Electric Appliance Corporation v. Day Day v. Airway Electric Appliance Corporation

Citation45 S.Ct. 12,69 L.Ed. 169,266 U.S. 71
Decision Date20 October 1924
Docket NumberNos. 31 and 32,AIR-WAY,s. 31 and 32
PartiesELECTRIC APPLIANCE CORPORATION v. DAY, State Treasurer of Ohio, et al. DAY, State Treasurer of Ohio, et al. v. AIRWAY ELECTRIC APPLIANCE CORPORATION
CourtUnited States Supreme Court

Messrs. Newton A. Tracy, Thomas H. Tracy, and Geo. D. Welles, all of Toledo, Ohio, for Air-Way Electric Appliance Corporation.

[Argument of Counsel from pages 72-75 intentionally omitted] Mr. Wm. J. Meyer, of Columbus, Ohio, for State Treasurer.

Mr. Justice BUTLER delivered the opinion of the Court.

Plaintiff, Air-Way Electric Appliance Corporation, brought this suit against the above-named treasurer and other state officers to restrain the collection of a franchise fee charged against it as a foreign corporation for the privilege of exercising its franchises in Ohio during the year commencing July 1, 1921, on the grounds, among others, that the legislation of Ohio, under which the fee was imposed, is invalid under the commerce clause of the Constitution, and is repugnant to the Fourteenth Amendment.

Plaintiff was incorporated in 1920 under the laws of Delaware. Under its certificate of incorporation and the laws of that state, its authorized capital stock is 400,000 shares without par value, of which 200,000 shares are common stock and 200,000 founders' stock. The only difference between the two classes is that holders of the former are entitled to one vote per share and of the latter to five votes per share. Shortly after its incorporation, it obtained from the secretary of state in conformity with the laws of Ohio a certificate of admission to do business in that state, and also paid the initial fee for the privilege of there exercising its franchise. Sections 178-180, 183, 184, General Code of Ohio. It complied with the laws of Ohio regulating the sale of stock in that state and received a certificate from the commissioner of securities authorizing sale at $7 per share. Sections 6373-1 to 6373-24, General Code of Ohio. It acquired two large manufacturing plants at Toledo, including grounds, buildings, tools, machinery, etc. August 1, 1920, it commenced business—the manufacture of electrical household appliances and their sale in Ohio and elsewhere. In July, 1921, as required by law, it filed with the tax commission a report covering the year ended July 1, 1921. There had been issued and were then outstanding only 50,485 shares of stock, of which 10,010 shares were common and 40,475 were founders' stock. All of its property was located in Ohio; its value was $458,278.56. The amount of business transacted in the preceding year was $250,594.58. The complaint alleged and the answer admitted that the value of the stock was $7 per share.

Section 5503 (enacted May 31, 1911) imposes an annual fee required of foreign corporations having capital stock with par value as follows: 'On or before October fifteenth, the auditor of state shall charge for collection, as herein provided, annually, from such company, in addition to the initial fees otherwise provided for by law, for the privilege of exercising its franchises in this state, a fee of three-twentieths of one per cent. upon the proportion of the authorized capital stock of the corporation represented by property owned and used and business transacted in this state. * * *' An act of May 14, 1921 (109 Ohio Laws, p. 277), amending section 8728-11, General Code of Ohio, provides: '* * * The amount of fees payable by a foreign corporation having common stock without par value * * * under section 5503 shall be three-twentieths of one per cent. upon the proportion of the authorized preferred stock represented by property owned and used and business transacted in this state and five cents per share upon the proportion of the number of shares of authorized common stock, represented by property owned and used and business transacted in this state. * * *'

Under the section last quoted, an annual fee of $20,000 was assessed and payment on or before December 1, 1921, was demanded, and notice was given that, if not made on or before that day, a penalty of 15 per cent. would be added. Under the laws of the state, all fees, taxes, and penalties constitute liens on the corporation's property; a fine for each day's delinquency may be imposed; and, in case of failure to pay, its authority to do business is liable to cancellation, and injunction and ouster are authorized. Sections 5506, 5507, 5509, 5512, 5513.

Plaintiff's report to the tax commission stated that the amount of business transacted in Ohio in the year ended July 1, 1920, was $250,594.58, whereas that figure represented its total sales, of which only $70,802.30, or about 28 per cent., was intrastate, and the balance, $179,792.28, or about 72 per cent., was interstate. The state officers, assuming that all plaintiff's property and business was located and transacted in Ohio, made no apportionment between local and interstate business and fixed the annual franchise fee at 5 cents per share on its total authorized stock.

Plaintiff invoked equity jurisdiction on the ground that it was threatened with irreparable injury through the enforcement of the coercive provisions of the statutes above referred to. Ohio Tax Cases, 232 U. S. 576, 587, 34 S. Ct. 372, 58 L. Ed. 737. A motion for a temporary injunction was heard by a court of three judges. Section 266, Judicial Code (Comp. St. § 1243). It was held (279 Fed. 878) that the plaintiff's objections to the act and the tax were not valid; but the bill was retained to await the result of an application by the plaintiff to the tax commission for a rehearing and correction of the amount of the tax. Plaintiff made such an application, setting forth the above mentioned amount of intrastate and interstate sales respectively. The commission held that, as more than 60 days had elapsed after the certification of the amount of the tax by the state auditor, it had no jurisdiction to entertain such an application. At a later hearing, the court held that the commission was authorized to grant plaintiff a rehearing and make correction if it found the tax or any part of it to be erroneous; that it was not the intent of the state laws to include interstate commerce as a basis for the levy, and that plaintiff may not be taxed on its interstate business and on the portion of its authorized stock represented by property owned and used and business transacted in other states; that the $20,000 charge included a substantial sum levied directly on the stock representing interstate business and that the tax should have been $14,926-5 cents per share on 298,520 shares. These figures were arrived at by taking such proportion of 400,000, the total number of shares authorized, as the actual value of plaintiff's property in Ohio plus its local business in that state is to such actual value plus all its business, and by applying thereto 5 cents per share.1 By the decree defendants are enjoined from collecting any part of the tax in excess of $14,926. The plaintiff appealed, and attacks the act on the grounds above stated. Defendants appealed and contend that the lower court erred in finding that 298,520 shares of the authorized capital stock of plaintiff represented the property owned and used and business transacted by it in Ohio, and in enjoining the collection of a tax in excess of $14,926.

In cases involving the validity of the laws of a state imposing license fees or excise taxes on corporations organized in another state, this court has decided:

'1. The power of a state to regulate the transaction of a local business within its borders by a foreign corporation meaning a corporation of a sister state—is not unrestricted or absolute, but must be exerted in subordination to the limitations which the Constitution places on state action.

'2. Under the commerce clause exclusive power to regulate interstate commerce rests in Congress, and a state statute which either directly or...

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