Allied Stores of Ohio, Inc v. Bowers

• Decision Date: 24 February 1959
• Docket Number: No. 10,10
• Citation: 3 L.Ed.2d 480,79 S.Ct. 437,358 U.S. 522
• Parties: ALLIED STORES OF OHIO, INC., Appellant, v. Stanley J. BOWERS, Tax Commissioner of Ohio
• Court: U.S. Supreme Court

358 U.S. 522

79 S.Ct. 437

3 L.Ed.2d 480

ALLIED STORES OF OHIO, INC., Appellant,

v Stanley J. BOWERS, Tax Commissioner of Ohio.

No. 10.

Argued Nov. 12, 1958.

Decided Feb. 24, 1959.

Mr. Carlton S. Dargusch, Sr., Columbus, Ohio, for appellant.

Messrs. William Saxbe and John M. Tobin, Columbus, Ohio, for appellee.

Mr. Justice WHITTAKER delivered the opinion of the Court.

The principal question presented is whether an Ohio statute that exempts from ad valorem taxation 'merchandise or agricultural products belonging to a nonresi- dent * * * if held in a storage warehouse for storage only' denies to appellant, a resident of the State, the equal protection of the laws guaranteed by the Fourteenth Amendment of the Constitution.

The facts are stipulated. So far as pertinent, they are that appellant, Allied Stores of Ohio, Inc., an Ohio corporation, owns and operates a department store in each of four Ohio cities. It also maintains in each of those cities a private warehouse where it stores stocks of merchandise of the kinds sold in its stores. As needed, merchandise is transferred from the warehouse to the store, and when merchandise is sold by sample in the store—usually a heavy or bulky article—it is delivered from the warehouse directly to the customer.

Title 57, Page's Ohio Rev.Code Ann.1953, § 5709.01, provides, inter alia, that 'All personal property located and used in business in this state (shall be) subject to taxation, regardless of the residence of the owners thereof. * * *' (Emphasis added.) During the tax year involved another Ohio statute, Title 57, Page's Ohio Rev.Code Ann.1953, § 5701.08(A), provided, in pertinent part, that:

'As used in Title LVII of the Revised Code:

'(A) Personal property is 'used' within the meaning of 'used in business' * * * when stored or kept on hand as material, parts, products, or merchandise; but merchandise or agricultural products belonging to a nonresident of this state is not used in business in this state if held in a storage warehouse for storage only. * * *'¹ (We have added the italics, and, as was done by the Supreme Court of Ohio, we will refer to the italicized portion as the 'proviso.')

Acting under those statutes, appellee, as Tax Commissioner of Ohio, proposed the assessment of an ad valorem tax against appellant based on the average value of the merchandise that it had stored in its four Ohio warehouses during the tax year ending January 31, 1954.² Appellant petitioned the Board of Tax Appeals of Ohio for a redetermination, contending that the property stored in its four warehouses in the tax year involved was 'merchandise * * * held in a storage warehouse for storage only,' within the meaning of § 5701.08(A), and that because the section exempted nonresidents,³ but taxed residents, on stocks of merchandise so held, it denied to appellant, a resident of Ohio, the equal protection of the laws guaranteed by the Fourteenth Amendment of the Constitution. The Board of Tax Appeals upheld the tax, and so did the Court of Appeals of Cuyahoga County. On appeal, the Supreme Court of Ohio held that appellant lacked standing to raise the constitutional question presented and affirmed the judgment. 166 Ohio St. 116, 140 N.E.2d 411. The case comes here on Allied's appeal.

The first and preliminary question thus is whether the Supreme Court of Ohio correctly held that appellant lacked standing to prosecute the constitutional question sought to be presented. It is settled that '(w)hether a pleading sets up a sufficient right of action or defense, grounded on the Constitution or a law of the United States, is necessarily a question of federal law, and, where a case coming from a state court presents that question, this court must determine for itself the sufficiency of the allegations displaying the right or defense, and is not concluded by the view taken of them by the state court.' First National Bank of Guthrie Center v. Anderson, 269 U.S. 341, 346, 46 S.Ct. 135, 137, 70 L.Ed. 295; Staub v. City of Baxley, 355 U.S. 313, 318, 78 S.Ct. 277, 280.

In reaching its conclusion, the Ohio court said (166 Ohio St. 116, 140 N.E.2d 413) 'In our opinion, it is not necessary to consider the constitutional question raised by the taxpayer in the instant case because, if its contention with regard to that question is sound, it necessarily leads to the conclusion that the entire proviso in subdivision (A) of Section 5701.08, which read, 'but merchandise or agricultural products belonging to a nonresident of this state is not used in business in this state if held in a storage warehouse for storage only,' was void and should be stricken. That being so, it is apparent that any of taxpayer's 'merchandise * * * held in a storage warehouse for storage only' would be taxable because described by the preceding words remaining in the statute and reading, 'stored * * * as * * * merchandise." But the court did not hold that the proviso was invalid, nor did it strike it from the statute. Instead, it held that the proviso expressed the valid legislative purpose to exempt the merchandise and agricultural products of nonresidents when held in a storage warehouse for storage only and that the court was powerless to strike it. In this, the court was following its prior decisions on the question. General Cigar Co. v. Peck, 1953, 159 Ohio St. 152, 111 N.E.2d 265, and B. F. Goodrich Co. v. Peck, 1954, 161 Ohio St. 202, 118 N.E.2d 525, had so held. In the latter case the court had answered a contention that the proviso was invalid for undue preference of nonresidents by saying 'such an argument should be addressed to the General Assembly and not to this court.' 161 Ohio St. at page 210, 118 N.E.2d at page 530. Those interpretations, for present purposes, became a part of the proviso. Wheeling Steel Corp. v. Glander, 337 U.S. 562, 566, 69 S.Ct. 1291, 1293, 93 L.Ed. 1544. The proviso is the basis of appellant's claim of denial of the equal protection of the laws. With the proviso thus validly remaining in the statute it is quite immaterial that appellant's claim necessarily would fall if it were out. It follows that appellant does have standing to prosecute its constitutional claim.

This brings up to the merits. Does the proviso exempting 'merchandise or agricultural products belonging to a nonresident * * * if held in a storage warehouse for storage only' deny to appellant, a resident of the State, the equal protection of the laws within the meaning of the Fourteenth Amendment? The applicable principles have been often stated and are entirely familiar. The States have a very wide discretion in the laying of their taxes. When dealing with their proper domestic concerns, and not trenching upon the prerogatives of the National Government or violating the guaranties of the Federal Constitution, the States have the attribute of sovereign powers in devising their fiscal systems to ensure revenue and foster their local interests. Of course, the States, in the exercise of their taxing power, are subject to the requirements of the Equal Protection Clause of the Fourteenth Amendment. But that clause imposes no iron rule of equality, prohibiting the flexibility and variety that are appropriate to reasonable schemes of state taxation. The State may impose different specific taxes upon different trades and professions and may vary the rate of excise upon various products. It is not required to resort to close distinctions or to maintain a precise, scientific uniformity with reference to composition, use or value. Bell's Gap R. Co. v. Commonwealth of Pennsylvania, 134 U.S. 232, 237, 10 S.Ct. 533, 535, 33 L.Ed. 892; Magoun v. Illinois Trust & Savings Bank, 170 U.S. 283, 293, 18 S.Ct. 594, 598, 42 L.Ed. 1037; Southwestern Oil Co. v. State of Texas, 217 U.S. 114, 121, 30 S.Ct. 496, 498, 54 L.Ed. 688; Brown-Forman Co. v. Commonwealth of Kentucky, 217 U.S. 563, 573, 30 S.Ct. 578, 580, 54 L.Ed. 883; Sunday Lake Iron Co. v. Township of Wakefield, 247 U.S. 350, 353, 38 S.Ct. 495, 62 L.Ed. 1154; Heisler v. Thomas Colliery Co., 260 U.S. 245, 255, 43 S.Ct. 83, 84, 67 L.Ed. 237; Oliver Iron Mining Co. v. Lord, 262 U.S. 172, 179, 43 S.Ct. 526, 529, 67 L.Ed. 929; Stebbins v. Riley, 268 U.S. 137, 142, 45 S.Ct. 424, 426, 69 L.Ed. 884; Ohio Oil Co. v. Conway, 281 U.S. 146, 159, 50 S.Ct. 310, 313, 74 L.Ed. 775; State Board of Tax Com'rs of Indiana v. Jackson, 283 U.S. 527, 537, 51 S.Ct. 540, 543, 75 L.Ed. 1248. 'To hold otherwise would be to subject the essential taxing power of the State to an intolerable supervision, hostile to the basic principles of our government and wholly beyond the protection which the general clause of the Fourteenth Amendment was intended to assure.' Ohio Oil Co. v. Conway, supra, 281 U.S. at page 159, 50 S.Ct. at page 314.

But there is a point beyond which the State cannot go without violating the Equal Protection Clause. The State must proceed upon a rational basis and may not resort to a classification that is palpably arbitrary. The rule often has been stated to be that the classification 'must rest upon some ground of difference having a fair and substantial relation to the object of the legislation.' F. S. Royster Guano Co. v. Commonwealth of Virginia, 253 U.S. 412, 415, 40 S.Ct. 560, 561, 64 L.Ed. 989; Louisville Gas & Electric Co. v. Coleman, 277 U.S. 32, 37, 48 S.Ct. 423, 425, 72 L.Ed. 770; Air-Way Electric Appliance Corp. v. Day, 266 U.S. 71, 85, 45 S.Ct. 12, 15, 69 L.Ed. 169; Schlesinger v. State of Wisconsin, 270 U.S. 230, 240, 46 S.Ct. 260, 261, 70 L.Ed. 557; Ohio Oil Co. v. Conway, 281 U.S. 146, 160, 50 S.Ct. 310, 314, 74 L.Ed. 775. 'If the selection or classification is neither capricious nor arbitrary, and rests upon some reasonable consideration of difference or policy, there is no denial of the equal protection of the law.' Brown- Forman Co v. Commonwealth of Kentucky, 217 U.S. 563, 573, 30 S.Ct. 578, 580, 54 L.Ed. 883. State Board of Tax Com'rs of Indiana v. Jackson, 283 U.S....