International Harvester Co v. Evatt

• Citation: 91 L.Ed. 390,67 S.Ct. 444,329 U.S. 416
• Decision Date: 06 January 1947
• Docket Number: No. 75,75
• Parties: INTERNATIONAL HARVESTER CO. v. EVATT, Tax Com'r of Ohio
• Court: United States Supreme Court

329 U.S. 416

67 S.Ct. 444

91 L.Ed. 390

INTERNATIONAL HARVESTER CO.

v EVATT, Tax Com'r of Ohio.

No. 75.

Argued Dec. 12, 1946.

Decided Jan. 6, 1947.

Rehearing Denied Feb. 3, 1947.

See 329 U.S. 834, 67 S.Ct. 628.

On

Appeal from the Supreme Court of the State of Ohio.

Messrs. Joseph J. Daniels, of Indianapolis, Ind., and Edward R. Lewis, of Chicago, Ill., for appellant.

Mr. A. A. Wendt, of Columbus, Ohio, for appellee.

Mr. Justice BLACK delivered the opinion of the Court.

The Supreme Court of Ohio affirmed a decision of that State's Board of Tax Appeals fixing the amount owed by appellant for its State corporation franchise tax for the years 1935 to 1940, inclusive. 146 Ohio St. 58, 64 N.E.2d 53. In affirming, the Ohio court rejected appellant's contention that the controlling tax act, §§ 5495—5499, Ohio Gen.Code, as applied to appellant, was in violation of the Due Process clause of the Fourteenth Amendment and the Commerce clause of the Federal Constitution. Art. 1, § 8, cl. 3. The case is here on appeal under 28 U.S.C. § 344, 28 U.S.C.A. § 344. Appellant repeats its arguments as to invalidity of the tax, but only as to the years 1937 to 1940, inclusive.

Section 5495 of the Ohio Gen.Code provides that each foreign corporation authorized to do business in the State must pay a tax or fee for the 'privilege of doing business' or 'owning or using a part or all of its capital or property' or 'holding a certificate * * * authorizing it to do business in this state'. It is not denied that appellant owed a franchise tax under this section for it held a certificate to do business in Ohio during all the years in question. It also owned and operated two large factories at Springfield, Ohio, which produced millions of dollars worth of goods. And it operated four branch selling establishments associated with four warehouses, and fourteen retail stores, all located at various places in Ohio, which stored and sold goods produced at the Ohio factory.

But appellant also owns and operates sixteen factories, nearly a hundred selling agencies, and numerous retail stores in other states. Goods produced at its Ohio factories are not only sold in Ohio, but in addition, are shipped for storage to out-of-Ohio warehouses to be sold by out-of-Ohio selling agencies to out-of-Ohio customers. Some are shipped directly to our-of-Ohio customers on orders from out-of-Ohio selling agencies. Conversely, goods manufactured by appellant out-of-Ohio are shipped to its Ohio warehouses, and sold by its Ohio selling agencies to Ohio customers. Appellant's claim is that the amount of the tax assessed against it has been determined in such manner that a part of it is for sales made outside Ohio and another part for interstate sales. These consequences result, appellant argues, from the formula used by Ohio in determining the amount and value of Ohio manufacturing and sales, as distinguished from interstate and out-of-state sales.

The tax is computed under the Ohio statute in the following manner: Section 5498 prescribes the formula used in determining what part of a taxpayer's total capital stock represents business and property conducted and located in Ohio. To determine this, the total value of issued capital stock¹ is divided in half. One half is then multiplied by a fraction, the numerator of which is the value of all the taxpayer's Ohio property, and the denominator of which is the total value of all its property wherever owned. The other half is multiplied by another fraction whose numerator is the total value of the 'business done' in the State and whose denominator is country-wide business. Addition of these two products gives the tax base, which, when multiplied by the tax rate of 1/10 of 1%, produces the amount of the franchise tax.

In the 'business done' numerator the State included as a part of Ohio business an amount equal to the sales proceeds of a large part of the goods manufactured at appellant's Ohio plants, no matter where the goods had been sold or delivered.² A part of the measure of the tax is con- sequently an amount equal to the sales price of Ohio-manufactured goods sold and delivered to customers in other states. Appellant contends that the State has thus taxed sales made outside of Ohio in violation of the Due Process clause. A complete answer to this due process contention is that Ohio did not tax these sales. Its statute imposed the franchise tax for the privilege of doing business in Ohio for profit. The State supreme court construed the statute as imposing the tax on corporations for engaging in business such as that in which taxpayer engaged. One branch of that business was manufacturing. It has long been established that a state can tax the business of manufacturing. The fact that it chose to measure the amount of such a tax by the value of the goods the factory has produced, whether of the current or a past year does not transform the tax on manufacturers to something else. American Mfg. Co. v. City of St. Louis, 250 U.S. 459, 39 S.Ct. 522, 63 L.Ed. 1084; Hope Natural Gas Co. v. Hall, 274 U.S. 284, 288, 289, 47 S.Ct. 639, 640, 71 L.Ed. 1049; Utah Power & Light Co. v. Pfost, 286 U.S. 165, 189, 190, 52 S.Ct. 548, 555, 76 L.Ed. 1038; Wallace v. Hines, 253 U.S. 66, 69, 40 S.Ct. 435, 436, 64 L.Ed. 782; Freeman v. Hewit, 329 U.S. 249, 67 S.Ct. 274, 277. See also J. D. Adams Mfg. Co. v. Storen, 304 U.S. 307, 313, 314, 58 S.Ct. 913, 916, 917, 82 L.Ed. 1365, 117 A.L.R. 429, and cases cited in notes 14 and 15.

In the Ohio 'business done' numerator, we assume the State also included sales made by Ohio branches to Ohio customers of goods manufactured and delivered to these Ohio customers from out-of-Ohio factories.³ Appellant's business practice was to conduct and account for its sales agencies' activities separately and distinctly from its factory operations. The State followed this distinction. It treated the sales agencies as conducting one type of busi- ness and the factories another. Thus it measured the value of the Ohio sales agencies' business by the total amount of the preceding year's Ohio sales of goods manufactured outside of Ohio as well as those manufactured in Ohio. Here again, appellant's contention that this resulted in taxing out-of-state or interstate transactions or sales in violation of the Due Process clause is wholly without substance. The Ohio sales agencies' business and their sales to Ohio customers were intrastate activities. International Harvester Co. v. Department of Treasury of State of Indiana et al., 322 U.S. 340, 64 S.Ct. 1019, 88 L.Ed. 1313. What effect inclusion of this element in the 'business done' numerator would have were these transactions not intrastate is a question we need not now decide.

What we have said disposes of the only grounds urged to support the due process contention. It also answers most of the argument made against the Ohio statute on the ground that its application to appellant unduly burdens interstate commerce and therefore violates the commerce clause. Of course, the commerce clause does not bar a state from imposing a tax based on the value of the privilege to do an intrastate business merely because it also does an interstate business. Ford Motor Co. v. Beauchamp, 308 U.S. 331, 336, 60 S.Ct. 273, 276, 84 L.Ed. 304. Nor does the fact that a computation such as that under Ohio's law includes receipts from interstate sales affect the validity of a fair apportionment. See e.g., ump Hairpin Mfg. Co....