Opinion
No. 31222
Decided April 28, 1948.
Taxation — Franchise tax against domestic corporation computed, how — Section 5498, General Code — Intangible personal property used in business where employed — Section 5328-1, General Code — Ohio corporation's manufacturing business located at city in foreign state — Tax situs of property within foreign state — Bank deposits withdrawable at place of business of corporate officers — Claims of corporation against foreign closed banks — Life insurance held by corporation on lives of its officers — Section 5828-2, General Code.
1. Under Section 5328-1, General Code, intangible personal property is used in business in that state where it is employed "in connection with" or held as a means of carrying on the business, and includes moneys, deposits, investments, accounts receivable, and prepaid items when they or the avails thereof are being applied in the conduct of the business.
2. Under Section 5328-2, General Code, where cash deposits of an Ohio corporation engaged in the business of manufacturing at a point located in a foreign state are withdrawable from banks located at such place of business by the officers of such corporation for the purpose of carrying on the business at such point without this state; where deposits in closed banks, which were likewise withdrawable and used in the business of the corporation before such banks closed, became claims of the corporation arising because of the closing of such banks; and where life insurance is held by such corporation on the lives of its officers for the protection and benefit of the business of such corporation at such place of business, all such property shall be considered, for the purpose of determining tax situs, in the computation of the franchise tax of the corporation (Section 5498, General Code), to have arisen out of business transacted, and to have a tax situs, within a state other than that in which the owner thereof resides.
APPEAL from the Board of Tax Appeals.
The appellee herein, Sparks-Withington Company, hereinafter called taxpayer, is a corporation for profit organized under the laws of Ohio. As such, it filed with the Department of Taxation annual corporation reports for the years 1938 to 1943, inclusive. In segregating its assets, the taxpayer reported that all its intangible personal property had an out-of-state situs.
Among other items were cash deposits in certain Michigan banks, one or more New York banks and the Cleveland Trust Company. The Tax Commissioner, appellant herein, determined that cash, good will and patents, bank claims in certain closed banks in Michigan, cash surrender value of life insurance and United States government bonds owned by the taxpayer had an Ohio situs for the purpose of formulating the property fraction to be used in computing the taxpayer's corporate franchise fees, which determination resulted in an additional tax for that purpose of $1,403.88. That determination was later amended on review by the Tax Commissioner, whereby items of insurance deposits were omitted and the tax reduced to $1,361.79.
On appeal by the taxpayer to the Board of Tax Appeals, the board found further facts as follows:
"Said company is engaged in the manufacture of automobile horns, radios and radio parts, and its manufacturing plants are located in Jackson, Michigan. * * * All of its officers, except its secretary, reside in Jackson, Michigan. The secretary, who is also a director of said company, and two other directors reside in Cleveland, Ohio.
"Four persons are authorized to sign checks. They are the president, who has the authority to sign checks without same being countersigned by another officer. Two vice-presidents and the treasurer have the authority to sign checks but they must be countersigned by another officer.
"The sales of manufactured products of appellant [taxpayer] were conducted through the medium of salesmen and merchandise brokers who listed orders subject to acceptance or rejection only by the Jackson, Michigan, office. The salesmen worked out of and were supervised by the Michigan office in the performance of their duties.
"The directors' meetings ware held in Jackson, Michigan, or Cleveland, Ohio."
The Board of Tax Appeals found that the government bonds and patents had an Ohio situs. It further held that cash deposits, claims against closed banks, cash surrender value of life insurance, and good will of the taxpayer had an out-of-state situs, thereby reversing the finding of the Tax Commissioner as to the tax situs of those items.
The Tax Commissioner appealed to this court.
Messrs. M.B. H.H. Johnson, Mr. Brooks W. Maccracken and Mr. Perry L. Graham, for appellee.
Mr. Hugh S. Jenkins, attorney general, and Mr. Daronne R. Tate, for appellant.
The question for determination by this court is the amount of the franchise tax to be assessed against the taxpayer, as a domestic corporation, for the privilege of doing business in this state. Under the statutory formula provided for the determination of such tax or fee (Section 5498, General Code), the amount of the tax is influenced by the proportions of the fair value of the corporate property owned and used in Ohio by the taxpayer and the fair value of all its property wheresoever situated, and by the proportions of the value of the corporate business done in Ohio over a certain period and the total value of the business done during the same period wherever transacted.
It is the contention of the Tax Commissioner that the general common-law rule that all intangibles and especially cash or bank deposits of a general nature have a tax situs at the owner's domicile (" mobilia sequntur personam") is applicable. Many cases can be cited in support of that rule. The commissioner cites in support of his position, among others, the case of Cleveland Western Coal Co. v. O'Brien, Treas., 98 Ohio St. 14, 120 N.E. 214, which holds that the tax situs of a bank deposit is the residence of the owner, and that where the owner is a corporation its residence or domicile is in the state of organization. It should be noted that that case was decided long before our present reciprocal-taxation statutes were enacted. The commissioner concedes, however, that since the bank deposits of the taxpayer were in Michigan banks they could have been taxed in that state as the commercial domicile of the taxpayer.
In segregating its assets for the franchise tax return the taxpayer reported that all its intangible personal property had its situs outside Ohio and should be treated as used in business done outside Ohio. The taxpayer insists that the common-law rule of domiciliary situs has been modified to some extent by the statutes of this state.
Section 5328-1, General Code, reads as follows:
"All moneys, credits, investments, deposits, and other intangible property of persons residing in this state shall be subject to taxation, excepting as provided in this section or as otherwise provided or exempted in this title * * *. Property of the kinds and classes mentioned in Section 5328-2 of the General Code, used in and arising out of business transacted in this state by, for or on behalf of a nonresident person, * * * shall be subject to taxation; and all such property of persons residing in this state used in and arising out of business transacted outside of this state by, for or on behalf of such persons, * * * shall not be subject to taxation. * * *"
The term, "used in business," in the statute last quoted, is defined by Section 5325-1, General Code, which reads as follows:
Within the meaning of the term used in business,' occurring in this title, personal property shall be considered to be 'used' when employed or utilized in connection with ordinary or special operations, when acquired or held as means or instruments for carrying on the business, when kept and maintained as a part of a plant capable of operation, whether actually in operation or not, or when stored or kept on hand as material, parts, products or merchandise * * *. Moneys, deposits, investments, accounts receivable and prepaid items, and other taxable intangibles shall be considered to be 'used' when they or the avails thereof are being applied, or are intended to be applied in the conduct of the business, whether in this state or elsewhere. 'Business' includes all enterprises of whatsoever character conducted for gain, profit or income and extends to personal service occupations."
The controlling statute in determining what property shall be considered to be "used in business" transacted in a foreign state, other than that in which the owner resides, is Section 5328-2, General Code, which reads as follows:
"* * * In the case of deposits (other than such as are used in business outside of such other state), when withdrawable in the course of such business by an officer or agent having an office in such other state; but deposits representing general reserves or balances of the owner thereof, maintained for the purpose of his entire business wherever transacted, shall be considered located in the state * * * under whose laws it is organized, if a corporation, by whomsoever they may be withdrawable. * * *
"The provisions of this section shall be reciprocally applied, to the end that all property of the kinds and classes mentioned in this section having a business situs in this state shall be taxed herein and no property of such kinds and classes belonging to a person residing in this state and having a business situs outside of this state shall be taxed. * * *"
The question then arises: How far do these statutes modify the rule of "mobilia sequntur personam"?
The Board of Tax Appeals held that the deposits or cash withdrawable by an officer having an office in Jackson, Michigan, and used there in the business of the taxpayer, were property of the kinds and classes mentioned in Section 5328-2, General Code, and were, within the purview of Section 5328-1, General Code, used in and arose out of business transacted outside this state by and for the taxpayer. The Board of Tax Appeals held also that the claims against closed banks in Michigan were in the nature of accounts receivable, and that the life insurance was in the nature of a prepaid item as a part of the business and was also used in and arose out of business transacted in the state of Michigan.
The record shows that the taxpayer, as an Ohio corporation, is engaged in the manufacturing business in Jackson, Michigan; that all its plants and factories are located there; that deposits were made in Jackson, Michigan, and were withdrawable only by the president or by the treasurer and one of the two vice-presidents jointly, all of which officers reside in that city; that its sales agents work out of and receive their instructions from the office in that city; that all orders for merchandise are approved by the taxpayer's office in Jackson; and that it has no warehouse or principal office outside the state of Michigan. The only moneys handled in Ohio were funds, mainly for the payments of dividends, deposited in the Cleveland Trust Company and paid out to shareholders through that institution.
Under the facts, this court is of the opinion that the Board of Tax Appeals reached the proper determination in its decision, and that the fixing of the tax situs by the board is supported by the authorities. Ransom Randolph Co. v. Evatt, Tax Commr., 142 Ohio St. 398, 52 N.E.2d 738; Haverfield Co. v. Evatt, Tax Commr., 143 Ohio St. 58, 54 N.E.2d 149; Procter Gamble Co. v. Evatt, Tax Commr., 142 Ohio St. 369, 52 N.E.2d 517; Bristol v. Washington County, 177 U.S. 133, 141, 44 L.Ed., 701, 20 S.Ct., 585.
The decision of the Board of Tax Appeals should be and is hereby affirmed.
Decision affirmed.
WEYGANDT, C.J., TURNER, MATTHIAS, ZIMMERMAN, SOHNGEN and STEWART, JJ., concur.