Smallwood v. Gallardo

Background

Local taxpayers and at least one company brought suits in the United States District Court for Porto Rico asking the court to stop assessment or collection of taxes imposed by Puerto Rico law. The District Court dismissed those bills and the Circuit Court of Appeals affirmed the dismissals on January 7, 1927. On March 4, 1927, Congress amended the statute governing Porto Rico’s civil courts to say explicitly that no suit to restrain assessment or collection of any Puerto Rico tax may be maintained in the United States District Court for Porto Rico. The Supreme Court granted review on May 16, 1927, and limited argument to whether that new law had made the cases moot.

Reasoning

The Court asked whether the 1927 amendment barred the pending suits. It concluded the statute plainly applied to these cases, rejected an earlier appellate decision to the contrary, and explained that applying the law to ongoing suits was not an improper retroactive change. The opinion emphasized Congress’s policy of preventing island revenues from being held up by injunctions and held there is no vested right to an injunction preventing tax collection. Because the District Court lacked authority to enjoin collection, money that had been deposited in court to secure disputed taxes must be returned. The Court reversed the decrees and ordered the cases dismissed for want of jurisdiction.

Real world impact

The decision removes the option of using the federal District Court for Porto Rico to obtain injunctions against Puerto Rico tax assessments or collections. It does not validate the taxes themselves and leaves taxpayers to resist unlawful taxes by other means, not by injunction in that federal court.