Arkansas Building Loan Association v. Madden/Opinion of the Court

The rule is that the collection of taxes under state authority will not be enjoined by a court of the United States on the sole ground that the tax is illegal, but it must appear that the party taxed has no adequate remedy by the ordinary processes of the law, and that there are special circumstances bringing the case within some recognized head of equity jurisdiction. Pittsburgh, C. C. & St. L. R. Co. v. ''West Virginia Bd. of Public Works'', 172 U.S. 32, 43 L. ed. 354, 19 Sup. Ct. Rep. 90; Shelton v. Platt, 139 U.S. 591, 35 L. ed. 273, 11 Sup. Ct. Rep. 646; Dows v. Chicago, 11 Wall. 108, 20 L. ed. 65.

In Dows v. Chicago, which has been frequently cited with approval, it was said by Mr. Justice Field, speaking for the court:

'The party of whom an illegal tax is collected has ordinarily ample remedy, either by action against the officer making the collection or the body to whom the tax is paid. Here such remedy existed. If the tax was illegal, the plaintiff protesting against its enforcement might have had his action, after it was paid, against the officer or the city to recover back the money, or he might have prosecuted either for his damages. No irreparable injury would have followed to him from its collection. Nor would he have been compelled to resort to a multiplicity of suits to determine his rights.'

These decisions are in harmony with the 16th section of the judiciary act of 1789, now § 723 of the Revised Statutes, which declared the rule as then, and still existing, that 'suits in equity shall not be sustained in either of the courts of the United States in any case where a plain, adequate, and complete remedy may be had at law.'

And on principle, the interference of the courts of the United States by injunction with the collection of state taxes, or with state administration of matters of internal police, can only be justified in a plain case not otherwise remediable.

The grievance complained of in this case is that the Arkansas corporation entered on the transaction of business in Texas at a time when the annual franchise or license tax was $10 and that it is now required to pay $205 by a subsequent law, which, it alleges, is unconstitutional.

The penalty denounced on failure to pay is the forfeiture of the right to do business in the state, and complainant averred that if that forfeiture were declared it would be subjected to irreparable injury and to a multiplicity of suits.

It is on these grounds of equity interposition that the aid of the circuit court was sought to restrain the discharge by a state officer of duties imposed on him by the law of the state, and to adjudicate as to the validity of that law.

But the bill of complaint did not set forth any facts tending to show that complainant could not escape the forfeiture by payment of the $205 under protest, and recover back the money so paid if the law should be held void.

We assume that the payment would, under the circumstances detailed, be compulsory and not voluntary, and no reason is perceived why the rule permitting recovery back would not apply.

That rule as applicable here is that an action will lie for money paid, under compulsion, on an illegal demand, the person making it being notified that his right to do so is contested. Elliott v. Swartwout, 10 Pet. 137, 9 L. ed. 373; Bend v. Hoyt, 13 Pet. 263, 10 L. ed. 154; Philadelphia v. The Collector, 5 Wall. 720, 731, ''sub nom. Philadelphia v. Diehl'', 18 L. ed. 614, 616; Swift Co. v. United States, 111 U.S. 22, 28 L. ed. 341. The principle is thus stated by Gaines, J., in Taylor v. Hall, 71 Tex. 213, 9 S. W. 141: 'The law is established that when a person by the compulsion of the color of legal process, or of seizure of his person or goods, pays money unlawfully demanded he may recover it back.'

The fact that the defendant is a state official is not in itself a defense, and our attention has been called to no statute of Texas which substitutes any other for the commonlaw rule.

Inasmuch as the bill contains nothing to indicate inability on the one hand to pay the franchise tax in question, or, on the other, to respond in judgment if it were found to have been illegally exacted, and sets up no special circumstances justifying the exercise of equity jurisdiction other than consequences which complainant can easily avert, without loss or injury, we are of opinion that it cannot be sustained.

It is quite possible that in cases of this sort the validity of a law may be more conveniently tested, by the party denying it, by a bill in equity than by an action at law, but considerations of that character, while they may explain, do not justify, resort to that mode of proceeding.

Decree modified to a dismissal without prejudice, and as so modified affirmed.