Wright Aeronautical Corp. v. Glander

• Decision Date: 16 February 1949
• Docket Number: 31429.
• Citation: 84 N.E.2d 483,151 Ohio St. 29
• Parties: WRIGHT AERONAUTICAL CORPORATION v. GLANDER.
• Court: Ohio Supreme Court

84 N.E.2d 483

151 Ohio St. 29

WRIGHT AERONAUTICAL CORPORATION v. GLANDER.

No. 31429.

Supreme Court of Ohio

February 16, 1949

Syllabus by the Court.

1. Section 5394, General Code, does not grant a right to a review and redetermination by the Tax Commissioner to a taxpayer, except where property has been assessed which is not listed in or is omitted from a return, or where the value of the property listed has been increased, or where a claim duly made for deduction from book value, or depreciated book value, has been refused.

2. The Tax Commissioner has no jurisdiction to entertain a claim for deduction from depreciated book value of personal property used in business, unless a claim for such deduction is made in writing bt the taxpayer at the time of making the return. (Paragraph three of the syllabus in Willys-Overland Motors, Inc., v. Evatt, Tax Commr., 141 Ohio St. 402, 48 N.E.2d 468, approved and followed.)

3. Aeronautical engines are not fungible goods, especially where mechanical changes and improvements are made in them from time to time.

4. Where a taxpayer has voluntarily made a tax return upon inventory and has paid the tax thereon without having made any protest that the return was inaccurate, or without having filed any claim under Section 5389, General Code, and where the goods involved in such return are not fungible goods, and where no claim is made for more than two years that any part of the goods belonged to any one other than the taxpayer, and no such claim is made until the taxpayer has been assessed for credits omitted from his return, it is not unreasonable or unlawful for the Tax Commissioner to deny the taxpayer a refunder of a part of the taxes paid, upon the ground that another had title to a part of the inventory returned, which part it was impossible to physically separate from the part admittedly belonging to the taxpayer.

5. Where advance payments are made bt a buyer upon the purchase price of engines under construction but not completed, and where the purpose of the advance payments is to furnish working capital to the seller-manufacturer in order to facilitate the progress and efficiency of the manufacture which advance payments are to be liquidated by the production of the engines, such advance payments may not be listed by the manufacturer as current accounts payable, under Section 5327, General Code, even though the buyer has the right to cancel the contract for the manufacture of engines, without default on the part of the manufacturer, and receive back the unliquidated portions of the advance payments. Black-Clawson Co. v. Evatt, Tax Commr., 139 Ohio St 100, 38 N.E.2d 403, approved and followed.

6. Where, in the above situation, the manufacturer has made advance payments to his subcontractors under similar terms and arrangements as those by which he received advance payments from his buyer, a decision by the Board of Tax Appeals that the unliquidated portions of such advance payments by the manufacturer to his subcontractors constitute current accounts receivable, under Section 5327, General Code, is unreasonable and unlawful.

Appeal from Board of Tax Appeals.

This being an appeal from the Board of Tax Appeals, the case is in this court as a matter of right. The appellant, Wright Aeronautical Corporation, is a corporation organized under the laws of New York and during all the times involved herein was authorized to do business in Ohio. We shall hereinafter refer to it as Wright. The appellee is the Tax Commissioner of Ohio, who shall hereinafter be referred to as the commissioner. The Board of Tax Appeals and the United States government shall hereinafter be referred to, respectively, as the board and the government.

Beginning in 1941 and continuing until about October 1, 1945, Wright operated a manufacturing plant located in Lockland. The plant and all machinery and equipment therein, except jigs, tools and dies, were owned by Defense Plant Corporation, an agency of the government, and were leased to Wright by that agency.

Wright's sole operation in Ohio consisted in the manufacture of aircraft engines and parts, for and under contracts with the government.

In 1942 Wright filed a personal property tax return based upon the balances as shown by its records as of December 31, 1941, and during 1943 filed a personal property tax return based upon the balances shown by its records as of December 31, 1942, and paid the tax shown to be due in each of the returns.

An amended preliminary tax assessment certificate No. 15047 was issued by the commissioner under date of September 6, 1942, increasing the tax based on the 1942 return by Wright, by reallocating the tax between two taxing districts. The additional assessment was paid by Wright.

Sometime during the year 1944, an audit was made by the commissioner of the 1942 and 1943 returns of Wright and at that time another amended preliminary assessment certificate No. 15047 was issued, based upon the results of the audit. This certificate increased the 1942 tax due by the sum of $9,856.14. An amended preliminary certificate No. 15206 was issued which increased the 1943 tax of Wright in an amount of $24,108.87. Of the increase of $9,856.14 in the 1942 taxes, $582.70 resulted because Wright's manufacturing inventory had not been properly returned. It is conceded that this appeal does not involve that portion of the increase. In that respect, this appeal is concerned only with the remainder of the increase, $9,273.44, which is that portion which resulted from the failure of Wright to return for taxation credits as of December 31, 1941.

The increased assessment on the 1943 tax return of $24,108.87 consisted of two items, $381.31, an increased tax on average monthly inventory, and a $23,727.56 increase which resulted from the failure of Wright to return for taxation credits as of December 31, 1942.

Within the time prescribed by law, Wright filed applications for review and redetermination from the increased personal property assessments of $9,856.14 for 1942 and $24,108.87 for 1943.

The commissioner, by an order dated June 18, 1946, found that there was no error in the assessment certificates theretofore issued and denied the applications. In its notice of appeal to the board, Wright contested only that portion, $9,273.44, of the increased tax assessment for 1942, which related solely to credits.

The increased assessment for 1943, involving two items, $381.31 for manufacturing inventory and $23,727.56 concerning credits, was also contested.

In addition, it was asserted in the notice of appeal that Wright had overpaid taxes to the state in the amount of $78,787.09, for which a refund was sought.

The board affirmed the amended preliminary assessments except that it determined that the item of $381.31, which was the increased tax on average monthly inventory for the 1943 return, was incorrect, and remanded the cause to the commissioner for an adjustment thereof. This item of $381.31 is the amount by which the commissioner increased Wright's tax on average monthly inventory returned in 1943, and the action of the board in reference thereto was a restoration of the tax on average monthly inventory to the exact amount as returned and voluntarily paid by Wright. The board further denied Wright's claim for a refund.

In this appeal the claims of Wright are based upon the provisions of the contract between it and the government, particularly upon contract No. 16288 and supplemental amendments thereto.

On or about October 24, 1940, the government contracted with Wright for the manufacture of R-2600 series aeronautical engines, spare parts and data, at an estimated cost of $112,135,255.26. Certain provisions of this contract, which are pertinent to the questions we must decide, were as follows:

'Article 6--Payments.

'(a) Reimbursement for Cost. The government will currently reimburse the contractor for such expenditures made in accordance with Article 3 as may be approved or ratified * * *. Generally, reimbursement will be made weekly but may be made at more frequent intervals if the conditions so warrant. * * *'

'Article 22--Title to Property where Partial Payments are Made.

'The title to all property upon which any partial payment is made prior to the completion of this contract, shall vest in the government in its then condition forthwith upon the making of any such partial payment or payments * * *.'

On March 6, 1941, a supplemental contract was made which provided in part:

'Article 1. The government shall, from time to time after the approval of this supplemental contract, at the request of Wright and subject to the approval of the chief of the air corps, or his authorized representative, as to the necessity therefor, pay to the contractor for deposit in a special account as hereinafter provided, without payment of interest therefor by the contractor, advance payments aggregating not in excess of thirty per centum (30%) of the total estimated contract price to the government, as it may be amended from time to time, such upper limit for advance payments now being thirty five million, nine hundred sixty one thousand, two hundred seventy six dollars ($35,961,276.06), (such sums so advanced are hereinafter called the advances.)

'Article 2. * * *

'B. All payments from the special account, except payment of any amount to be refunded to the government hereunder in accordance with paragraph G of Article 3, shall be made by check of Wright on the special account. Each such check shall be transmitted to the bank accompanied by certification and proof as herein required that the amount of such check is necessary and is to be used for payment for material or services used, or to be used in the performance of the...