the tax. This Court found that
"[a] valid oleomargarine tax could by no legal possibility have
been assessed against [the manufacturer], and therefore the reasons
underlying (§ 7421(a)) apply, if at all, with little force.
[
Footnote 5] "
Page 370 U. S. 6
Noting that collection of the tax "would destroy its business,
ruin it financially, and inflict loss for which it would have no
remedy at law," the Court held that an injunction could properly
issue.
Id. at
284 U. S.
510-511. The courts below seem to have found that
Nut Margarine decides that § 7421(a) does not bar suit for
an injunction against the collection of taxes not due if the legal
remedy is inadequate. We cannot agree.
The enactment of the comparable Tax Injunction Act of 1937, 50
Stat. 738, now, as amended, 28 U.S.C. § 1341, forbidding the
federal courts to entertain suits to enjoin collection of state
taxes "where a plain, speedy, and efficient remedy may be had at
law or in equity in the courts of such State," throws light on the
proper construction to be given § 7421(a). It indicates that, if
Congress had desired to make the availability of the injunctive
remedy against the collection of federal taxes not lawfully due
depend upon the adequacy of the legal remedy, it would have said so
explicitly. Its failure to do so shows that such a suit may not be
entertained merely because collection would cause an irreparable
injury, such as the ruination of the taxpayer's enterprise. This is
not to say, of course, that inadequacy of the legal remedy need not
be established if § 7421(a) is inapplicable; indeed, the contrary
rule is well established.
See, e.g., Matthews v. Rodgers,
284 U. S. 521;
Miller v. Standard Nut Margarine Co., supra; 78 U.
S. Chicago, 11 Wall. 108. However, since we
conclude that § 7421(a) bars any suit for an injunction in this
case, we need not determine whether
Page 370 U. S. 7
the taxpayer would suffer irreparable injury if collection were
effected.
The manifest purpose of § 7421(a) is to permit the United States
to assess and collect taxes alleged to be due without judicial
intervention, and to require that the legal right to the disputed
sums be determined in a suit for refund. In this manner, the United
States is assured of prompt collection of its lawful revenue.
[
Footnote 6] Nevertheless, if
it is clear that under no circumstances could the Government
ultimately prevail, the central purpose of the Act is inapplicable
and, under the
Nut Margarine case, the attempted
collection may be enjoined if equity jurisdiction otherwise exists.
In such a situation, the exaction is merely in "the guise of a
tax."
Id. at
284 U. S.
509.
We believe that the question of whether the Government has a
chance of ultimately prevailing is to be determined on the basis of
the information available to it at the time of suit. Only if it is
then apparent that, under the most liberal view of the law and the
facts, the United States cannot establish its claim, may the suit
for an injunction be maintained. Otherwise, the District Court is
without jurisdiction, and the complaint must be dismissed. To
require more than good faith on the part of the Government would
unduly interfere with a collateral
Page 370 U. S. 8
objective of the Act -- protection of the collector from
litigation pending a suit for refund. And to permit even the
maintenance of a suit in which an injunction could issue only after
the taxpayer's nonliability had been conclusively established might
"in every practical sense operate to suspend collection of the . .
. taxes until the litigation is ended."
Great Lakes Dredge
& Dock Co. v. Huffman, 319 U. S. 293,
319 U. S. 299.
Thus, in general, the Act prohibits suits for injunctions barring
the collection of federal taxes when the collecting officers have
made the assessment and claim that it is valid.
Snyder v.
Marks, 109 U. S. 189,
109 U. S. 194.
The record before us clearly reveals that the Government's claim
of liability was not without foundation. Therefore, we reverse the
judgment of the Court of Appeals and remand the case to the
District Court with directions to dismiss the complaint.
Reversed.
MR. JUSTICE FRANKFURTER took no part in the consideration or
decision of this case.
[
Footnote 1]
284 U.S. at
284 U. S. 511.
[
Footnote 2]
See also Hill v. Wallace, 259 U. S.
44,
259 U. S. 62;
Allen v. Regents, 304 U. S. 439,
304 U. S.
449.
[
Footnote 3]
See § 1410, 1939 Code, and § 3111, 1954 Code (social
security taxes); § 1600, 1939 Code, and § 3301, 1954 Code
(unemployment taxes).
Presumably the exceptions for fishing operations created by §§
1426(b)(15) and 1607(c)(17) of the 1939 Code and by § 3306(c)(17)
of the 1954 Code do not apply because the vessels here involved
were of more than 10 net tons.
[
Footnote 4]
For instance, during World War II, respondent represented that
the fishermen were employees for the purpose of securing
occupational deferments for them. And, in the course of a prior
antitrust litigation, instituted against a union to which
respondent's fishermen belonged, the union defended against the
charge of price-fixing on the ground that its members were
employees. The Government, curiously, successfully maintained that
an employment relationship did not exist.
See Gulf Coast
Shrimpers & Oystermans Assn. v. United States, 236 F.2d
658 (C.A.5th Cir. 1956).
[
Footnote 5]
Id. at
284 U. S.
510.
The product in issue was made only with vegetable oils. The
pertinent taxing statute defined "oleomargarine" as
"[A]ll substances heretofore known as oleomargarine, oleo,
oleomargarine oil, butterine, lardine, suine, and neutral; all
mixtures and compounds of oleomargarine, oleo, oleomargarine oil,
butterine, lardine, suine, and neutral; all lard extracts and
tallow extracts; and all mixtures and compounds of tallow, beef
fat, suet, lard, lard oil, vegetable oil annotto [a coloring
material], and other coloring matter, intestinal fat, and offal fat
made in imitation or semblance of butter, or when so made,
calculated or intended to be sold as butter or for butter."
24 Stat. 209. The assessment was based on the argument that the
statutory reference to "vegetable oil annotto" was meant to bring
products made with vegetable oil within the definition. The Court
held that the Act was obviously designed to include only vegetable
oil coloring used in conjunction with animal fat products; in fact,
after the tax year involved, the statute had been amended to bring
vegetable oil products within the definition.
See 46 Stat.
1022.
[
Footnote 6]
Compare S.Rep. No. 1035, 75th Cong., 1st Sess. 2,
concerning 28 U.S.C. § 1341:
"The existing practice of the Federal courts in entertaining tax
injunction suits against State officers makes it possible for
foreign corporations doing business in such States to withhold from
them and their governmental subdivisions, taxes in such vast
amounts, and for such long periods of time as to seriously disrupt
State and county finances. The pressing needs of these States for
this tax money is so great that, in many instances, they have been
compelled to compromise these suits, as a result of which
substantial portions of the tax have been lost to the States
without a judicial examination into the real merits of the
controversy."