Walden, Cecil D.

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University of Kentucky

Kentucky Law JournalVolume 39 | Issue 4 Article 121951Enforcement by State Courts of Tax Claims ofSister States--Ohio v. ArnettCecil D. WaldenUniversity of KentuckyFollow this and additional works at: https://uknowledge.uky.edu/kljPart of the Taxation-State and Local CommonsRight click to open a feedback form in a new tab to let us know how this document benefitsyou.This Note is brought to you for free and open access by the Law Journals at UKnowledge. It has been accepted for inclusion in Kentucky Law Journal byan authorized editor of UKnowledge. For more information, please contact UKnowledge@lsv.uky.edu.Recommended CitationWalden, Cecil D. (1951) "Enforcement by State Courts of Tax Claims of Sister States--Ohio v. Arnett," Kentucky Law Journal: Vol. 39 :Iss. 4 , Article 12.Available at: https://uknowledge.uky.edu/klj/vol39/iss4/12Notes on Recent CasesENFORCEMENT BY STATE COURTS OF TAX CLAIMSOF SISTER STATES- OHIO V ARNETTIn State of Ohio ex rel Duffy, Att. Gen. v. Arnett,' the Court of Appealsmade a decision contrary to the overwhelming weight of authority with regardto the enforcement by the courts of one state of the revenue laws of another state.The Ohio Attorney General sued in behalf of Ohio to recover workmen scompensation insurance premiums for protection extended to the defendantunder the Ohio Workmen s Compensation statute. Defendant, a contractorworking in Ohio but a resident of Kentucky, had applied for this coverage andhad paid some $500 of the premiums due, leaving a balance due of $4,701.76when he returned to Kentucky. His principal defense was that the claim ofOhio was one for taxes and that one state would not allow its courts to be usedto collect taxes for another state. The Court of Appeals rejected this defenseand asserted:"As we see it, whether this action is one to collect a taxdue a sister state or one to enforce a contractual obligation, it is onein which appellee, a non-resident of Ohio but temporarily doing busi-ness there, submitted himself to the laws of that state for the purposeof carrying on that business. In doing so he incurred certain obliga-tions to that state which the state is now suing to recover. It wouldbe manifestly unjust to allow hirn to escape Is obligations by leavingthe state where it was incurred and throwing around him the cloakof nonsuability in the state of his residence."aBy such holding, the court fully accepted the trend which originated in the caseof Oklahoma v. Rodgers.'The origin of the contrary established view, that the courts of the forum willnot entertain a suit to collect taxes due another jurisdiction, had its inception in adesire upon the part of English judges to make no decision likely to have an ad-verse effect upon English commerce. In the earliest case, Boucher v. Dawson.'defendant bad contracted to transport for plaintiff a quantity of gold from Portugalto England. When the gold arrived in England, defendant refused to deliver it'234 S.W 2d 722 (Ky. 1950).The court had some doubt as to whether the workmen s compensationpremiums had the status of taxes due Ohio or merely debts. If the latter, therecould be no doubt of the jurisdiction of the forum to entertain an action broughtby another state. There had been no adjudication in the Ohio courts on this point,and the Court of Appeals did not feel that it should be the first to decide thematter since, under its holding that the forum had jurisdiction to entertain anaction by a foreign state to collect taxes, recovery would be permitted regardlessof the exact status of the claim.There might be a question as to why the state of Ohio itself, rather than aprivate insurer, was debt claimant here. The answer to this is found in the OhioWorkman s Compensation law which provides for a state insurance fund to behandled by the industrial commission with a further provision that any licensespermitting private compames to indemnify employers in Ouo shall be void.1-A Orno GEiN. CODE ANN. sec. 1465-54, 101 (Page, 138).3 Supra,. note 1 at 727.'238 Mo. App. 1115, 193 S.W 2d 919 (1946).5 Hardw. 85, 95 Eng. Rep. 53 (1734).NOTES ON RECENT CASESto plaintiff and defended on the ground that Portuguese revenue laws forbade theexporting of gold from Portugal. Lord Hardwicke, in rejecting this defense, said:"But if it should be laid down, that because goods areprohibited to be exported by the laws of any foreign country fromwhence they are brought, therefore the parties should have no remedyor action here, it would cut off all benefit of such trade from thiskingdom, which would be a very bad consequence to the principaland most beneficial branches of our trade; nor does it ever seem tohave admitted."'Following this policy, Lord Mansfield, by way of dictum in two later Englishcases, laid down the broad rule that one country would never take notice of therevenue laws of another.The doctrine as applied to laws of a foreign country was first adopted in theUnited States by the New York Court of Appeals in 1806. There the New Yorkcourt refused to take notice of French revenue laws. Not until 1843 was thereany intimation that the doctrine would be extended to include sister states. It wasthen that the New Hampshire Supreme Court, bv way of dictim, made the ob-servation that it would not enforce the collection of taxes assessed under the lawsof a sister state.9The question was first squarely presented to an American court in the caseof Marland v. Turner."0 It was there said that a tax levied by a sister state wasnot enforceable because it was not contractual. From that time on the rule wasfollowed with monotonous regularity,' but not until 1929 was any attempt madeto explain it. In Moore v. Mitchell," Judge Learned Hand gave these reasons insupport of the rule; (1) to enforce the revenue laws of a sister state might con-flict with the public policy of the enforcing state; (2) the state of the forummight make a decision embarrassing to the sister state; (3) no state should under-take an inquiry which it cannot prosecute without determining whether thoselaws are consonant with its own notions of what is proper; (4) relations betweenstates are for the legislature, not the courts, to establish.Although there seems to be great merit in Judge Hand's arguments whenapplied to situations involving enforcement of penal laws, their applicability tothe ordinary tax claim is difficult to see. At the outset, it might be well to pointout that tax laws are not penal within the definition of penal laws as set forth8 Id. at 55.TPlanche v. Fletcher, 1 Doug. 251, 253, 99 Eng. Rep. 164, 165 (1779); Hol-man v. Johnson, 1 Cow P. 341, 848, 98 Eng. Rep. 1120, 1121 (1775).Ludlow v. Van Renselaer, 1 Johns 94 (N. Y. 1806)_0 See Henry v. Sargeant, 13 N. H. 321, 832 (1843).75 Misc. 9; 132 N. Y. S. 173 (Sup. Ct. 1911)."City of Detroit v. Proctor, 61 A. 2d 412 (Del. 1948); Moore v. Mitchell, 30F 2d 600 (C.C.A. 2d 1929); In re Bliss, 121 Misc. 773, 202 N. Y. S. 185 (Surr.Ct. 1923). (Although it disposed of the case on other grounds, the court com-mented that allowing collection of foreign taxes is a matter which far exceeds anyquestion of comity and would create a system whereby each state would becomethe busy collection agent of another state in gathering its taxes); Colorado v. Har-beck, 232 N. Y. 71, 133 N.E. 357 (1921) (The New York Court refused to en-force payment of a Colorado transfer tax on a New York decedenes estate on theground, among others, that to do so would conflict with the well settled principlethat the revenue laws of one state have no force in another)."30 F 2d 600 (C.C.A. 2d 1929).474 KENTUCKY LAw JOURNALby the United States Supreme Court." As to the public policy argument, it issubmitted that sound public policy dictates for, not against, the enforcement oftax laws." In so far as the possibility of a decision embarrassing thq taxingstate is concerned, there is little danger of such a result. The state has cometo the forum seeking an adjudication and thus holds itself ready to accept thedecision reached. And as to future cases, an adverse determination bv thecourt would not be binding upon the courts of the sister state.Furthermore, any possibility that the enforcing state might think the lawimproper is outweighed by other considerations. Delinquent taxpayers shouldnot be able to escape their lawful obligations merely by crossing state lines andthereby shifting the tax burden to innocent members of the public. The legisla-ture of the taxing state has passed a law it thought proper. If the law is main-festly unjust, then the peoule have recourse to the courts." Any defense availableto the defendant in the taxing state will be available in an action broughtagainst him in a sister state. If he still feels himself unjustly handled, then hemay appeal his case just as any other party to an action has a right to do.In further support of the general rule, Professor Beale has asserted that thestate of the forum may feel reluctant to assume the burden of admiamstenng anintricate tax system with which it is totally unacquainted' Although in a fewcases this argument is quite plausible, a court confronted with this problemnot only can and should, according to ordinary rules of statutory construction,turn to decisions of the courts of the taxing state in which the tax law has beeninterpreted, but is readily able to do so. These interpretations will help it toreach a proper result.17Various other suggestions have been made as to why the rule ought tobe enforced, such as: the possibility that the docket of the enforcing state maybe overcrowded; inconvemence to the defendant in being forced to defendoutside the jurisdiction where the acts giving rise to the claim took place;and the difficulty in proving facts at a place distant from their origin. Thesearguments seem to be outweighed by the benefits to be derived from the pre-vention of tax evasion. Further, cases of this sort are relatively few and thepossibility of a burden being placed upon an already crowded docket isnegligible. The defendant who is seeking to avoid paying his taxes shouldnot be heard to complain.The Supreme 'Court of the United States has not made any decisionupon the specific problem. However, in the case of Milwaukee County v.White Co., the court said, "Whether one state must enforce the revenue lawsof another remains an open question in this Court."" The court emphati-Huntington v. Attrill, 146 U.S. 657, 673 (1892), "The question whether astatute of one State, which in some respects may be called penal, is' a penal law inthe interuational sense, so that it cannot be enforced in the courts of another State,depends upon the question whether its purpose is to pumsh an offense against thepublic justice of the State, or to afford a private remedy to a person injured by thewrongful act."" GooDrPuC, CONFLICT OF LAws 164 (3 ed. 1949)."Further, under well settled principles of conflicts of laws affording an analogyhere the forum would have the privilege of demal of relief if the particular statutewere contrary to a strong policy of the forum. LEFLAR, CoNFLicrs OF LAws secs.82, 97, 193 (1938)." 3 BEALE, CONFLICTS OF LAWS 1638 (1935).SCRAWFOiRD, STATUTORY INTERPRETATIONS 408 (1940)."8296 U.S. 268, 275 (1935).NOTES ON RECENT CASEScally ruled that a tax judgment of one state is entitled to full faith and creditin other states. Although nothing in the United States Constitution re-quires states to recogmze tax claims of sister states, there is certainly noth-ing there which prevents them from doing so.In view of the apparent doubt of. the Supreme Court as to whether itshould give affirmative support to the doctrine, perhaps it could be fore-seen that its force would weaken. At any rate, in 1946, the Missouri SupremeCourt, in the case of Oklahoma v. Rodgers," flatly repudiated this doctrine. Afterdisposing of the arguments of Judge Hand already mentioned, the court wenton to say-"In our opimon, the elimination of the foregoing con-siderations, which are said to prompt courts to refuse to enforce for-eign penal laws, as reasons for excluding suits of this kand, leaves novalid justification for not permitting a suit in this state for a tax law-fully levied in another. The simplest ideas of comity would seemto compel such a result, and modem conditions demand it."'The force of the decision and reasoning of the Missouri court has inaugurateda modern trend which is having its effect elsewhere. It is important to note thatthe Restatement of Conflict of Laws formerly set out the rule: "No action canbe maintained by a foreign state to enforce its license or revenue laws, or claims-for taxes."' The 1948 Supplement has been changed to read: "The Instituteexpresses no opimon whether an action can be maintained by a foreign state ona claim for taxes."" There is further language to the effect that the Institute con-siders the same view as taken by the Kentucky court to be more desirable.'It is becoming more and more evident today that the United States is acountry made up of a umon of states whose courts should be and are called uponin certain situations to offer a means by which a sister state may come in andprotect the interests of its government. Tax evasion is more serious today thanever before. It is in the interest of every state that tax laws cannot be evadedmerely by leaving a jurisdiction. It is submitted that the Court of Appeals hastaken a progressive stel in the Arnett case by declaring that a sister state maycome i'nto Kentucky and enforce a claim ansing under the tax laws of that state.CECIL D. WALDEN'9238 Mo. App. 115, 198 S.W 2d 919 (1946).'9Id. at - 193 S.W 2d at 927.2 1 RESTATEMENT, CONFLmT OF LAws sec. 610, comment c (1934).'-As quoted in Ohio v. Arnett supra, note 1 at 725.' GOODICH, op. cit. supra note 14 at 165, esp. n. 248. Upon rehearing ofOhio v. Arnett, Ky. REv.-STAT. sec. 181.280 (1948) and 185.190 (Supp. 1950)were called to the attention of the Court. Sec. 181.280 provides: "The courtsof this state shall recognize and enforce statutes concerning taxation constitutionallyimposed by other states that extend like comity." Sec. 185.190 which was passedafter the cause of action arose, provides: "Any state of the United States of Americaor any political subdivision thereof shall have the right to sue in the courts of Ken-tucky to recover any tax which may be owing to it when the like right is accordedto the Commonwealth of Kentucky and its political subdivisions by such state.whether such right is granted by statutory authority or as a matter of comity."

Enforcement by State Courts of Tax Claims of Sister States--Ohio v. Arnett

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Enforcement by State Courts of Tax Claims of Sister States--Ohio v. Arnett

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