Wheeling Steel Corp. v. Porterfield

• Citation: 236 N.E.2d 652,14 Ohio St.2d 85
• Decision Date: 24 April 1968
• Docket Number: No. 41068,41068
• Parties: , 43 O.O.2d 159 WHEELING STEEL CORP., Appellant, v. PORTERFIELD, Tax Commr., Appellee.
• Court: Ohio Supreme Court

Page 85

14 Ohio St.2d 85

236 N.E.2d 652, 43 O.O.2d 159

WHEELING STEEL CORP., Appellant, v. PORTERFIELD, Tax Commr., Appellee.

No. 41068.

Supreme Court of Ohio.

April 24, 1968.

Syllabus by the Court

1. Goods or materials imported in bulk have the same immunity from state taxation under Clause 2 of Section 10 of Article I of the Constitution of the United States as goods imported in packages or other containers.

2. Goods or materials imported by a manufacturer for use in its manufacturing process, while in storage and not necessary to meet such manufacturer's current operational needs, are immune from state taxation.

3. When imported iron ore is released by United States Customs officials to the manufacturer-importer and thereupon is placed in storage in a warehouse under its control, awaiting use by the manufacturer, only that amount which is required to meet the manufacturer-importer's current operational needs for the length of time it takes to secure an additional supply of iron ore from the foreign source which the taxpayer has selected to supply its iron ore loses its constitutional immunity as an import and is, therefore, taxable under the Ohio personal property tax laws. (Orr Felt & Blanket Co. v. Schneider, 3 Ohio St.2d 14, 209 N.E.2d 150, approved and followed.)

4. There is no rigid and inflexible rule which can be laid down to determine the current operational needs of a taxpayer. This is an area wherein the policy of the law dictates ad hoc determinations based on the facts presented in each particular case.

This cause is before the court upon an appeal, as a matter of right by the Wheeling Steel Corporation, from a decision and order of the Board of Tax Appeals confirming two certificates of tax determination issued by the Tax Commissioner, appellee herein, wherein the assessment of the Ohio personal property tax upon certain iron ore for the years 1959 and 1960 was substantially increased over and above the tax returns of the appellant. Wheeling contends that the tax should be assessed upon the amount of iron ore used to supply the 'current operational needs' of Wheeling in the manufacture of its products. The Tax Commissioner based his assessment of the tax upon the total amount of iron ore stored in appellant's yards at Mingo Junction and Steubenville during the audit period.

Wheeling uses enormous quantities of iron ore, its basic raw material, in the manufacture of iron and steel products. In the instant case, two types of iron ore, Seine River and Ungava, were involved. Both were mined in Canada and imported to Ohio. Under the provisions of long-term contracts Wheeling purchased iron ore which was shipped from Canada through the Great Lakes waterway and delivered to Ohio ports, where the ore was discharged from ships to railroad cars and then transported to Wheeling's facilities at Mingo Junction and Steubenville, where it was deposited in the yards in separate piles. The two types of iron ore were not mixed or intermingled. A cycle of approximately 20 days was required to transmit an order for a shipment of iron ore, load it on boats in Canadian waters and deliver it to the yards of the appellant, as above indicated. The use of the Great Lakes as a waterway was interrupted by ice formation during the winter season from approximately the 15th day of November until the forepart of the following May. This was recognized in the contracts above-mentioned, as it was necessary to store sufficient iron ore in the storage yards of Wheeling to keep its blast furnaces in continuous operation, not only during the summer but also during winter months. The blast furnaces were in use seven days a week. In order to satisfy current operational needs, iron ore was moved, in limited quantities, from the respective piles to stock bins adjacent to the blast furnaces. A stock bin is a rectangular four-sided concrete structure with the top open. The iron ore was moved from the stock bins and fed into the blast furnaces where the manufacturing process began.

Prudent business practice also required an additional reserve of iron ore be kept in storage in order to maintain operations during potential shipping stoppages in the event of strikes or other conditions adversely affecting Wheeling's ability to meet production schedules.

Carlton S. Dargusch, Jr., Roger F. Day, Columbus, and Burr A. Horn, Jr., Wheeling, W. Va., for appellant.

William B. Saxbe, Atty. Gen., and Edgar L. Lindley, Columbus, for appellee.

PAUL M. HERBERT, Judge.

This appeal requires this court to determine when imported fungible goods, such as iron ore cease to be imports under the provisions of Clause 2 of Section 10, Article I of the Constitution of the United States, which reads:

'No state shall, without the Consent of the Congress, lay any Imposts or Duties on Imports or Exports, except what may be absolutely necessary for executing its inspection Laws; and the net Produce of all Duties and Imposts, laid by any State on Imports or Exports, shall be for the Use of the Treasury of the United States; and all such Laws shall be subject to the Revision and Control of the Congress.' (Emphasis added.)

Wheeling contends that the iron ore, except that being used in its current operational needs, was still an import while in storage awaiting use, and hence was not subject to taxation by the state.

The Tax Commissioner contends that all iron ore stored in the yards of Wheeling, during the audit period was no longer an import and was, therefore, subject to taxation by the state.

Section 5701.08 of the Revised Code of Ohio, in pertinent part, is as follows:

'(A) Personal property is 'used' within the meaning of 'used in business' when employed or utilized in connection with ordinary or special operations, when acquired or held as means or instruments for carrying on the business, when kept and maintained as a part of a plant capable of operation, whether actually in operation or not, or when stored or kept on hand as material, parts, products, or merchandise. Machinery and equipment classifiable upon completion as personal property while under construction or installation to become a part of a new or existing plant or other facility is not considered to be 'used' by the owner of such plant or other facility within the meaning of 'used in business' until such machinery and equipment is installed and in operation or capable of operation in the business for which acquired. * * * and merchandise or agricultural products shipped from outside of this state and held in this state in a warehouse or place of storage for storage only and for shipment outside of this state are not used in business in this state.' (Emphasis added.)

Certain guidelines may be helpful in construing the foregoing constitutional and statutory provisions.

The second and third paragraphs of the syllabus in the case of B. F. Goodrich Co. v. Peck, 161 Ohio St. 202, 118 N.E.2d 525, read:

'2. Property may be held 'for storage only' even though its owner intends at some subsequent time to sell it or use it as manufacturing material. General Cigar Co., Inc. v. Peck, Tax Commr., 159 Ohio St. 152, 111 N.E.2d 265, followed.

'3. It is a general rule that, if there is any ambiguity in a statute defining the subjects of taxation, such ambiguity must be resolved in favor of the taxpayer; and this rule of construction generally applies with respect to provisions of a statute stating that certain potential objects of taxation shall not be considered to be included within specified subjects of taxation. * * *' (Emphasis added.)

See, also, Pittsburgh Steel Co. v. Bowers, 173 Ohio St. 74, 179 N.E.2d 915, where, at page 78 in the opinion, 179 N.E.2d at page 917 is the following:

'A warehouse is primarily a place of storage * * *. So far as Section 5701.08, Revised Code * * * is concerned whether storage facilities are a building or merely a given area of ground, if they are used for storage they constitute a 'storage warehouse' within the meaning of that section.'

It is assumed that the General Assembly was familiar with the provisions and limitations fixed by Clause 2, Section 10 of Article I of the United States Constitution and did not intend to tax an import.

Coming on to consideration of the cases, it is not only appropriate but essential that we turn our attention to the able opinion delivered by Mr. Chief Justice Marshall, in Brown v. Maryland (1827), 12 Wheat. 419, 6 L.Ed. 678. At page 441 in the opinion, the learned Chief Justice said:

'* * * It is sufficient for the present to say, generally that when the importer has so acted upon the thing imported, that it has become incorporated and mixed up with the mass of property in the country, it has perhaps, lost its distinctive character as an import, and has become subject to the taxing power of the state; but while remaining the property of the importer, in his warehouse, in the original form or package in which it was imported, a tax upon it is too plainly a duty on imports to escape the prohibition in the Constitution.' (Emphasis added.)

The iron ore was in its 'original form' and possessed of 'its distinctive character' while in storage in Wheeling's facilities, precisely as it was when loaded on ship board in Canada and carried to Ohio on its importation journey. The only act of the importer was that of causing the iron ore to be shipped to Ohio. The ore was not 'incorporated and mixed up with the mass of property in the country,' but remained in its 'original form' and retained 'its distinctive character.' Hence, under the test stated by Chief Justice Marshall, the iron ore in storage was still an import awaiting 'use' and, therefore, immune from state taxation.

The Supreme Court of Ohio, in Hooven & Allison Co. v. Evatt, 142 Ohio St. 235, 51 N.E.2d 723, sustaining an assessment of state taxes, stated its view of the law in the syllabus:

'1. Where an Ohio corporation contracts to purchase fibers grown in a...