Appellant, an Ohio corporation owning and operating department
stores in Ohio and maintaining there private warehouses where it
stores stocks of merchandise to be sold in its stores, challenged
in the Ohio courts the validity of an
ad valorem state tax
on the contents of its warehouses. It claimed that it was denied
the equal protection of the laws guaranteed by the Fourteenth
Amendment because Ohio exempted from such taxation merchandise
belonging to nonresidents "if held in a storage warehouse for
storage only." The trial court sustained the tax. The State Supreme
Court held that appellant lacked standing to raise this
constitutional question and affirmed the judgment.
Held:
1. Appellant had standing to prosecute its constitutional claim.
Pp.
358 U. S.
525-526.
2. The exemption from taxation of merchandise belonging to a
nonresident when "held in a storage warehouse for storage only" did
not deny to appellant, a resident of the State, the equal
protection of the laws guaranteed by the Fourteenth Amendment.
Wheeling Steel Corp. v. Glander, 337 U.
S. 562, distinguished. Pp.
358 U. S.
526-530.
166 Ohio St. 116,140 N.E.2d 411, affirmed.
MR. JUSTICE WHITTAKER delivered the opinion of the Court.
The principal question presented is whether an Ohio statute that
exempts from
ad valorem taxation "merchandise or
agricultural products belonging to a nonresident
Page 358 U. S. 523
. . . if held in a storage warehouse for storage only" denies to
appellant, a resident of the State, the equal protection of the
laws guaranteed by the Fourteenth Amendment of the
Constitution.
The facts are stipulated. So far as pertinent, they are that
appellant, Allied Stores of Ohio, Inc., an Ohio corporation, owns
and operates a department store in each of four Ohio cities. It
also maintains in each of those cities a private warehouse where it
stores stocks of merchandise of the kinds sold in its stores. As
needed, merchandise is transferred from the warehouse to the store,
and when merchandise is sold by sample in the store -- usually a
heavy or bulky article -- it is delivered from the warehouse
directly to the customer.
Title 57, Page's Ohio Rev.Code Ann.1953, § 5709.01, provides,
inter alia, that "All personal property located and
used in business in this state [shall be] subject to
taxation, regardless of the residence of the owners thereof. . . ."
(Emphasis added.) During the tax year involved, another Ohio
statute, Title 57, Page's Ohio Rev.Code Ann.1953, § 5701.08(A),
provided, in pertinent part, that:
"As used in Title LVII of the Revised Code:"
"(A) Personal property is 'used' within the meaning of 'used in
business' . . . when stored or kept on hand as material, parts,
products, or merchandise;
but merchandise or agricultural
products belonging to a nonresident of this state is not used in
business in this state if held in a storage warehouse for storage
only. . . . [
Footnote
1]"
(We have added the italics, and, as was done by the Supreme
Court of Ohio, we will refer to the italicized portion as the
"proviso.")
Page 358 U. S. 524
Acting under those statutes, appellee, as Tax Commissioner of
Ohio, proposed the assessment of an
ad valorem tax against
appellant based on the average value of the merchandise that it had
stored in its four Ohio warehouses during the tax year ending
January 31, 1954. [
Footnote 2]
Appellant petitioned the Board of Tax Appeals of Ohio for a
redetermination, contending that the property stored in its four
warehouses in the tax year involved was "merchandise . . . held in
a storage warehouse for storage only," within the meaning of §
5701.08(A), and that, because the section exempted nonresidents,
[
Footnote 3] but taxed
residents, on stocks of merchandise so held, it denied to
appellant, a resident of Ohio, the equal protection of the laws
guaranteed by the Fourteenth Amendment of the Constitution. The
Board of Tax Appeals upheld the tax, and so did the Court of
Appeals of Cuyahoga County. On appeal, the Supreme Court of Ohio
held that appellant
Page 358 U. S. 525
lacked standing to raise the constitutional question presented
and affirmed the judgment. 166 Ohio St. 116, 140 N.E.2d 411. The
case comes here on Allied's appeal.
The first and preliminary question thus is whether the Supreme
Court of Ohio correctly held that appellant lacked standing to
prosecute the constitutional question sought to be presented. It is
settled that
"[w]hether a pleading sets up a sufficient right of action or
defense, grounded on the Constitution or a law of the United States
is necessarily a question of federal law, and where a case coming
from a state court presents that question, this court must
determine for itself the sufficiency of the allegations displaying
the right or defense, and is not concluded by the view taken of
them by the state court."
First National Bank of Guthrie Center v. Anderson,
269 U. S. 341,
269 U. S. 346;
Staub v. City of Baxley, 355 U. S. 313,
355 U. S.
318.
In reaching its conclusion, the Ohio court said,
"In our opinion, it is not necessary to consider the
constitutional question raised by the taxpayer in the instant case,
because, if its contention with regard to that question is sound,
it necessarily leads to the conclusion that the entire proviso in
subdivision (A) of Section 5701.08, which read"
"but merchandise or agricultural products belonging to a
nonresident of this state is not used in business in this state if
held in a storage warehouse for storage only,"
"was void and should be stricken. That being so, it is apparent
that any of taxpayer's 'merchandise . . . held in a storage
warehouse for storage only' would be taxable because described by
the preceding words remaining in the statute and reading, 'stored .
. . as . . . merchandise.' But the court did not hold that the
proviso was invalid, nor did it strike it from the statute.
Instead, it held that the proviso expressed the valid legislative
purpose to exempt the merchandise and agricultural products of
nonresidents when held in a storage warehouse for storage only, and
that the court was powerless to strike it. In
Page 358 U. S. 526
this, the court was following its prior decisions on the
question.
General Cigar Co. v. Peck, 159 Ohio St. 152, 111
N.E.2d 265 (1953), and
B. F. Goodrich Co. v. Peck, 161
Ohio St. 202, 118 N.E.2d 525 (1954), had so held. In the latter
case, the court had answered a contention that the proviso was
invalid for undue preference of nonresidents by saying 'such an
argument should be addressed to the General Assembly, and not to
this court.' 161 Ohio St. at 210, 118 N.E.2d at 530. Those
interpretations, for present purposes, became a part of the
proviso.
Wheeling Steel Corp. v. Glander, 337 U. S.
562,
337 U. S. 566. The proviso
is the basis of appellant's claim of denial of the equal protection
of the laws. With the proviso thus validly remaining in the
statute, it is quite immaterial that appellant's claim necessarily
would fall if it were out. It follows that appellant does have
standing to prosecute its constitutional claim."
This brings up to the merits. Does the proviso exempting
"merchandise or agricultural products belonging to a nonresident .
. . if held in a storage warehouse for storage only" deny to
appellant, a resident of the State, the equal protection of the
laws within the meaning of the Fourteenth Amendment? The applicable
principles have been often stated, and are entirely familiar. The
States have a very wide discretion in the laying of their taxes.
When dealing with their proper domestic concerns, and not trenching
upon the prerogatives of the National Government or violating the
guaranties of the Federal Constitution, the States have the
attribute of sovereign powers in devising their fiscal systems to
ensure revenue and foster their local interests. Of course, the
States, in the exercise of their taxing power, are subject to the
requirements of the Equal Protection Clause of the Fourteenth
Amendment. But that clause imposes no iron rule of equality,
prohibiting the flexibility and variety that are appropriate to
reasonable schemes of state taxation. The
Page 358 U. S. 527
State may impose different specific taxes upon different trades
and professions, and may vary the rate of excise upon various
products. It is not required to resort to close distinctions or to
maintain a precise, scientific uniformity with reference to
composition, use or value.
Bell's Gap R. Co. v.
Pennsylvania, 134 U. S. 232,
134 U. S. 237;
Magoun v. Illinois Trust & Savings Bank, 170 U.
S. 283,
170 U. S. 293;
Southwestern Oil Co. v. Texas, 217 U.
S. 114,
217 U. S. 121;
Brown-Forman Co. v. Kentucky, 217 U.
S. 563,
217 U. S. 573;
Sunday Lake Iron Co. v. Wakefield, 247 U.
S. 350,
247 U. S. 353;
Heisler v. Thomas Colliery Co., 260 U.
S. 245,
260 U. S. 255;
Oliver Iron Mining Co. v. Lord, 262 U.
S. 172,
262 U. S. 179;
Stebbins v. Riley, 268 U. S. 137,
268 U. S. 142;
Ohio Oil Co. v. Conway, 281 U. S. 146,
281 U. S. 159;
State Board of Tax Comm'rs of Indiana v. Jackson,
283 U. S. 527,
283 U. S.
537.
"To hold otherwise would be to subject the essential taxing
power of the State to an intolerable supervision, hostile to the
basic principles of our government and wholly beyond the protection
which the general clause of the Fourteenth Amendment was intended
to assure."
Ohio Oil Co. v. Conway, supra, 281 U.S. at
281 U. S.
159.
But there is a point beyond which the State cannot go without
violating the Equal Protection Clause. The State must proceed upon
a rational basis, and may not resort to a classification that is
palpably arbitrary. The rule often has been stated to be that the
classification "must rest upon some ground of difference having a
fair and substantial relation to the object of the legislation."
F. S. Royster Guano Co. v. Virginia, 253 U.
S. 412,
253 U. S. 415;
Louisville Gas & Electric Co. v. Coleman, 277 U. S.
32,
277 U. S. 37;
Air-Way Electric Appliance Corp. v. Day, 266 U. S.
71,
266 U. S. 85;
Schlesinger v. Wisconsin, 270 U.
S. 230,
270 U. S. 240;
Ohio Oil Co. v. Conway, 281 U. S. 146,
281 U. S.
160.
"If the selection or classification is neither capricious nor
arbitrary, and rests upon some reasonable consideration of
difference or policy, there is no denial of the equal protection of
the law."
Brown-Forman
Page 358 U. S. 528
Co v. Kentucky, 217 U. S. 563,
217 U. S. 573.
State Board of Tax Comm'rs of Indiana v. Jackson,
283 U. S. 527,
283 U. S. 537.
That a statute may discriminate in favor of a certain class does
not render it arbitrary if the discrimination is founded upon a
reasonable distinction, or difference in state policy.
American
Sugar Refining Co. v. Louisiana, 179 U. S.
89;
Stebbins v. Riley, 268 U.
S. 137,
268 U. S.
142.
Coming directly to the concrete problem now before us, it has
repeatedly been held and appears to be entirely settled that a
statute which encourages the location within the State of needed
and useful industries by exempting them, though not also others,
from its taxes is not arbitrary, and does not violate the Equal
Protection Clause of the Fourteenth Amendment.
Bell's Gap R.
Co. v. Pennsylvania, supra, 134 U.S. at
134 U. S. 237;
Ohio Oil Co. v. Conway, 281 U.S. at
281 U. S. 159;
Williams v. Baltimore, 289 U. S. 36;
Colgate v. Harvey, 296 U. S. 404,
296 U. S. 439
(dissenting opinion). Similarly, it has long been settled that a
classification, though discriminatory, is not arbitrary nor
violative of the Equal Protection Clause of the Fourteenth
Amendment if any state of facts reasonably can be conceived that
would sustain it.
Lindsley v. Natural Carbonic Gas Co.,
220 U. S. 61,
220 U. S. 78;
Quong Wing v. Kirkendall, 223 U. S.
59;
Rast v. Van Deman & Lewis Co.,
240 U. S. 342,
240 U. S. 357;
State Board of Tax Comm'rs of Indiana v. Jackson, 283 U.S.
at
283 U. S.
537.
In the light of the law thus well settled, how stands
appellant's case? We cannot assume that state legislative
enactments were adopted arbitrarily or without good reason to
further some legitimate policy of the State. What were the special
reasons, motives or policies of the Ohio Legislature for adopting
the questioned proviso we do not know with certainty, nor is it
important that we should,
Southwestern Oil Co. v. Texas,
217 U. S. 114,
217 U. S. 126,
for a state legislature need not explicitly declare its purpose.
But it is obvious that it may reasonably have
Page 358 U. S. 529
been the purpose and policy of the State Legislature, in
adopting the proviso, to encourage the construction or leasing and
operation of warehouses in Ohio by nonresidents, with the attendant
benefits to the State's economy, or to stimulate the market for
merchandise and agricultural products produced in Ohio by enabling
nonresidents to purchase and hold them in the State for storage
only, free from taxes, in anticipation of future needs. Other
similar purposes reasonably may be conceived. Therefore, we cannot
say that the discrimination of the proviso which exempted only the
"merchandise or agricultural products belonging to a nonresident .
. . if held in a storage warehouse for storage only" was not
founded upon a reasonable distinction, or difference in state
policy, or that no state of facts reasonably can be conceived to
sustain it. For those reasons, it cannot be said, in the light of
the settled law as shown by the cases cited, that the questioned
proviso was invidious or palpably arbitrary and denied appellant
the equal protection of the laws within the meaning of the
Fourteenth Amendment.
Appellant heavily relies on
Wheeling Steel Corp. v.
Glander, 337 U. S. 562. We
think that case is not apposite. There, Ohio statutes exempted from
taxation certain accounts receivable owned by residents of the
State, but taxed those owned by nonresidents. The statutes, on
their face admittedly discriminatory against nonresidents,
themselves declared their purpose. That purpose was to proffer to
other States a scheme of "reciprocity" for taxing accounts
receivable. [
Footnote 4] Ohio
argued that
Page 358 U. S. 530
the reciprocal character of its statutes eliminated the
discriminatory effects against nonresidents, but this Court held
that it did not. Having themselves specifically declared their
purpose, the Ohio statutes left no room to conceive of any other
purpose for their existence. And the declared purpose having been
found arbitrarily discriminatory against nonresidents, the Court
could hardly escape the conclusion that
"the inequality [was] not because of the slightest difference in
Ohio's relation to the decisive transaction, but solely because of
the different residence of the owner."
337 U.S. at
337 U. S. 572.
As we have shown, that is not the situation here. Here, the
discrimination against residents is not invidious nor palpably
arbitrary, because, as shown, it rests not upon the "different
residence of the owner," but upon a state of facts that reasonably
can be conceived to constitute a distinction, or difference in
state policy, which the State is not prohibited from separately
classifying for purposes of taxation by the Equal Protection Clause
of the Fourteenth Amendment.
Affirmed.
MR. JUSTICE STEWART took no part in the consideration or
decision of this case.
[
Footnote 1]
The unitalicized portion of the statute was enacted in 1931, 114
Ohio Laws, pp. 714, 716. The italicized clause was added by the
Ohio Legislature at its next session in 1933, 115 Ohio Laws, pp.
548, 553. In September, 1955 the section was amended by deleting
the italicized clause and inserting the following:
"and merchandise or agricultural products shipped from outside
of this state and held in this state in a warehouse or a place of
storage for storage only and for shipment outside of this state are
not used in business in this state."
126 Ohio Laws, p. 78.
[
Footnote 2]
The Ohio taxing date is January 1, Title 57, Page's Ohio
Rev.Code Ann.1953, § 5711.03. Why the assessment involved was for
the year ended January 31, instead of January 1, 1954, is not
explained in the record or the briefs. A merchant's personal
property is valued for tax purposes
"by taking the amount in value on hand, as nearly as possible,
in each month of the next preceding year in which he has been
engaged in business, adding together such amounts, and dividing the
aggregate amount by the number of months that he has been in
business during such year."
Title 57, Page's Ohio Rev.Code Ann.1953, § 5711.15.
[
Footnote 3]
The Supreme Court of Ohio has held that a foreign corporation,
although authorized to do and doing a local business in Ohio, is a
nonresident within the meaning of the proviso here in question.
B. F. Goodrich Co. v. Peck, 161 Ohio St. 202, 204, 118
N.E.2d 525, 527.
[
Footnote 4]
The stated purpose was to proffer to other States a right to tax
accounts receivable owned by residents of Ohio that derived from
sales of Ohio goods negotiated and consummated in such other States
in exchange for a claimed Ohio right to tax the accounts receivable
owned by residents of other States that derived from sales of their
goods negotiated and consummated in Ohio. "The effect," this Court
said,
"[was] that intangibles of nonresident owners [were] assigned a
situs within the taxing reach of Ohio while those of its residents
[were] assigned a situs without. [Thus], [t]he exempted intangibles
of residents [were] offered up to the taxing power of other states
which may embrace this doctrine of a tax situs separate from
residence, [but] no other state [ever] sought to take advantage of
the 'reciprocity' proffer."
Wheeling Steel Corp. v. Glander, supra, 337 U.S. at
337 U. S.
573-574.
MR. JUSTICE BRENNAN, with whom MR. JUSTICE HARLAN joins,
concurring.
We hold today that Ohio's
ad valorem tax law does not
violate the Equal Protection Clause in subjecting the property of
Ohio corporations to a tax not applied to
Page 358 U. S. 531
identical property of non-Ohio corporations. Yet, in
Wheeling Steel Corp. v. Glander, 337 U.
S. 562, [
Footnote 2/1]
the Court struck down, as violating the Equal Protection Clause,
another provision of Ohio's
ad valorem tax law which
subjected the property of non-Ohio corporations to a tax not
applied to identical property of Ohio corporations. [
Footnote 2/2]
The question presented in the two cases, if stated generally,
and as I shall show, somewhat superficially, is: measured by the
demands of the Equal Protection Clause, is a State constitutionally
permitted separately to classify domestic and foreign corporations
for the purposes of payment of or exemption from an
ad
valorem tax? In both cases, the distinction complained of as
denying equal protection of the laws is that the incidence of the
tax in fact turns on "the different residence of the owner." With
due respect to my Brethren's view, I think that if this were all
that the matter was,
Wheeling and this case would be
indistinguishable. [
Footnote 2/3]
Therefore, while I agree with my Brethren that the classification
is valid in this case, I
Page 358 U. S. 532
cannot reach that conclusion without developing the ground on
which
Wheeling is distinguishable.
Why is the "different residence of the owner" a constitutionally
valid basis for Ohio's freeing the property of the foreign
corporation from the tax in this case, and an invalid basis for its
freeing the property of the domestic corporation from the tax
involved in the
Wheeling case?
I think that the answer lies in remembering that our
Constitution is an instrument of federalism. The Constitution
furnishes the structure for the operation of the States with
respect to the National Government and with respect to each other.
The maintenance of the principles of federalism is a foremost
consideration in interpreting any of the pertinent constitutional
provisions under which this Court examines state action. Because
there are 49 States, and much of the Nation's commercial activity
is carried on by enterprises having contacts with more States than
one, a common and continuing problem of constitutional
interpretation has been that of adjusting the demands of individual
States to regulate and tax these enterprises in light of the
multistate nature of our federation. While the most ready examples
of the Court's function in this field are furnished by the
innumerable cases in which the Court has examined state taxation
and regulation under the Commerce and Due Process Clauses, still
the Equal Protection Clause, among its other roles, operates to
maintain this principle of federalism.
Viewing the Equal Protection Clause as an instrument of
federalism, the distinction between
Wheeling and this case
seems to me to be apparent. My Brethren's opinion today
demonstrates that, in dealing with as practical and complex a
matter as taxation, the utmost latitude, under the Equal Protection
Clause, must be afforded a State in defining categories of
classification. But in the case of
Page 358 U. S. 533
an
ad valorem property tax,
Wheeling teaches
that a distinction which burdens the property of nonresidents but
not like property of residents is outside the constitutional pale.
But this is not because no rational ground can be conceived for a
classification which discriminates against nonresidents solely
because they are nonresidents: could not such a ground be found in
the State's benign and beneficent desire to favor its own
residents, to increase their prosperity at the expense of
outlanders, to protect them from, and give them an advantage over,
"foreign" competition? These bases of legislative distinction are
adopted in the national policies of too many countries, including
from time to time our own, to say that, absolutely considered, they
are arbitrary or irrational. The proper analysis, it seems to me,
is that
Wheeling applied the Equal Protection Clause to
give effect to its role to protect our federalism by denying Ohio
the power constitutionally to discriminate in favor of its own
residents against the residents of other state members of our
federation. On the other hand, in the present case, Ohio's
classification based on residence operates against Ohio residents,
and clearly presents no state action disruptive of the federal
pattern. There is, therefore, no reason to judge the state action
mechanically by the same principles as state efforts to favor
residents. As my Brethren's opinion makes clear, a rational basis
can be found for this exercise by Ohio of the latitude permitted it
to define classifications under the Equal Protection Clause. One
could, in fact, be found in the concept that it is proper that
those who are bound to a State by the tie of residence and
accordingly the more permanently receive its benefits are proper
persons to bear the primary share of its costs. Accordingly, in
this context, it is proper to say that any relief forthcoming must
be obtained from the State Legislature.
[
Footnote 2/1]
To the same effect as the
Wheeling case are
Southern R. Co. v. Greene, 216 U.
S. 400, and
Hanover Fire Ins. Co. v. Harding,
272 U. S. 494.
[
Footnote 2/2]
The Court distinguished
ad valorem property taxes,
levied on a foreign corporation permitted to do a local business,
from an original entry privilege tax on a foreign corporation. 337
U.S. at
337 U. S.
571-572.
"A corporation which is allowed to come into a state and there
carry on its business may claim, as an individual may claim, the
protection of the Fourteenth Amendment against a subsequent
application to it of state law."
Connecticut General Life Ins. Co. v. Johnson,
303 U. S. 77,
303 U. S.
79-80.
[
Footnote 2/3]
The statute in Wheeling "discriminated" against nonresidents in
the same way that the present statute "discriminates" against
residents. What my Brethren describe as the forbidden purpose of
the distinction in
Wheeling seems to me clearly to be only
a rejected argument made by the State to show that there was no
discrimination in fact. 337 U.S. at
337 U. S.
572-574. I see no indication in
Wheeling that
the Court's condemnation of the tax was based solely on its
rejection of the "reciprocity" argument.