266 U.S. 71 (1924), Air-Way Elec. Appliance Corp. v. Day

Citation:266 U.S. 71, 45 S.Ct. 12, 69 L.Ed. 169
Party Name:Air-Way Elec. Appliance Corp. v. Day
Case Date:October 20, 1924
Court:United States Supreme Court

Page 71

266 U.S. 71 (1924)

45 S.Ct. 12, 69 L.Ed. 169

Air-Way Elec. Appliance Corp.



United States Supreme Court

Oct. 20, 1924




A manufacturing corporation, incorporated in Delaware with an authorized capital stock of a designated number of nonpar value shares, of which only about one-eighth were issued, had all its property in Ohio, where it was duly authorized to do business and transacted during a tax year a business of which 28% was confined to Ohio and the remainder was interstate. Under an Act of May 17, 1921 (§ 8728-11 Gen.Code Ohio) which prescribes an annual fee payable by each foreign corporation having common stock without par value, for the privilege of exercising its franchise in the state, of

five cents per share upon the proportion of the number of shares of authorized common stock represented by property owned and used and business transacted in this state. . . . ,

the taxing authorities assessed a tax by applying this prescribed rate to the entire number of shares authorized. The court below reduced this by taking such proportion of the total number of shares authorized as the value of the property plus

Page 72

the local business was of that value plus all the business, and by applying the rate to the result.


(1) That the tax, computed either way, and the act, violate the commerce clause, since all the corporation's business, intrastate and interstate, and all its property were represented by the shares of stock outstanding, and the application of the rate to all the shares authorized, or to a number greater than the total outstanding, necessarily amounted to a tax and direct burden upon all the property and business, including the interstate commerce. P. 82.

(2) The fee imposed in either case was arbitrary, since the number of nonpar shares which the corporation might issue under the law of Delaware was not an indication of the amount of its capital, and the number not subscribed or issued had no relation to the value of the privilege of doing business in Ohio. P. 83.

(3) The act, in its practical operation, does not require like fees for equal privileges held by foreign corporations in Ohio under the same circumstances. P. 84.

(4) A classification of foreign corporations for the purpose of determining the amounts of such annual franchise fees should be based upon something having relation to the purpose for which it was made. P. 85.

(5) The Ohio act, having no tendency to produce equality, and being of such character that there is no reasonable presumption that substantial equality will result from its operation, violates the equal protection clause of the Fourteenth Amendment. Id.

279 F. 878 reversed.

Appeal and cross-appeal from a decree of the District Court enjoining the Treasurer and other officials of Ohio from collecting more than a stated portion of a franchise fee from the above named corporation, but declining to hold the tax void in toto, as the corporation claimed it to be, in this suit to enjoin its collection.

Page 77

BUTLER, J., lead opinion

MR. JUSTICE BUTLER delivered the opinion of the Court.

Plaintiff, Air-Way Electric Appliance Corporation, brought this suit against the above-named treasurer and other state officers to restrain the collection of a franchise fee charged against it as a foreign corporation for the privilege of exercising its franchises in Ohio during the year commencing July 1, 1921, on the grounds, among others, that the legislation of Ohio under which the fee was imposed is invalid under the commerce clause of the Constitution and is repugnant to the Fourteenth Amendment.

Plaintiff was incorporated in 1920 under the laws of Delaware. Under its certificate of incorporation and the laws of that state, its authorized capital stock is 400,000 shares without par value, of which 200,000 shares are common stock and 200,000 founders' stock. The only

Page 78

difference between the two classes is that holders of the former are entitled to one vote per share and of the latter to five votes per share. Shortly after its incorporation, it obtained from the secretary of state in conformity with the laws of Ohio a certificate of admission to do business in that state, and also paid the initial fee for the privilege of there exercising its franchise. Sections 178-180, 183, 184, General Code of Ohio. It complied with the laws of Ohio regulating the sale of stock in that state and received a certificate from the commissioner of securities authorizing sale at $7 per share. Sections 6373-1 to 6373-24, General Code of Ohio. It acquired two large...

To continue reading