178 S.W.2d 212 | Ky. Ct. App. | 1944
Affirming.
The question presented on this appeal is whether or not $78,701 of intangible "receivables" in the form of notes, accounts and sales contracts owned by the Baldwin Company, an Ohio corporation not qualified to do business in this State, was subject to assessment on July 1, 1941, for state ad valorem taxes. The Board of Tax Supervisors of Jefferson County assessed them and on appeal to the Jefferson Quarterly Court the board's action was sustained. An appeal was then taken to the Jefferson Circuit Court where the case was submitted on an agreed statement of facts and *675 judgment was entered holding the assessment void. This appeal followed.
There is no controversy as to the value of the intangibles and all other essential facts are covered by a stipulation which we will concisely state. The Baldwin Company (hereinafter referred to as Baldwin), a manufacturer of musical instruments, is an Ohio corporation with its chief office in Cincinnati and has not qualified to do business in Kentucky. The Baldwin Piano Company (hereinafter referred to as Piano) is likewise an Ohio corporation with its chief office at the same address as Baldwin in Cincinnati. Piano is engaged in selling musical instruments in Ohio, Kentucky and other states. It is qualified to do business in Kentucky and keeps on hand at its place of business in Louisville a stock of musical instruments which it listed for assessments as of July 1, 1941.
All the capital stock of Piano, except qualifying shares of directors, is owned by Baldwin and the former purchases its merchandise from the latter on credit. When Piano sells a musical instrument, the contract or account arising from the transaction is sold by it to Baldwin as credit on account for the musical instruments purchased; and if collection is not made, the paper is charged back to Piano on its endorsement. These receivables become the property of Baldwin and are kept in its office in Cincinnati, but it furnishes data to Piano at the latter's Louisville office showing the condition of the sales accounts. Likewise, Piano in its Louisville office keeps a record of receivables sold, which may be paid direct to Baldwin in Cincinnati or through Piano in Louisville; but if the latter collects the money, it is immediately paid to the former. None of the receivables assessed by the Board of Tax Supervisors appear on the books of Piano, nor are they reflected in its balance sheet.
Appellants argue two propositions. First, these intangibles have a business situs in Kentucky, therefore they are taxable in this State. Second, Piano is but a sham corporation organized by Baldwin and the latter is conducting its business in Kentucky through the former and this court should disregard their separate corporate entities and treat them as a unit to prevent a fraud being perpetrated on this State in the collection of taxes. *676
It is not necessary in this opinion to give the judicial and legislative history of the business situs doctrine in this jurisdiction applicable to intangibles for the purpose of taxation since the subject was comprehensively covered in the recent case of Com. v. Sun Life Assurance Co. of Canada,
The rule in this jurisdiction is that intangibles such as notes, accounts receivable, bonds and other like securities owned by a non-resident, which are not just temporarily brought into the State but are being held here by a fiduciary or other agent, who controls, manages and invests them in the owner's business in Kentucky so that they become an integral part thereof, acquire a location or situs in this State for business purposes and are taxable. Higgins v. Com.,
Applying the rule to the facts in the instant case we do not hesitate to say that these receivables did not become localized in Kentucky or have a business situs in the State. They were not the proceeds of Baldwin's manufacturing business but of Piano's sales business and had no connection with any business transacted in Kentucky by Baldwin, which in fact transacted no business here, but were sold and transferred to the latter and immediately forwarded to its office in Cincinnati. The fact that Piano kept a record of the transactions with Baldwin and was held liable on its endorsement for any bad paper does not give the receivables a local situs. American Barge Line Co. v. Board of Sup'rs,
As Baldwin owns all the stock in Piano, except a few qualifying shares held by directors, appellants insist that the latter was used as a cloak to defraud Kentucky out of taxes and we should treat the two companies as one corporate entity, citing Thompson on Corporations, Vol. 1, 3rd Ed., sec. 10, p. 16, and Harlan Public Service Co. v. Eastern Const. Co.,
Here Piano was not formed to shield Baldwin from liability for fraud or unethical business transactions. While not contained in the stipulation, it is stated in appellee's brief, and not denied, that Piano was organized in 1892 and Baldwin in 1898, the latter being the manufacturing company while the former is the sales company. Piano was not the mere agent or instrumentality of Baldwin, nor were the business affairs between them fictional, nor was the method of doing business a plan to illegally evade taxes. The case at bar is not greatly unlike Ayer Lord Tie Co. v. Com.,
The judgment is affirmed.
The whole Court sitting.
