Source: https://supreme.justia.com/cases/federal/us/337/562/
Timestamp: 2019-04-20 11:01:51+00:00

Document:
1. The tax denied the foreign corporations the equal protection of the laws, in violation of the Fourteenth Amendment of the Federal Constitution. Pp. 337 U. S. 563-574.
(a) After a state has chosen to admit foreign corporations to do business within it, they are entitled to equal protection with domestic corporations at least to the extent that their property is entitled to an equally favorable ad valorem tax basis. Pp. 337 U. S. 571-572.
(b) The inequality to which the foreign corporations are subjected is not based on Ohio's relation to the decisive transaction, but solely on difference in residence of the owner of the accounts receivable. P. 337 U. S. 572.
2. The tax was not saved from constitutional invalidity by the "reciprocity" provisions of the statute imposing it, since the plan of reciprocity is not one which, by credits or otherwise, protects the nonresident or foreign corporation against the discriminations apparent in the Ohio statute. Pp. 337 U. S. 572-574.
An Ohio ad valorem tax on foreign corporations, challenged as violating the Federal Constitution, was sustained by the State Supreme Court. 150 Ohio St. 229, 80 N.E.2d 863. On appeals to this Court, reversed, p. 337 U. S. 574.
The Wheeling Company also paid to the West Virginia, for the year in question, ad valorem taxes on all of its receivables, including those sought to be taxed by Ohio, pursuant to this Court's decision in Wheeling Steel Corp. v. Fox, 298 U. S. 193. Neither Virginia nor New York has sought to tax the accounts receivable of National Distillers involved herein.
in Ohio a large amount of notes and accounts receivable which each appellant derived from shipments originating at Ohio manufacturing plants. The specific ground stated for assessment was that such receivables "result from the sale of property from a stock of goods maintained within this State."
". . . On a consideration of the statutory provisions above noted, the Board of Tax Appeals was of the view that, before a business situs of accounts receivable and other intangible property, for purposes of taxation, could be given to a state other than the state of the domicile of the taxpayer, it must appear that such receivables or other intangible property not only arose in the conduct of the business of the taxpayer in such other state, but were therein so used as to become an integral part of the business carried on in such other state, and that it was not sufficient that such accounts receivable and other intangible property be used in business generally by the taxpayer. And, on this view, the Board held that the accounts receivable there in question, although they arose in the conduct of taxpayer's business in the States of Indiana and Michigan, did not have a business situs in such states, and that such accounts receivable were taxable in Ohio."
Court as to the construction to be placed upon the statutory provisions here in question was later followed by that Court in its decisions in the cases of the Haverfield Company v. Evatt, Tax Comm'n, 143 Ohio St. 58, 54 N.E.2d 149, and National Cash Register Company v. Evatt, Tax Comm'n, 145 Ohio St. 597, 62 N.E.2d 327."
". . . In this situation, and applying the statutory provisions here in question as the same have been construed by the Supreme Court of this State, it follows that, since the accounts receivable of the appellant corporation involved in this case arose -- as this Board hereby find -- in the conduct of its business in the Ohio by the sale of its products from a stock of goods located in this State, and since, further, such accounts receivable or the avails thereof were used or were intended to be used by the appellant in its business, whether in this State or elsewhere, such accounts receivable have a business and taxable situs in the Ohio, as found and determined by the tax commissioner."
"With respect to a question such as that here presented, to-wit, that as to the taxation of the accounts receivable of a foreign corporation arising in the conduct of its business in this State, the application of the above noted provisions of sections 5328-1, 5328-2 and other related sections of the General Code, as the same have been construed by the Supreme Court, presents, to our mind, a serious question as to the constitutionality of said statutory provisions as so construed under the Due Process of Law clause of the Federal Constitution. . . ."
Appellants urge that the question which the Board of Tax Appeals regarded as serious should be resolved against the State on the ground that these intangibles had no situs in Ohio to sustain its power under the Due Process Clause so to tax them, and also that to do so imposes an undue burden on interstate commerce in violation of the Commerce Clause. They point out that the credits sought to be taxed here were not created in Ohio, not payable there, and neither the payor nor payee, debtor nor creditor, was resident there. Moreover, the receivables arose from a contract for sale of goods, but the contracts were not made in Ohio nor performed in Ohio, and neither buyer nor seller resided there. On the assumption that Ohio could not follow tangible goods into a foreign state and tax them, either in the hands of the vendor before delivery or in the hands of a vendee after delivery, it is argued that she has no greater power to tax intangibles substituted in a foreign state for them, and has no right to tax intangible proceeds of the sale of tangible goods that had passed beyond her taxing power.
to tax, and thus was raised the question of constitutionality regarded by the Board as serious.
However, we find it inappropriate to decide the Due Process question. The State action, which is reviewable under the Fourteenth Amendment, is the composite result of both legislation and its judicial interpretation. Ohio does not attempt, and has not asserted power, to tax all such intangibles, but only those owned by nonresidents and foreign corporations. It has given no indication that it intends to or would reach out to tax such intangibles as we have here unless it may at the same time exempt identical ones owned by its residents and domestic corporations. The contrary is indicated by § 5328-2, which makes the two inseparable. We deal with the taxing plan as an entirety as we find it in operation, and pass only on the constitutionality of that which the State has asserted power and purpose to do.
". . . since the decision of he Supreme Court of Ohio in Ransom & Randolph v. Evatt, 142 Ohio St. 398, 52 N.E.2d 738 (January 12, 1944), and in obedience thereto, it has been the policy and practice of said Department of Taxation to construe and apply sections 5328-1 and 5328-2 of the General Code of Ohio"
"(A) so as to exempt from taxation in Ohio accounts receivable of Ohio residents, including domestic corporations, which arise"
"~(1) from a sale of goods by an agent having an office in another state, even though such goods be shipped from Ohio, or"
"~(2) from a sale of goods shipped from another state, even though such goods be sold by an agent having an office in Ohio: "
"(B) so as to tax in Ohio accounts receivable of nonresidents of Ohio, including foreign corporations, which arise either"
"~(1) from a sale of goods shipped from Ohio, even though such goods be sold by an agent having an office in another state, or"
"~(2) from a sale of goods by an agent having an office in Ohio, even though such goods be shipped from another state."
"That the foregoing have been in effect as the only tests of taxability of accounts receivable in Ohio since the decision of the Supreme Court of Ohio in the case of Ransom & Randolph v. Evatt, 142 Ohio St. 398, 52 N.E.2d 738, and that said tests have been applied without deviation both by affiant and by his predecessor in office, William S. Evatt, as the result of the holding in that case."
their property is entitled to an equally favorable ad valorem tax basis. Hanover Insurance Co. v. Harding, 272 U. S. 494, 272 U. S. 510-511; Power Co. v. Saunders, 274 U. S. 490, 274 U. S. 493, 274 U. S. 497. Ohio holds this tax on intangibles to be an ad valorem property tax, Bennett v. Evatt, 145 Ohio St. 587, 62 N.E.2d 345, and in no sense a franchise, privilege, occupation or income tax.
The Ohio statutory scheme assimilates its own corporate creations to natural residents and all others to nonresidents. While this classification is a permissible basis for some different rights and liabilities, we have held, as to taxation of intangibles, that the federal right of a nonresident "is the right to equal treatment." Hillsborough v. Cromwell, 326 U. S. 620, 326 U. S. 623.
The certificate of the Tax Commissioner discloses how fundamentally discriminatory is the application of this ad valorem tax to intangibles when owned by a resident or a domestic corporation, as contrasted with its application when those are owned by a domesticated corporation or a nonresident. If, on the taxing date, one of these petitioners and an Ohio competitor each owns an account receivable of the same amount from the same out-of-state customer of the same kind of commodity, both shipped from a manufacturing plant in Ohio and both sold out of Ohio by an agent having an office out of the State, appellant's account receivable would be subject to Ohio's ad valorem tax, and the one held by the competing domestic corporation would not. It seems obvious that appellants are not accorded equal treatment, and the inequality is not because of the slightest difference in Ohio's relation to the decisive transaction, but solely because of the different resident of the owner.
The State does not seriously deny this unequal application of its own tax, but claims that reciprocity provisions of the statute reestablish equality. Those provisions therefore require scrutiny.
This entire taxing plan rests on a statutory formula for fixing situs of intangible property both within and without the State. This is provided by § 5328-2 of the Code. These intangibles "shall be considered to arise out of business transacted in a state other than that in which the owner thereof resides" under certain circumstances. (Emphasis supplied.) This basic rule separates the situs of intangibles from the residence of their owner, whereas it has traditionally been at such residence, though with some exceptions. The effect is that intangibles of nonresident owners are assigned a situs within the taxing reach of Ohio, while those of its residents are assigned a situs without. The plan may be said to be logically consistent in that, while it draws all such intangibles of nonresidents within the taxing power of Ohio, it, by the same formula, excludes those of residents. The exempted intangibles of residents are offered up to the taxing power of other states which may embrace this doctrine of a tax situs separate from residence. This is what is meant here by reciprocity, and the two provisions are declared inseparable; so that, if the formula by which Ohio takes unto itself the accounts of nonresidents is held invalid, "such decision shall be deemed also to affect such provision as applied to the property of a resident."
exports into Ohio. In the several years that the Ohio statute has been on the books, no other state has sought to take advantage of the "reciprocity" proffer. And, if it did, the equality of rates which would also be necessary to equalize the burden between nonresidents and their resident competitors could be hardly expected nor is it provided for. Far from acceding to the situs doctrine which allocates these receivables to Ohio, the State of West Virginia stands on the very different situs doctrine approved by this Court in Wheeling Steel Corp. v. Fox, 298 U. S. 193, and, under its authority, has for the year in question taxed all of the receivables of the Wheeling Company, including those Ohio seeks to claim as having situs in Ohio. It is clear that this plan of "reciprocity" is not one which, by credits or otherwise, protects the nonresident or foreign corporation against the discriminations apparent in the Ohio statute. We think these discriminations deny appellants equal protection of Ohio law.
The judgments are reversed, and the causes remanded for proceedings not inconsistent herewith.
*Together with No. 448, National Distillers Products Corp. v. Glander, Tax Commissioner of Ohio, on appeal from the same Court, argued March 30, 1949.
"SEC. 5328-1: . . . Property of the kinds and classes mentioned in section 5328-2 of the General Code, used in and arising our of business transacted in this state by, for or on behalf of a nonresident person . . . shall be subject to taxation, and all such property of persons residing in this state used in and arising out of business transacted outside of this state by, for or on behalf of such persons . . . shall not be subject to taxation. . . ."
"SEC. 5328-2: . . . Property of the kinds and classes herein mentioned, when used in business, shall be considered to arise out of business transacted in a state other than that in which the owner thereof resides in the cases and under the circumstances following:"
"In the case of accounts receivable, when resulting from the sale of property sold by an agent having an office in such other state or from a stock of goods maintained therein, or from services performed by an officer, agent or employee connected with, sent from, or reporting to any officer or at any office located in such other state."
"The provisions of this section shall be reciprocally applied, to the end that all property of the kinds and classes mentioned in this section having a business situs in this state shall be taxed herein and no property of such kinds and classes belonging to a person residing in this state and having a business situs outside of this state shall be taxed. It is hereby declared that the assignment of a business situs outside of this state to property of a person residing in this state in any case and under any circumstances mentioned in this section is inseparable from the assignment of such situs in this state to property of a person residing outside of this state in a like case and under similar circumstances. . . ."
"SEC. 5-1: . . . Moneys, deposits, investments, accounts receivable and prepaid items, and other taxable intangibles shall be considered to be 'used' when they or the avails thereof are being applied, or are intended to be applied in the conduct of the business, whether, in this state or elsewhere. . . ."
"SEC. 5638: Annual taxes are hereby levied on the kinds and classes of intangible property, hereinafter enumerated, on the classified tax list in the offices of the county auditors and duplicates thereof in the offices of the county treasurers at the following rates, to-wit:"
". . . moneys, credits and all other taxable intangibles so listed, three mills on the dollar. . . ."
"SEC. 5327: The term 'credits' as so used, means the excess of the sum of all current accounts receivable and prepaid items [used] in business when added together estimating every such account and item at its true value in money, over and above the sum of current accounts payable of business, other than taxes and assessments. . . ."
150 Ohio St. 229, 80 N.E.2d 863.
The writer of the Court's opinion deems it necessary to complete the record by pointing out why, in writing by assignment for the Court, he assumed without discussion that the protections of the Fourteenth Amendment are available to a corporation. It was not questioned by the State in this case, nor was it considered by the courts below. It has consistently been held by this Court that the Fourteenth Amendment assures corporations equal protection of the laws at least since 1886, Santa Clara Co. v. Southern Pacific R. Co., 118 U. S. 394, 118 U. S. 396, and that it entitles them to due process of law at least since 1889, Minneapolis R. Co. v. Beckwith, 129 U. S. 26, 129 U. S. 28.
It is true that this proposition was once challenged by one Justice. Connecticut General Co. v. Johnson, 303 U. S. 77, 303 U. S. 83 (dissenting opinion). But the challenge did not commend itself, even to such consistent liberals as Mr. Justice Brandeis and Mr. Justice Stone, and I had supposed it was no longer pressed. See the same Justice's separate opinion in International Shoe Co. v. Washington, 326 U. S. 310, 326 U. S. 322, making no mention of this issue.
Without pretending to a complete analysis, I find that, in at least two cases during this current term, the same question was appropriate for consideration, as here. In Railway Express v. New York, 336 U. S. 106, a corporation claimed to be deprived of both due process and equal protection of the law, and in Ott v. Mississippi Barge Line, 336 U. S. 169, a corporation claimed to be denied due process of law. At prior terms, in many cases, the question was also inherent, for corporations made similar claims under the Fourteenth Amendment. See, e.g., Illinois Central R. Co. v. Minnesota, 309 U. S. 157; Lincoln Life Insurance Co. v. Read, 325 U. S. 673; Queenside Hills Co v. Saxl, 328 U. S. 80. Although the author of the present dissent was the writer of each of the cited Court's opinions, it was not intimated therein that there was even doubt whether the corporations had standing to raise the questions or were entitled to protection of the Amendment. Instead, in each case, the author, as I have done in this case, proceeded to discuss and dispose of the corporation's contentions in their merits, a quite improper procedure, I should think, if the corporation had no standing to raise the constitutional questions. Indeed, if the corporation had no such right, it is difficult to see how this Court would have jurisdiction to consider the case at all.
It may be said that, in the foregoing cases, other grounds might have been found upon which to defeat the corporations' claims, while, in the present case, apparently there is none.
However, in at least two cases, this Court, joined by both Justices now asserting that corporations have no rights under the Fourteenth Amendment, recently has granted relief to corporations by striking down state action as conflicting with corporate rights under that Amendment. In Times-Mirror Co. v. California, companion case to Bridges v. California, 314 U. S. 252, a newspaper corporation persuaded this Court that a $500 fine assessed against it violated its rights under the Fourteenth Amendment. In Pennekamp v. Florida, 328 U. S. 331, a newspaper corporation was convicted along with an individual defendant, and this Court set aside the conviction upon the ground that the Fourteenth Amendment prohibited such state action. In neither or these cases was the corporation's right to raise the issue questioned, and the result in each case was irreconcilable with the position now asserted in dissent.
It cannot be suggested that, in cases where the author is the mere instrument of the Court, he must forego expression of his own convictions. Mr. Justice Cardozo taught us how Justices may write for the Court and still reserve their own positions, though overruled. Helvering v. Davis, 301 U. S. 619, 301 U. S. 639.
In view of this record, I did not, and still do not, consider it necessary for the Court opinion to review the considerations which justify the assumption that these corporations have standing to raise the issues decided.
"This construction of the section is strengthened by the history of the submission by Congress, and the adoption by the States, of the 14th amendment, so fresh in all minds of as to need no rehearsal."
Insurance Co. v. New Orleans, 1 Woods 85, 88.
"The existence of laws in the States where the newly emancipated negroes resided, which discriminated with gross injustice and hardship against them as a class, was the evil to be remedied by this clause, and by it such laws are forbidden."
16 Wall. at 83 U. S. 81.
"The Fourteenth Amendment was framed to protect the negroes from oppression by the whites, not to protect corporations from oppression by the legislature. It is doubtful whether a single one of the members of a Congress who voted for it had any idea that it would touch the question of corporate regulation at all. [Footnote 2/1]"
due process of law; nor deny to any person within its jurisdiction the equal protection of the laws."
"Persons' in the first sentence plainly include only human beings, for corporations are not 'born or naturalized."
It has never been held that they are persons whom a State may not deprive of "life" within the meaning of the second clause of the second sentence.
"Liberty" in that clause is "the liberty of natural, not artificial, persons." Western Turf Assn. v. Greenberg, supra, p. 204 U. S. 363.
But "property," as used in that clause, has been held to include that of a corporation since 1889, when Minneapolis R. Co. v. Beckwith, 129 U. S. 26, was decided.
"The plain and evident meaning of the section is that the persons to whom the equal protection of the law is secured are persons born or naturalized or endowed with life and liberty, and consequently natural, and not artificial, persons."
to corporations on the ground that it violated the Equal Protection Clause. [Footnote 2/3] Every one of our decisions upholding legislation as applied to corporations over the objection that it violated the Equal Protection Clause has assumed that they are entitled to the constitutional protection. But, in those cases, it was not necessary to meet the issue, since the state law was not found to contain the elements of discrimination which the Equal Protection Clause condemns. But, now that the question is squarely presented, I can only conclude that the Santa Clara case was wrong, and should be overruled.
One hesitates to overrule cases, even in the constitutional field, that are of an old vintage. But that has never been a deterrent heretofore, [Footnote 2/4] and should not be now.
We are dealing with a question of vital concern to the people of the nation. It may be most desirable to give corporations this protection from the operation of the legislative process. But that question is not for us. It is for the people. If they want corporations to be treated as humans are treated, if they want to grant corporations this large degree of emancipation from state regulation, [Footnote 2/5] they should say so. The Constitution provides a method by which they may do so. We should not do it for them through the guise of interpretation.
The Constitutional Position of Property in America, 64 Independent 834, 836 (1908). He went on to say that the Dartmouth College case (4 Wheat. 518) and the construction given the Fourteenth Amendment in the Santa Clara case "have had the effect of placing the modern industrial corporation in an almost impregnable constitutional position." Id., p. 836.
As to whether the framers of the Amendment may have had such an undisclosed purpose, see Graham, The "Conspiracy Theory" of the Fourteenth Amendment, 47 Yale L.J. 371.
Cf. McGovney, A Supreme Court Fiction, 56 Harv.L.Rev. 853, 1090, 1225, dealing with corporations in the diverse citizenship jurisdiction of the federal courts.
See Chicago & R. Co. v. Minnesota, 134 U. S. 418; Gulf, Colorado & Santa Fe R. Co. v. Ellis, 165 U. S. 150; Cotting v. Kansas City Stockyards Co., 183 U. S. 79; Connolly v. Union Sewer Pipe Co., 184 U. S. 540; Southern R. Co. v. Greene, 216 U. S. 400; Herndon v. Chicago, Rock Island & Pac. R. Co., 218 U. S. 135; Roach v. Atchison, T. & Santa Fe R. Co., 218 U. S. 159; Atchison & Santa Fe R. Co. v. Vosburg, 238 U. S. 56; Gast Realty Co. v. Schneider Granite Co., 240 U. S. 55; McFarland v. American Sugar Co., 241 U. S. 79; Royster Guano Co. v. Virginia, 253 U. S. 412; Bethlehem Motors Co. v. Flynt, 256 U. S. 421; Kansas City So. Co. v. Road Imp. Dist. No. 6, 256 U. S. 658; Chicago & N.W. R. Co. v. Nye Co., 260 U. S. 35; Sioux City Bridge v. Dakota County, 260 U. S. 441; Thomas v. Kansas City So. R. Co., 261 U. S. 481; Kentucky Co. v. Paramount Exch., 262 U. S. 544; Air-Way Corp. v. Day, 266 U. S. 71; Hanover Ins. Co. v. Harding, 272 U. S. 494; Power Co. v. Saunders, 274 U. S. 490; Louisville Gas Co. v. Coleman, 277 U. S. 32; Quaker City Cab Co. v. Pennsylvania, 277 U. S. 389; Cumberland Coal Co. v. Board, 284 U. S. 23; Liggett Co. v. Lee, 288 U. S. 517; Concordia Ins. Co. v. Illinois, 292 U. S. 535; Stewart Dry Goods Co v. Lewis, 294 U. S. 550; Mayflower Farms v. Ten Eyck, 297 U. S. 266; Hartford Co. v. Harrison, 301 U. S. 459.
In re Ayers, 123 U. S. 443, overruled in part Osborn v. United States Bank, 9 Wheat. 738, a decision 63 years old; Leisy v. Hardin, 135 U. S. 100, overruled Peirce v. New Hampshire, 5 How. 504, a decision 42 years old. Erie R. Co. v. Tompkins, 304 U. S. 64, overruled Swift v. Tyson, 16 Pet. 1, a decision 95 years old; Graves v. New York ex rel. O'Keefe, 306 U. S. 466, overruled Collector v. Day, 11 Wall. 113, a decision 68 years old. United States v. South Eastern Underwriter's Assn., 322 U. S. 533, overruled in part Paul v. Virginia, 8 Wall. 168, a decision 75 years old.
The restrictions on state power which are contained in the Commerce Clause and which may prevent the States from burdening interstate commerce, see Southern Pacific Co. v. Arizona, 325 U. S. 761; Morgan v. Virginia, 328 U. S. 373; or discriminating against it, see Nippert v. Richmond, 327 U. S. 416, rise from a different source, and are not relevant here.

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