Kennecott Copper Corporation v. State Tax Commission Silver King Coalition Mines Company/Opinion of the Court

Whether Utah has submitted itself to suit in the United States District Court for the District of Utah for the recovery of taxes alleged to be wrongfully exacted by that state is the ultimate issue brought here by these writs of certiorari. Preliminarily, we must decide if the present proceeding is a suit against Utah.

Petitioners, corporations and citizens of New York and Nevada respectively, carry on mining businesses in Utah. That state imposes on those there engaged in the mining business an occupation tax equal to one per cent of the gross amount received for or the gross value of metalliferous ore sold during the preceding calendar year. The State Tax Commission administers the Act. Utah Code Annotated (1943) §§ 80-5-65 to 80-5-82, inclusive. For the purposes of this opinion, it need only be said as to the facts which give rise to this litigation, that petitioners seek recovery of that portion of their occupation taxes for 1944 which was calculated by the Tax Commission by including in the gross amount received by petitioners for their ore certain subsidies for war production paid to petitioners by the United States pursuant to an order of the Office of Price Administration, dated February 9, 1942, No. P.M. 2458. Petitioners assert that this subsidy should not be included in their occupational tax base. As the Tax Commission did include the subsidies in the base after administrative rulings which denied petitioners' claims, petitioners each paid the total tax levied, protested that portion thereof which was based upon the subsidy and brought suit in the United States District Court for the District of Utah against the State Tax Commission, and the individuals 'constituting' it as 'members,' for the recovery of the protested amount under sections of the Utah Code (1943), set out below, which petitioners claim authorize these proceedings.

The causes present identical questions. They were consolidated for trial in the District Court and separate judgments were entered for plaintiffs against the 'State Tax Commission, et al.' for the amounts claimed. 60 F.Supp. 181. Separate appeals were perfected to the Circuit Court of Appeals. The cases were there briefed, argued and decided together but with separate judgments reversing the District Court with directions to dismiss without prejudice since it was a suit against the state without its consent. State Tax Commission v. Kennecott Copper Corp., 10 Cir., 150 F.2d 905. On account of the importance of the issues, we granted certiorari to determine whether the basis of the decisions in Great Northern L. Ins. Co. v. Read, 322 U.S. 47, 64 S.Ct. 873, 88 L.Ed. 1121, and Ford Motor Co. v. Department of Treasury of Indiana, 323 U.S. 459, 65 of Treasury of Indiana, 323 U.S. 459, 65 S.Ct. 347, encompassed the circumstances of these cases. A single opinion suffices here also.

Federal jurisdiction is claimed under diversity of citizenship and because the controversy arises under the Constitution and laws of the United States. The claim is that the inclusion of the subsidy in the tax base interferes with the War Power of Congress and the Emergency Price Control Act of 1942, 50 U.S.C. §§ 901, 902(e), 50 U.S.C.A.Appendix §§ 901, 902(e), by taxing the subsidy on surplus production over fixed quotas with the result that a part of the subsidy was diverted from its sole purpose of insuring the maximum necessary production. See Revenue Act of 1942, §§ 209, 735, 56 Stat. 904-907, 26 U.S.C.A. Int.Rev. Acts.

As we conclude that these suits are suits against Utah and that Utah has not consented to be sued for these alleged wrongful tax exactions in the federal courts, we express no opinion upon the merits of the controversy.

This is a suit against the state. Utah has established an adequate procedure for the recovery of taxes illegally collected. When the state collects a tax under protost, the money is segregated and held for the determination of the taxpayers' rights with provision for any deficiency for interest or costs to be paid by the state. The Mining Occupation Tax makes the State Tax Commission the state agency for administration and collection of the Utah tax. The petitioners paid their taxes to the Commission under protest and brought these actions to recover the contested portion.

Petitioners alleged compliance with the act's requirements for reports, assessments and administrative remedies with payment under protest of the controverted sums for Utah to the 'State Tax Commission' only. The Commission, lone, is charged to have 'exacted final payment' and to have acquiesced in plaintiffs' demand in accordance with statutory requirements to show payment and protest on the Commission's books with resultant segregation of the funds collected from Utah's general funds.

As the suits were against the Commission and the members as 'constituting' such Commission, were based upon the payment to the Commission as collector for Utah and sought recovery of the fund, sequestered by section 80-11-13, together with the interest and costs therein provided for, we are satisfied these are suits against Utah. Mine Safety Appliances Co. v. Forrestal, 326 U.S. 371, 66 S.Ct. 219; Great Northern L. Ins. Co. v. Read, 322 U.S. 47, 51, 64 S.Ct. 873, 875, 88 L.Ed. 1121; Ford Motor Co. v. Department of Treasury, 323 U.S. 459, 462, 65 S.Ct. 347, 350.

Upon the question of the consent of Utah to suit against itself in the federal courts for controversies arising under the Federal Constitution, little needs to be added to our discussion in the Read and Ford cases. Those cases declare the rule that clear declaration of a state's consent to suit against itself in the federal court on fiscal claims is required. The reason underlying the rule, which is discussed at length in the Read and Ford cases, is the right of a state to reserve for its courts the primary consideration and decision of its own tax litigation because of the direct impact of such litigation upon its finances.

Petitioners point to distinctions between the present cases and those to which reference has just been made. They call attention to the history of the section authorizing recovery of taxes unlawfully collected. Section 80-11-11 was enacted in 1896 without the inclusion of the state as a possible defendant. Laws of Utah 1896, Ch. CXXIX, Sec. 180, p. 466. It was amended in 1933 when the words 'state' and 'or other taxing unit' were added. Petitioners urge that since the phrase 'in any court of competent jurisdiction' had been assumed to permit suits in the federal courts that practice should be read into the word 'state' when that entity was made subject to tax suits.

It is also urged that 'any court of competent jurisdiction' has long been construed in the federal statutes as including both state and federal courts. Our attention is directed to section 80-5-76 limiting statutory review of administrative decisions of the Mining Occupation Tax to the Supreme Court of the state while allowing suits for recovery of unlawful taxes paid under protest to 'any court of competent jurisdiction.'

For these reasons petitioners contend that the Utah statutes indicate an intention to permit suits against the state in federal courts. Furthermore, petitioners find significance in variations between the state statutes in the Read case and the Ford case on one hand and the Utah statutes on the other. Petitioners show that we place reliance in both cases on the procedural requirements of the respective statutes of Oklahoma and Indiana. We said in those cases that since state laws could not affect procedure in federal courts, it was to be inferred that only state courts were included in the states' consent to suit.

The basis for inference advanced by petitioners might logically lead to a conclusion that Utah intended to submit the interpretati n of its tax statutes to federal trial courts where the controversies arise under federal law. On the other hand, it may be cogently argued that the practice of treating the federal courts as courts of competent jurisdiction under section 80-11-11 before the addition of the state as a possible defendant resulted from the fact that consent was not necessary for suits against counties and municipalities. It could be urged that grants of jurisdiction to courts of competent jurisdiction by federal legislation for the benefit of litigants other than the United States are not persuasive as to the intent of a state to consent to suits in federal courts. We are informed that Utah employs explicit language to indicate, in other litigation, its consent to suits in federal courts. It is to be noted that the cases under consideration illustrate the disadvantage of deducing from equivocal language a state's consent to suit in the federal courts on causes of action arising under state tax statutes. The disadvantage referred to is that, if the merits were to be passed upon, the initial interpretation of the meaning and application of a state statute would have to be made by a federal court without a previous authoritative interpretation of the statute by the highest court of the state. See Spector Motor Service, Inc., v. McLaughlin, 323 U.S. 101, 103-105, 65 S.Ct. 152, 153, 154.

We conclude that the Utah statutes fall short of the clear declaration by a state of its consent to be sued in the federal courts which we think is required before federal courts should undertake adjudication of the claims of taxpayers against a state.

Affirmed.

The CHIEF JUSTICE and Mr. Justice JACKSON took no part in the consideration or decision of this case.

Mr. Justice FRANKFURTER dissenting, with whom Mr. Justice DOUGLAS and Mr. Justice BURTON concur.