Case Name: YOUNGSTOWN SHEET & TUBE CO. v. BOWERS, TAX COMMISSIONER OF OHIO
Court: Supreme Court of the United States
Jurisdiction: United States
Decision Date: 1959-02-24
Citations: 358 U.S. 534
Docket Number: No. 9
Parties: YOUNGSTOWN SHEET & TUBE CO. v. BOWERS, TAX COMMISSIONER OF OHIO.
Judges: Mr. Justice Stewart took no part in the consideration or decision of these cases.
Reporter: United States Reports
Volume: 358
Pages: 534–575

Head Matter:
YOUNGSTOWN SHEET & TUBE CO. v. BOWERS, TAX COMMISSIONER OF OHIO.
No. 9.
Argued November 12, 1958.
Decided February 24, 1959
Carlton S. Dargusch, Sr. argued the cause for appellant in No. 9. With him on the brief were Carlton S. Dar-gusch, Jr. and Jack H. Bertsch.
Roger C. Minahan argued the cause and filed a brief for petitioner in No. 44.
William Saxbe, Attorney General of Ohio, and John M. Tobin, Assistant Attorney General, argued the cause and filed a brief for appellee in No. 9.
Edwin Larkin argued the cause and filed a brief for respondent in No. 44.
Bruce Bromley and Roswell Magill filed a brief, as amici curiae, in Nos. 9 and 44.
Together with No. 44, United States Plywood Corp. v. City of Algoma, on certiorari to the Supreme Court of Wisconsin, argued November 12-13, 1958.

Opinion:
Mr. Justice Whittaker
delivered the opinion of the Court.
The principal question presented by these cases is whether appellant in No. 9, the Youngstown Sheet and Tube Company, and petitioner in No. 44, United States Plywood Corporation, have so acted upon the materials which they have imported for use in their manufacturing operations as to cause them to lose their distinctive character as "imports," within the meaning of that term as used in the Import-Export Clause, Art. I, § 10, cl. 2, of the United States Constitution. The Supreme Courts of the States concerned have held that these manufacturers have done so. Our task is to decide whether, on the particular facts involved, those holdings violate the Import-Export Clause of the Constitution.
The facts in the Youngstown case are stipulated. In essence, they are that Youngstown, an Ohio corporation, operates an industrial plant in or near Youngstown, Ohio, where it manufactures iron and steel. In addition to the use of domestic ores, it imports iron ores from five countries "for ultimate use in [its] open hearth [and] blast furnaces" in its manufacturing processes. The imported ores arrive in shiploads "in bulk" either at an Atlantic or a Lake Erie port of entry where they are unloaded from the ship into railroad cars and are thereby transported to Youngstown's plant in Ohio. The plant is enclosed by a wire fence. Within the enclosure and "adjacent to [the] manufacturing facilities" are several "ore yards" for the storage of supplies of ore. Each ore yard consists of "two parallel walls, on which there [is] a movable ore bridge." When the imported ores arrive at this final destination, they are unloaded into one of the ore yards, but, because the ore from each country is different from the others and each is imported for a different use, the ores are kept segregated as to the country of origin by being "placed in a separate pile in a separate area of the ore yard." The daily manufacturing needs for ore are taken from these piles. As needed, ores are conveyed from the particular pile or piles selected to "stock bins" or "stock houses," holding one or two days' supply and located in close proximity to the furnaces, from which the ores are fed into the furnaces. As ore from a particular "pile" in the ore yard is thus taken and consumed, other like ore is similarly imported from the same country and is brought to the plant and unloaded on top of the remainder of that particular pile. This course is continuously repeated. Youngstown endeavors to maintain "a supply of imported ores to meet its estimated requirements for a period of at least three months." The ores are not imported "for resale," but "for use in manufacturing [at the Ohio plant]."
Acting under Ohio statutes which provide, inter alia, that "All personal property located and used in business in this state [shall be] subject to taxation ." and that "Personal property is 'used' within the meaning of 'used in business' . . . when stored or kept on hand as material, parts, products, or merchandise . . . ," the Tax Commissioner of Ohio proposed to assess an ad valorem tax against Youngstown based on the average value of the iron ores in its ore yards during the tax year ended January 1, 1954. Youngstown contested the proposed assessment. It contended, among other things, that the imported ores had not lost their character as imports and were therefore immune from state taxation under Art. I, § 10, cl. 2 of the United States Constitution.
After exhaustion of administrative proceedings, the case reached the Supreme Court of Ohio. It held that the "protection [of the Import-Export Clause cannot] extend to such iron ore (1) after it has been commingled with other iron ore imported at a different time, even though such other iron ore is of the same grade and was imported from the same place, and (2) after portions of such iron ore have been removed for use in manufacturing." It then entered judgment sustaining the tax, 166 Ohio St. 122, 140 N. E. 2d 313, and we noted probable jurisdiction of Youngstown's appeal. 355 U. S. 911.
The facts in the United States Plywood Corporation case were found in detail by the trial court and those findings are not challenged here. In essence, they are that United States Plywood Corporation (petitioner) operates an industrial plant in Algoma, Wisconsin, where it manufactures veneered wood products. It uses both domestic and imported lumber and veneers in its manufacturing processes. The imported lumber is shipped in railroad cars directly from Canada to petitioner's plant. It is unfinished, and is received in bulk or as loose, individual pieces or boards. It is also "green" when received and therefore must be dried before it can be used by petitioner. Upon arrival at destination, it is unloaded and carted to petitioner's storage yard, located "adjacent" to its plant, where it is stacked in the open in such a way as to allow the air freely to circulate through the stacks for the "dominant purpose" of air-drying it. This method does not so completely dry the lumber as to make kiln-drying unnecessary, but it does materially reduce the time and expense of that process. From time to time, so much of the lumber as is about to be put into veneered products is taken from the stacks and placed in a kiln where the drying is completed and the lumber readied for use. The veneers are imported from three countries. They are received in bundles and are kept in that form in piles, separated as to specie, in petitioner's plant for use as needed in the day-to-day operations of the plant.
On the assessment date of May 1, 1955, the Assessor of the City of Algoma, acting under what is now Wis. Stat., 1957, § 70.01, assessed a tax against petitioner based upon the value of one-half of the imported lumber and veneers then on hand. Petitioner paid the tax and then sued in the state court for its recovery. The trial court also found that air-drying the lumber "was part of [petitioner's] manufacturing practices," and that, when stacked for air-drying, the lumber "entered the process of manufacture" and thus lost its character as an "import," and therefore all of it might lawfully have been taxed by the city. The court further found that the lumber and veneers had been imported by petitioner "for use in manufacturing" at its Algoma plant, and that their importation journeys definitely had ended; that the lumber and veneers that were taxed (one-half of the amounts on hand) had been irrevocably committed to "use in manufacturing" at that plant, were "necessarily required to be kept on hand to meet [petitioner's] current operational needs," were being "used in manufacturing," and had therefore lost their character as "imports" and were subject to local taxation. It then entered judgment for the city, sustaining the tax, and, on petitioner's appeal, the Supreme Court of Wisconsin affirmed. 2 Wis. 2d 567, 87 N. W. 2d 481. Because of the importance of the constitutional question presented we granted certiorari. 356 U. S. 957.
The Constitution confers on Congress the power to lay and collect import duties, Art. I, § 8, and provides that "No State shall, without the Consent of the Congress, lay any Impost or Duties on Imports or Exports, except what may be absolutely necessary for executing it's inspection Laws. . . Art. I, § 10, cl. 2. That these provisions were intended to confer on the National Government the exclusive power to tax the act of importation is plain from their terms. And early in our national history Chief Justice Marshall held, in the landmark case of Brown v. Maryland, 12 Wheat. 419, that one who had imported goods for the purpose of selling them had, "by payment of the duty to the United States, [acquired the] right to dispose of his merchandise, as well as to bring it into the country" (id., at 442), and that the State could not tax it "while remaining the property of the importer, in his warehouse, in the original form or package in which it was imported." Id., at 442. But he made very clear that ". . . there must be a point of time when the prohibition ceases, and the power of the State to tax commences." Id., at 441. Elaborating this concept, he said:
"The constitutional prohibition on the States to lay a duty on imports . . . may certainly come in conflict with their acknowledged power to tax persons and property within their territory. The power, and the restriction on it, though quite distinguishable when they do not approach each other, may yet . . . approach so nearly as to perplex the understanding. . Yet the distinction exists, and must be marked as the cases arise. Till they do arise, it might be premature to state any rule as being universal in its application. It is sufficient for the present to say, generally, that when the importer has so acted upon the thing imported, that it has become incorporated and mixed up with the mass of property in the country, it has, perhaps, lost its distinctive character as an import, and has become subject to the taxing power of the State. . . Id., at 441-442. (Emphasis added.)
While Chief Justice Marshall did not undertake definitively to state just what acts or conduct of the importer would be deemed to have "so acted upon the thing imported" as to cause it to be "mixed up with the mass of property in the country [and to losé] its distinctive character as an import," he did specify some of the acts that would so result. He held that the goods lose their character as imports when the importer (1) "sells them," or (2) "[breaks] up his packages, and [travels] with them as an itinerant pedlar." Id., at 443. More important to the question confronting us, he also held (3) that goods brought into this country by an importer "for his own use" and here "used" by him are to be regarded as a part of "the common mass" of property and are not immune from state taxation.
In Hooven & Allison Co. v. Evatt, 324 U. S. 652, it was held that goods imported for "use" share the same immunity as goods imported for "sale," and that goods imported "for manufacture [do not] lose their character as imports any sooner or more readily than imports for sale" (id., at 667); but "when [the imported goods are] used for the purpose for which they are imported, they cease to be imports and their tax exemption is at an end." Id., at 665.
Thus, though Brown v. Maryland, supra, holds that goods brought into the country by an importer "for his own use" are not exempted from state taxation by the Import-Export Clause, and Hooven & Allison Co. v. Evatt, supra, holds that they are, both agree that when the imported goods are "used for the purpose for which they are imported, they cease to be imports and their tax exemption is at an end." Hooven & Allison Co. v. Evatt, supra, at 665. Compare Brown v. Maryland, supra, at 441-443.
Do the facts as stipulated and found in the cases before us, when considered in the light of applicable legal principles, show that these manufacturers have so acted upon the imported materials as to cause them to lose their distinctive character as "imports" by irrevocably committing them, after their importation journeys have definitely ended, to "use in manufacturing" at the plant and point of final destination, and by "entering" and "using" them "in manufacturing" at that place? The manufacturers, relying upon their understanding of the Hooven case, argue that they do not, but we have concluded that they do.
In Hooven the taxpayer had imported bales of hemp and other fibers which it stored in its warehouse at its factory in Ohio with the intention of eventually using them in the manufacture of cordage and similar products. Ohio sought to lay an ad valorem tax on the bales of fibers so stored in the taxpayer's warehouse. The taxpayer contended that the bales of fibers were "imports" and thus immune from state taxation under the Import-Export Clause of the Constitution. The Supreme Court of Ohio "thought that Brown v. Maryland, supra, laid down a rule applicable only to imports for the purpose of sale, and that imports for use became, upon storage, even if still in the original package, so intermingled with the common mass of property within the State as to be subject to the State power of taxation" (324 U. S., at 656), and upon that ground upheld the tax. This Court, holding that the tax immunity applies to goods imported for "use" as well as for "sale," that the bales of fibers would not lose their character as imports "until [they were] put to the use for which [they were] imported" (id., at 665), and that the fibers were not shown by the record in that case to have been "subjected to manufacture when they were placed in [the taxpayer's] warehouse in their original packages" {id., at 667), reversed the judgment. But the record there did not present, and this ^Court did not reach or decide, the question we have here. Indeed, the Court expressly reserved it.. It said :
"[I]t is unnecessary to decide whether, for purposes of the constitutional immunity, the presence of some fibers in the factory was so essential to current manufacturing requirements that they could be said to have entered the process of manufacture, and hence were already put to the use for which they were imported, before they were removed from the original packages. Even though the inventory of raw material required to be kept on hand to meet the current operational needs of a manufacturing business could be thought to have then entered the manufacturing process, the decision of the Ohio Supreme Court did not rest on that ground, and the record affords no basis for saying that any part of petitioner's fibers, stored in its warehouse, were required to meet such immediate current needs. Hence we have'no occasion to consider that question." Id., at 667.
Unlike Hooven, these are not cases of the mere storage in a warehouse of imported materials intended for eventual use in manufacturing but not found to have been essential to current operational needs. Here the Ohio and Wisconsin courts have in effect held that the stipulated and found facts show that the imported materials that were taxed by those States were so essential to current manufacturing requirements that they must be said to have entered the process of manufacture, and those courts have rested their judgments, in major part at least, on that ground. Our question therefore is precisely the one which the Court did not reach or consider in the Hooven case.
We are therefore confronted with the practical, albeit vexing, problem of reconciling the competing demands of the constitutional immunity of imports and of the State's power to tax property within its borders. The design of the constitutional immunity was to prevent "[t]he great importing States [from laying] a tax on the non-importing States," to which the imported property is or might ultimately be destined, which would not only discriminate against them but also "would necessarily produce countervailing measures on the part of those States whose situation was less favourable to importation." Brown v. Maryland, supra, at 440. See Madison, Debates in the Federal Convention of 1787, August 28, 1787 (Hunt & Scott ed.). And see, e. g., Cook v. Pennsylvania, 97 U. S. 566, 574; Richfield Oil Corp. v. State Board, 329 U. S. 69, 76-77. The constitutional design was then to immunize imports from taxation by the importing States, and all others through or into which they may pass, so long as they retain their distinctive character as imports. Hence, that design is not impinged by the taxation of materials that were imported for use in manufacturing after all phases of the importation definitely have ended and the materials have been "put to the use for which they [were] imported" (Hooven & Allison Co. v. Evatt, supra, at 657), for in such a case they have lost their distinctive character as imports and are subject to taxation. And inasmuch as "the reconciliation of the competing demands of the constitutional immunity and of the state's power to tax, is an extremely practical matter" (Hooven & Allison Co. v. Evatt, supra, at 668), we must approach the question whether these materials had been "put to the use for which they [were] imported" (id., at 657) with full awareness of realities and treat with them in a practical way.
The stipulation in the Youngstown case shows that the imported ores were essential to the operation of Youngs town's Ohio plant; that Youngstown had imported them "for use in manufacturing" and "to meet its estimated [manufacturing] requirements" at that plant; that the ores had arrived at their destination, had been placed in "piles" in the "ore yards" of that plant, and their importation journey definitely had ended; that the ores were irrevocably committed to "use in manufacturing" at that plant and point of final destination; and that the daily ore needs of the plant were conveyed from the "piles" in the "ore yards" to "stock bins" or "stock houses," holding one or two days' supply, from which they were fed into the furnaces. Does not the stipulation thus show that the ores were not only needed, imported, and irrevocably committed to supply, but were actually being used to supply, the daily requirements of the plant? It seems to us that these stipulated facts inescapably establish that Youngstown had "so acted upon the [imported ores]" (Brown v. Maryland, supra, at 441), by using them "for the purpose for which they [were] imported," that they must be held "to have then entered the manufacturing process" (Hooven & Allison Co. v. Evatt, supra, at 665, 667) and to have lost their distinctive character as "imports" and all tax immunity as such.
Youngstown does not deny that so much of the ores as have been conveyed from the "piles" in the "ore yards" to the "stock bins" or "stock houses" have lost their distinctive character as imports.' Is there any real basis of distinction? The only possible differences are in the sizes of the piles and their distances from the furnaces. Surely the size of the pile is not material. Just as surely the short distance between the smaller piles in the "stock bins" or "stock houses" and the larger piles in the ore yards is not a real distinction. If the larger piles stood on higher ground adjoining the "stock bins" and "stock houses" so that the ores might feed by gravity from the former to the latter there would be no practical difference from the actual facts involved, but it could not be argued that the ores in the one are any less certainly being used in the processes of manufacture than the ores in the other. It seems entirely plain that the ores in the smaller piles in the "stock bins" and "stock houses" are no more definitely and irrevocably committed to use, or being used, at the plant than are the ores in the larger piles in the ore yards from which the smaller ones are constantly kept supplied. " [R] econciliation of the competing demands of the constitutional immunity and of the state's power to tax [being] an extremely practical matter" (Hooven & Allison Co. v. Evatt, supra, at 668), taxability cannot depend upon whether the size of the pile of stored materials or its distance from the place of actual fabrication or consumption is a little more or a little less.
In the United States Plywood Corporation case, two types of imported materials are involved — unfinished "green" lumber received "in bulk" and veneers received in "bundles." The Assessor of the City of Algoma, believing that one-half of the lumber and veneers on hand on the taxing date was necessarily required to be kept on hand to meet the current operating needs of petitioner's manufacturing plant, assessed an ad valorem tax upon the value of that one-half of the lumber and veneers. In the ensuing litigation, the Wisconsin courts found that the imported materials had been imported by petitioner "for use in manufacturing" at its Algoma plant, had arrived at that place and that their importation journeys definitely had ended; that the lumber and veneers that were taxed (one-half of the amounts on hand on the taxing date) had been irrevocably committed to "use in manufacturing" at that plant, were "necessarily required to be kept on hand to meet [its] current operational needs," and were actually being "used" to supply those needs. These findings are amply supported by the evidence and are not contested here. We think they clearly show that the lumber and veneers that were taxed were not only needed, imported, and irrevocably committed to supply, but were actually being used to supply, the day-to-day manufacturing requirements of the plant. They thus establish that petitioner had "so acted upon the [imported materials]" (Brown v. Maryland, supra, at 441) that were taxed by using them "for the purpose for which they [were] imported," that — like the ores in the Youngstown case — they must be held "to have then entered the manufacturing process" (Hooven & Allison Co. v. Evatt, supra, at 665, 667) and to have lost their distinctive character as "imports" and all tax immunity as such.
The fact that the veneers were received in "bundles" which were not opened until the veneers were put into the daily manufacturing operations of the plant is not controlling under the facts and findings here. Whatever may be the significance of retaining in the "original package" goods that have been so imported for sale (Brown v. Maryland, supra; Waring v. The Mayor, 8 Wall. 110, 122-123; Low v. Austin, 13 Wall. 29, 32-33; Cook v. Pennsylvania, 97 U. S. 566, 573; May v. New Orleans, 178 U. S. 496, 501, 507-508), goods that have been so imported for use in manufacturing are not exempt from taxation, though not removed from the "original package," if, as found here, they have been "put to the use for which they [were] imported." Hooven & Allison Co. v. Evatt, supra, at 657. Breaking the original package is only one of the ways by which packaged goods that have been imported for use in manufacturing may lose their distinctive character as imports. Another way is by putting them "to the use for which they [were] imported." Id. That the package has not been broken is, there fore, only one of the several factors to be considered in factually determining whether the goods are being "used for the purpose for which they [were] imported." Hooven & Allison Co. v. Evatt, supra, at 665. Here the fact that the bundles are not opened until the veneers are put into the day-to-day manufacturing operations of the plant was fully considered by the Wisconsin courts before they made the finding that the veneers that were taxed were "necessarily required to be kept on hand to meet [petitioner's] current operational needs," and were actually being "used" to supply those needs.
Because of the views expressed, it is unnecessary to reach or discuss the further finding and conclusion of the Wisconsin courts that when the "green" lumber was stacked by petitioner in the open in a particular way for the "dominant purpose" of air-drying it, the lumber "entered the process of manufacture," and, for that reason also, lost its character as an import.
The materials here in question were imported to supply, and were essential to supply, the manufacturer's current operating needs. When, after all phases of their importation had ended, they were put to that use and indiscriminate portions of the whole were actually being used to supply daily operating needs, they stood in the same relation to the State as like piles of domestic materials at the same place that were kept for use and used in the same way. The one was then as fully subject to taxation as the other. In those circumstances, the tax was not on "imports," nor was it a tax on the materials because they had been imported, but because at the time of the assessment they were being used, in every practical sense, for the purposes for which they had been imported. They were therefore subject to taxation just like domestic property that was kept at the same place in the same way for the same use. We cannot impute to the Framers of the Constitution a purpose to make such a discrimination in favor of materials imported from other countries as would result if we approved the views pressed upon us by the manufacturers. Compare May v. New Orleans, 178 U. S., at 509.
Youngstown also challenged a portion of the tax on the ground that its domestic ores stored on public docks on the shore of Lake Erie in Ohio were "merchandise . . . held in a storage warehouse for storage only" within the meaning of § 5701.08 (A), and that, because the section exempted nonresidents but taxed residents on stocks of merchandise so held, it denied to Youngstown, a resident of Ohio, the equal protection of the laws in violation of the Fourteenth Amendment of the Constitution. The Supreme Court of Ohio answered that contention by saying: "For the reasons stated in Allied Stores of Ohio, Inc., v. Bowers, Tax Commr., ante [166 Ohio St.], 116, the taxpayer's contentions [in that respect] must be rejected . . . ." Youngstown Sheet & Tube Co. v. Bowers, 166 Ohio St. 122, 124, 140 N. E. 2d 313, 316. We have today affirmed the judgment of the Supreme Court of Ohio in Allied Stores of Ohio, Inc., v. Bowers, Tax Comm'r, ante, p. 522, and for the reasons stated in our opinion in that case we hold that § 5701.08 (A) and the questioned tax laid thereunder did not violate the Equal Protection Clause of the Fourteenth Amendment.
It follows that the judgment in each case must be
Affirmed.
Mr. Justice Stewart took no part in the consideration or decision of these cases.
Article I, § 10, cl. 2 of the United States Constitution, in pertinent part, provides: "No State shall, without the Consent qf the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing it's inspection Laws. . . ."
Exhibits in the record, though not giving measurements, indicate that the nearest ore yard is located within two or three hundred feet, and the most distant one is located within two or three hundred yards, of the furnaces.
Title 57, Page's Ohio Rev. Code Ann., 1953, § 5709.01.
Title 57, Page's Ohio Rev. Code Ann., 1953, § 5701.08 (A).
The Ohio taxing date is January 1, Title 57, Page's Ohio Rev. Code Ann., 1953, § 5711.03. But personal property held by a manufacturer for use in manufacturing is valued for tax purposes "by taking the value of all [such] property . . . owned by such manufacturer on the last business day of each month [that] the manufacturer was engaged in business during the year, adding the monthly values together, and dividing the result by the number of months the manufacturer was engaged in such business during the year." Title 57, Page's Ohio Rev. Code Ann., 1953, § 5711.16.
Chief Justice Taney, while still at the bar, had argued that case for the State of Maryland. After coming to this Court, he had occasion to say that the theory of that holding was that while the imported articles "are in the hands of the importer for sale . . . they may be regarded as merely in transitu, and on their way to the distant cities, villages and country for which they are destined, and where they are expected to be used and consumed, and for the supply of which they were in truth imported." License Cases, 5 How. 504, 575.
The Court said that when the imported goods are sold "the tax intercepts the import, as an import, in its way to become incorporated with the general mass of property, and denies it the privilege of becoming so incorporated until it shall have contributed to the revenue of the State." 12 Wheat., at 443. That imported goods lose their character as "imports" upon being sold is well-settled. License Cases, 5 How. 504, 575; Waring v. The Mayor, 8 Wall. 110; Low v. Austin, 13 Wall. 29; May v. New Orleans, 178 U. S. 496.
Counsel for Maryland had argued that to permit state tax immunity in that case would result in granting immunity to "an importer who may bring in goods, as plate, for his own use, and thus retain much valuable property exempt from taxation." In reply to that argument, Marshall rejected the assumption that the principles then announced would grant state tax exemptions to imports that were being used or held for use by the importer. In such a case, as in a case where the importer "[breaks] up his packages, and [travels] with them as an itinerant pedlar," he said "[T]he tax finds the article already incorporated with the mass of property by the act of the importer. He has used the privilege [i. e., of importation and sale] he had purchased, and has himself mixed them up with the common mass, and the law may treat them as it finds them. The same observations apply to plate, or other furniture used by the importer." 12 Wheat., at 443. (Emphasis added.)
As earlier stated (Note 3), §5709.01 provides in pertinent part, "All personal property located and used in business in this state [shall be] subject to taxation . . . ." (Title 57, Page's Ohio Rev. Code Ann., 1953, § 5709.01), and § 5701.08 (A), at the time in question, provided, in pertinent part, that:
"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. . . ." Title 57, Page's Ohio Rev. Code Ann., 1953, § 5701.08 (A).