Hooven & Allison Co. v. Evatt

• Decision Date: 24 November 1943
• Docket Number: 29531.
• Citation: 142 Ohio St. 235,51 N.E.2d 723
• Parties: HOOVEN & ALLISON CO. v. EVATT, Tax Com'r.
• Court: Ohio Supreme Court

51 N.E.2d 723

142 Ohio St. 235

HOOVEN & ALLISON CO. v. EVATT, Tax Com'r.

No. 29531.

Supreme Court of Ohio

November 24, 1943

Appeal from Board of Tax Appeals.

Syllabus by the Court.

1. Where an Ohio corporation contracts to purchase fibers grown in a foreign country at a landed price at port of entry in this country, with title to remain in the seller until goods are paid for, and such fibers are transshipped by seller's agent from port of entry to purchaser in Ohio such Ohio corporation is not an importer.

2. The state has the power to levy a general property tax on imported goods so long as such tax does not intercept the import in its way to become incorporated with the general mass of property or deny to the import the privilege of becoming so incorporated until it shall have contributed to the revenue of the state.

Appellant is a corporation with its principal place of business in Xenia, Ohio, where it is engaged in the business of manufacturing rope, twine, packing, binder twien and similar products. Appellant's raw materials consist of manila hemp from the Philippine Islands; Java sisal from the Dutch East Indies; African sisal from British and Portuguese East Africa; Mauritius hemp from the island of Mauritius; jute from India; soft hemp from Italy, the Balkan states and South America as well as some fibers from Mexico and Cuba.

Appellant buys substantially all of its fibers from foreign producers represented by five New York agents who make frequent offers of fibers to appellant and appellant sometimes makes counteroffers. When a sale is agreed upon the New York agent of the seller prepares and forwards to appellant a contract in duplicate signed by the agent on behalf of his principal which contract is then signed by appellant. The contract covers the quantity of fiber wanted, the landed price, the time of shipment and frequently a designation of the steamship company upon whose vessel the fiber is to be shipped.

The contract also provides for delivery on dock at Baltimore Maryland, or other United States port; for the payment on delivery on dock at destination, title to remain in seller until goods are fully paid for; that any increase in the cost of ocean transportation of such goods will be for the buyer's account and any decrease for the buyer's benefit; and that in case of loss at sea the portion of goods so lost shall be excluded from the contract and the quantity reduced accordingly.

The record shows that the goods in question were shipped by sellers to the port of destination consigned to seller's agents. In cases where the bill of lading had a sight draft attached or was forwarded to a bank, it was taken up by seller's agent. On arrival the goods were cleared through the port of entry by seller's agent, the duties and other expenses, if any, were paid by the seller's agent. In practice the agent did not enforce the contract provision for cash on delivery but shipped said goods by rail from the port of entry to appellant under a straight bill of lading. After arrival of the goods at Xenia, Ohio, appellant paid the contract price by check payable to the seller's agent. The freight charges from the port of entry to appellant's plant were paid by appellant.

When the fiber was loaded on board ship at the point of origin, appellant received from the New York agent a declaration setting forth the name of the vessel, the number of bales shipped and approximate date of arrival in the United States. About the time the fiber arrived at the port of entry in this country, a pro forma invoice giving the approximate tonnage and value of a shipment was sent by seller's agent to appellant. When the fiber arrived at port of entry it was brought through the customs, weighed and shipped by rail under a straight bill of lading to Xenia, Ohio.

Appellant paid landed price which included the cost of fiber at point of origin plus normal ocean freight charges, insurance, clearance though the customs and arrangements for transshipment to Xenia. No duty is imposed on any of the fibers except true hemp which appellant always buys duty paid. Appellant pays the railroad freight from the port of entry in the United States to Xenia, Ohio, and also the premium on increased value and war risk insurance as well as any variance beyond the normal cost of freight insurance, et cetera.

Each agent is solely the seller's agent and receives no compensation from appellant.

Upon arrival in Xenia, the fiber is placed in appellant's raw-material warehouse and there held in original packages until needed in appellant's processing operations. Such purchases are made for use in manufacture and with no intention of sale in original package.

While the bales remain in the raw-material warehouse, they are carried in a raw-material account on appellant's books; but upon their removal from such warehouse the bales are immediately charged to goods-in-process account whether the bales have been broken or not.

Less than 1/10 of 1 per cent of appellant's usual inventory is bought on spot purchases.

The sales contracts provide that equivalent delivery may be made from ship or store at seller's option; that payment is to be made in New York funds on delivery at dock of destination (port of entry); and that title is to remain in the seller until the goods are fully paid for. Notwithstanding the terms of the contract, appellant has never received spot delivery, has never paid the price of the goods until after they have been delivered at Xenia, and sellers have never reserved any security interest or power of disposition of the goods by the form of the domestic bill of lading.

In its tax returns for the years 1938, 1939 and 1940, appellant omitted from its manufacturing inventory certain fibers produced in the Philippine Islands and in foreign countries, claiming that such fibers were imports and not taxable by the state of Ohio.

The Tax Commissioner made amended assessments against appellant for the years 1938, 1939 and 1940, increasing appellant's average inventory by the amounts of the imported fibers on hand during the respective years.

Upon appeal to the Board of Tax Appeals, the action of the Tax Commissioner was approved. The case is in this court following an appeal under Section 5611-2, General Code.

Thomas C. Lavery, of Cincinnati, and Marcus E. McCallister, of Xenia, for appellant.

Thomas J. Herbert, Atty. Gen., and Aubrey A. Wendt, of Akron, for appellee.

TURNER Judge.

Did the action of the Tax Commissioner violate Article I, Section 10, Clause 2 of the Constitution of the United States which forbids the levying by a state, without consent of Congress, of an impost or duty on imports? Paraphrasing the language of Mr. Chief Justice Marshall in Brown v. State of Maryland, 25 U.S. 419, 443, 12 Wheat. 419, 443, 6 L.Ed. 678, 686: Did the tax here imposed intercept the import in its way to become incorporated with the general mass of property and deny it the privilege of becoming so incorporated until it shall have contributed to the revenue of the state?

The purpose of the foregoing provision of the Constitution was to prevent the seaboard states, as well as other states, through which such imports were transported, from levying tribute before the imports reached their final destination and were sold or used by the importer.

Brown v. State of Maryland, supra, is the leading case on the subject. At page 441 of 25 U.S., at page 686 of 6 L.Ed., Mr. Chief Justice Marshall said: 'But while we admit that sound priciples of construction ought to restrain all courts from carrying the words of the prohibition beyond the object the constitution is intended to secure; that there must be a point of time when the prohibition ceases, and the power of the state to tax commences; * * *. 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; * * *.'

At page 447 of 25 U.S., at page 688 of 6 L.Ed., Mr. Chief Justice Marshall said: 'Sale is the object of importation.'

Without reviewing here all the later pertinent decisions of the Supreme Court of the United States, we think the following quotation from 15 Corpus Juris Secundum, Commerce, page 488, § 123, correctly states the law to wit: 'The constitutional provision [Article I, Section 10, Clause 2 of the Constitution of the United States] does not prohibit a tax on goods after they have entered the channels of trade or have been purchased subsequent to their arrival in this country, or after they have become mixed with other property in the state.'

The record here discloses that the goods in question were purchased by appellant from New York agents of the sellers under written contracts which specifically provided that the sales were made f.o.b. port of entry in this country (i.e., landed) and that title was to remain in the seller until the goods were fully paid for. The final invoices were made out by sellers' agents aftet the arrival and weighing of the goods at port of entry. All payments were made to the sellers' agents. These agents are exclusively representatives of the sellers and receive no compensation from appellant. After the goods had been cleared through customs, the agents of the sellers made rail shipments to appellant under straight bills of lading. No sales were made to appellant c.i.f.

One of appellant's witnesses stated that during the time here in question all contracts of purchase which were made with Stein, Hall & Company, Inc., of New York were made with that concern as a principal and...