Respondents Brief — American Koyo Corp. v. Lindley

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CASE NO. 83—1962 p wl 2 1984

_— : f RL. STEVAS,

In Che L cue

Supreme Court of the Wuited States

OCTOBER TERM, 1983

AMERICAN KOYO CORPORATION

Petitioner,

V.

EDGAR L. LINDLEY,

Tax Commissioner of Ohio,

Respondent.

ster ee ns —

RESPONDENT'S BRIEF IN OPPOSITION TO

PETITION FOR A WRIT OF CERTIORARI TO

THE SUPREME COURT OF OHIO

ANTHONY J. CELEBREZZE, JR.

Attorney General of Ohio

JAMES C. SAUER

Assistant Attorney General

Counsel of Record

State Office Tower

30 East Broad Street, 16th Floor

Columbus, Ohio 43215

(614) 466-5967

ATTORNEYS FOR RESPONDENT

QUESTION PRESENTED FOR REVIEW

WHETHER GOODS HELD BY THE PETITIONER

IN ITS OHIO WAREHOUSE WERE “IN TRANSIT” IN

INTERSTATE COMMERCE (OR FOREIGN COM-

MERCE) AND THEREBY EXEMPT FROM OHIO

PERSONAL PROPERTY TAXATION UNDER THE

COMMERCE (AND/OR IMPORT-EXPORT) CLAUSE

OF THE UNITED STATES CONSTITUTION, WHEN

THE GOODS WERE PURCHASED AND IMPORTED

BY THE PETITIONER FROM OUTSIDE THE

COUNTRY FOR SALE TO CUSTOMERS IN THE

UNITED STATES, AND WERE STORED IN THE

OHIO WAREHOUSE, PENDING DELIVERY TO OUT-

OF-STATE CUSTOMERS.

1. IMPO

TABLE OF CONTENTS

RTED PROPERTY WHICH IS

RECEIVED AND HELD BY THE PETI-

TIONER IN ITS OHIO WAREHOUSE

PENDING SUBSEQUENT SALE AND

DELIVERY TO OUT-OF-STATE

CUSTOMERS IS NO LONGER “IN

TRANSIT’, BUT HAS COME TO REST

IN OHIO AND IS SUBJECT TO THE

OHIO PERSONAL PROPERTY TAX.....

TABLE OF AUTHORITIES

Page

Cases:

Department of Revenue of the State of Washington

v. Association of Washington Stevedoring

Companies et al., 435 U.S. 734, 98 S. Ct.

Re a ee 2

General Oil Co. v. Crain,

209 U.S. 211, 28 S. Ct. 475, 52 L. Ed.

A ati ES a ee 8

Indiana State Board of Tax Comm’rs.,

v. Stanadyne, Inc., 435 N.E. 2d 278 (1982) ...... 8

Michelin Tire Corp. v. Wages,

423 U.S. 276, 96 S. Ct. 535, 46 L. Ed.

i a ae ce aa wd 4,6,7,8

Constitutional Provisions:

Article |, Section 8, Clause 3, United States

Constitution (Commerce Clause)............... 4

Article |, Section 10, Clause 2, United States

Constitution (Import-Export Clause) ........... 4

CASE NO. 83—1962

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1983

AMERICAN KOYO CORPORATION

Petitioner,

v.

EDGAR L. LINDLEY,

Tax Commissioner of Ohio,

Respondent.

RESPONDENT'S BRIEF IN OPPOSITION TO

PETITION FOR A WRIT OF CERTIORARI TO

THE SUPREME COURT OF OHIO

STATEMENT OF THE CASE

This case originated in the Ohio Board of Tax

Appeals as the result of an appeal by American Koyo

Corporation (Petitioner) from a final assessment certificate

of valuation issued by the Tax Commissioner for its 1977

personal property tax return year. The certificate had

increased the total final assessed value of the Petitioner’s

property from that previously reported. The increase

resulted from the Tax Commissioner’s determination

that the Petitioner had failed to return property which

was used in business in Ohio and was, therefore, subject

to personal property tax. The appeal disputed this find-

ing.

An evidentiary hearing was held and briefs were

filed by the parties. The record revealed that American

Koyo Corporation is an Ohio corporation, which is a

wholly-owned subsidiary of Koyo Seiko Co., Ltd., a

Japanese corporation. The parent company manufactures

bearings, and the Petitioner is in the business of import-

ing these bearings to the United States for sale. The

Petitioner has an office and warehouse in Westlake, Ohio,

where it receives imported bearings that have arrived in

this country at the port of Baltimore. The Petitioner

stores the bearings in its Ohio warehouse pending ship-

ment to its other warehouses or delivery, as needed,

directly to its customers.

The Petitioner normally sends purchase orders to its

parent company’s factory twice a year. The amount

purchased reflects American Koyo’s anticipated needs for

the upcoming year based on orders received from its

customers. The purchase orders to the factory usually

indicate the Petitioner’s intended customer, and the

factory in packing the bearings indicates the Petitioner’s

purchase order number.

The Petitioner’s purchase order directs the factory

to ship bearings to it at its Cleveland (Westlake) ware-

house. Because the Petitioner normally receives ship-

ments only two or three times a year, but may make

deliveries to its customers on a monthly basis, it often

makes advance orders of enough to meet future deliveries.

As a result, it sometimes stores bearings, which have been

received, for several months, pending delivery to its

customers. In the event that one of the Petitioner's

customers cancels an order, the bearings which had been

purchased in anticipation of such sale would be sold to

another customer.

The Petitioner sells bearings to its customers in

pallet-size quantities. That is, depending on the size of

the bearing sold, a certain number of bearings can be

- packed in cartons and bound on pallets. The Petitioner

in effect then sells bearings by the pallet.

The Board of Tax Appeals determined that the bear-

ings received for storage at the Westlake warehouse, pend-

ing sale and delivery to the Petitioner’s customers, were

no longer in transit but had come to rest in Ohio so as to

be subject to Ohio’s personal property tax. On appeal,

the Cuyahoga County Court of Appeals, citing testimony

in the record that the bearings were purchased from the

parent company in Japan for ‘‘sale here in the United

States,’’ agreed with the Board that such bearings were no

longer in transit, but were being held in Ohio for use in

the Petitioner’s business. It, therefore, affirmed the

Board's decision.

The Petitioner subsequently filed a notice of appeal

and motion to certify the case to the Ohio Supreme

Court; however, on February 29, 1984, that Court

overruled the motion. On May 29, 1984, the Petitioner

filed with the United States Supreme Court a Petition for

Writ of Certiorari to the Supreme Court of Ohio.

ARGUMENT

|. IMPORTED PROPERTY WHICH IS

RECEIVED AND HELD BY THE PETI-

TIONER IN ITS OHIO WAREHOUSE

PENDING SUBSEQUENT SALE AND

DELIVERY TO OUT-OF-STATE

CUSTOMERS IS NO LONGER “IN

TRANSIT”, BUT HAS COME TO REST

IN OHIO AND IS SUBJECT TO THE

OHIO PERSONAL PROPERTY TAX.

The Petitioner has argued that this case presents a

previously unconsidered situation, in which “‘pre-soid’”’

imported property is merely in transit through a state.

The Petitioner argues that the imposition of an.ad va/orem

tax on such property is prohibited by Article |, Section 8,

Clause 3 (Commerce Clause) and Article |, Section 10,

Clause 2 (Import-Export Clause) of the United States

Constitution. It is the position of the Respondent Tax

Commissioner that this argument is without basis in

either fact or law.

Specifically, the “‘in transit’’ concept relied on by

the Petitioner is derived from the United States Supreme

Court's decision in Michelin Tire Corp. v. Wages, 423 U.S.

276, 96 S. Ct. 535, 46 L. Ed. 495 (1976). In that case

the Supreme Court considered whether an ad va/orem

property tax on tires heid by that taxpayer at its whole-

sale distribution warehouse was prohibited by either the

Commerce Clause or the Import-Export Clause. The

Court noted that the purpose of the Commerce Clause

was to preserve the federa! government's power to

regulate the flow of interstate commerce. With respect to

the Import-Export Clause the Court noted that its purpose

was threefold, (1) to preserve the federal yovernment’s

right to speak with one voice when regulating commercial

relations with foreign nations, (2) to preserve import

revenues as a major source of revenue for the federal

government, and (3) to prevent seaboard states with ports

of entry from levying taxes on citizens of other states by

taxing goods that merely flow through the ports to other

states.

With respect to Georgia’s ad va/orem property tax

the Court found no conflict with these principles. In

doing so it noted at p. 286 that the tax was a nondis-

criminatory tax imposed on all goods that are no longer

“in import transit."” At p. 287 the Court reasoned:

“Unlike imposts and duties, which are

essentially taxes on the commercial privi-

lege of bringing goods into a country,

such property taxes are taxes by which a

State apportions the cost of such services

as police and fire protection among the

beneficiaries according to their respective

wealth; there is no reason why an importer

should not bear his share of these costs

along with his competitors handling only

domestic goods. The tmport-Export

Clause clearly prohibits state taxation

based on the foreign origin of the imported

goods, but it cannot be read to accord

imported goods preferential treatment

that permits escape from uniform taxes

imposed without regard to foreign origin

for services which the State supplies.’’

The Court also concluded that the tax did not interfere

with the free flow of imported goods among the States.

Noting that the petitioner’s warehouse was operated no

differently than would be a distribution warehouse

utilized by a wholesaler dealing solely in domestic goods,

the Court held that the property was not merely in

transit and that there was no discrimination against the

taxpayer based on the property’s place of origin.

Subsequently in Department of Revenue of the

State of Washington v. Association of Washington

Stevedoring Companies et al., 435 U.S. 734, 98 S. Ct.

1388, 55 L. Ed. 2d 682 (1978), the Court reaffirmed the

threefold purpose of the Import-Export Clause. The

Court also made it clear that the Michelin decision

constituted a departure from the “original package”

ruie. |

It is, therefore, significant that the instant case is

analogous to Michelin Tire Corp. v. Wages, supra. Specif-

ically, the Petitioner purchases goods outside the United

States and sells them in this country, storing them in the

interim in its Ohio warehouse. As such, the assessment of

an ad valorem tax on the property based on the Peti-

tioner’s use of the property in business in Ohio under

Ohio law does not interfere with the purposes of the

Import-Export Clause as outlined in the Michelin decision.

Simply put, this is a nondiscriminatory tax applied to

domestically manufactured property, as well as to

imported property, based on use in this State. It in no

'The fact that the bearings in issue may remain packed in the pallet-

sized quantities in which they are eventually sold and delivered is, therefore,

in no way determinative as to the right to an exemption under the Import-

Export Clause.

way interferes with the federal government’s authority

to regulate and assess imports; nor does it place Ohio at

an advantage over other states as a port state assessing

property which merely flows through it to other states.?

As for the Petitioner’s claim that the assessed

property is ‘‘pre-sold’’ to out-of-state customers and,

therefore, simply in transit through Ohio, the Respondent

would make two points. First, the Petitioner would have

this Court assume facts that the lower tribunals did not

accept. The Petitioner suggests that its customers had

already purchased the bearings prior to their manufacture

by the Petitioner’s parent company in Japan so as to have

some special property interest distinguishing the case

from Michelin Tire Corp. v. Wages, supra. Both the

Board of Tax Appeals and the Court of Appeals declined

to make such a finding. On the conirary, the Board

expressly disagreed with the Petitioner and found that

the bearings were purchased by the Petitiorier from its

parent company ‘‘and then sold to custcmers in the

United States.”” The Court of Appeals made a similar

finding. The factual basis of the Petitioner’s argument

has, therefore, never been established, and there is no

reason for this Court to assume such facts.

Moreover, even if there were a ‘‘pre-saie’’ of the

bearings, it would not necessarily follow that the property

remained “in transit’ indefinitely pending delivery to

the Petitioner’s customers. This Court has long recognized

a break in inter-state commerce when property is brought

into a state and stored there pending delivery to an out-

of-state customer pursuant to an advance sale of such

2 Indeed, the property in this case entered the country through the

port of Baltimore.

property. Compare Genera/ Oi/ Co. v. Crain, 209 U.S.

211, 28 S. Ct. 475, 52 L. Ed. 754 (1908), in which the

Court held that oil brought into Tennessee for temporary

storage in a tank pending distribution to fill orders for

oil already sold in other states was not exempt from

taxation. This Court observed that the break in move-

ment was more than a mere delay or accommodation to

the means of transportation; it was for business purposes

which require giving the property a locality in the state

beyond a mere halting of transportation.

This is the same principle as was relied on by this

Court in Michelin Tire Corp. v. Wages, supra, when it

determined the tires which had arrived at that company’s

distribution warehouse were no longer “in import

transit."” So it is here. The Petitioner’s bearings are

stored in its Ohio warehouse for up to six months pend-

ing delivery to its customers. As such, the importation of

the bearings had clearly ended and a local business use of

the property has commenced.

Finally, with respect to the Petitioner’s reliance on

the Indiana case of /ndiana State Board of Tax Comm rs.

v. Stanadyne, Inc., 435 N.E. 2d 278 (1982) as evidence

of uncertainty in the law, it should be noted that the

decision in that case cited and relied heavily on the

language of the Indiana statute which used an “original

package”’ test for exemption. In addition, the decision

did not even mention Michelin Tire Corp. v. Wages, supra,

much less distinguish it. The Petitioner’s reliance on it

is, therefore, misplaced.

CONCLUSION

As discussed in the foregoing brief the Petitioner has

failed to raise any constitutional issues which have not

already been addressed by this Court. Given the Ohio

Court of Appeals’ determination of facts, there is no

constitutional bar to the assessment of an ad valorem

property tax on bearings held by the Petitioner in its

~.... Warehouse, pending sale and delivery to _ its

custom, °s.

The Petition for Writ of Certiorari is, therefore,

without basis and should be denied.

Respectfully submitted,

ANTHONY J. CELEBREZZE, JR.

Attorney General of Ohio

JAMES C. SAUER

Assistant Attorney General

Counsel of Record

State Office Tower

30 East Broad Street, 16th Floor

Columbus, Ohio 43215

(614) 466-5967

ATTORNEYS FOR RESPONDENT

10

CERTIFICATE OF SERVICE

| hereby certify that three copies of the foregoing

Respondent’s Brief in Opposition to Petition for a Writ

of Certiorari to the Supreme Court of Ohio was sent this

day of June, 1984 postage prepaid to Herbert

Bruce Griswold, Calfee, Halter & Griswold, 1800 Central

National Bank Building, Cleveland, Ohio 44114, Counsel

for Petitioner. | further certify that all parties required

to be served have been served.

JAMES C. SAUER

Assistant Attorney General

Counsel of Record