Household Finance Corp. v. Porterfield

• Decision Date: 07 October 1970
• Docket Number: No. 69-184,69-184
• Citation: 53 O.O.2d 22,263 N.E.2d 243,24 Ohio St.2d 39
• Parties: , 53 O.O.2d 22 HOUSEHOLD FINANCE CORP. et al., Appellants, v. PORTERFIELD, Tax Commr., Appellee.
• Court: Ohio Supreme Court

Page 39

24 Ohio St.2d 39

263 N.E.2d 243, 53 O.O.2d 22

HOUSEHOLD FINANCE CORP. et al., Appellants, v. PORTERFIELD, Tax Commr., Appellee.

No. 69-184.

Supreme Court of Ohio.

Oct. 7, 1970.

Syllabus by the Court

1. The 'dealer in intangibles' tax, provided for in R.C. 5725.01 et seq., may be constitutionally assessed against the issued and outstanding shares of capital stock of an incorporated dealer in intangibles, which are owned by nonresidents of Ohio, notwithstanding such dealer in intangibles is a foreign corporation and maintains its headquarters outside Ohio.

2. In order for domestic insurance companies, financial institutions and dealers in intangibles to claim exemption from all taxes on their property and assets other than real estate, which exemption is granted by R.C. 5725.25 and 5725.26, it is necessary for the record to show affirmatively that such entities are amenable to the (intangible) taxes provided for in R.C. 5725.01 et seq.

Lucas, Prendergast, Albright, Gibson, Brown & Newman and Rankin M. Gibson, Columbus, for appellants.

Paul W. Brown, Atty. Gen., and Jon A. Ziegler, Columbus, for appellee.

SCHNEIDER, Justice.

Household Finance Corporation (HFC) and its subsidiary corporations ¹ are appealing a decision of the Board of Tax Appeals which affirmed the Tax Commissioner's final assessment of the dealer in intangibles (DIT) tax against it.

HFC is a foreign corporation and maintains its headquarters outside Ohio. It is authorized to do, and does, business in this state as a dealer in intangibles (DIT), as defined in R.C. 5725.01. ² As such, it is required to make return for, collect and remit to the state of Ohio the DIT tax provided for in R.C. 5725.01 to 5725.26, inclusive.

For the purposes of this appeal, it is sufficient to say that the burden of the DIT tax falls, not upon HFC itself, but upon its issued and outstanding shares of capital stock; but only to the extent of the fair value of the capital employed (capital stock, surplus and undivided profits) in this state, measured by the ratio which the Ohio gross receipts of HFC bear to its total gross receipts from DIT business. R.C. 5725.15. ³ The first proposition advanced by HFC in this court is that the DIT tax may not be lawfully or constitutionally assessed against those issued and outstanding shares of capital stock which are owned and held by nonresidents of Ohio, and thus have a 'situs' without this state.

We reject this proposition for the reason that, as already shown, the tax in question is not imposed upon either the certificates of shares or upon the value of the shares themselves, but the tax is imposed upon the capital represented by the shares to the extent that the capital is employed in Ohio. In other words, if, as in the instant case, only 4.11722% of a DIT's gross receipts is attributable to Ohio, the basis of the tax upon each issued and outstanding share of the DIT's stock is 4.11722% of its fair value, as representative of the capital employed in Ohio.

Moreover, the DIT tax is in lieu of all other taxes on the property and assets of HFC other than its real estate situated in Ohio. R.C. 5725.26. ⁴

HFC contends that Certified Credit Corp. v. Bowers (1963), 174 Ohio St. 239, 188 N.E.2d 594, is not dispositive of the first question involved in this case, because there appellant was an Ohio corporation with its principal office in this state, whereas here appellant is a foreign corporation. That distinction misses the mark. In Certified Credit, the 'resident' DIT corporation claimed exemption for its shares held by nonresidents of Ohio, which is the same claim that is presented here. That claim was denied, and the DIT tax upon the foreign-held shares was deemed not to contravene the due process or interstate commerce clauses of the Constitution of the United States (paragraph two of the syllabus, 174 Ohio St. 239, 188 N.E.2d 594).

Additionally, two years before Certified Credit Corp., this proposition was settled, albeit sub silento, in National City Bank of Cleveland v. Bowers (1961), 172 Ohio St. 378, 176 N.E.2d 227. Two appeals were there involved. In No. 36781, it was held, by a four-to-three decision, that shares of stock of a financial institution owned by foreign insurance companies, domestic insurance companies, resident DITs and nonresident DITs are subject to the financial institution tax, the applicable provisions of which parallel the DIT tax and are imposed by the same chapter of the Revised Code.

Taft, J., in writing the dissent, said 'I concur in * * * that part of the judgment in case Number 36781 relating to bank shares owned by nonresidents of Ohio.' Two other judges having joined in Judge Taft's dissent, that proposition was adopted by a unanimous court.

The second National City Bank case (National City Bank of Cleveland v. Porterfield (1968), 15 Ohio St.2d 235, 239 N.E.2d 61), overruled the first National City Bank case, but only upon the basis of Judge Taft's dissent therein.

This leads us directly to HFC's second and last proposition of law, namely, that the DIT tax may not lawlfully be imposed on those of its issued and outstanding shares which are owned by financial institutions, domestic and foreign insurance companies, and other dealers in intangibles, in view of the Second National City Bank case, supra, 15 Ohio St.2d 235, 239 N.E.2d 61.

We cannot reach the proposition on this record, not merely because HFC did not raise the issue in its application to the Tax Commissioner for review and redetermination or in its notice of appeal to the board (the case was decided subsequent to the later event), but for the more important reason that the record does not indicate that the shares, for which exemption from the DIT tax is claimed, are owned by persons who, under the second National City Bank case, supra, 15 Ohio St.2d 235, 239 N.E.2d 61, and the applicable statutes (R.C. 5725.25 ⁵ and 5725.26), are eligible to claim the exemption, i. e., persons who are engaged as dealers in intangibles, financial institutions or insurance companies in this state, in whole or in part.

The parallel language of those two statutes, at least as to domestic insurance companies, financial institutions and DITs, is that their 'real etate * * * shall be taxed in the place where it is located, the same as the real estate of (other) persons is taxed, but the tax(es) provided for in (by) Sections 5725.01 to 5725.26, inclusive * * * shall be lieu of all other taxes on the other property and assets of' such entities. (Emphasis supplied.)

It seems uncommonly plain, therefore, that before HFC may claim exemption from the tax imposed by R.C. 5725.01 et seq., on those of its issued and outstanding shares which are, in turn, the 'other property and assets' of its shareholders who are within the clases named in the quoted statutory language, it is incumbent upon HFC to show affirmatively that each of those shareholders is, in turn, amenable to one of the taxes imposed by R.C. 5725.01 et seq.

All that the record here shows is a proffer by HFC 'that a substantial number of shares of HFC stock is owned by dealers in intangibles, mutual funds, financial institutions, and insurance companies.' Even assuming that mutual funds are DITs, as HFC claims, and accepting the proffer as evidence, we may not assume-nor could the board or the Tax Commissioner assume-that such dealers in intangibles, mutual funds and financial institutions are doing business in Ohio and thus are amenable to R.C. 5725.01 et seq. Neither may we assume that the 'insurance companies' are domestic instead of foreign, or, if foreign, that they are amenable to R.C. 5725.25.

Finally, the sole issue raised directly upon the filing of HFC's return (see the last paragraph of R.C. 5725.15 and Wright Aeronautical Corp. v. Glander (1949), 151 Ohio St. 29, 84 N.E.2d 483, construing similar language), although considered by the board and alluded to in both oral argument and the briefs in this court, was not presented to this court as a...