Board of Tax Sup'rs of Jefferson County v. Baldwin Piano Co.

• Decision Date: 18 February 1944
• Parties: BOARD OF TAX SUPERVISORS OF JEFFERSON COUNTY v. BALDWIN PIANO CO.
• Court: Kentucky Court of Appeals

178 S.W.2d 212

296 Ky. 673

BOARD OF TAX SUPERVISORS OF JEFFERSON COUNTY v. BALDWIN PIANO CO.

Court of Appeals of Kentucky

February 18, 1944

Appeal from Circuit Court, Common Pleas Branch, Jefferson County Second Division; Burrel H. Farnsley, Judge.

Proceeding between the Board of Tax Supervisors of Jefferson County and Baldwin Piano Company involving question whether intangible receivables in the form of notes, accounts receivable and sales contracts owned by the Baldwin Company, an Ohio corporation, not qualified to do business in the Commonwealth, were subject to the ad valorem taxes. The action of the Board of Tax Supervisors assessing the property for taxation was sustained by the Jefferson Quarterly Court and on appeal to the Circuit Court the assessment was held to be void, and the Board of Tax Supervisors appeal.

Affirmed.

Lawrence S. Grauman, of Louisville, for appellants.

Doolan Helm, Stites & Wood, of Louisville, for appellee.

SIMS Justice.

The question presented on this appeal is whether or not $78,701 of intangible 'receivables' in the form of notes accounts and sales contracts owned by the Baldwin Company, an Ohio corporation not qualified to do business in this State, was subject to assessment on July 1, 1941, for state ad valorem taxes. The Board of Tax Supervisors of Jefferson County assessed them and on appeal to the Jefferson Quarterly Court the board's action was sustained. An appeal was then taken to the Jefferson Circuit Court where the case was submitted on an agreed statement of facts and judgment was entered holding the assessment void. This appeal followed.

There is no controversy as to the value of the intangibles and all other essential facts are covered by a stipulation which we will concisely state. The Baldwin Company (hereinafter referred to as Baldwin), a manufacturer of musical instruments, is an Ohio corporation with its chief office in Cincinnati and has not qualified to do business in Kentucky. The Baldwin Piano Company (hereinafter referred to as Piano) is likewise an Ohio corporation with its chief office at the same addres as Baldwin in Cincinnati. Piano is engaged in selling musical instruments in Ohio, Kentucky and other states. It is qualified to do business in Kentucky and keeps on hand at its place of business in Louisville a stock of musical instruments which it listed for assessment as of July 1, 1941.

All the capital stock of Piano, except qualifying shares of directors, is owned by Baldwin and the former purchases its merchandise from the latter on credit. When Piano sells a musical instruments, the contract or account arising from the transaction is sold by it to Baldwin as credit on account for the musical instruments purchased; and if collection is not made, the paper is charged back to Piano on its endorsement. There receivables become the property of Baldwin and are kept in its office in Cincinnati, but it furnishes data to Piano at the latter's Louisville office showing the condition of the sales accounts. Likewise, Piano in its Louisville office keeps a record of receivables sold, which may be paid direct to Baldwin in Cincinnati or through Piano in Louisville; but if the latter collects the money, it is immediately paid to the former. None of the receivables assessed by the Board of Tax Supervisors appear on the books of Piano, nor are they reflected in its balance sheet.

Appellants argue two propositions. First, these intangibles have a business situs in Kentucky, therefore they are taxable in this State. Second, Piano is but a sham corporation organized by Baldwin and the latter is conducting its business in Kentucky through the former and this court should disregard their separate corporate entities and treat them as a unit to prevent a fraud being perpetrated on this State in the collection of taxes.

It is not necessary in this opinion to give the judicial and legislative history of the business situs doctrine in this jurisdiction aplicable to intangibles for the purpose of taxation since the subject was comprehensively covered in the recent case of Com. v. Sun Life Assurance Co. of Canada, 294 Ky. 19, 170 S.W.2d 890. It will suffice to say that the doctrine was recognized in Higgins v. Com., 126 Ky. 211, 103 S.W. 306, and in Com. v. R. G. Dun & Co., 126 Ky. 108, 102 S.W. 859, 10 L.R.A.,N.S., 920, both decided in June 1907, which were in effect overruled at the following 1908 session of the General Assembly when it amended K.S. § 4020 (Chapter 47, § 2 page 122, Acts of 1908). However, the business situs doctrine was re-established by the General Assembly in 1938 when it amended K.S. § 4020 (Chapter 6, page 1026, Acts of 1938, 1st Ex. Sess.) now included in KRS 132.190, which subjected to taxation 'All real and personal property within this state, including intangible personal property of nonresidents and corporations not organized under the laws of this state that has acquired a business situs within this state * * *.'

The rule in this jurisdiction is that intangibles such as notes accounts receivable, bonds and other like securities owned by a non-resident, which are not just temporarily brought into the State but are being held here by a fiduciary or other agent, who controls, manages and invests them in the owner's business in Kentucky so that they become an integral part thereof, acquire a location or situs in this State for business purposes and are taxable. Higgins v. Com., 126 Ky. 211, 103 S.W. 306; Com. v. R. G. Dun & Co., 126 Ky. 108, 102 S.W. 859, 10 L.R.A.,N.S., 920; City of Henderson v. Barret's Ex'r, 152 Ky. 648, 153 S.W. 992; Com. v. Madden...