Summary
In Burke Internatl. v. Lindley (1979), 58 Ohio St.2d 27 [12 O.O.3d 15], a unanimous court held in the syllabus that the same amendment at issue in Lakengren v. Kosydar, supra, was not unconstitutionally retroactive when applied to a corporate taxpayer whose accounting year was not closed at the time the amendment became effective.
Summary of this case from East Ohio Gas Co. v. LimbachOpinion
No. 78-1165
Decided April 18, 1979.
Taxation — Corporate franchise tax — Computation — Adoption of alternative basis — Constitutionality.
The amendment to R.C. 5733.05, adopted effective December 20, 1971, by which the "net income" of a corporation was made an alternative basis for computing the corporate franchise tax, is not unconstitutional as a retroactive law prohibited by Section 28, Article II of the Ohio Constitution, as applied to a corporate taxpayer whose accounting year was not yet closed at the time the amendment became effective.
APPEAL from the Board of Tax Appeals.
The Ohio corporate franchise tax law, R.C. Chapter 5733, was substantially revised by legislation (Am. Sub. H. B. No. 475) adopted effective December 20, 1971. Prior to this amendment, the franchise tax for a calendar year corporation was based on its net worth as of January 1 of each year. Under the new law, the net income earned by such a corporation during the calendar year became an alternative basis (whichever results in higher taxes) for computing franchise tax liability.
Burke International Research Corporation (hereinafter Burke) is an Ohio corporation subject to this tax. Pursuant to the revised law, it paid its 1972 franchise tax on the net income basis reflecting its operations for calendar year 1971, its annual accounting period.
Burke filed a claim for refund with the Tax Commissioner for the difference between the tax paid by it under the net income basis ($4,904) and the lesser amount payable under the net worth alternative ($2,683), the only measure of taxation prior to December 20, 1971. Burke's claim for refund was denied by the commissioner. Because Burke's taxable year ended after December 20, 1971, the commissioner concluded that this court's decision in Lakengren v. Kosydar (1975), 44 Ohio St.2d 199, did not apply and that Burke was not otherwise entitled to the requested refund. The Board of Tax Appeals refrained from approaching the constitutional issues raised by Burke and affirmed the commissioner.
The cause is now before this court upon appeal as a matter of right.
Messrs. Dinsmore, Shohl, Coates Deupree and Mr. David S. Mann, for appellant.
Mr. William J. Brown, attorney general, and Mr. John C. Duffy, Jr., for appellee.
The issue before the court is whether the amendment to R.C. 5733.05, adopted effective December 20, 1971, by which the "net income" of a corporation was made an alternative basis for computing the corporate franchise tax, is a retroactive law prohibited by Section 28, Article II of the Ohio Constitution, as applied to a corporate taxpayer whose accounting year was not yet closed at the time the amendment became effective.
The syllabus of Lakengren, supra, reads, as follows:
"Insofar as it increases the franchise tax obligation of a corporation for an accounting year already closed at the time of enactment, the amendment to R.C. 5733.05, adopted December 20, 1971, is void as a retroactive law in violation of Section 28, Article II of the Ohio Constitution."
The commissioner contends that implicit in this syllabus is a holding by this court that application of this amendment to an accounting year of a corporation which was still open at the time of adoption of the amendment is not unconstitutionally retroactive. Burke argues that the court was not directly presented with the issue at bar, that the syllabus of a case must be read and construed with reference to the facts giving rise to the cause of action ( Williamson Heater Co. v. Radich, 128 Ohio St. 124), and that, therefore, Lakengren is not controlling in the present situation.
While Lakengren may not be dispositive of this cause, this court's reasoning therein is certainly relevant. This court stated in Lakengren, at pages 202-203, as follows:
"In this case, the appellant used a permissible period of accounting (R.C. 5733.031), and at the conclusion of that period was subject to a tax obligation under existing law of $3,577.55, payable a year later if the appellant wished to continue doing business in Ohio. Under the accepted systems of accounting approved by the Revised Code, appellant was entitled to distribute or invest the profit it had earned, and need not retain some part of those profits in anticipation of a subsequent tax based upon the income earned in that year, income which might or might not be related to the actual business activity of the corporation in the following year. Appellant was entitled to consider that the money was finally its own. When the accounting year closed for the taxpayer, it closed for the taxing authority as well * * *." (Emphasis added.)
A corollary of the emphasized language is that when an accounting year is open for the taxpayer, it is open for the taxing authority as well. As this court stated, at page 204, in Lakengren, supra:
"As a practical matter, a tax levied upon income of a particular period, whether payable immediately or in the future, is a tax taken from that income, and that taking may not be made retroactively. This is no way prevents the General Assembly from levying a tax payable in the future, based upon the income of periods ending after the enactment of the levy." (Emphasis added.)
The amendment to R.C. 5733.05, adopted effective December 20, 1971, by which the "net income" of a corporation was made an alternative basis for computing the corporate franchise tax, is not unconstitutional as a retroactive law prohibited by Section 28, Article II of the Ohio Constitution, as applied to a corporate taxpayer whose accounting year was not yet closed at the time the amendment became effective.
The decision of the Board of Tax Appeals being neither unreasonable nor unlawful is affirmed.
Decision affirmed.
CELEBREZZE, C.J., HERBERT, P. BROWN, SWEENEY, DONOFRIO and HOLMES, JJ., concur.
DONOFRIO, J., of the Seventh Appellate District, sitting for LOCHER, J.