Opinion
Nos. 35675, 35676, 35705, 35749, 35750 and 35807
Decided April 1, 1959.
Taxation — Personal property "used in business" — Exemption — Property of nonresident held "for storage only" — Section 5701.08, Revised Code — Property not held "for storage only," when — Property located where manufactured or to be used in manufacturing.
APPEALS from the Board of Tax Appeals.
Those causes were previously before this court and were remanded to the Board of Tax Appeals for further consideration in accordance with the opinion of this court then rendered ( Grinnell Corp. v. Bowers, Tax Commr., 167 Ohio St. 267, 147 N.E.2d 657). They are now before this court on appeals from decisions of the Board of Tax Appeals after such further consideration. They involve the taxation of personal property of foreign corporations "used in business" and "held for storage only," within the meaning of Section 5701.08, Revised Code.
The American Can Company cases (Nos. 35675 and 35676) involve machinery for making cans and machinery repair parts manufactured by the can company at its Cincinnati machine shop and stored there and in its warehouse which was about one and a quarter miles from its shop. The machinery and parts stored in its warehouse were shipped as needed to its can-making plants outside Ohio. It made no cans in Ohio. Some of the repair parts stored at its shop were to be used in its Cincinnati shop in the construction of new machinery, and some were to be shipped to its plants outside Ohio. The Board of Tax Appeals held that the repair parts located at the machine shop were subject to taxation, being property located at the place where manufactured; and that the property located in the separate warehouse was held for storage only and was not subject to taxation. In case No. 35676, the can company has appealed from that part of the decision holding that the repair parts held at its shop for shipment direct to its plants outside Ohio were used in business and were subject to the tax. In case No. 35675, the Tax Commissioner has appealed from that part of the decision holding that the property held at the separate warehouse was held for storage only and was not subject to taxation.
The Philip Morris case (No. 35705) involves cigarettes and smoking tobacco manufactured and processed outside Ohio and shipped into the state ready for consumption by the ultimate purchaser or consumer. The subject property, when shipped into the state, was retained for a period of two or three weeks in public warehouses and then delivered to jobbers, wholesalers and chain stores by the employees of the public warehouses on order from the New York office of the taxpayer whose purpose in placing the property in various public warehouses was to have it available for prompt distribution to customers. The Board of Tax Appeals found that the property was held for storage only and was not subject to taxation. The Tax Commissioner has appealed from that decision.
The Holland Furnace Company case (No. 35749) involves residential heating units, miscellaneous accessories, supplies and repair parts manufactured outside the state of Ohio by the furnace company and shipped into the state to the furnace company's central warehouse in Cleveland and its places of business in various municipalities throughout the state. Its places of business, other than the central warehouse, were used for storage, sales display purposes, assembling, repairing and installation of furnaces. Most of the subject property coming into the state was received at the central warehouse where it remained until needed in the various branches throughout the state, at which branches it was stored for future delivery direct to customers. The Board of Tax Appeals found that the subject property held in the central warehouse was held for storage only and was not taxable, and that the property held at the various branch locations was subject to taxation as used in business. The Tax Commissioner has appealed from that part of the decision holding that the subject property held in the central warehouse was held for storage only and was not taxable.
The Champion Spark Plug Company case (No. 35750) involves finished goods consisting of spark plugs and unit parts manufactured at the taxpayer's plant in Toledo, packages, fittings and raw materials. Inventories were stored on an upper floor of its plant, in an adjoining building, and in portions of three rented or leased buildings located, respectively, one and one-half, two and five miles from the plant. No shipments were ever made direct to customers from any of these three rented warehouses located at a distance from the plant. When inventory items were needed from any of these three warehouses either for incorporation in the manufacture of the finished merchandise or for delivery to a customer, they were first returned to the manufacturing plant by the taxpayer's employees sent to the warehouses for that purpose. The Board of Tax Appeals found that the subject property located at the taxpayer's plant or in the building adjacent thereto was not "held for storage only" within the purview of the statute and was subject to taxation, and that the subject property stored in the three warehouses located apart from the plant was held for storage only and was not taxable. The Tax Commissioner has appealed from the latter part of that decision, contending that the finished products, packages and fittings held in the leased warehouses in Toledo were kept on hand and used in business and were subject to taxation.
The Copeland Refrigeration case (No. 35807) involves materials consisting of completed compressors, condensing units and parts to be used in the production of refrigeration units, manufactured in Sidney, Ohio. The taxpayer's entire operations in Ohio were conducted in six different buildings in Sidney. Some of these buildings were adjacent, others were from one to two miles apart, and one was directly across the street from another. Some were used for storage only and some for manufacturing and storage. There was a constant flow of materials from one building to another. The Board of Tax Appeals concluded that the entire operation must be considered as one integrated manufacturing process and held that Sidney constituted "the place where it was manufactured."
Appeals from the decisions of the Board of Tax Appeals bring the causes to this court for review.
Messrs. Graydon, Head Ritchey and Mr. Bruce I. Petrie, for the American Can Company.
Messrs. George, Greek, King McMahon, for Philip Morris, Inc., and Holland Furnace Company.
Messrs. Marshall, Melhorn, Bloch Belt and Mr. Lynn H. Gressley, for Champion Spark Plug Company.
Mr. Harry K. Forsyth, Mr. Carlton S. Dargusch, Mr. Carlton S. Dargusch, Jr., and Mr. Jack H. Bertsch, for Copeland Refrigeration Corporation.
Mr. William Saxbe and Mr. Mark McElroy, attorneys general, and Mr. John M. Tobin, for Stanley J. Bowers, Tax Commissioner.
As to the appeal of the American Can Company, we believe that the syllabus of the Grinnell case, supra, requires the conclusion that the property involved was not in storage because it was "located * * * at the place where it was manufactured into a product."
As to the Tax Commissioner's appeals, all involve very close questions. Apparently, the Board of Tax Appeals endeavored to apply the guides specified in the Grinnell case. We do not believe that the board's conclusions are unreasonable or unlawful.
As to the Copeland appeal, we reach the same conclusion except so far as the conclusions of the Board of Tax Appeals relate to raw materials and semifinished products to be employed in production and to be transported over city streets from separate warehouses a distance of one to two miles. To that extent, the board's decision seems to be inconsistent with parts of the board's prior decisions involved in the Tax Commissioner's appeals in the American Can and Champion cases referred to herein. If, as we are holding, the decisions of the board in those cases were not unreasonable and unlawful, the board should, in order to be consistent and therefore to be reasonable, reconsider the foregoing portion of its decision in the Copeland case.
Decisions affirmed in cases Nos. 35675, 35676, 35705, 35749 and 35750. Decision remanded in case No. 35807.
WEYGANDT, C.J., ZIMMERMAN, STEWART and TAFT, JJ., concur.
HERBERT, J., concurs except as to case No. 35705 in which he dissents.
MATTHIAS and BELL, JJ., dissent.
The basic concept by which the Tax Commissioner, the Board of Tax Appeals and this court are to be guided in determining questions arising under the tax exemption here under consideration is whether particular tangible property is "used in business" in Ohio. In my opinion, the General Assembly, being aware of the limitations upon its power to impose a tax on goods in interstate commerce, intended to exempt from the tax only that property which it knew it could not tax, i.e., property belonging to a nonresident and held temporarily in storage only in Ohio while enroute to a destination outside Ohio.
I am aware that this court has specifically rejected this theory. I am equally of the opinion, however, that the rejection of that theory has led to the development of artificial and in many instances unworkable formulae such as those based on distance and the use of public highways as set out in the Grinnell case.
In my opinion, "material, parts, products, or merchandise" is "kept on hand" if it is to be used in manufacturing by the taxpayer, whether such use is to be in a plant next door to where the goods are stored (kept on hand) or in a plant across the street or in a plant one, two, five or a hundred miles away. In any of those cases, the "material, parts, products, or merchandise" is being kept by the taxpayer to be used by the taxpayer in business or manufacturing in Ohio.
Consequently, I dissent from the judgment agreed upon by the majority in each of the present cases.
MATTHIAS, J., concurs in the foregoing dissenting opinion.