Gaar, Scott & Co. v. Shannon, 223 U.S. 468 (1912)

Gaar, Scott & Co. v. Shannon

No. 88

Argued December 11, 1911
Decided February 19, 1912
223 U.S. 468

ERROR TO THE COURT OF CIVIL APPEALS FOR THE THIRD

SUPREME JUDICIAL DISTRICT OF THE STATE OF TEXAS

Syllabus

Where the judgment of the state court rests on a matter of general law strong enough to sustain the judgment, this Court cannot consider the federal question involved; even if it were actually considered by the state court and determined adversely to plaintiff in error. Hale v. Akers, 152 U.S. 554.

Where a federal question was properly presented and necessarily controls the determination of the case, this Court has jurisdiction even if the decision is put by the state court upon some matter of local law. West Chicago R. Co. v. Chicago, 201 U.S. 506.

Neither a statute imposing a tax, execution thereunder, nor mere demand for payment, constitutes duress; but where the statute contains self-operating provisions by which nonpayment of the tax results in severe penalties and forfeiture of right to do business, payment by one within the class affected is not voluntary, but compulsory.

While a payment of the tax by one included in the class to which a statute applies in order to avoid penalties and forfeiture is compulsory, it is not so as to one not included in such class, and payment thereof by such person is voluntary, and not under duress.

Where the state court decides that a corporation which claims that it only does an interstate business but paid a state tax levied only upon corporations doing an intrastate business made the payment not under duress, and the record shows that the question was fairly in the case, the judgment rests upon a ground of general law broad enough to sustain it.

52 Tex.Civ.App. 644 affirmed.

In this suit against Shannon, Secretary of State for Texas, for the recovery of taxes paid under protest, the plaintiff, Gaar, Scott & Company, alleged that it is a corporation chartered by the laws of Indiana, in which state it has its principal place of business, and where it manufactures machinery; that in 1901 it paid the amount of franchise tax required of foreign corporations, and obtained from the State of Texas a permit to do business for ten years. This permit, it alleges, was a contract which could not be impaired, but, notwithstanding that fact, the legislature, in 1905, passed an act requiring foreign companies doing business in Texas to pay a still higher franchise tax, measured by their capital and surplus, and provided that, if the same was not paid by May 1st, a penalty of twenty-five percent should be added, and if not paid by July 1st, the permit to do business in the state should be forfeited "without judicial ascertainment," and the company deprived of the right to sue in the courts. It alleged that the Secretary of State had mailed to the company a circular calling attention to the provisions of the act, and thereupon, and before May 1, 1905, and again before May 1, 1906, under the duress of this statute, the company had paid the tax demanded, under protest, and with written notice that it reserved the right to sue for the recovery of the amount exacted by an unconstitutional law.

The petition alleges that plaintiff

only transacts an interstate business in the State of Texas in the sale of its manufactured products. That it employs at Dallas and Houston, Texas, agents who solicit and superintend the soliciting of orders for the goods manufactured by it at Richmond, Indiana, and that this applies to all goods sold by your petitioner in the State of Texas, and your petitioner further alleges that it was, at the time this permit was granted to do business in the State of Texas, and that it now is, and has been ever since said permit was granted to it, engaged in an interstate commerce business.

The only prayer was for the recovery of the taxes paid for the years 1905 and 1906. The defendant’s general demurrer was sustained.

52 Tex.Civ.App. 634.