Opinion
Decided May 26, 1930.
Taxation — Municipal tax on gasoline filling stations invalid — Occupational tax valid, if field not pre-empted by state — State gasoline tax not occupational or sales tax on dealer — Doubts in state and municipal conflict resolved against dual taxation — Annual franchise tax an excise tax, and municipal filling station tax invalid.
1. Municipalities may levy occupational taxes on businesses, trades, professions, and vocations, if state through its General Assembly has not already imposed such taxes.
2. Three-cent gasoline tax imposed by General Assembly held not occupational tax or sales tax on dealer for business of selling (Section 5527, General Code, Section 5534 [111 Ohio Laws, 298], and Section 5541-1 [112 Ohio Laws, 509]).
3. Doubt existing as to conflict between state and municipality in matters of taxation must be resolved against dual taxation.
4. Annual franchise tax of domestic corporations held excise tax on privilege of transacting business, and therefore annual occupational tax levied by municipality against owners of filling stations, operated by domestic corporations, was invalid (Section 5495 et seq., General Code).
ERROR: Court of Appeals f or Hamilton county.
Mr. Wm. Jerome Kuertz, for plaintiffs in error.
Mr. John D. Ellis, city solicitor, and Mr. Milton H. Schmidt, for defendants in error.
These three cases are before the Court of Appeals on error proceedings from the court of common pleas of Hamilton county. They involve the same questions of law, and will be considered together.
The actions below were suits to enjoin the collection by the city of Cincinnati of an occupational tax of $100 per station, levied upon every firm, person, or corporation engaged in the business of operating a gasoline station. This tax is levied by Ordinance No. 312-1920 and Amended Ordinance No. 347-1920 of the city of Cincinnati.
The trial court sustained demurrers to the amended petitions, and plaintiffs not desiring to plead further, the court entered judgment against the plaintiffs. From these judgments, error is prosecuted to this court.
Plaintiffs in error contend:
First. That the tax on gasoline levied by the state under the statute is an excise tax on persons operating gasoline stations, which preclude the city from entering the same field of taxation.
Second. That the annual franchise corporation tax, upon which each of the plaintiffs in error pays to the state of Ohio, is an excise tax which precludes the city from levying an occupational tax against these companies.
Third. That the ordinance is in violation of the Constitution of Ohio and of the United States, in that it is discriminatory.
Fourth. That the occupational tax ordinance of the city has been repealed by implication by the adoption of the home rule amendment of the charter of the city.
The plaintiffs in error are domestic corporations, incorporated under the laws of the state of Ohio.
It is settled law in Ohio that municipalities may lay occupational taxes on businesses, trades, professions, and vocations, as long as the state, through its General Assembly, does not lay an occupational tax on businesses, trades, professions, and vocations. State, ex rel. Zielonka, City Solicitor, v. Carrel, Aud., 99 Ohio St. 220, 124 N.E. 134; City of Cincinnati v. American Tel. Tel. Co., 112 Ohio St. 493, 147 N.E. 806.
With the constitutionality of the occupational tax settled, we will discuss the propositions in the order as above enumerated.
It is argued by the plaintiffs in error that, by the levying of the excise tax of three cents per gallon under Sections 5527 and 5541-1, General Code (112 Ohio Laws, 509), the state has invaded the field of levying an excise tax upon the sale of gasoline, and thereafter the Cincinnati occupational tax may no longer be legally assessed.
The argument of counsel, orally and in the brief, is that the three-cent excise tax is charged against the dealer on the sale of the product. This proposition is disposed of in the case of State, ex rel. Janes, v. Brown, Secy. of State, 112 Ohio St. 590, 148 N.E. 95, wherein the court defined the character of the tax and construed Section 9 of the act amending Sections 6292 and 6295 of the General Code (111 Ohio Laws, 301). The court in construing Section 9 said at page 595 of 112 Ohio St., 148 N.E. 95, 96:
"The act does not lay a tax of two cents per gallon upon gasoline and other volatile and inflammable liquids derived from petroleum as such, but only upon gasoline and other volatile and inflammable liquids derived from petroleum when used, distributed, or sold in Ohio for motor vehicle fuel in motor vehicles, used or to be used in whole or in part upon the highways and streets of the state. The tax is upon the enjoyment of the privilege of using motor vehicle fuel in traveling upon the highways and streets of the state, * * *."
This construction is amply sufficient to refute the argument that the tax is a sales tax upon the dealer for the business of selling.
However, in addition to this construction by the Supreme Court, we have Section 5534 of the new act (111 Ohio Laws, 298), providing for a refunder of taxes to any "person, firm, association, partnership or corporation who shall use any motor vehicle fuel, as defined in this act, on which the tax herein imposed has been paid, for the purpose of operating or propelling stationary gas engines, tractors not used on highways, motor boats or aircraft, or who shall use any such fuel upon which the tax herein provided for has been paid, for cleaning or dyeing, or any other purpose than the propulsion of motor vehicles operated or intended to be operated in whole or in part upon the highways of this state, shall be reimbursed to the extent of the amount of the tax so paid on such motor vehicle fuel in the following manner."
The act then provides that such person shall file his claim with the tax commission on due certification, and the tax commission shall then determine the amount of the refund due, and the same shall be paid to the claimant.
The construction of Section 9 by the Supreme Court in the Brown case, together with the other provisions of the section, as to refunders, disposes of the argument that the gasoline tax is a tax upon the dealer or the sales of the commodity. See, also, Firestone v. City of Cambridge, 113 Ohio St. 57, 148 N.E. 470.
The second proposition presents the question whether the state of Ohio by its levy of an annual franchise tax upon domestic corporations under Section 5495 et seq., General Code, has pre-empted the field of levying an occupational tax.
The plaintiffs in error argue that Section 5495, General Code, providing for the annual fee, the annual report to the tax commission by the corporation, the signatures of the officers of the corporation on the annual report, the detailed annual report of the corporation as to its business, the determination of the value of the stock by the commission, based on the annual report and its own investigation, and other matters contained in the Code relative thereto, show that the annual franchise tax on domestic corporations "for the privilege of exercising its franchise" during the calendar year is a tax on the business, and therefore the state has pre-empted the field.
The defendants in error argue that the annual franchise tax levied on domestic corporations is but the charging of a fee for the right of the corporation to exist and transact business as a corporation. In other words, it is a fee charged on the right to exist rather than an excise tax upon the business of the company.
The question as to whether the annual franchise tax is but a tax upon the right to exist as a corporation or upon the transaction of business by the corporation has been before the courts in several states, and many times before the federal courts, and the holdings have not been uniform. The question as to what this tax is has arisen practically in all of the cases when it is sought to make the franchise or license tax a lien on the assets of a corporation going through bankruptcy proceedings, or whose business is in the hands of a receiver. See People of State of New York v. Jersawit, Trustee, 263 U.S. 493, 44 S. Ct., 167, 68 L. Ed., 405; People of State of New York, ex rel. N.Y.C. H.R. Rd. Co., v. Gaus, Comptroller, 200 N.Y. 328, 93 N.E. 988; People of State of New York, ex rel. Mutual Trust Co., v. Miller, Comptroller, 177 N.Y. 51, 69 N.E. 124; New Jersey v. Anderson, 203 U.S. 483, 27 S. Ct., 137, 51 L. Ed., 284; Bright v. State of Arkansas, (C.C.A.), 249 F., 950; People of State of New York v. Hopkins, (C.C.A.), 18 F.2d 731; Cayuga S. Rd. Co. v. Delaware, L. W. Rd. Co., 215 App. Div. 429, 213 N.Y.S., 586; State of Ohio v. Harris, (C.C.A.), 229 F., 892.
The weight of authority as shown in the cases above referred to would lead to the conclusion that the annual franchise fee or tax is for the paramount purpose of taxing corporations for exercising their rights under the franchise, which is transacting business. The decisions are that when a corporation is in bankruptcy, and not in the exercise of its franchise rights, it is not subject to a franchise fee or tax.
The Ohio statute was under consideration in the case of State of Ohio v. Harris, supra, the second paragraph of the syllabus of which is: "While the corporations here involved fall nominally within the class to which the franchise fee or tax (Section 5495, General Code of Ohio) applies, still, in view of the status of each, they are not corporations intended by the statute to be taxed, since the paramount purpose of the statute is to tax corporations which are in the exercise of their franchises."
Circuit Judge Warrington, in the opinion, states that this is seen in the provisions of the statute, which require the secretary of state to keep a correct list of the corporations "engaged in business" within the state, and monthly to certify reports to the tax commission showing new corporations, changes in capital stock, dissolution of corporations, and giving such other information as the commission may require.
The statute also contains provisions which authorize a corporation, upon mere retirement from business, to secure exemption from the requirement of filing reports and paying the tax.
It will be noted that the corporation code provides for the incorporation of domestic corporations. Compliance with these statutes brings the corporation into existence, and from that time it has its existence, provided existence is not forfeited by a failure to comply with the Code provisions, which would work a forfeiture of the franchise.
Section 5495-1, General Code, provides: "For the purposes of this act domestic corporations shall be considered organized upon the filing of articles of incorporation in the office of the secretary of state. * * * Each domestic corporation shall be required to file its first report and pay the tax thereon in and for the calendar year immediately succeeding the date of its organization * * *."
Section 5495-2 provides that an annual report in writing be filed with the tax commission, on such form as the commission may prescribe.
Section 5496, General Code, provides: "The annual corporation report shall be signed and sworn to before an officer, authorized to administer oaths, by the president, vice-president, secretary, treasurer, general manager, superintendent, or managing agent in this state, of such corporation. If a domestic corporation has not completed its organization, its annual report shall be signed and sworn to by one of its incorporators."
Section 5497, General Code, provides for the contents of the annual report, which shall include the amount of the capital stock, surplus, whether earned or unearned, undivided profits and reserves. Also a schedule of the annual rates of depreciation and depletion. Also the location and value of the property owned and used by the corporation, both within and without the state, and the total amount of business done, and the amount of business done within the state by said corporation during its preceding annual accounting period. Business done within the state by domestic corporations shall include all business except extrastate business. The report shall also include the value of the good will of the corporation as shown on its books, if carried thereon as an asset.
Section 5498 of the Code provides for determining the value of stock, as follows: "After the filing of the annual corporation report the tax commission, if it shall find such report to be correct, shall on or before the first Monday in May determine the value of the issued and outstanding shares of stock of every corporation required to file such report. Such determination shall be made as of the date shown by the report to have been the beginning of the then current annual accounting period of such corporation. For the purpose of this act, the value of the issued and outstanding shares of stock of any such corporation shall be deemed to be the total value, as shown by the books of the company, of its capital, surplus, whether earned or unearned," etc.
Section 5498 further provides that the tax commission shall determine the amount of taxes due during the year for which such report is made, and further provides that on the first Monday in June the tax commission shall certify to the auditor of state the amount determined by it.
Section 5499, General Code, then provides that the auditor shall charge for collection from each such corporation a fee of one-eighth of 1 per cent. for each of the years 1927 and 1928 and one-tenth of 1 per cent. for each year thereafter upon such value so certified, and shall immediately certify the same to the treasurer of state. That section further provides that no fee shall be charged from any corporation which has been adjudged a bankrupt, or for which a receiver shall have been appointed.
There are following sections which have to do with the procedure for which a fee on annual franchises is collected, providing against false returns, failure to make reports, and many other provisions controlling this proposition, and Section 5506, General Code, makes such taxes and penalties a just lien on the property.
It would seem far-fetched indeed to say that all these statutory provisions are not for the purpose of collecting an excise tax from the company for the privilege of transacting the business authorized under its charter. In other words, in the language of Section 5495, General Code, "for the privilege of exercising its franchise during the calendar year."
We know of no way in which a domestic corporation can exercise its franchise except that it do the things authorized in the articles of incorporation and granted in its charter. However, we are not without inferential authority from the decisions in our own state. We desire first to call attention to the language of the Supreme Court in the case of City of Cincinnati v. American Telephone Telegraph Co., 112 Ohio St. 493, 147 N.E. 806. While it is true these were foreign corporations, and the General Code charges an excise tax upon foreign corporations for the privilege of carrying on its intrastate business, to be computed on the amount reported by the commission as the gross receipts of such company, the observation to which we desire to call attention applies with like force to domestic corporations. The court said, at page 498 of 112 Ohio St., 147 N.E. 806, 807: "It is sufficient to say that the decision in the Carrel case, supra, declaring the right of the municipality to levy an excise tax at all, was arrived at by an interpretation of the Constitution rather than by apt words therein found, and was then and since has been a subject of some doubt."
The decision then goes on to state: "That doubt having been resolved in favor of the power to the extent defined in that case [the Carrel case], * * * the majority of this court are neither disposed to unsettle the law by overruling that case, nor to extend the power of municipalities in that respect by a further interpretation removing the limitation therein expressed."
The opinion further states: "That the levying of a tax is an exercise of sovereign power, that the sovereignty of the state extends to each of its four corners, within the municipalities as well as without, is not a subject of debate; that such sovereignty would be impaired by construing the Constitution so as to give a subdivision of the state equal sovereignty in so important a subject as that of taxation cannot be gainsaid."
The point is this: If there remains any doubt as to the conflict between the state and the municipality, that doubt must be considered against dual taxation.
In the case of Guardian Savings Trust Co., Trustee, v. Templar Motors Co., 116 Ohio St. 95, 155 N.E. 691, the court had under consideration the payment of a franchise tax by a corporation while in the hands of a receiver. The first paragraph of the syllabus in that case holds: "Section 5498, General Code, prior to its amendment in 1925, imposed a franchise tax upon Ohio corporations for the privilege of exercising corporate franchises, and the tax accrues against a corporation, though its property is in the custody and control of a receiver, if the receiver is authorized to continue the usual business of the corporation in furtherance of the purposes stated in its articles of incorporation, and if such receiver in fact continues such business."
The converse of the proposition would be that if a receiver conducted the business of a corporation, while in his control, the franchise tax would be collectable; if not in fact continuing the business, the tax would not be collectable. Chief Justice Marshall, in discussing the case, rests the proposition of the collectability or noncollectability on the fact whether or not the receiver was in fact continuing the business of the corporation, and, the Court of Appeals having found the fact to be that the receiver was conducting the business the Court of Appeals was affirmed in holding the tax collectable.
We take it that the second paragraph of the syllabus in the case of the Guardian Savings Trust Co. v. Motors Co., supra, in effect determines the question, and is as follows: "Where the state seeks to collect such franchise tax for the period during which the property was in the custody and control of a receiver, the question for determination is one of mixed law and fact, and the inquiry of fact relates to the manner of control by the receiver and whether or not his operations amounted to a continuation of the business."
We are therefore of the opinion that the franchise tax is an excise tax on a domestic corporation for the right and privilege of exercising its franchise by way of transacting the business for which it is incorporated, and that the state has thereby preempted the field of occupational taxation, in so far as domestic corporations are concerned.
Propositions three and four of the plaintiffs in error challenge the constitutionality of the ordinance as being discriminatory, and claim the repeal of the ordinance by implication. We do not consider that there is merit in these two propositions, and they will therefore be dismissed without further consideration.
We therefore find, and so hold, that the gasoline tax provided by the General Assembly is not an occupational tax, but that the corporation annual franchise tax is an excise tax, and the state has thereby entered the field of occupational taxation of domestic corporations. The state of Ohio having pre-empted this field, the city of Cincinnati may not again levy an occupational tax against domestic corporations. The judgments of the court of common pleas are therefore reversed.
There being no dispute as to the facts, and the question being one of law on the demurrer, the court will enter the judgments that the court below ought to have entered, and will give judgment for the plaintiff in error in each of the cases, granting a perpetual injunction from the enforcement of the occupational tax of the city of Cincinnati so long as the state of Ohio engages in that field, as herein determined.
Judgments reversed and injunctions allowed.
CUSHING, P.J., and ROSS, J., concur.