Aluminum Co. of America v. Evatt

• Decision Date: 18 November 1942
• Docket Number: 29053.
• Parties: ALUMINUM CO. OF AMERICA v. EVATT, Tax Com'r, et al.
• Court: Ohio Supreme Court

45 N.E.2d 118

140 Ohio St. 385

ALUMINUM CO. OF AMERICA v. EVATT, Tax Com'r, et al.

No. 29053.

Supreme Court of Ohio

November 18, 1942

Syllabus by the Court.

1. The franchise tax levied pursuant to Sections 5498 and 5499 General Code, on a foreign corporation is for the privilege of doing business in this state or owning a part or all of its capital or property in this state or for holding a certificate of compliance with the laws of this state authorizing it to do business in this state. Section 5495 General Code.

2. 'Doing business' in this state is only a part of the privilege taxed under Section 5495, General Code. The tax also covers the privilege of owning a part or all of the foreign corporation's capital or property in this state as well as the privilege of holding a certificate of compliance with the laws of this state.

3. The Ohio Franchise Tax (Section 5495 et seq., General Code) is not a tax upon commerce, state or interstate. It is not a tax upon income, receipts or sales.

4. The manufacturing operations within this state by a foreign corporation constitute business done by such corporation in this state within the meaning of Section 5498, General Code.

5. Tax Commissioner's Rule No. 275 is not unreasonable or unlawful in its application in the instant case. Such rule is favorable to the taxpayer by eliminating from the base upon which the franchise tax is computed goods manufactured in Ohio and sold from warehouses outside of this state. Such rule eliminates the possibility of double taxation on account of 'business done' by the corporation in the state where sales of Ohio-manufactured goods are made from warehouses in such other state.

6. In computing the numerator of the 'business done' fraction under Section 5498, General Code, the Tax Commissioner may not be required to deduct therefrom (a) goods sold in interstate commerce, (b) raw materials shipped from outside the state, whether partially fabricated or not (c) the cost of selling goods manufactured in Ohio but sold outside of Ohio, or (d) administrative expense attributable to sales made outside of Ohio of goods manufactured in Ohio.

7. A franchise tax computed according to the amount of sales of goods manufactured in Ohio, irrespective of whether such goods are sold within or without the state, in intrastate or interstate commerce, where the payment of the tax is not made a condition of the selling of the goods in interstate or other commerce, but only of continuing in the manufacture of goods within the state, violates neither the commerce clause, Section 8, Article I of the Constitution of the United States, nor the 14th Amendment thereto. American Mfg. Co. v. City of St. Louis, 250 U.S. 459, 39 S.Ct. 522, 63 L.Ed. 1084, followed.

8. While a state may not use its taxing power to regulate or burden interstate commerce, on the other hand it is settled by the decisions of the Supreme Court of the United States that a state excise tax which affects such commerce, not directly, but only incidentally and remotely, may be entirely valid where it is clear that it is not imposed with the covert purpose or with the effect of defeating federal constitutional rights. Hump Hairpin Mfg. Co. v. Emmerson, Sec'y of State, 258 U.S. 290, 42 S.Ct. 305, 66 L.Ed. 622, followed.

9. A franchise tax imposed on a corporation, foreign or domestic, for the privilege of doing local business, if apportioned to the business done or property owned within the state, is not invalid under the commerce clause of the federal Constitution merely because a part of the property or capital included in computing the tax is used by the corporation in interstate commerce, or because a part of the manufactured product is thereafter sold and shipped in interstate commerce. International Shoe Co. v. Shartel, Atty. Gen., 279 U.S. 429, 49 S.Ct. 380, 73 L.Ed. 781, and Hope Natural Gas Co. v. Hall, Tax Com'r, 274 U.S. 284, 47 S.Ct. 639, 71 L.Ed. 1049, followed.

10. The validity of an excise tax upon a foreign corporation depends upon its operating incidence. The application of Section 5498, General Code, and Tax Commissioner's Rule No. 275 in computing appellant's franchise tax for the year 1939 produced no unlawful result under the evidence in this case.

This matter comes to this court upon an appeal under Section 5611-2, General Code, from the decision of the Board of Tax Appeals affirming a determination of the franchise tax of appellant, a foreign corporation.

On March 31, 1939, the appellant, a corporation organized under the laws of the state of Pennsylvania and engaged in the business of manufacturing and selling aluminum and aluminum products in the state of Ohio and elsewhere, filed its annual corporation franchise tax report for that year, as required by the provisions of Section 5495-2, General Code, which report, as to the information therein contained, was in the form prescribed by Section 5497, General Code. In this report the appellant separately stated the value of its property, real and personal, which was owned and used by it in Ohio, and that owned and used by it outside of Ohio, and likewise set out therein its liabilities (less capital and surplus) as of January first of such year. On the information thus set out in appellant's report the Tax Commissioner determined the base value of the issued and outstanding shares of stock, as provided in Section 5498, General Code, and fixed such value at the sum of $180,408,175. Then applying the property fraction indicated by the fair value of appellant's property in Ohio as against the fair value of that owned and used by it in Ohio and elsewhere (as to the correctness of which property fraction no question is made in this case) and, likewise, the business fraction indicated by the value of the business done by the corporation in this state (as determined by the Tax Commissioner) as against the total value of the business of the corporation wherever transacted, as set out in appellant's report, the Tax Commissioner determined the taxable value of the issued and outstanding shares of stock of the corporation represented by the property owned and business done by it in this state, and found such taxable value to be $13,722,387. The Tax Commissioner in determining such business fraction included in the numerator thereof the value of all sales of aluminum and aluminum products made by the appellant during the year 1938 in its manufacturing plant at Cleveland, Ohio, and included in the denominator of the fraction the value of the sales made by appellant during that year of aluminum and aluminum products manufactured by it in Ohio and elsewhere.

After the Tax Commissioner, by the application of the property and business fractions above noted, had determined the taxable value of the issued and outstanding shares of the stock of the corporation represented by the property owned and business done by the corporation in this state, and after the franchise tax of one-tenth of one per cent had been extended against such valuation, as provided in Section 5499, General Code, the appellant, acting under the authority of Section 5500, General Code, and within the time limited in that section, filed an application for a review of the determination theretofore made by the Tax Commissioner of the value of the issued and outstanding shares of stock of the corporation represented by the property owned and business done by it in this state. In this application for the review of the determination of the Tax Commissioner therein complained of, the appellant did not question the valuation of the issued and outstanding shares of the stock of the corporation as determined by the Tax Commissioner, or the correctness of the property fraction used by that officer in determining the taxable value of the issued and outstanding shares of stock represented by the property owned and business done by the corporation in this state. Appellant, however, in its application questioned the correctness of the business fraction used by the Tax Commissioner in making this computation; and as to this the appellant, as previously indicated in the annual report filed by it for such year, contended that the business fraction used by the Tax Commissioner in making such computation should be ascertained by taking the average of two fractions: (1) the value of the sales of products manufactured by the appellant at its manufacturing plant in Ohio, wherever sold ($8,710,581.62) as against the value of sales made of all of its products produced in Ohio and elsewhere ($71,147,721.65); and (2) total sales from its Ohio manufacturing plant to Ohio customers ($1,274,452.16) as against the total sales of all of its products everywhere ($71,147,721.65). Adding the business fraction thus obtained to the property fraction and applying the resulting fraction to the valuation of the issued and outstanding shares of stock of the corporation ($180,408,175) gave a value to that part of the issued and outstanding shares of stock of the corporation represented by property owned and business done in this state of $8,999,481. Thereupon and pursuant to appellant's application for review and redetermination, the Tax Commissioner on or about September 8, 1939, tentatively redetermined the amount of appellant's franchise tax for the year 1939 on the basis suggested by appellant in its application, and determined the tax to be the sum of $8,999.48 based on a taxable valuation of $8,999,481, as above stated. The appellant paid the sum of $8,999.48 to the Treasurer of State in payment of its franchise tax for that year. However, by an agreement made by and between appellant and the Tax Commissioner at that time, the determination of the corporation's franchise tax on this basis for the year 1939 and its...