Lakengren, Inc. v. Kosydar
| Decision Date | 31 December 1975 |
| Docket Number | No. 75-461,75-461 |
| Citation | 339 N.E.2d 814,73 O.O.2d 502,44 Ohio St.2d 199 |
| Parties | , 73 O.O.2d 502 LAKENGREN, INC., Appellant, v. KOSYDAR, Tax Commr., Appellee. |
| Court | Ohio Supreme Court |
Syllabus by the Court
Insofar as it increases the franchise tax obligation of a corporation for an accounting year already closed at the time of enactment, the amendment to R.C. 5733.05, adopted December 20, 1971, is void as a retroactive law in violation of Section 28, Article II of the Ohio Constitution.
Lakengren, Inc., the appellant, is an Ohio corporation formed for the purpose of acquiring a tract of land in Ohio, developing a subdivision on the land, and selling lots in the subdivision. The fiscal year of Lakengren is from March 1 through February 28 or 29. For the fiscal year ending February 28, 1971, Lakengren had a net income of $577,306. At that time, the Ohio corporation franchise tax was calculated on the basis of one-half of one percent of the corporation's net worth. Calculated on that basis, appellant's tax liability would have been $3,557.55, payable in 1972.
On March 25, 1971, H.B. 475 was introduced in the General Assembly which, inter alia, amended R.C. 5733.05 to establish corporate income as an alternative basis for computing the corporate franchise tax. The bill was signed by the Governor and became law on December 20, 1971. Calculated on the basis of its income for the fiscal year ending February 28, 1971, appellant's 1972 corporate franchise tax liability was $45,184.
Appellant paid the tax under protest and made application to the Tax Commissioner for a refund of the difference between the tax as calculated on the net worth basis and as calculated on the income basis. This appeal is taken as a matter of right from the denial of that application, as affirmed by the Board of Tax Appeals.
Stouffer, Wait & Ashbrook, Hugh D. Wait and William G. Harrington, Columbus, for appellant.
William J. Brown, Atty. Gen., and John C. Duffy, Jr., Columbus, for appellee.
The only question presented in this case is whether the amendment to R.C. 5733.05, adopted December 20, 1971, whereby the income of a corporation was made an alternative basis for computing the corporate franchise tax, is a retroactive law as to accounting years already closed prior to the enactment of the statute. The amendment applies the tax rate to the net income of the corporation earned during the accounting year 'preceding the date of commencement of its annual accounting period which includes the first day of January of the tax year' (R.C. 5733.05(B)), so that this taxpayer's corporate franchise tax obligation for the tax year 1972 would be based upon the net income earned in the accounting year ending February 28, 1971.
The validity of the corporation franchise tax is not challenged, but appellant argues that to apply the amendment to the net income of the company earned in a preceding accounting year is to give the amendment a retroactive effect, in violation of Section 28, Article II of the Ohio Constitution.
Section 28, Article II provides that:
'The general assembly shall have no power to pass retroactive laws, or laws impairing the obligation of contracts * * *.'
The state urges that the franchise tax is levied only upon the privilege of engaging in business during the tax year, even though it uses income earned in a past year as a measure of the tax levy. The state agrees that the tax is based on past events, but argues that this does not render the tax retroactive, because it is a fee levied for the exercise of the future privilege of engaging in business.
The obvious difficulty with that contention is that it allows the state to impose new taxes upon income earned at any time in the past simply by stating that the levy is a payment for future privileges. The prohibition against retroactive laws is not a form of words; it is a bar against the state's imposing new duties and obligations upon a person's past conduct and transactions, and it is a protection for the individual who is assured that he may rely upon the law as it is written and not later be subject to new obligations thereby. 'The general assembly having the power to enact laws, and * * * having enacted laws with certain limitations, and persons having conformed their conduct and affairs to such state of the law, the general assembly is prohibited, estopped, from passing new laws to reach back and create new burdens, new duties, new obligations, or new liabilities not existing at the time.' Miller v. Hixson (1901), 64 Ohio St. 39, 51, 59 N.E. 749, 752. See, also, Society v. Wheeler, 22 Fed.Cas.No.13,156, 2 Gall (U.S.C.C.) 105, 139; Rairden v. Holden (1864), 15 Ohio St. 207; Commissioners v. Rosche Bros. (1893), 50 Ohio St. 103, 33 N.E. 408. The case of Safford v. Metropolitan Life Ins. Co. (1928), 119 Ohio St. 332, 164 N.E. 351, is in accord, upon facts very similar to the case at bar. In that case, the General Assembly, by an Act passed on May 11, 1927, increased the 'tax upon business done' in the state by foreign insurance companies by one half of one percent. The company was required to pay the assessed tax in the following November, and failure to do so was grounds for revocation of the license to do business in the state. The issue presented was whether the tax increase could be levied on premiums for the calendar year 1926, before the passage of the increase, as payment for the privilege of doing business in the state during 1926. The court held that it could not.
The amendment to R.C. 5733.05 as applied to appellant has precisely the same effect of increasing a tax obligation assessed on the basis of transactions concluded during a previous tax accounting period. In both this case and in Safford, supra, earnings in one accounting year were subjected to a higher tax-in Safford by a higher rate, and in the present case by the introduction of a tax computed upon income-by statutes enacted...
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...that he may rely upon the law as it is written and not later be subject to new obligations thereby.” Lakengren, Inc. v. Kosydar, 44 Ohio St.2d 199, 201, 339 N.E.2d 814 (1975). Thus, “the constitutional test for substantive legislation focuses on new laws that reach back in time and create n......
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