No. 89 argued October 21, 22, 1907
Decided November 18, 1907. [207 U.S. 127, 128] Messrs. T. M. Cunningham, Jr., Henry C. Cunningham, A. R. Lawton, and Alexander C. King, for plaintiff in error in No. 85.
Mr. John C. Hart for defendants in error in No. 85.
Messrs. Joseph R. Lamar, Joseph B. Cumming, and Alex. C. King for plaintiff in error in No. 89.
[207 U.S. 127, 130] Messrs. Boykin Wright and John C. Hart for defendants in error in No. 89.
Mr. Justice Day delivered the opinion of the court:
These cases are writs of error to the supreme court of the state of Georgia, in suits brought to enjoin the collection of certain taxes. In the view we take of them they may be considered together.
Actions were begun by the plaintiffs in error, in the superior court of Fulton county, to enjoin the enforcement of executions in the hands of the sheriff, issued for taxes assessed by the comptroller general on shares of the corporate stock of the Western Railway of Alabama, an Alabama corporation, which stock was alleged to be held and owned by the plaintiffs in error.
The superior court refused to award an injunction.
Upon writs of error the supreme court affirmed the judgments of the court below. 124 Ga. 596, 630, 53 S. E. 251, 207. The cases were remitted to the superior court of Fulton county and that court rendered final decrees in favor of the defendants below, holding the tax executions to be lawful. The cases were again taken to the supreme court of Georgia and there affirmed. 125 Ga. 589, 617, 54 S. E. 52, 64.
The question of the taxability of these shares was a matter of litigation in the Federal courts of the Georgia district, and it was held such shares were not taxable. 116 Fed. 669, [207 U.S. 127, 132] Affirmed in the court of appeals, 54 C. C. A. 672, 117 Fed. 1007. The latter case was reversed and the stock held taxable in the case of Wright v. Louisville & N. R. Co. decided by this court at the October term, 1904. 195 U.S. 219 , 49 L. ed. 167, 25 Sup. Ct. Rep. 16.
Thereupon says the supreme court of Georgia:
The first and perhaps principal question argued in the case arises upon the contention of the plaintiffs in error that the method of assessment provided for the taxation of property in such cases as the present, as laid down in the statutes of the state of Georgia, as construed by the supreme court of the state, do not afford the taxpayer due process of law. The pertinent sections of the Political Code of Georgia are copied in the margin.
Section 804. Returns to Comptroller, How Made. The returns of all companies or persons required to be made to the comptroller general must be in writing and sworn to by the presiding officer, etc.
Section 805. Ruturns and Taxes, etc. The returns of all railroad and insurance and express companies, and agents of foreign companies, authorized in this state, shall be made to the comptroller general by the first day of May in each year, and the taxes thereof paid to the state treasurer by the first day of October, and not later than December twentieth of each year.
Section 812. Returns to Comptroller Must be Itemized. Whenever corporations, companies, persons, agencies, or institutions are required by law to make returns of property, or gross receipts, or business, or income, gross, annual, net, or any other kind, or any other return, to the comptroller general, for taxation, such return shall contain an itemized statement of property, each class or species to be separately named and valued, or an itemized account of gross receipts, or business, or income, as above defined, or othermatters required to be returned, and in case of net income only, an itemized account of gross receipts and expenditures, to show how the income returned is ascertained, and such returns shall be carefully scrutinized by the comptroller general, and if, in his judgment, the property embraced therein is returned below its value, he shall assess the value, within sixty day thereafter, from any information he can obtain, and if he shall find a return of gross receipts, or business, or income, as above defined, or other [207 U.S. 127, 134] Of the system of taxation thus provided the supreme court of Georgia, in a summary of its provisions, says:
In view of this statute as thus construed the question made is whether due process of law is afforded where a taxpayer, without fraudulent intent and upon reasonable grounds, withholds property from tax returns with an honest belief that it is not taxable, and the assessing officer proceeds to assess the omitted property without opportunity to the taxpayer to be heard upon the validity of the tax or the amount of the assessment, either in the tax proceedings or afterward upon a suit to collect taxes, or by independent suit to enjoin their collection.
Considerable discussion was had in the oral argument of the case concerning the effect of the rulings of the supreme court of Georgia in construing the sections of the Political Code governing this subject.
A perusal of the opinions delivered in these cases leaves no doubt in our minds that the supreme court of Georgia has held the taxing scheme of the state of Georgia, as laid down in its statutes, to be that, while it provides for a method of valuation in case of the return of property for taxtion, it does not in- [207 U.S. 127, 137] tend to give to the taxpayer who fails to return property legally liable to be assessed any opportunity to be heard as to the value of the property or the amount of the assessment. But the failure to return places it within the power and duty of the collector to make an assessment final and conclusive upon the taxpayer without hearing, for, in its latest utterance upon the subject (124 Ga. 617), that learned court said:
It would be impossible to reconcile the different holdings in the state courts upon this subject. One class holds that upon the assessment of omitted property the taxpayer has no right [207 U.S. 127, 138] to be heard, having by his failure to return submitted himself to 'the doom of the assessor.' Another class holds that in such cases there must be an opportunity to be heard before the taxpayer can be thus assessed, and that to deny him such right as a penalty for failure to return is a denial of due process of law secured to the taxpayer by many state Constitutions as well as the 14th Amendment of the Constitution of the United States.
Of course, this court, as the ultimate arbiter of rights secured by the Federal Constitution, is charged with the duty of determining this question for itself.
Former adjudications in this court have settled the law to be that the assessment of a tax is action judicial in its nature, requiring for the legal exertion of the power such opportunity to appear and be heard as the circumstances of the case require. Davidson v. New Orleans, 96 U.S. 97 , 24 L. ed. 616; Weyerhaueser v. Minnesota, 176 U.S. 550 , 44 L. ed. 583, 20 Sup. Ct. Rep. 485; Hagar v. Reclamation Dist. No. 108, 111 U.S. 701 , 28 L. ed. 569, 4 Sup. Ct. Rep. 663.
In the late case of Security Trust & S. V. Co. v. Lexington, 203 U.S. 323 , 51 L. ed. 204, 27 Sup. Ct. Rep. 87, decided at the last term of this court, the subject underwent consideration, and it was there held that, before an assessment of taxes could be made upon omitted property, notice to the taxpayer, with an opportunity to be heard, was essential, and that somewhere during the process of the assessment the taxpayer must have an opportunity to be heard, and that this notice must be provided as an essential part of the statutory provision, and not awarded as a mere matter of favor or grace. In that case it was further held that where the procedure in the state court gave the taxpayer an opportunity to be heard upon the value of his property and extent of the tax in a proceeding to enjoin its collection the requirement of due process of law was satisfied.
Applying the principles thus settled to the statutory law of Georgia, as construed by its highest court, does the system provide due process of law for the taxpayer in contesting the validity of taxes assessed under its requirements?
Under the scheme provided for, if the property is withheld [207 U.S. 127, 139] from return, the comptroller, without notice or opportunity for hearing, must proceed to value the property, and his valuation is final and conclusive, unless the taxpayer can show-a very unlikely contingency-that the taxing officer has acted in bad faith in making the assessment. Against the assessment thus made there is no relief in the courts of the state upon proceedings brought to collect the taxes or by bill to enjoin their collection. The penalty of failure to return, no matter how honest or well grounded the taxpayer may have been in his belief that the property was not subject to taxation, compels him to submit to the final and conclusive assessment made by the taxing officer.
It may be conceded that, under the provisions of 855, the duty to return property omitted in former years is a continuing one, and that, under 812 of the Political Code, upon such return the system of arbitration of value may be open to the taxpayer; but if for good reason, the taxpayer contests the taxability of his property, and does not return it, the door of opportunity is closed upon him.
As in the present case, courts may differ as to the taxable character of the property, but the taxpayer must concede its taxability, or be forever concluded by a determination of its value judicial in its nature ( Hagar v. Reclamation Dist. No. 108, 111 U.S. 701 , 28 L. ed. 569, 572, 4 Sup. Ct. Rep. 663), in a proceeding where he has no legal right to a hearing.
But it is contended that plaintiffs in error had an opportunity to be heard, and were in fact heard, upon the question of the value of their property upon an issue made by an amendment to the answer in the superior court, after the case went back from the supreme court, tendering an issue and asking the court to pass upon the value of the property.
Upon this subject we think the decision of the supreme court does not leave in doubt the effect of such hearing upon this issue. For it is said ( 125 Ga. 605):
And further, in the same opinion (125 Ga. 616):
The record discloses that for many years this class of property was not regarded as taxable in Georgia, and was not returned for taxation in the state. But it is contended that the taxpayer here stands in the attitude of one acting contumaciously, and denying the validity of the tax after this court had practically decided its validity against the plaintiffs in error in Wright v. Louisville & N. R. Co. 195 U.S. 219 , 49 L. ed. 167, 25 Sup. Ct. Rep. 16. But, as we have seen, the supreme court of Georgia has expressly eliminated the element of bad faith in the taxpayer from the findings upon which its decision rests. The Wright Case was held not to have concluded the contention that plaintiffs were denied the equal protection of the laws, in that no other person or corporation in Georgia was assessed upon stock in a foreign corporation, nor the validity of the claim that the stock was not held in Georgia, nor other grounds alleged in the petitions, except so far as the Georgia railroad was concerned for the year 1900. 124 Ga. 607, 53 S. E. 251. We must decide the case in view of its relations to a taxpayer not fraudulently concealing his property, and honestly contending, with reasonable grounds for the contention, that it is not taxable under the laws of the state.
As we have seen, the system provided in Georgia by the statutes of the state as construed by its highest court requires of the taxpayer that he return all his property, whether its liability is fairly contestable or not, upon pain of an ex parte valuation, against which there is no relief in the tax proceedings or in the courts, except in those cases where fraud or corruption can be shown in the action of the assessing officer.
Reluctant as we are to interfere with the enforcement of [207 U.S. 127, 142] the tax laws of a state, we are constrained to the conclusion that this system does not afford that due process of law which adjudges upon notice and opportunity to be heard, which it was the intention of the 14th Amendment to protect against impairment by state action.
The judgments of the Supreme Court of Georgia are reversed and the cases remanded for further proceedings not inconsistent with this opinion.
Section 813. When No Return, Comptroller to Assess. In cases of failure to make return the comptroller general shall make an assessment from the best information he can procure, which assessment shall be conclusive upon said corporations, companies, persons, agencies, or institutions.
Section 814. Collection of Tax, How Enforced. In all cases of default of payment of taxes upon returns or assessments, the comptroller general shall enforce collections in the manner now provided by law.
Section 847. Defaulters to be Doubly Taxed. If a person fails to make a re-
turn, in whole or in part, or fails to affix a value to his property, it is the duty of the receiver to make the valuation and assess the taxation thereon, and in all other respects to make the return for the defaulting person from the best information he can obtain, and, having done so, he shall double the tax in the last column of the digest against such defaulters, after having placed the proper market value or specific return in the proper column; and for every year's default the defaulter shall be taxed double until a return is made.
Section 855. Taxes for Former Years, How Returned and Collected. Receivers and collectors are required to receive the returns and to collect the taxes thereon for former years, when any person is in default, which taxes shall be assessed according to the law in force at the time the default occurred, and shall be so specified in the digest.
Section 874. Defaulting Corporations. If any corporations, company, person, agency, or institution, who are required to make their returns to the comptroller general, shall fail to return the taxable property, or specifics, or pay annually the taxes for which they are liable to the state treasury, the comptroller general shall issue against them an execution for the amount of taxes due, according to law, together with the costs and penalties.
Section 879. When There is No Return. When there is no return by which to assess the tax the comptroller general shall, from the best information he can procure, assess in his discretion.