Source: https://supreme.justia.com/cases/federal/us/358/522/
Timestamp: 2019-04-21 03:03:21+00:00

Document:
Appellant, an Ohio corporation owning and operating department stores in Ohio and maintaining there private warehouses where it stores stocks of merchandise to be sold in its stores, challenged in the Ohio courts the validity of an ad valorem state tax on the contents of its warehouses. It claimed that it was denied the equal protection of the laws guaranteed by the Fourteenth Amendment because Ohio exempted from such taxation merchandise belonging to nonresidents "if held in a storage warehouse for storage only." The trial court sustained the tax. The State Supreme Court held that appellant lacked standing to raise this constitutional question and affirmed the judgment.
1. Appellant had standing to prosecute its constitutional claim. Pp. 358 U. S. 525-526.
2. The exemption from taxation of merchandise belonging to a nonresident when "held in a storage warehouse for storage only" did not deny to appellant, a resident of the State, the equal protection of the laws guaranteed by the Fourteenth Amendment. Wheeling Steel Corp. v. Glander, 337 U. S. 562, distinguished. Pp. 358 U. S. 526-530.
166 Ohio St. 116,140 N. E. 2d 411, affirmed.
. . . if held in a storage warehouse for storage only" denies to appellant, a resident of the State, the equal protection of the laws guaranteed by the Fourteenth Amendment of the Constitution.
The facts are stipulated. So far as pertinent, they are that appellant, Allied Stores of Ohio, Inc., an Ohio corporation, owns and operates a department store in each of four Ohio cities. It also maintains in each of those cities a private warehouse where it stores stocks of merchandise of the kinds sold in its stores. As needed, merchandise is transferred from the warehouse to the store, and when merchandise is sold by sample in the store -- usually a heavy or bulky article -- it is delivered from the warehouse directly to the customer.
"As used in Title LVII of the Revised Code:"
"(A) Personal property is 'used' within the meaning of 'used in business' . . . when stored or kept on hand as material, parts, products, or merchandise; but merchandise or agricultural products belonging to a nonresident of this state is not used in business in this state if held in a storage warehouse for storage only. . . . [Footnote 1]"
lacked standing to raise the constitutional question presented and affirmed the judgment. 166 Ohio St. 116, 140 N.E.2d 411. The case comes here on Allied's appeal.
"[w]hether a pleading sets up a sufficient right of action or defense, grounded on the Constitution or a law of the United States is necessarily a question of federal law, and where a case coming from a state court presents that question, this court must determine for itself the sufficiency of the allegations displaying the right or defense, and is not concluded by the view taken of them by the state court."
First National Bank of Guthrie Center v. Anderson, 269 U. S. 341, 269 U. S. 346; Staub v. City of Baxley, 355 U. S. 313, 355 U. S. 318.
"In our opinion, it is not necessary to consider the constitutional question raised by the taxpayer in the instant case, because, if its contention with regard to that question is sound, it necessarily leads to the conclusion that the entire proviso in subdivision (A) of Section 5701.08, which read"
"but merchandise or agricultural products belonging to a nonresident of this state is not used in business in this state if held in a storage warehouse for storage only,"
this, the court was following its prior decisions on the question. General Cigar Co. v. Peck, 159 Ohio St. 152, 111 N.E.2d 265 (1953), and B. F. Goodrich Co. v. Peck, 161 Ohio St. 202, 118 N.E.2d 525 (1954), had so held. In the latter case, the court had answered a contention that the proviso was invalid for undue preference of nonresidents by saying 'such an argument should be addressed to the General Assembly, and not to this court.' 161 Ohio St. at 210, 118 N.E.2d at 530. Those interpretations, for present purposes, became a part of the proviso. Wheeling Steel Corp. v. Glander, 337 U. S. 562, 337 U. S. 566. The proviso is the basis of appellant's claim of denial of the equal protection of the laws. With the proviso thus validly remaining in the statute, it is quite immaterial that appellant's claim necessarily would fall if it were out. It follows that appellant does have standing to prosecute its constitutional claim."
State may impose different specific taxes upon different trades and professions, and may vary the rate of excise upon various products. It is not required to resort to close distinctions or to maintain a precise, scientific uniformity with reference to composition, use or value. Bell's Gap R. Co. v. Pennsylvania, 134 U. S. 232, 134 U. S. 237; Magoun v. Illinois Trust & Savings Bank, 170 U. S. 283, 170 U. S. 293; Southwestern Oil Co. v. Texas, 217 U. S. 114, 217 U. S. 121; Brown-Forman Co. v. Kentucky, 217 U. S. 563, 217 U. S. 573; Sunday Lake Iron Co. v. Wakefield, 247 U. S. 350, 247 U. S. 353; Heisler v. Thomas Colliery Co., 260 U. S. 245, 260 U. S. 255; Oliver Iron Mining Co. v. Lord, 262 U. S. 172, 262 U. S. 179; Stebbins v. Riley, 268 U. S. 137, 268 U. S. 142; Ohio Oil Co. v. Conway, 281 U. S. 146, 281 U. S. 159; State Board of Tax Comm'rs of Indiana v. Jackson, 283 U. S. 527, 283 U. S. 537.
"To hold otherwise would be to subject the essential taxing power of the State to an intolerable supervision, hostile to the basic principles of our government and wholly beyond the protection which the general clause of the Fourteenth Amendment was intended to assure."
Ohio Oil Co. v. Conway, supra, 281 U.S. at 281 U. S. 159.
But there is a point beyond which the State cannot go without violating the Equal Protection Clause. The State must proceed upon a rational basis, and may not resort to a classification that is palpably arbitrary. The rule often has been stated to be that the classification "must rest upon some ground of difference having a fair and substantial relation to the object of the legislation." F. S. Royster Guano Co. v. Virginia, 253 U. S. 412, 253 U. S. 415; Louisville Gas & Electric Co. v. Coleman, 277 U. S. 32, 277 U. S. 37; Air-Way Electric Appliance Corp. v. Day, 266 U. S. 71, 266 U. S. 85; Schlesinger v. Wisconsin, 270 U. S. 230, 270 U. S. 240; Ohio Oil Co. v. Conway, 281 U. S. 146, 281 U. S. 160.
"If the selection or classification is neither capricious nor arbitrary, and rests upon some reasonable consideration of difference or policy, there is no denial of the equal protection of the law."
Co v. Kentucky, 217 U. S. 563, 217 U. S. 573. State Board of Tax Comm'rs of Indiana v. Jackson, 283 U. S. 527, 283 U. S. 537. That a statute may discriminate in favor of a certain class does not render it arbitrary if the discrimination is founded upon a reasonable distinction, or difference in state policy. American Sugar Refining Co. v. Louisiana, 179 U. S. 89; Stebbins v. Riley, 268 U. S. 137, 268 U. S. 142.
Coming directly to the concrete problem now before us, it has repeatedly been held and appears to be entirely settled that a statute which encourages the location within the State of needed and useful industries by exempting them, though not also others, from its taxes is not arbitrary, and does not violate the Equal Protection Clause of the Fourteenth Amendment. Bell's Gap R. Co. v. Pennsylvania, supra, 134 U.S. at 134 U. S. 237; Ohio Oil Co. v. Conway, 281 U.S. at 281 U. S. 159; Williams v. Baltimore, 289 U. S. 36; Colgate v. Harvey, 296 U. S. 404, 296 U. S. 439 (dissenting opinion). Similarly, it has long been settled that a classification, though discriminatory, is not arbitrary nor violative of the Equal Protection Clause of the Fourteenth Amendment if any state of facts reasonably can be conceived that would sustain it. Lindsley v. Natural Carbonic Gas Co., 220 U. S. 61, 220 U. S. 78; Quong Wing v. Kirkendall, 223 U. S. 59; Rast v. Van Deman & Lewis Co., 240 U. S. 342, 240 U. S. 357; State Board of Tax Comm'rs of Indiana v. Jackson, 283 U.S. at 283 U. S. 537.
been the purpose and policy of the State Legislature, in adopting the proviso, to encourage the construction or leasing and operation of warehouses in Ohio by nonresidents, with the attendant benefits to the State's economy, or to stimulate the market for merchandise and agricultural products produced in Ohio by enabling nonresidents to purchase and hold them in the State for storage only, free from taxes, in anticipation of future needs. Other similar purposes reasonably may be conceived. Therefore, we cannot say that the discrimination of the proviso which exempted only the "merchandise or agricultural products belonging to a nonresident . . . if held in a storage warehouse for storage only" was not founded upon a reasonable distinction, or difference in state policy, or that no state of facts reasonably can be conceived to sustain it. For those reasons, it cannot be said, in the light of the settled law as shown by the cases cited, that the questioned proviso was invidious or palpably arbitrary and denied appellant the equal protection of the laws within the meaning of the Fourteenth Amendment.
"the inequality [was] not because of the slightest difference in Ohio's relation to the decisive transaction, but solely because of the different residence of the owner."
337 U.S. at 337 U. S. 572. As we have shown, that is not the situation here. Here, the discrimination against residents is not invidious nor palpably arbitrary, because, as shown, it rests not upon the "different residence of the owner," but upon a state of facts that reasonably can be conceived to constitute a distinction, or difference in state policy, which the State is not prohibited from separately classifying for purposes of taxation by the Equal Protection Clause of the Fourteenth Amendment.
MR. JUSTICE STEWART took no part in the consideration or decision of this case.
"and merchandise or agricultural products shipped from outside of this state and held in this state in a warehouse or a place of storage for storage only and for shipment outside of this state are not used in business in this state."
126 Ohio Laws, p. 78.
"by taking the amount in value on hand, as nearly as possible, in each month of the next preceding year in which he has been engaged in business, adding together such amounts, and dividing the aggregate amount by the number of months that he has been in business during such year."
Title 57, Page's Ohio Rev.Code Ann.1953, § 5711.15.
The Supreme Court of Ohio has held that a foreign corporation, although authorized to do and doing a local business in Ohio, is a nonresident within the meaning of the proviso here in question. B. F. Goodrich Co. v. Peck, 161 Ohio St. 202, 204, 118 N.E.2d 525, 527.
"[was] that intangibles of nonresident owners [were] assigned a situs within the taxing reach of Ohio while those of its residents [were] assigned a situs without. [Thus], [t]he exempted intangibles of residents [were] offered up to the taxing power of other states which may embrace this doctrine of a tax situs separate from residence, [but] no other state [ever] sought to take advantage of the 'reciprocity' proffer."
Wheeling Steel Corp. v. Glander, supra, 337 U.S. at 337 U. S. 573-574.
MR. JUSTICE BRENNAN, with whom MR. JUSTICE HARLAN joins, concurring.
cannot reach that conclusion without developing the ground on which Wheeling is distinguishable.
Why is the "different residence of the owner" a constitutionally valid basis for Ohio's freeing the property of the foreign corporation from the tax in this case, and an invalid basis for its freeing the property of the domestic corporation from the tax involved in the Wheeling case?
I think that the answer lies in remembering that our Constitution is an instrument of federalism. The Constitution furnishes the structure for the operation of the States with respect to the National Government and with respect to each other. The maintenance of the principles of federalism is a foremost consideration in interpreting any of the pertinent constitutional provisions under which this Court examines state action. Because there are 49 States, and much of the Nation's commercial activity is carried on by enterprises having contacts with more States than one, a common and continuing problem of constitutional interpretation has been that of adjusting the demands of individual States to regulate and tax these enterprises in light of the multistate nature of our federation. While the most ready examples of the Court's function in this field are furnished by the innumerable cases in which the Court has examined state taxation and regulation under the Commerce and Due Process Clauses, still the Equal Protection Clause, among its other roles, operates to maintain this principle of federalism.
an ad valorem property tax, Wheeling teaches that a distinction which burdens the property of nonresidents but not like property of residents is outside the constitutional pale. But this is not because no rational ground can be conceived for a classification which discriminates against nonresidents solely because they are nonresidents: could not such a ground be found in the State's benign and beneficent desire to favor its own residents, to increase their prosperity at the expense of outlanders, to protect them from, and give them an advantage over, "foreign" competition? These bases of legislative distinction are adopted in the national policies of too many countries, including from time to time our own, to say that, absolutely considered, they are arbitrary or irrational. The proper analysis, it seems to me, is that Wheeling applied the Equal Protection Clause to give effect to its role to protect our federalism by denying Ohio the power constitutionally to discriminate in favor of its own residents against the residents of other state members of our federation. On the other hand, in the present case, Ohio's classification based on residence operates against Ohio residents, and clearly presents no state action disruptive of the federal pattern. There is, therefore, no reason to judge the state action mechanically by the same principles as state efforts to favor residents. As my Brethren's opinion makes clear, a rational basis can be found for this exercise by Ohio of the latitude permitted it to define classifications under the Equal Protection Clause. One could, in fact, be found in the concept that it is proper that those who are bound to a State by the tie of residence and accordingly the more permanently receive its benefits are proper persons to bear the primary share of its costs. Accordingly, in this context, it is proper to say that any relief forthcoming must be obtained from the State Legislature.
To the same effect as the Wheeling case are Southern R. Co. v. Greene, 216 U. S. 400, and Hanover Fire Ins. Co. v. Harding, 272 U. S. 494.
The Court distinguished ad valorem property taxes, levied on a foreign corporation permitted to do a local business, from an original entry privilege tax on a foreign corporation. 337 U.S. at 337 U. S. 571-572.
"A corporation which is allowed to come into a state and there carry on its business may claim, as an individual may claim, the protection of the Fourteenth Amendment against a subsequent application to it of state law."
Connecticut General Life Ins. Co. v. Johnson, 303 U. S. 77, 303 U. S. 79-80.
The statute in Wheeling "discriminated" against nonresidents in the same way that the present statute "discriminates" against residents. What my Brethren describe as the forbidden purpose of the distinction in Wheeling seems to me clearly to be only a rejected argument made by the State to show that there was no discrimination in fact. 337 U.S. at 337 U. S. 572-574. I see no indication in Wheeling that the Court's condemnation of the tax was based solely on its rejection of the "reciprocity" argument.

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