Milwaukee County v. M. E. White Co.
Headline: Federal courts must recognize and may enforce another state’s tax judgment, allowing a county to sue in a different state’s federal court to collect a valid out-of-state income tax judgment.
Holding:
- Allows counties to sue in federal court to collect out-of-state tax judgments.
- Requires courts to recognize money judgments for taxes from sister states.
- Leaves open whether penal-style tax penalties must be enforced outside the taxing state.
Summary
Background
Milwaukee County, a Wisconsin county, sued an Illinois corporation, M. E. White Company, in a federal district court in Illinois to collect a $52,165.84 judgment that had been entered in Wisconsin for income taxes under Wisconsin law. The Illinois district court dismissed the case on the ground that the suit was essentially to enforce Wisconsin’s revenue laws and could not be maintained in Illinois. The question referred to this Court was whether a federal district court in Illinois should entertain a suit to enforce a valid Wisconsin judgment for more than $3,000 that was based on an income tax.
Reasoning
The Court explained that federal district courts have original jurisdiction over civil suits where the parties are from different states and the amount exceeds $3,000, and that suits to recover on a money judgment fall within that civil jurisdiction. The opinion reasoned that tax obligations are statutory, quasi-contractual liabilities enforceable in civil courts and not inherently penal. The Constitution’s command that other states give “full faith and credit” to a state’s judicial proceedings, together with the 1790 statute prescribing proof and effect of foreign judgments, requires that a judgment for taxes not be denied recognition merely because it enforces a tax law. Defenses such as lack of jurisdiction, payment, discharge, or fraud remain available to the defendant.
Real world impact
The Court answered the certified question “yes”: a federal district court with proper diversity may hear an action to enforce a valid out-of-state tax judgment and must give it the credit due to other states’ judgments. The opinion also noted the judgment included interest and a 2% delinquency item but did not decide whether truly penal obligations would be treated the same.
Dissents or concurrances
Two Justices (McReynolds and Butler) would have answered the question “no,” opposing the majority’s conclusion that the federal court must entertain and credit the tax judgment.
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