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AIR-WAY ELEC. APPLIANCE CORP. V. DAY, 266 U. S. 71 (1924)

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U.S. Supreme Court

Air-Way Elec. Appliance Corp. v. Day, 266 U.S. 71 (1924)

Air-Way Elec. Appliance Corp. v. Day

Nos. 31 and 32

Argued April 30, May 1, 1924

Decided October 20, 1924

266 U.S. 71

Syllabus

A manufacturing corporation, incorporated in Delaware with an authorized capital stock of a designated number of nonpar value shares, of which only about one-eighth were issued, had all its property in Ohio, where it was duly authorized to do business and transacted during a tax year a business of which 28% was confined to Ohio and the remainder was interstate. Under an Act of May 17, 1921 (§ 8728-11 Gen.Code Ohio) which prescribes an annual fee payable by each foreign corporation having common stock without par value, for the privilege of exercising its franchise in the state, of

"five cents per share upon the proportion of the number of shares of authorized common stock represented by property owned and used and business transacted in this state. . . . ,"

the taxing authorities assessed a tax by applying this prescribed rate to the entire number of shares authorized. The court below reduced this by taking such proportion of the total number of shares authorized as the value of the property plus chanroblesvirtualawlibrary

Page 266 U. S. 72

the local business was of that value plus all the business, and by applying the rate to the result.

Held:

(1) That the tax, computed either way, and the act, violate the commerce clause, since all the corporation's business, intrastate and interstate, and all its property were represented by the shares of stock outstanding, and the application of the rate to all the shares authorized, or to a number greater than the total outstanding, necessarily amounted to a tax and direct burden upon all the property and business, including the interstate commerce. P. 266 U. S. 82.

(2) The fee imposed in either case was arbitrary, since the number of nonpar shares which the corporation might issue under the law of Delaware was not an indication of the amount of its capital, and the number not subscribed or issued had no relation to the value of the privilege of doing business in Ohio. P. 266 U. S. 83.

(3) The act, in its practical operation, does not require like fees for equal privileges held by foreign corporations in Ohio under the same circumstances. P. 266 U. S. 84.

(4) A classification of foreign corporations for the purpose of determining the amounts of such annual franchise fees should be based upon something having relation to the purpose for which it was made. P. 266 U. S. 85.

(5) The Ohio act, having no tendency to produce equality, and being of such character that there is no reasonable presumption that substantial equality will result from its operation, violates the equal protection clause of the Fourteenth Amendment. Id.

279 F.8d 8 reversed.

Appeal and cross-appeal from a decree of the District Court enjoining the Treasurer and other officials of Ohio from collecting more than a stated portion of a franchise fee from the above named corporation, but declining to hold the tax void in toto, as the corporation claimed it to be, in this suit to enjoin its collection. chanroblesvirtualawlibrary

Page 266 U. S. 77





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