Youngstown Sheet & Tube Co. v. City of Youngstown

• Court: United States Court of Appeals (Ohio)
• Writing for the Court: FESS
• Citation: 91 Ohio App. 431,108 N.E.2d 571
• Parties: , 49 O.O. 31 YOUNGSTOWN SHEET & TUBE CO. et al. v. CITY OF YOUNGSTOWN et al. YOUNGSTOWN SHEET & TUBE CO. et al. v. CITY OF CAMPBELL et al.
• Decision Date: 19 November 1951

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91 Ohio App. 431 108 N.E.2d 571, 49 O.O. 31 YOUNGSTOWN SHEET & TUBE CO. et al.
v.
CITY OF YOUNGSTOWN et al.
YOUNGSTOWN SHEET & TUBE CO. et al.
v.
CITY OF CAMPBELL et al. Court of Appeals of Ohio, Mahoning County. Nov. 19, 1951. [108 N.E.2d 573]
Syllabus by the Court

1. Under the Constitution of Ohio, a municipal income tax is neither a property tax nor an excise tax but is a special tax--an income tax--and in the interpretation of the Constitution should not be treated as a property tax or an excise tax.

2. Whether a municipal tax contravenes rights secured by the Constitution must depend not upon any mere question of form, construction or definition but upon the practical effect of the tax imposed.

3. A municipal income tax ordinance imposing a tax upon individuals at one rate and upon corporations at a substantially higher rate, in the absence of a reasonable basis for the apparent discrimination between individuals and corporations, is invalid in denying to corporations the equal protection of

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the laws under Section 2, Article I of the Constitution of Ohio, and under the Fourteenth Amendment of the Constitution of the United States.

4. A municipal income tax ordinance imposing a tax upon corporations, the municipality having no similar tax upon individuals, in the absence of a reasonable basis for the discrimination between corporations and individuals, denies the equal protection of the laws of Ohio to corporations under Section 2, Article I of the Constitution of Ohio, and under the Fourteenth Amendment of the Constitution of the United States.

Dargusch, Caren, Greek & King, Columbus, Manchester, Bennett, Powers & Ullman and Harrington, Huxley & Smith, Youngstown, for appellees.

H. H. Hunt, Director of Law, and I. Freeman, Youngstown, for appellant City of Youngstown.

Paul VanSuch and W. P. Barnum, Youngstown, for appellant City of Campbell.

FESS, Presiding Judge.

These appeals are on questions of law and fact from judgments in separate cases permanently enjoining the defendants from levying and collecting income taxes under the provisions of certain ordinances of the municipalities on the ground that such ordinances are repugnant to Section 2, Article I and Section 4, Article XIII of the Constitution of Ohio, and to the Fourteenth Amendment to the Constitution of the United States.

I. The Youngstown Income Tax Ordinance.

As amended on January 10, 1951 (effective January 23, 1951), the Youngstown income tax ordinance levies a tax of .3 per cent per annum on compensation and net profits of residents and a like tax upon compensation received and net profits earned by nonresidents,

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other than corporations, for services performed or business [108 N.E.2d 574] conducted within the city of Youngstown. A tax of one per cent per annum is levied upon the net profits of corporations having an office or place of business in Youngstown. The tax is limited to such part of the net profits as is earned by such corporations as a result of businessconducted in the city, determined according to a certain formula set forth in the ordinance.

The power of cities to levy an income tax has been definitely established. Angell v. City of Toledo, 153 Ohio St. 179, 91 N.E.2d 250, 252. At the outset, appellees attempt to divide taxes into three classes, (1) poll, (2) property, and (3) excise. Appellees contend that the income tax is a property tax within the purport of the term as employed in the Constitution of Ohio. The city contends that it is in the nature of an excise tax and is to be distinguished from other forms of taxation. Whether an income tax is a property or an excise tax has not been definitely determined in Ohio. In the opinion in Angell v. City of Toledo, supra, it is said:

'While an income tax may be regarded as in the nature of an excise tax, the Constitution of Ohio differentiates an excise tax from an income tax. * * * In the interpretation of the Ohio Constitution an income tax is not to be treated as an excise tax.'

Analogically, the Ohio Constitution differentiates an income tax from a property tax as well as from an excise tax and in interpreting the Constitution, an income tax should not be treated as a property tax.

Income taxes are not of recent origin. Shaffer v. Carter, Aud., 252 U.S. 37, 51, 40 S.Ct. 221, 64 L.Ed. 445; argument of George F. Edmunds in Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429, 488, 489, 15 S.Ct. 673, 39 L.Ed. 759. Prior to the adoption of the federal Constitution, nearly all the states imposed a

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poll tax and taxes on land, livestock, and various kinds of personal property; and seven of the thirteen states assessed their citizens upon their profits from professions, trades and employments. Pollock v. Farmers Loan & Trust Co., supra. Prior to the Pollock case, federal taxes on successions, business transactions and incomes were sustained as excise taxes and as such constituted indirect taxes not subject to apportionment but subject to the principle of uniformity. Pacific Ins. Co. v. Soule, Collector, 7 Wall. 433, 74 U.S. 433, 19 L.Ed. 95; Veazie Bank v. Fenno, 8 Wall. 533, 544, 546, 75 U.S. 533, 544, 546, 19 L.Ed. 482; Merchants' National Bank v. United States, 101 U.S. 1, 25 L.Ed. 979; Scholey v. Rew, 23 Wall. 331, 90 U.S. 331, 23 L.Ed. 99; Michigan Central Rd. Co. v. Slack, Collector, 100 U.S. 595, 25 L.Ed. 647; Springer v. United States, 102 U.S. 586, 26 L.Ed. 253. The Pollock case did not overrule the prior decisions but distinguished them in holding that the tax on rents was a tax on the real estate itself and, therefore, a direct tax.

But the mere questions of definitions has no legitimate bearing upon a question of constitutionality. The decision whether a municipal tax contravenes rights secured by the Constitution must depend not upon any mere question of form, construction, or definition, but upon the practical effect of the tax imposed. A state may tax the incomes of its own citizens and residents because of the privileges they enjoy under its constitution and laws and the protection they receive from the state. A state, from whose laws property, business and industry derive the protection and security without which production and gainful occupation would be impossible, may also exact a share of those gains in the form of income taxes for the support of the government, from nonresidents. Just as a state may impose income taxes upon its own citizens whose persons are subject to its control, it may, as a necessary

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consequence, levy a duty of like character and not more onerous in its effect upon incomes accruing to nonresidents from their property and business within the state. Shaffer v. Carter, supra. It is therefore concluded that under the Ohio Constittuion the income tax in question is neither a property tax nor an excise tax but is a special tax--an income tax--and that the tax in question does not violate Section 4 of Article...