279 F. 878 | S.D. Ohio | 1922
The court, as constituted for the hearing of this cause, was assembled, in accordance with the provisions of section 266 of the federal Judicial Code (Comp. St § 1243), to determine whether a temporary injunction should issue on account of the alleged invalidity of certain statutory enactments by the General Assembly of Ohio.
The plaintiff, a Delaware corporation for profit, created in July, 1920, is engaged at Toledo, Ohio, in the manufacturing business. Its authorized capital stock consists of 400,000 shares of common non-par stock, one-half of which is denominated common stock, and the residue, as is permitted by section 8728 — 1, Ohio G. C., is known as founders’ stock. It began to do business in Ohio August 1, 1920, and thereafter was duly admitted into the state for that purpose. The Ohio statute first recognizing corporations with no par value stock was
Under section 5499, a foreign corporation for profit doing business in the state, and owning and using a part or all of its capital or plant in the state, is annually, within the month of July, required to make a verified report, -in writing, on a prescribed form, to the tax commission, showing, among other things, the amount of its capital stock subscribed, issued, and paid up, the character of its business, and the places in which it is conducted, the name and location of its office or offices, a id of its officer or officers, the value of the property owned and used b 7 it in the state, where such property is situated, and the value of its property "owned and used outside of the state, and where such property is located. Sections 5499, 5500, 5501. From such report and other pertinent facts coming to its knowledge, the tax commission, on the first Monday in September, determines the proportion of the company’s authorized capital stock represented by its property and business in the state, and on the first Monday of October certifies the amount of such proportion to the auditor of state. Section 5502.
On or before October' 15 the auditor is required, by the present section 8728-11, to charge, under section 5503, for collection from such company for the privilege of exercising its franchises in the state, a fee of three-twentieths of 1 per cent, upon the proportion of the authorized preferred stock represented by property owned and used and business transacted in the state, and 5 cents per share upon the proportion of the number of shares of authorized common stock represented by property owned and used and business transacted therein. The fee is payable on or before the following ’December 1. Section 5503. The fees, taxes, and penalties required to be levied are made a first and best lien on all the corporation’s property. Section 5506. The penalties which may be inflicted for nonpayment of the sum assessed are a fine for each day’s delinquency (section 5507), the cancellation of the corporation’s authority to do and an injunction against its doing business within the state (sections 5509, 5512), and ouster by quo warranto proceedings from exercising its privileges and franchises in Ohio.
The plaintiff executed its verified report on July 30, 1921, and filed the same with the tax commission on August 1. Its report shows that, o:: the 400,000 shares of authorized stock, 40,475 shares of so-called founders’ stock and 10,010 shares of common stock had been subscribed for and issued; that the actual value of its property, including its
“The General Assembly shall have no power to pass retroactive laws, or laws impairing the obligation of contracts.”
The act embracing the present section 8728 — 11 was approved by the Governor on May 14, 1921, and filed with the secretary of state on May 17. Section lc, art. 2, of the state Constitution provides that “no law passed by the General Assembly shall go into effect until ninety days after it shall have been filed by the Governor in the office of the secretary of state,” excepting, by the terms of section Id, “laws providing for tax levies, appropriations for the current expenses of the state government and state institutions, and emergency laws necessary for the immediate preservation of the public peace, health or safety, shall go into immediate effect.” The act contains no emergency clause, and does not purport to be and is not an emergency law. The basis for the computation of the plaintiff’s franchise tax or fee is the proportion of the authorized stock, preferred and common, represented by property owned and used and business transacted in the state at the close of June 30. If the act became effective when it was filed with the secretary of state on May 17, the computation of the sum charged against the plaintiff must be according to the present section 8728 — 11. Dodge v. Nevada Nat. Bank, 109 Fed. 726, 730, 48 C. C. A. 626 (C. C. A. 9). If the act did not become effective until 90 days subsequent to such filing — i. e., until August 15 — the tax or fee assessed should be reckoned at the much lower rate prescribed by the act of February 4, 1920; else a tax would be retroactively imposed on subject-matter not theretofore liable to the same. Dodge v. Nevada Nat. Bank, supra; Smith v.
A tax may be laid for the double purpose of regulation and revenue. Adler v. Whitbeck, 44 Ohio St. 539, 572, 9 N. E. 672; Fritsch v. Board of Commissioners of Salt Lake City, 15 Utah, 83, 95, 47 Pac. 1026; Parish of E. Feliciana v. Levy, 40 La. Ann. 332, 4 South. 309. It may ilso be exacted for the privilege of exercising corporate franchises in ;he state and for general revenue (State v. Ferris, 53 Ohio St. 314, 329, 41 N. E. 579, 30 L. R. A. 218; Ashley v. Ryan, 49 Ohio St. 504, 525, 31 N. E. 721; Gundling v. Chicago, 177 U. S. 183, 189, 20 Sup. Ct. 633, 44 L. Ed. 725; the énactment of laws providing for excise and franchise taxes being authorized by section 10, art. 12, of the state Constitution. If the statute of 1921 was enacted as a revenue measure, as well as to fix the charge against foreign corporations for the-privilege of exercising their franchises in the state, it then falls within the terms of section Id, art. 2, and became effective on May 17. Section 8728 — 11 and sections 5503 and 5516, which are a part of the Ohio Tax Commission Act, mention the sum to be charged as a fee. Other sections of such act characterize such sum as a fee or tax. See sections 5505, 5506, 5509, 5511, 5512.
The terms “fee” and “tax” were, in the legislative mind, convertible and equivalents. It is immaterial whether the sum charged is characterized as a fee, a tax, or an assessment, if on the whole it is clear that it is a tax. Ashley v. Ryan, 49 Ohio St. 525, 31 N. E. 721. In view of the provisions of section 181a, R. S. (now section 270, G. C.), that all money paid into the state treasury, the disposition of which is not otherwise provided by law, shall be credited by the auditor of state to the general revenue fund, it was held, in Ashley v. Ryan, 49 Ohio St. 526, 31 N. E. 721, that it is not necessary that the object of a given statute should be stated to be the imposition of a tax for revenue purposes in order to constitute it a statute of that character. The tax or fee charged against a foreign corporation under the statute here considered is expressly required to be paid to the state treasurer (sections 5503, 5504), and section 5491 further provides that all taxes received by the state treasurer under the provisions of the Tax Commission Act shall be credited to the general revenue fund. But any exaction which is made a means of supplying money for the public treasury to defray the expenses of government, and any sum demanded as a franchise fee or excise tax, which goes into the state treasury and constitutes a part of its general fund, is a tax (Mays v. Cincinnati, 1 Ohio St. 268, 273, 274), and the law providing for the same is a revenue law (Peyton v. Bliss, Fed. Cas. No. 11,055).
A portion of the Tax Commission Act was reviewed by this court in Ohio River & W. Ry. Co. v. Dittey, 203 Fed. 537, 540, and in Ohio Tax Cases, 232 U. S. 576, 592, 34 Sup. Ct. 372, 58 L. Ed. 737. It was ruled in both cases that the sum assessed was an excise or privilege tax.
Every case, however, involving the validity of a tax, must be decided upon its own facts. Baltic Min. Co. v. Massachusetts, 231 U. S. (58, 86, 34 Sup. Ct. 15, 58 L. Ed. 127; Kansas City, M. & B. R. Co. v. Stiles, 242 U. S. 111, 119, 37 Sup. Ct 58, 61 L. Ed. 176. Considering ihe language of the Ohio statute and its natural and reasonable effect, it is not subject to a construction that would impose a tax on the interstate commerce transacted by a foreign corporation, and must be held not to embody the objectionable features found in the statutes called in question in Western Union Tel. Co. v. Kansas, International Paper Co. v. Massachusetts, or in such cases as Looney v. Crane Co., 245 U. S. 178, 38 Sup. Ct. 85, 62 L. Ed. 230, Pullman Co. v. Kansas, 216 U. S. 56, 30 Sup. Ct. 232, 54 L. Ed. 378, and Ludwig v. Western Union Tel. Co., 216 U. S. 146, 30 Sup. Ct. 280, 54 L. Ed. 423. In Western Union Tel. Co. v. Kansas and Pullman Co. v. Kansas, for instance, the corporations were chartered to engage in interstate commerce. Their interstate and intrastate business were necessarily intimately, if not inseparably, connected, and, being public service corporations, they had ao option to decline to engage in either. In Southern Ry. Co. v. Greene, 216 U. S. 400, 30 Sup. Ct. 287, 54 L. Ed. 536, 17 Ann. Cas. 1247, the plaintiff had entered the state of Alabama in compliance with the laws of that state, had acquired property permanently located, and had engaged in both inter and intra state commerce. A new and additional franchise was thereafter imposed upon it for the privilege of doing business, which was not imposed upon domestic corporations.
The plaintiff’s situation is not the same as that of the plaintiff in any of the three cases just mentioned. It is a manufacturing company, not a public service corporation, and is clothed with the right to confine its operations to such classes of business and to such localities as it sees fit. The distinction between cases of the character of this and the last three named is clearly drawn in Baltic Min. Co. v. Massachusetts, Kansas City M. & B. R. Co. v. Stiles, Northwestern Mut. L. Ins. Co. v. Wisconsin, 247 U. S. 132, 140, 38 Sup. Ct. 444, 62 L. Ed. 1025, and Chaney Bros. Co. v. Massachusetts, 246 U. S. 147, 156, 157, 38 Sup. Ct. 295, 62 L. Ed. 632. By the express language of the Ohio statute the tax imposed affects, only the proportion of ¡the authorized stock, common and preferred, represented by property owned and used and
The Tax Commission Act (102 O. L. 224) amply provides for a hearing on the part of the taxpayer before an assessment is made against it. The commission is authorized and directed to be in continuous session and open to the transaction of business during all of the business hours of each and every day, excepting Sundays and holidays (section 4); to keep a record of all its proceedings (section 4); to adopt reasonable and proper rules and regulations to govern its proceedings and to regulate the mode and manner of all valuations of real and personal property, apportionments, investigations, inspections, and hearings (section 12) ; to conduct investigations, inquiries, and hear
Section 5517 specifically accords a hearing. The hearing afforded, although less formal, may be substantially as exhaustive as a trial in a duly organized court. In Hodge v. Muscatine County, 196 U. S. 276, 281, 282, 25 Sup. Ct. 237, 240, 49 L. Ed. 477, it was said:
“If the taxpayer be given an opportunity to test the validity of the tax a" any time before it is made final, whether the proceedings for review take-p! ace before a board having a quasi judicial character, or before a tribunal p .-ovided by the state for the purpose of determining such questions, due process of law is not denied. It was held by this court in Pittsburgh, etc., Ry. Co. v Backus, 154 U. S. 421, 426, that a hearing before judgment, with full oppwtunity to present the evidence and the arguments which the party deems-important, is all that can be adjudged vital. See, also, King v. Mullins, 171 U. S. 404.” ,
See, also, Louisville & N. R. Co. v. Greene, 244 U. S. 522, 536, 37 Sup. Ct. 683, 61 L. Ed. 1291, Ann. Cas. 1917E, 97.
The plaintiff may not complain because the statute provides no appeal from the decision of the tax commission. The right of appeal is not essential to due process of law. Reetz v. Michigan, 188 U. S. 505, 508, 23 Sup. Ct. 390, 47 L. Ed. 563.
At the time the plaintiff was authorized to do business in Ohio, section 8728 — 11, as enacted in 1919 (108 O. G. pt. 2, p. 1287), required a domestic corporation having no par stock to pay as an annual franchise tax three-twentieths of 1 per cent, upon all its subscribed or issued and outstanding preferred stock, plus 10 cents for each share of its common stock subscribed or issued and outstanding, regardless of whether the property represented by it in whole or in part is within or outside of the state, while a foreign corporation having the same kind of stock was required to pay annually as a franchise tax under section 5503 three-twentieths of 1 per cent, of the proportion of its authorized preferred stock represented by property owned and used and business transacted in the state, plus one cent for each share of its authorized common stock. The statute thus described discriminated against domestic corporations. The act of 1920 (109 O. G. 273) amended section 8728 — 11 by making the charge on common stock for both classes of corporations five cents per share, thereby placing them on an equal, or at least a more nearly equal, footing, and maintaining the classification policy which had so long obtained in the state. If the early enactments on non-par stock were unchangeable, imperfections and errors in legislation would become constitutional rights; but the plaintiff, when admitted to do business in Ohio, acquired no vested right to have perpetuated a discriminatory law favorable to itself.
Section'2, art. 13, of the state Constitution, expressly provides that corporations may be classified, and that there may be conferred upon proper boards, commissions, and officers such supervisory and regulatory powers over their organization, business, and issue and sale of stocks and securities, and over the business and sale of the stocks and securities of foreign corporations in this state, as may be prescribed by law; and, as heretofore stated, section 10, art. 12, authorizes the enactment of laws providing for excise taxes. The state did not exceed constitutional limitations by enacting a new and more onerous law regarding the franchise tax of foreign corporations. In Cheney Bros. Co. v. Massachusetts, 246 U. S. at page 157, 38 Sup. Ct. 297, 62 L. Ed. 632, it is ruled that—
“A state does not surrender or abridge its power to change and revise its taxing system and tax rates by merely licensing or permitting a foreign corporation to engage in local business and acquire property within its limits.”
See, also, Northwestern Mut. L. Ins. Co. v. Wisconsin, 247 U. S. 132, 139, 38 Sup. Ct. 444, 62 L. Ed. 1025.
“It is no denial of equal protection for a state to impose a different rate tpon one of its own corporations than that imposed upon a foreign corporation, for the privilege of doing business within its borders. Kansas City, Memphis & Birmingham R. R. Co. v. Stiles, 242 U. S. 111, 118.”
In the Dittey Case the precise question here raised was fully discussed in 203 Fed. 540-546, and the conclusion reached was approved by the Supreme Court. Ohio Tax Cases, 232 U. S. 589, 590, 34 Sup. Ct. 372, 58 L. Ed. 737. One of the plaintiff railway companies was so unproductive that, under prudent economical management (and the same situation arose in State Railroad Cases, 92 U. S. 575, 23 L. Ed. 663), it was operated at a loss. The Ohio cases arising out of the statute imposing a tax on the liquor traffic and involving an.exercise of Ihe police power, as well as that of taxation for revenue, were reviewed, in each of which the statute assailed was sustained, although the Ohio court recognized, that many persons of small means would be driven out of the liquor business. A foreign corporation occupies a relation to the state different from that of the domestic corporation, ft may withdraw from the state of its adoption wealth in the form of dividends and profits to the state of its origin. In entering another state, a corporation seeks to control a part of the business of that state in competition with the corporations created under its laws. The domestic corporation usually has within its taxing jurisdiction all or a large part of its personal and possibly real property subject to taxation. The foreign corporation may have and frequently has a large amount of its property in the state of its domicile and there subject to taxation, but exempt from taxation in the state into which it is admitted to do business. On/account- of the difference in the attitudes of the two classes of corporations a variance may be had in the rate of taxation.
In the instant case the plamtiff’s,-incorporators voluntarily elected to fix their authorized capital stock at 400,000 shares. They have disposed of only about 50,000 shares at the price of $7 perfshare, as fixed bj? the state securities department. If, when taxpaying time comes, its officers and stockholders find its authorized;-capital excessive, productive of a needless financial burden, and harmful to them in their competition with others engaged in like manufacturing (and there are somerthus engaged), there is no apparent impediment obstructing their reduction of such capital. Prudent managers of foreign corporations doing business in Ohio will have no occasion to charge in good faith that the statute is confiscatory or denies their companies the equal protection of the laws.
The plaintiff’s position is not unlike that of the White Company, whose status was determined in Chaney Bros. Co. v. Massachusetts. Plaintiff acquired real estate in Toledo, improved it, and at considerable cost adapted it to the manufacture of much-used commodities. When it was admitted to do business in Ohio, the statute in existence bore more heavily on domestic than on foreign corporations.' By an amendment an increased rate was imposed on entities of the latter class. Plaintiffs real estate is employed in a business in which there is considerable competition in Ohio. The investment in enterprises of like character must be large. The sale or leasing of factories such as the plaintiff owns for the production of the same, or allied, or different products in a thriving city, such as Toledo is, is not infrequent. The record does not suggest that the plantiff will he by the franchise tax law subjected to the confiscation of its property, or to great or substantial loss, or that its property is not readily salable at a reasonable price to other persons in the same or other kinds of business. Plaintiff’s investment is not of the permanent character of those made by railroader telegraph companies, but may be removed from one place to another, and its equipment, when so transferred, put to a use like the present. It may be noted that in Underwood Typewriter Co. v. Chamberlain, 254 U. S. 114, 122, 41 Sup. Ct. 45, 65 L. Ed. 165, it was stated in plaintiff’s brief, although not assigned as error or presented in argument, that the tax imposed on the plaintiff, a manufacturing corporation, was void under the Fourteenth Amendment because the company had made large permanent investments in Connecticut before the taxing statute was enacted. The objection, it was said, was clearly unsound.
Following the notice to plaintiff of the assessment of a tax of $20,-000 against it, it wrote the tax commission and the state treasurer, complaining of the amount and discussing what it deemed the applicable law, neither of which letters were helpful as to a determination of the amount of business done within or without the state, excepting the other indefinite statement in the letter to the treasurer that practically all of the property of the company is located in Ohio. The answer to both letters was that no mistake had been made as to the sum levied. Subsequently a representative of tire plaintiff interviewed the chairman of the tax commission, and, as he now claims in his affidavit, related the facts as to plaintiff’s interstate business as he then knew them, and approximately as outlined in the evidence of this case. The chairman states that, as he recalls, the matters detailed in the affidavit of plaintiff’s vice president and in the amendment to the bill were not submitted, although the claim was asserted that a large part of plaintiff’s business was interstate in character. His recollection is that the statements made were not inconsistent with those embodied in plaintiff’s annual report heretofore mentioned, and that no demand was made for permission to correct or amend such return. The representations made by plaintiff’s agent were manifestly not supported by the sanctity of an oath. The chairman, but not the tax commission as such, declined to rsduce the tax charged.
The statement in plaintiff’s verified filed report, that all of its business had been “handled from Ohio,*’ suggests that some part of it reached beyond the state; but in such report it is twice averred that plaintiff has no property outside of Ohio, and in its sworn application for leave to do business in Ohio, filed November 8, it alleges the value of its property in the state to be $750,000, and “the proportion of the capital stock of the company represented by property owned and used and by business transacted in Ohio is practically all.” Such proportion was apparently deemed so slight as to be unworthy of segregation. In view of the evidence before the tax commission and the uncertain character of the same, we are not prepared to say the commission was not warranted in making the $20,000 assessment or in adhering to it. The plaintiff submits an affidavit that of its total business, amounting to $250,594.58, the property sold within the state is represented by $70,-602.30. It would seem that this court may not consider such affidavits to condemn the conclusion reached by the commission. Manufacturers’ Tight & Heat Co. v. Ott (D. C.) 215 Fed. 940, 950.
We feel, however, that a determination of the proportion of plaint ff’s property owned and used and business done inside and outside of Ohio is a proper subject of inquiry, absolutely essential to the determination of the question whether any part, of the tax is levied upon the proportion of its authorized stock, if any, represented by property own
The provisions of the Ohio statute differ in various respects, which need not be detailed, from those of the Virginia Constitution and act under consideration in Prentis v. Atlantic Coast Line, 211 U. S. 210, 29 Sup. Ct. 67, 53 L. Ed. 150; but the rule of comity there observed and the mode of procedure there adopted should, as far as practicable, control here. Whether the action of the plaintiff, after it was notified of the assessment made against it, rose to the dignity of a request or demand for a rehearing before the tax commission, and whether that body, if a request for a rehearing yet be made, will conclude that the request is not timely, or, out of a desire to be accurate and just, will grant a rehearing, regardless of the lapse of time, are questions for the commission to decide. In Palermo Land & Water Co. v. Railroad Commission (D. C.) 227 Fed. 708, the defendant in open court offered to entertain an application for a rehearing, although the usual time for applying therefor had expired. ' In the instant case the defendants have stipulated that the plaintiff’s present status, during the pendency of this case and until its decision, shall be maintained, and that plaintiff shall not be subjected to any penalties, fines, or forfeitures by reason of any default on its part in the payment of the tax charged against it. Being thus amply protected, the court need not at this time trouble itself over the question of injunctive relief or render final decision. Pending an application for l'eview before the tax commission and the disposition of the same, the present hill will be retained to await the result of such proceedings. When the conclusion reached is properly presented to the court, it will take such final action as it deems proper.
All of the costs of this proceeding will be taxed against the plaintiff, for the-reason that, had it proceeded in an orderly and reasonably thorough manner, the occasion for the present suit would probably never have arisen.