Board of Tax Suprs. Etc. v. Baldwin Piano Co.
| Decision Date | 18 February 1944 |
| Citation | 296 Ky. 673 |
| Parties | Board of Tax Supervisors of Jefferson County v. Baldwin Piano Co. |
| Court | United States State Supreme Court — District of Kentucky |
1. Taxation. — Intangibles, such as notes, accounts receivable, bonds, and similar securities, owned by nonresident, which are not temporarily brought into Kentucky but are being held here by a fiduciary or other agent who controls, manages and invests them in owner's business in Kentucky, so that they become an integral part thereof, acquire a business situs in Kentucky and are taxable. KRS 132.190 2. Taxation. — If intangibles, such as notes, accounts receivable, bonds, etc., are only temporarily in Kentucky in agent's or fiduciary's possession, and he does not use them in nonresident owner's business in Kentucky and has no control over them except to forward them to owner within reasonable time or in ordinary course of business, the intangibles do not become integral part of owner's business, and do not acquire business situs in Kentucky, and are not taxable therein. KRS 132.190.
3. Taxation. — Where subsidiary selling corporation qualified to do business in Kentucky, on selling merchandise which it purchased from foreign parent manufacturing corporation on credit, transferred contracts or accounts receivable arising from sales by it to manufacturing corporation as credits on its accounts for merchandise purchased by it, the intangible receivables so transferred did not acquire business situs in Kentucky for taxation. KRS 132.190.
4. Corporations. — Though fact that stock of two corporations is owned by same stockholders or that stock of one corporation is owned by another does not create an identity of corporate interests, courts will not be blinded by mere form and will refuse to recognize separate corporate entities where one corporation is using the other as shield against fraudulent acts or to supervene commonwealth's policy.
5. Corporations. — Where subsidiary was organized to sell merchandise before organization of foreign parent manufacturing corporation, the fact that manufacturing corporation owned substantially all of selling corporation's stock did not establish that selling corporation was mere instrumentality of manufacturing corporation so as to subject to ad valorem taxes in Kentucky intangible receivables transferred by selling corporation to manufacturing corporation on theory that selling corporation was mere device to evade taxation. KRS 132.190, 132.200.
Appeal from Jefferson Circuit Court.
Lawrence S. Grauman for appellants.
Doolan, Helm, Stites & Wood for appellee.
Before Burrel H. Farnsley, Judge.
Affirming.
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 address 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 assessments 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 instrument, 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. These 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 applicable 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 KS sec. 4020 ()....
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