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Attorney(S)

Hayes Hayes for plaintiff, appellants. Attorney General Seawell and Assistant Attorney General Abbott for defendant, appellee.

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Smart Summary

Summary of Opinion: Marie S. Kirkpatrick et al. v. James S. Currie, Commissioner of Revenue of North Carolina (Supreme Court of North Carolina, filed 29 April 1959)

Factual and Procedural Background

In December 1941 N. B. Smithey executed deeds conveying Wilkes County lands to his daughters Margaret S. Hayes and Mattie S. Kirkpatrick. One deed recited consideration of one dollar "and other consideration," the other recited $100 "and other valuable considerations." The deed to Mrs. Kirkpatrick was recorded in October 1951; the deed to Mrs. Hayes was recorded 8 September 1953, after Mr. Smithey's death.

Plaintiffs (co-administrators of the estate) filed Federal estate tax and North Carolina inheritance tax returns but did not include the properties described in the 1941 deeds. In July 1955 federal tax authorities imposed additional estate taxes in part on the ground that the 1941 deeds were gifts and void because not recorded within two years; each parcel was valued at $35,000. Plaintiffs paid the federal tax and sued to recover (Kirkpatrick v. Sanders, 261 F.2d 480).

Without awaiting notice of a state assessment, plaintiffs on 19 July 1955 paid additional North Carolina inheritance taxes totaling $18,353. Of that amount $13,395.66 was admittedly owing; the remaining $4,957.34 was paid by check on which plaintiffs wrote "Paid under Protest by the administrators for that the tax assessed is not a part of the estate of N. B. Smithey." The bank paid the check on 28 July 1955.

On 20 February 1957 plaintiffs' counsel sent a letter to the Commissioner of Revenue making "formal demand for re-payment" of the protested amount. Plaintiffs then brought this action in Superior Court to recover the tax paid under protest. At the close of plaintiffs' evidence the defendant moved to nonsuit; the trial court allowed the motion. Plaintiffs excepted and appealed.

Legal Issues Presented

Whether the statutory scheme permitting payment of a tax under protest with a right to sue for refund (subject to conditions) satisfies constitutional due process requirements (i.e., an opportunity to be heard regarding asserted tax liability).
Whether a taxpayer who pays a tax under protest must allege and prove that a demand for refund was made within thirty days after payment as a condition precedent to maintaining an action to recover the tax under G.S. 105-267.
Whether an action originating in Superior Court to recover a tax paid under protest can be maintained under G.S. 105-266.1 where the taxpayer did not first request the administrative review provided by that statute.

Arguments of the Parties

Appellants' (Plaintiffs') Arguments

Plaintiffs sought to establish that the 1941 deeds were valid conveyances based on valuable consideration and thus the protested portion of the inheritance tax was not properly part of the estate.
Plaintiffs argued that their action to recover the tax paid under protest could be maintained, and specifically contended that the case could be maintained under the provisions of G.S. 105-266.1.

Appellee's (Defendant's) Arguments

The opinion does not contain a detailed account of the appellee's legal arguments beyond the fact that the defendant moved for a nonsuit at the close of plaintiffs' evidence.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Bowie v. West Jefferson, 231 N.C. 408, 57 S.E.2d 369	Due process requires an opportunity to be heard with respect to an asserted tax liability.	Used to support the proposition that constitutional due process guarantees an opportunity to be heard regarding tax liability.
Worth v. Commissioners' (60 N.C. 617)	Judicial action in equity may be sought to enjoin the levy (where not prohibited by statute).	Cited to show that, absent statutory prohibition, judicial relief in equity is available to contest tax levies.
Huggins v. Hinson (61 N.C. 126)	An action at law may be brought to recover taxes paid under protest.	Cited as historical authority that suit at law is an available remedy to recover taxes paid under protest.
R.R. v. Lewis (99 N.C. 62)	Statute permitting payment under protest with right to sue is constitutional.	Relied on in concluding the statutory scheme (payment under protest with right to sue) comports with due process.
Mace v. Commissioners (99 N.C. 65)	Support for constitutionality of payment-under-protest remedy.	One of the authorities cited to uphold the statutory remedy as constitutional.
Henrietta Mills v. Rutherford County, 281 U.S. 121, 74 L.Ed. 737	National authority supporting constitutionality of payment-under-protest statutory remedy.	Cited as precedent supporting that the statutory payment-under-protest remedy accords due process.
R.R. v. Reidsville (109 N.C. 494)	Failure to make required demand for refund forfeits right to sue; demand is a condition precedent.	Cited to establish the rule that timely demand within the statutory period is a condition precedent to suit to recover taxes paid under protest.
Uzzle v. Vinson (111 N.C. 138)	Support for rule that failure to make the statutory demand forfeits the right to sue.	Included among authorities demonstrating the conditional nature of the right to sue.
Hatwood v. Fayetteville (121 N.C. 207)	Same: demand within statutory period is required or right to sue is forfeited.	Added to the list of cases enforcing the demand requirement as a condition precedent.
Bristol v. Moranton (125 N.C. 365)	Same principle regarding demand and forfeiture.	Cited to support the statutory demand requirement.
Teeter v. Wallace (138 N.C. 264)	Same principle regarding necessity of demand.	Included in the chain of cases enforcing the thirty-day demand rule.
Blackwell v. Gastonia (181 N.C. 378, 107 S.E. 218)	Support for requirement that demand be made within statutory period or right is forfeited.	One of the precedents relied on for the forfeiture rule.
Power Co. v. Clay County (213 N.C. 698, 197 S.E. 603)	Another case enforcing the condition-precedent demand requirement.	Included to reinforce the established rule.
Williamson v. Spivey (224 N.C. 311, 30 S.E.2d 46)	Same principle: failure to make required demand forfeits the right to sue.	Relied upon in stating that plaintiffs' failure to timely demand forfeited their right to recover.
Kirkpatrick v. Sanders, 261 F.2d 480	Federal appellate action by plaintiffs to recover federal estate tax paid.	Referenced in the factual narrative to show plaintiffs previously paid federal tax and pursued recovery in federal court.

Court's Reasoning and Analysis

The court first determined plaintiffs' right to maintain the action before assessing the sufficiency of the evidence on the merits of the deeds. It began from the constitutional premise that due process (N.C. Const. Art. I, sec. 17; U.S. Const., 14th Amend.) requires an opportunity to be heard regarding asserted tax liability (citing Bowie v. West Jefferson).

The opinion explains that constitutional protection for a taxpayer may be afforded either by administrative or judicial review. Historically, the Legislature (beginning with the 1887 enactment) prohibited injunctions to restrain tax collection except when assessed for an illegal or unlawful purpose, while authorizing payment under protest and an action to recover the paid tax if a refund was not made upon demand within thirty days. That statutory scheme has been continued in the codified statutes (including G.S. 105-267 and G.S. 105-406).

The court held that this statutory provision allowing payment under protest is constitutional and accords the taxpayer due process, citing state and federal precedents (R.R. v. Lewis; Mace v. Commissioners; Henrietta Mills v. Rutherford County).

Critically, the court characterized the right to sue to recover taxes paid under protest as a conditional right: the statutory terms are conditions precedent to bringing the action. The taxpayer must allege and prove that a demand for refund was made within thirty days after payment; failure to make such a demand forfeits the right to sue. The court supported this rule with an extended list of state cases enforcing the demand requirement (R.R. v. Reidsville; Uzzle v. Vinson; Hatwood v. Fayetteville; Bristol v. Moranton; Teeter v. Wallace; Blackwell v. Gastonia; Power Co. v. Clay County; Williamson v. Spivey).

Applying these principles to the facts, the court observed that plaintiffs paid the tax under protest on 19 July 1955 but did not make any demand for refund until February 1957. Because plaintiffs failed to make the statutory demand within thirty days, their right to recover under G.S. 105-267 was forfeited.

The court also addressed plaintiffs' argument that their action could be maintained under G.S. 105-266.1 (a statute enacted in 1957 providing for administrative review). The court explained that G.S. 105-266.1 expressly relates to proceedings begun by request for administrative review and is part of a statutory scheme that permits taxpayers to prefer administrative hearings (and appeals from the Commissioner's decision) over immediate judicial action. Because plaintiffs did not request an administrative hearing and their action originated in the Superior Court, the court held G.S. 105-266.1 did not provide a basis to maintain this Superior Court action. The 1957 amendments to the statutes did not modify the thirty-day demand requirement for taxpayers electing to proceed immediately to judicial review under G.S. 105-267.

In short, plaintiffs chose the judicial route by paying under protest and bringing suit; having failed to satisfy the statutory condition (making demand within thirty days), they were not entitled to recover and the nonsuit was proper.

Holding and Implications

Holding: The trial court's nonsuit was affirmed. Judgment of nonsuit affirmed.

Direct implications for the parties:

Plaintiffs' action to recover the $4,957.34 paid under protest was dismissed because plaintiffs did not allege or prove they made the statutory demand for refund within thirty days after payment.
The court held that G.S. 105-267's payment-under-protest remedy is constitutional and that the demand requirement is a condition precedent which, if not satisfied, forfeits the right to recover.
The court also held that G.S. 105-266.1 (the administrative-review statute) does not permit maintenance of an action in Superior Court where the taxpayer did not invoke the administrative-review process the statute contemplates.

Broader implications: The opinion applies established precedent and statutory construction rather than creating new law. It reaffirms (1) that payment under protest with a timely demand for refund is an adequate statutory means to protect a taxpayer's due process rights, and (2) that taxpayers who elect the judicial route must comply strictly with the statutory conditions (including a thirty-day demand) or forfeit the right to recover. The opinion does not purport to announce a novel precedent beyond these applications of existing statutes and cases.

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MARIE S. KIRKPATRICK, MARGARET S. HAYES, AND J. H. PEARSON, CO-ADMINISTRATORS OF ESTATE OF N. B. SMITHEY, DECEASED v. JAMES S. CURRIE, COMMISSIONER OF REVENUE OF NORTH CAROLINA.

1. Constitutional Law 23 — An opportunity to be heard as an essential of due process applies with respect to an asserted tax liability.

2. Constitutional Law 24: Taxation 38c — Statutory provision precluding injunction against the collection of a tax unless assessed for an illegal or unlawful purpose, but permitting the taxpayer to pay a tax under protest and bring action to recover the monies so paid, accords the taxpayer due process and is constitutional. G.S. 105-267, G.S. 105-406.

3. Taxation 38c — A taxpayer electing to pursue the remedy provided by G.S. 105-267 must comply with the conditions precedent set forth in the statute for the institution of an action to recover the tax, and is the taxpayer fails to allege and prove demand for refund of the monies paid within thirty days after payment nonsuit is proper, since failure to make such demand forfeits the right to institute the action.

4. Same: Taxation 38d — An action for the recovery of a tax paid under protest, originated in the Superior Court, without compliance with the conditions precedent to the institution of such action, cannot be maintained under the provisions of G.S. 105-266.1, since this statute provides an alternative remedy if the taxpayer elects to seek administrative review instead of instituting action to recover the monies paid, and relates solely to proceedings begun by request for administrative review.

On 16 December 1941 N. B. Smithley executed deeds to his daughters Margaret S. Hayes and Mattie S. Kirkpatrick conveying lands in Wilkes County. One deed recites a consideration of one dollar "and other consideration," the other, $100 "and other valuable considerations." The deed to Mrs. Hayes as recorded 8 September 1953, after the death of Mr. Smithey. The deed to Mrs. Kirkpatrick was recorded in October 1951.

Plaintiffs filed Federal Estate Tax and North Carolina inheritance Tax returns. They did not include in the returns the properties described in those deeds.

In July 1955 the Federal tax authorities imposed additional estate taxes based in part on the contention that the deeds dated in 1941 were deeds of gift and because not recorded in two years were void. (G.S. 47-26) The land described in each deed was valued at $35,000. Plaintiffs, asserting the validity of the conveyances of 1941, because based on valuable considerations, paid the Federal tax and sued to recover. Kirkpatrick v. Sanders, 261 F.2d 480.

Plaintiffs, without waiting for notice of an assessment of additional inheritance taxes, on 19 July 1955 paid to the commissioner of Revenue additional inheritance taxes in the amount of $18,353. Of the sum so paid, $13,395.66 was admittedly owing. The remainder, $4,957.34, representing the amount of tax owing if the land described in the 1941 deeds was a part of Mr. Smithey's estate, was paid by check on which was written: "Paid under Protest by the administrators for that the tax assessed is not a part of the estate of N. B. Smithey." This check was paid by drawee bank on 28 July 1955.

On 20 February 1957 counsel for plaintiffs wrote a letter to the Commissioner of Revenue and referred to the payment made under protest in July 1955. In concluding his letter he said: "We are writing this letter to make formal demand for re-payment of that amount of tax."

This action was brought to collect the amount paid under protest. At the conclusion of plaintiffs' evidence defendant moved to nonsuit. The motion was allowed and plaintiffs, having excepted, appealed.

RODMAN, J.

We must determine plaintiffs' right to maintain the action before looking at the evidence to ascertain if any was offered to show the deeds of 1941 were based on valuable consideration.

The constitutional provisions guaranteeing due process (N.C. Const. Art. I, sec. 17, U.S. Const., 14th Amend.) are mandatory and require an opportunity to be heard with respect to asserted tax liability. Bowie v. West Jefferson, 231 N.C. 408, 57 S.E.2d 369.

The taxpayer asserting nonliability may be afforded constitutional protection by either administrative or judicial review. Where not prohibited by statute, judicial action may be sought in equity to enjoin the levy, Worth v. Commissioners', 60 N.C. 617; or at law to recover taxes paid under protest, Huggins v. Hinson, 61 N.C. 126.

The Legislature in 1887, by s. 84, C. 137, provided that no court should enjoin the collection of a tax unless assessed for an illegal or unlawful purpose. This statute authorized payment of the tax under protest with the right to sue to recover the amount paid, if upon demand made within thirty days the tax was not refunded.

This statutory provision has in substance been brought forward in all subsequent codifications of our statute laws. Rev. 821 and 2855, C.S. 858 and 7979, G.S. 105-267 and 105-406.

This statute permitting payment to be made under protest with right to bring (an action to recover the monies so paid is constitutional and accords the taxpayer due process. R.R. v. Lewis, 99 N.C. 62; Mace v. Commissioners, 99 N.C. 65; Henrietta Mills v. Rutherford County, 281 U.S. 121, 74 L.Ed. 737.

The right to sue to recover is a conditional right. The terms prescribes are conditions precedent to the institution of the action. Plaintiffs must allege and prove demand for refund made within thirty days after payment. A failure to make such demand forfeits the right. R.R. v. Reidsville, 109 N.C. 494; Uzzle v. Vinson, 111 N.C. 138; Hatwood v. Fayetteville, 121 N.C. 207; Bristol v. Moranton, 125 N.C. 365; Teeter v. Wallace, 138 N.C. 264; Blackwell v. Gastonia, 181 N.C. 378, 107 S.E. 218; Power Co. v. Clay County, 213 N.C. 698, 197 S.E. 603; Williamson v. Spivey, 224 N.C. 311, 30 S.E.2d 46.

Plaintiffs elected to pay on 19 July 1955 without requiring notice and assessment, but under protest. They made no demand for refund until February 1957.

Manifestly this action cannot be maintained under G.S. 105-267, nor can it, we think, be maintained, as plaintiffs argue, under the provisions of G.S. 105-266.1. That statute, by express language, relates to proceedings begun by request for administrative review. It was enacted in 1957 and is a part of s. 10, C. 1340, S.L. 1957. It is an extension and enlargement of the policy declared by the Legislature in 1949, C. 392, S.L. 1949 (G.S. 105-241.1). This policy is predicated on the theory that an administrative hearing may be preferred by the taxpayer to an action an law to determine liability for the tax. In 1955 this idea was expanded to permit an appeal from the Commissioner's decision to a Tax Review Board. C. 1350, S.L. 1955. Proceedings so initiated may ultimately find their way to the courts. Here no hearing was requested or held. The action originated in the Superior Court.

The taxpayer was not compelled to seek administrative hearings or review. He was accorded the right provided by G.S. 105-267 to pay under protest and sue to recover if his demand for refund was not complied with.

Sec. 10, C. 1340, S.L. 1957, amending Art. 9, schedule J. of the Revenue Act (C. 105 of the general Statutes), not only added what is now G.S. 105-266.1, but amended G.S. 105-267. Significantly, it did not change the requirement that demand for refund be made in thirty days if the taxpayer intended forthwith to seek judicial review rather than a hearing by the Commissioner as permitted, by G.S. 105-266.1

Plaintiffs had a right to choose which course they would pursue. Having chosen, they are bound by the limitations fixed for that route. Not having made the demand within the time fixed by the statute, they have failed to establish a right to recover. The judgment of nonsuit is

Affirmed.

KIRKPATRICK v. CURRIE, COMR. OF REVENUE