Wheeling Steel Corporation v. Fox

• Decision Date: 18 May 1936
• Docket Number: No. 663,663
• Citation: 80 L.Ed. 1143,56 S.Ct. 773,298 U.S. 193
• Parties: WHEELING STEEL CORPORATION v. FOX, Tax Com'r, et al. *
• Court: U.S. Supreme Court

298 U.S. 193

56 S.Ct. 773

80 L.Ed. 1143

WHEELING STEEL CORPORATION

v FOX, Tax Com'r, et al.^*

No. 663.

Argued March 9, 10, 1936.

Decided May 18, 1936.

mS.CT774m- Messrs. J. E. Bruce and Wright Hugus, both of Wheeling, W. Va., for appellant.

[Argument of Counsel from pages 194-199 intentionally omitted] Mr. Homer A. Holt, of Charleston, W. Va., for appellees.

[Argument of Counsel from Pages 200-203 intentionally omitted] Mr. Chief Justice HUGHES delivered the opinion of the Court.

This appeal presents the question of the validity of an ad valorem property tax laid by West Virginia upon accounts receivable and bank deposits of appellant, Wheeling Steel Corporation, organized under the laws of Delaware.

The tax statutes¹ were assailed upon the ground that, as applied, they violated the due process and equal pro- tection clauses of the Fourteenth Amendment of the Constitution of the United States. The proceeding was a statutory one, instituted by appellant in the circuit court of Ohio county, W. Va., to review a county assessment which was made as of January 1, 1933. The judgment of that court, reducing the assessment, was reversed by the Supreme Court of Appeals of West Virginia. In re Wheeling Steel Corporation Assessment, 115 W.Va. 553, 117 S.E. 535, 537. The circuit court then entered final judgment which the Supreme Court of Appeals refused to review. The case comes here on appeal.

The case was submitted upon agreed statements which disclosed the following facts: The corporation maintains its principal office in Delaware through the Corporation Service Company, as permitted by the laws of that state. It keeps there a duplicate stock ledger and records of all transactions with respect to its capital stock, the originals of such ledger and records being kept in New York City. It files reports and pays franchise taxes as required by Delaware.

The general business offices of the corporation are located in Wheeling, Ohio county, W. Va. There, the general books and accounting records are kept. The chairman of the board, president, treasurer, secretary and chief counsel reside at Wheeling. There, its stockholders' and directors' meetings, as permitted by the laws of Delaware, are held. Dividends, when declared, are ordered to be paid and distributed at meetings held at Wheeling, although the checks are drawn and distributed by the dividend disbursing agent located in New York City and are paid with funds there deposited.

The corporation maintains sales offices in various cities of the United States. Sales contracts are negotiated and orders are taken by these offices subject to acceptance or rejection at Wheeling.

The principal manufacturing plants of the corporation are located in the state of Ohio. The plant offices maintain original detailed accounting records showing materials received, railroad cars received and shipped, detailed labor costs, production and shipments, and detailed stocks of goods and payrolls. Employment offices are mai tained at each plant. The Portsmouth, Ohio, plant makes up and mails out invoices for all products shipped from that plant, together with bills of lading and shipping notices. The other plants prepare complete invoices with exception of information relating to the price of materials described. The latter invoices are then forwarded to Wheeling where they are completed and mailed to the customer. Bills of lading and shipping notices are, however, mailed to customers from the individual plants. All invoices are payable in Wheeling. The majority of commercial accounts are paid by check issued at Wheeling. Pay rolls are made up and payroll checks are prepared and signed at the various plants and are there distributed to the employees. Such checks are paid with funds on deposit in banks in the localities where the plants are situated.

The corporation owns vessels operating on the Allegheny, Ohio, and Mississippi rivers, transporting coal and steel. These vessels are registered at the port of Pittsburgh.

The total assessed value of the real estate and tangible personal property owned by the corporation on January 1, 1933, was $31,977,600. The assessed value of its real estate and tangible personal property in West Virginia was $8,673,205, or 27.10 per cent. of the total.

At least 80 per cent. of the sums spent by the corporation in the conduct of its business, including the purchase of materials, maintenance and repairs of plants, building of improvements, property, additions, pay rolls and other operating expenses were made in connection with the operation of its plants and business outside the state of West Virginia and all such payments, aside from moneys borrowed, were made from the proceeds of sales of its products. The moneys thus expended in the conduct of its business in Ohio and states other than West Virginia are expended by executive action taken at Wheeling, and by the drawing of checks or drafts at that place, except in connection with the payment of pay rolls at its Portsmouth, Ohio, and Steubenville, Ohio, plants, where pay-roll checks or orders are drawn against moneys sent to banks at those points for the express purpose of meeting the pay rolls and for incidental items as they arise. All moneys are controlled and the expenditures directed by the Wheeling office, and if the immediate expenditure be made elsewhere, it is made only under specific or general direction and control of that office.

On January 1, 1933, the corporation had on deposit to its credit in various banks the sum of $2,307,773.61, of which $849,161.99 was on deposit in West Virginia. Of the last-mentioned amount the corporation had received $121,684.91 from sales of goods manufactured in West Virginia and the remainder from sales of goods manufactured in, and shipped from, points outside that state. The money on deposit in banks outside West Virginia on January 1, 1933, had been deposited by the corporation by sending from its Wheeling office the original checks or drafts received from its customers. The deposits outside West Virginia are not segregated for the purpose of keeping separately the receipts from sales of products manufactured in, and shipped from, West Virginia plants. Ordinarily not more than 20 per cent. of the total amounts on deposit at any time within and without West Virginia have been derived from sales of products manufactured in that state.

The total amount of the corporation's accounts and notes receivable on January 1, 1933, was $2,234,743.11. Of this amount, $374,410.42 were receivables for goods sold and manufactured in, and shipped from, West Virginia to resident and nonresident purchasers. It appeared that the corporation had been assessed in Ohio, as of January 1, 1933, on accounts and notes receivable amounting to $250,133.42.

The Supreme Court of Appeals of West Virginia held that there had been 'such a localization of the corporation's business at Wheeling' that there was imparted 'to its entire intangible property a prima acie situs for taxation at that place.' But the court thought that the 'statutory limitation of the assessment to property 'liable to taxation" indicated that the legislature 'did not propose to tax intangibles which were primarily subject to taxation in another jurisdiction.' And referring to the above mentioned taxation in Ohio, the Supreme Court of Appeals said: 'For the purposes of this opinion, we assume that the claim of our sister state is well founded, and should be deducted from the assessment as corrected by the Tax Commissioner.' And in remanding the cause to the circuit court, the Supreme Court of Appeals gave opportunity to have it determined 'whether or not further deductions should be made in deference to the legal demands of other states.' In the further proceeding in the circuit court, it was stipulated that 'no states other than Ohio and West Virginia have assessed taxpayer upon any of its intangibles for the year 1933.'

First. The tax is not a privilege or occupation tax. It is not a tax on net income. See Hans Rees' Sons v. North Carolina, 283 U.S. 123, 133, 51 S.Ct. 385, 75 L.Ed. 879. It is an ad valorem property tax. We have held that it is essential to the validity of such a tax, under the due process clause, that the property shall be within the territorial jurisdiction of the taxing state. This rule receives its most familiar illustration in the case of land. The rule has been ex- tended to tangible personal property which is thus subject to taxation exclusively in the state where it is permanently located, regardless of the domicile of the owner. Union Refrigerator Transit Co. v. Kentucky, 199 U.S. 194, 204, 206, 26 S.Ct. 36, 50 L.Ed. 150, 4 Ann.Cas. 493; Frick v. Pennsylvania, 268 U.S. 473, 489, 45 S.Ct. 603, 69 L.Ed. 1058, 42 A.L.R. 316. We have said that the application to the states of the rule of due process arises from the fact 'that their spheres of activity are enforced and protected by the Constitution, and therefore it is impossible for one state to reach out and tax property in another without violating the Constitution.' United States v. Bennett, 232 U.S. 299, 306, 34 S.Ct. 433, 437, 58 L.Ed. 612. Compare Burnet v. Brooks, 288 U.S. 378, 401, 53 S.Ct. 457, 77 L.Ed. 844, 86 A.L.R. 747. When we deal with intangible property, such as credits and choses in action generally, we encounter the difficulty that by reason of the absence of physical characteristics they have no situs in the physical sense, but have the situs attributable to them in legal conception. Accordingly we have held that a state may properly apply the rule mobilia sequuntur personam and treat them as localized at the owner's domicile for purposes of taxation. Farmers' Loan & Trust Co. v. Minnesota, 280 U.S. 204, 211, 50 S.Ct. 98, 74 L.Ed. 371, 65 A.L.R. 1000. And having thus determined 'that in general intangibles may be properly taxed at the domicile of their owner,' we have found 'no sufficient reason for saying that they...