Opinion
Decided May 20, 1929.
Taxation — Motor vehicle fuels — Gasoline tax — Sections 5526 to 5540, General Code — Excess taxes erroneously paid not deductible — Pleading — Claim of overpayment not proper subject of set-off or counterclaim — Sections 11317 and 11319, General Code — Gasoline tax is upon enjoyment of privilege of using fuel — Dealers are trustees for state's benefit — Bare trustee cannot assert counterclaim for own benefit — Voluntary payment, made under mistake of law, not recoverable — State can collect, notwithstanding involuntary payment, when — "Involuntary payment" defined — Protest payment of illegal demand does not make payment involuntary, when — Taxes paid on gasoline, containing benzol, not recoverable, when.
1. Where state petitioned for recovery of excise taxes from oil company for gasoline sold and used by company for certain month, under Sections 5526 to 5540, General Code, allegations of defendant's answer, denying indebtedness on ground that it paid excess of taxes equaling amount sought to be recovered for benzol content of gasoline sold during different period, which was not taxable, and setting up claim that it was entitled to withhold amount claimed by state, held not to amount to set-off or counterclaim within terms and wording of Sections 11317 and 11319, General Code.
2. Tax provided by Sections 5526 to 5540, General Code, to be collected by adding to sale price of gasoline certain amount, is a tax upon enjoyment of privilege of using motor vehicle fuel.
3. When dealers collect gasoline tax, as provided by Sections 5526 to 5540, General Code, from consumers, they become holders of trust fund for benefit of state.
4. Mere naked trustee cannot assert a cross-demand to inure to his own benefit.
5. Voluntary payment, made under mistake of law, cannot be recovered back.
6. Tax upon gasoline, provided for by Sections 5526 to 5540, General Code, can only be collected by state, upon default in payment, by suit in court of competent jurisdiction, as regards taxpayer's defense of involuntary payment.
7. To make payment of illegal demand involuntary, it must be made to appear that it was made to release person or property from detention or to prevent seizure of either by other party having apparent authority to do so without resorting to action at law.
8. Mere fact that payment of illegal demand was made under protest does not make payment involuntary.
9. Payment of taxes by company selling gasoline with benzol content therein, under erroneous impression as to interpretation of law by attorney general, but with full knowledge of facts, held voluntary payment and not recoverable by way of allowance against excises sought to be recovered by state for sale of other gasoline, as provided by Sections 5526 to 5540, General Code, notwithstanding subsequent declaration of Supreme Court that tax on benzol content was not available to state.
ERROR: Court of Appeals for Cuyahoga county.
Mr. Gilbert Bettman, attorney general, and Mr. Oscar Brown, for plaintiff in error.
Messrs. Chamberlin, Marty Fuller, for defendant in error.
Error proceedings are prosecuted from the decision of the common pleas court, wherein a judgment was rendered in favor of defendant in error. The attorney general of the state of Ohio, at the request of the tax commission of Ohio, filed a petition in the common pleas court seeking to recover $17,316.88 in excise taxes due the state from defendant in error for gasoline sold and used by the company for the month of May, 1927, under the provisions of the gasoline tax law. Sections 5526 to 5540, inclusive, General Code.
In its answer, defendant in error admitted that there had accrued to the state of Ohio, during the month of May, 1927, gasoline taxes in the sum of $17,316.88, but it denies the indebtedness on the ground that it had paid to the state of Ohio, in excess of taxes it was legally bound to pay, the amount of $17,316.88. It specifically alleged that the taxes were erroneously paid by it for benzol content in the gasoline sold by it between July 1, 1925, to and including March, 1926; that the Supreme Court of Ohio, in the case of Caldwell v. State, 115 Ohio St. 458, 154 N.E. 792, decided December 14, 1926, held that the sale of benzol content was not taxable under the gasoline tax law, wherefor, because of excess payments made as aforesaid, the defendant sets up the claim that it is entitled to withhold said amount claimed by the state to be due from defendant in error for the month of May, 1927.
To this answer of defendant, plaintiff filed a demurrer on two grounds: First, that the defense on its face is insufficient in law; second, that the facts stated do not constitute a counterclaim or set-off. The common pleas court overruled the demurrer. Thereupon plaintiff filed its reply setting forth, first, the general denial of the allegations of defendant's answer; second, allegations as to the nature of the tax; third, allegations that the said sum of $17,316.88 was paid by the defendant to the state of Ohio voluntarily, as excise taxes, prior to the declaration by the Supreme Court that the levy upon benzol content was illegal. The evidence upon the issue was then submitted to the trial court, and judgment was entered by the court against plaintiff.
It appears from the record that, after the passage of the 2-cent gasoline tax law by the Legislature of Ohio, a dispute arose as to whether it was intended by the Legislature, when it imposed the tax upon "motor vehicle fuels," to include, not only products derived from petroleum, other than kerosene and the petroleum ingredient in compounds of petroleum with other volatile and inflammable substances used in internal combustion motors, but also benzol content, which is concededly a coal product. Dealers in benzol gas contend that their product is a compound containing from 40 to 50 per cent. of benzol, which is manufactured from coal, the remainder being gasoline; that, under the language of the act imposing the tax, the benzol ingredient was not subject to tax. The attorney general of the state, in a ruling dated June 11, 1925, held that the benzol content of gasoline was taxable under the law as a motor vehicle fuel. Because of that ruling, defendant in error paid the above-mentioned tax.
In the case of Caldwell v. State, supra, it will be noted that the state sought to recover of Caldwell Taylor the tax upon the benzol ingredient of benzol gas, and that the defendants resisted the effort of the state to collect such tax.
In the case at bar, the defendant paid the tax upon the benzol ingredient under the ruling of the attorney general of Ohio, and it now seeks to charge off its admitted indebtedness to the state for gasoline sold and used by the company during the month of May, 1927, because of the excessive payments which it erroneously made between July 1, 1925, up to and including March, 1926, under the ruling of the attorney general of the state.
In the brief of counsel for plaintiff, considerable space is devoted to the question whether the facts stated in the defendant's answer constituted in law or in equity a set-off or counterclaim. Section 11319, General Code, defines a set-off as follows: "A set-off is a cause of action existing in favor of a defendant against a plaintiff between whom a several judgment might be had in the action, and arising on contract or ascertained by the decision of a court. It can be pleaded only in an action founded on contract."
Section 11317, General Code, defines a counterclaim as follows: "A counter-claim is a cause of action existing in favor of a defendant against a plaintiff or another defendant, or both, between whom a several judgment might be had in the action, and arising out of the contract or transaction set forth in the petition as the foundation of the plaintiff's claim, or connected with the subject of the action."
If the allegations of defendant's answer are to be treated in the nature of a cross-demand, it is, to say the least, doubtful whether the above section embraces it within its terms. This cross-demand of defendant does not arise out of contract, for it has been declared in Peter v. Parkinson, 83 Ohio St. 36, 93 N.E. 197, Ann. Cas., 1912A, 751, that a tax is not a debt, fine, or judgment. A tax arises by operation of law and not by virtue of contract. Likewise it did not arise out of the transaction set forth in the petition as the foundation of the plaintiff's claim, because the excise tax sought to be recovered by the plaintiff's petition is for gasoline sold during the month of May, 1927, whereas the cross-demand of the defendant accrued between the period of July 1, 1925, and March, 1926. It will also be seen that it is not connected with the subject of the action as set forth in plaintiff's petition.
As to the argument made by the state that it is a well-recognized rule that no person can sue the state without its permission, unless the statutes specifically provide therefor, and that no such statute was ever enacted in Ohio, we do not deem the same of serious weight, for the reason that, while it may be true, under the present state of the law, that the defendant could not sue the state for excess taxes paid by it, it would be entirely competent for the defendant, were it not for other considerations, to withhold payment of an obligation to the state on the basis of the overpayment previously made. We are inclined to the opinion, however, that the allegations of defendant's answer do not amount to a set-off or counterclaim within the terms and wording of Sections 11317 and 11319, General Code.
Waiving aside technical rules of pleading, and considering the facts in the light of equitable considerations, it seems to us clear that, while the collection of the gasoline tax is made through the dealer, the fact must be recognized that the tax is in reality imposed upon the consumer. The law of the state seems to recognize that fact, as Section 5534, General Code, which deals with reimbursements of the tax when the fuel is used for any other purpose than the propulsion of motor vehicles, provides that: "Any person * * * who shall use motor vehicle fuel * * * shall be reimbursed to the extent of the amount of the tax so paid on such motor vehicle fuel * * *."
The reimbursement is made to the consumer and not to the dealer. A dealer is charged with the collection of the tax for administrative purposes only. The tax is upon the enjoyment of the privilege of using motor vehicle fuel. State, ex rel. Janes, v. Brown, Secretary of State, 112 Ohio St. 590, 148 N.E. 95.
The various gasoline dealers of Ohio adopted a system whereby the amount of the tax was added to the cost and normal profit on the gasoline, and was paid by the consumer with the understanding that the amount added to the cost and normal profit for tax was collected by the dealer for the state of Ohio.
Section 5532, General Code, provides as follows:
"Each seller shall render to all purchasers of motor vehicle fuel, * * * a bill showing the quantity and price of the motor vehicle fuel so sold. Such bill shall have printed or written thereon, in a conspicuous place, a statement that the liability to the state for the excise tax herein imposed has been assumed by the dealer, and that he or they have paid or will pay such excise tax on or before the last day of the following calendar month."
The Legislature undoubtedly had some purpose in mind when it provided that the bill rendered by the dealer to all purchasers "shall have printed or written thereon, in a conspicuous place, a statement that the liability to the state for the excise tax * * * has been assumed by the dealer * * *." When you consider this section in connection with Section 5534, General Code, which deals with the refunder of the tax to the consumer under given circumstances, it would seem clear that the Legislature intended that the consumer should be furnished with some evidence as to the amount of tax paid by him; in order to be able to present his claim for a refund if it should turn out that he was entitled to it. Should the defendant in the instant case be permitted to prevail it would, in substance, amount to this, that defendant would be allowed to profit to the extent of $17,316.88 which in reality belongs to the consumer and not to the dealer. Another consideration might be added to the above. Such of the consumers of gas who bought the defendant's product and paid the 2-cent tax on each gallon of gas so purchased, as a tax levied by the state, would be entitled to a refund if they present the bills furnished by the dealers at the time of purchase, showing the amount of tax paid. It is true that Section 5534, General Code, which deals with refunder of tax, does not embrace within its terms taxes erroneously paid under a mistake of law, but it must necessarily follow that, if such a claim is available to defendant, who is merely the instrument for the collection of the tax, it would surely be available to the consumer who actually paid the tax.
Should the contention of defendant be upheld, the state may be subjected to double payment. First, the Canfield Oil Company would be permitted to retain the amount represented by the excessive payment made erroneously; second, the consumers who retained their bills when they purchased defendant's product would likewise be entitled to a refund.
We do not intend to decide in the instant case that the consumers of defendant's benzol gas product who have retained their bills furnished them at the time of purchase, between July 1, 1925, and March, 1926, would be entitled to a refund from the state. All that we seek to point out is that, if the dealer's claim is maintained, surely the state would have to recognize the claim of the consumer, who in point of fact actually paid the tax.
Stripping the matter of technical considerations and getting at the essentials, it would seem that the dealers, when they collected the 2 cents per gallon from the consumer, became holders of trust funds for the benefit of the state. A mere naked trustee cannot assert a cross-demand to inure to his own benefit. The defendant would be unjustly enriched should its claim be allowed to prevail.
Waiving aside the points heretofore made, and assuming that the dealer and not the consumer has paid the excessive tax, and that the same is a proper subject for either legal or equitable set-off, we are led to a most serious question, which is decisive of this case. It is well settled that voluntary payment made under a mistake of law cannot be recovered back. Was the payment of the tax on benzol content voluntary? Counsel for defendant insist that it was an involuntary payment, citing Swan's Treatise (25th Ed.), 682.
"So, also, money will be deemed to be paid involuntarily, and may be recovered back, where the position or interests of the party paying it were such as to require from another the performance of a duty enjoined by law, and the party paying it was illegally compelled to pay the money to induce the other to perform such duty for him. Thus, if A is engaged in a business requiring a license, and the officer authorized to grant such license will not do so without the payment of an illegal amount, A may recover back the illegal exaction."
Counsel for the defendant seem to argue that the payment was involuntary, because, had defendant refused payment after the ruling by the attorney general of the state, it would have been impossible for it to continue in business. A reading of the record does not justify that statement. It is quite clear that the tax upon gasoline can only be collected by the state of Ohio, upon default of payment, by suit in a court of competent jurisdiction. It is true that the Code imposes a penalty of 15 per cent. upon delinquent payments, but the same was designed merely to accelerate prompt payment. The defendant had other means of protecting its business than by payment. It could have refused to pay, and, in a suit by the state to collect, could have successfully resisted such payment.
As to what constitutes a voluntary or involuntary payment, there is ample law in the state of Ohio and other states covering the subject. Mays v. City of Cincinnati, 1 Ohio St. 268, holds: "To make the payment of an illegal demand involuntary, it must be made to appear that it was made to release the person or property of the party from detention, or to prevent a seizure of either by the other party having apparent authority to do so without resorting to an action at law."
The mere fact that it was made under protest does not make the payment involuntary. City of Muscatine v. Keokuk Packet Co., 45 Iowa 185, holds that a payment made under protest cannot be recovered back unless there was power to enforce payment in some other way than by suit at law.
Whitbeck, Treas., v. Minch, 48 Ohio St. 210, 31 N.E. 743, holds that a mere protest when payment was not made, to save arrest or the seizure or sale of goods, or in submission to process, that might immediately have been enforced, would not relieve the payment of its presumed voluntary character.
Baker v. Cincinnati, 11 Ohio St. 534, holds that the general sense of authorities indicates that, when it is sought to recover back a payment as having been made under compulsion, it should be made to appear that the payment was made to release the person or property from the power of the officer.
Cooley on Taxation (4th Ed.), Section 1283, states the law as follows: "All payments are supposed to be voluntary until the contrary is made to appear. Nor is the mere fact that a tax is paid unwillingly, or without complaint, of any legal importance, but there must be in the case some degree of compulsion, to which the tax payer submits at the time but with notification of some equivalent to reservation of rights."
Also, on page 2569, it is said: "A payment is voluntary where the tax could be collected only by suit in which the defense to the tax could be interposed. This is the general rule although there is some authority more or less to the contrary."
In Board of Commrs. of Dickinson County v. Nat. Land Co., 23 Kan. 196, the state Supreme Court sustained a tax, and the party assessed paid it and took a state certificate. The United States Supreme Court afterwards declared the state tax void, and, notwithstanding such decision, the state Supreme Court declared the payment to have been made voluntarily. See, also, Wilson v. Pelton, 40 Ohio St. 306, and City of Marietta v. Slocomb, 6 Ohio St. 471.
The record fails to disclose any circumstances which would indicate that the payment was made by defendant in order to release any person or persons connected with it or its property from detention, or to prevent a seizure of either by the state. The only method permitted by law for the collection of the tax is for the state to institute suit in a court of competent jurisdiction. The defendant could have refused such payment, and, in case of suit, could have successfully defeated the efforts of the state. Instead, it chose to rely upon the opinion of the attorney general of the state, and made its successive payments under an erroneous impression as to the interpretation of the law.
We hold that the payment of taxes made under mistake of law, but with full knowledge of the facts, was a voluntary payment, and cannot be recovered, notwithstanding the subsequent declaration by the Supreme Court that the tax on benzol content was not available to the state.
Upon the above consideration, we hold that the common pleas court committed error in overruling the demurrer of plaintiff to the defendant's answer, and that it also committed error in rendering final judgment for the defendant.
The judgment of the common pleas court will therefore be reversed, and judgment will be entered in favor of the state of Ohio.
Judgment reversed and judgment for plaintiff in error.
VICKERY, P.J., and SULLIVAN, J., concur.