Petition — Limbach v. Hooven & Allison Co.

1 Ot. 7

RR- os |

5 13983

Case No. oe ae

‘ ALEXANDER L. STEVAS,

IN THE

CLERK

Supreme Court of the United States

OCTOBER TERM 1982

JOANNE LIMBACH,

TAX COMMISSIONER OF OHIO,

Petitioner,

THE HOOVEN & ALLISON COMPANY,

Respondent.

ON PETITION FOR WRIT OF CERTIORARI TO

THE SUPREME COURT OF OHIO

PETITION FOR WRIT OF CERTIORARI

ANTHONY J. CELEBREZZE, JR.

Attorney General of Ohio

RICHARD C. FARRIN

Counsel of Record

Assistant Attorney General

State Office Tower, 15th Floor

30 East Broad Street

Columbus, Ohio 43215

(614) 466-3142

ATTORNEYS FOR

PETITIONER

MIDWEST LAW PRINTERS AND PUBLISHERS, INC., Columbus, Ohio 43216

QUESTIONS PRESENTED FOR REVIEW

I. WHETHER THE STATE OF OHIO CAN IMPOSE

ITS NONDISCRIMINATORY AD VALOREM PROPER-

TY TAX ON IMPORTED RAW MATERIALS NO LONG-

ER IN TRANSIT WHICH ARE RETAINED IN THEIR

ORIGINAL PACKAGES AND HELD FOR USE IN

MANUFACTURE IN OHIO WITHIN THE STRICTURES

OF THE IMPORT-EXPORT CLAUSE OF THE UNITED

STATES CONSTITUTION, ART.I, § 10, cl. 2.

Il. WHETHER THE DECISION OF THIS COURT IN

MICHELIN TIRE CORP. v. WAGES, 423 US. 276 (1976),

EFFECTED A CHANGE IN THE CONTROLLING

LEGAL PRINCIPLES APPLICABLE TO A DETERMI-

NATION OF WHETHER OHIO’S ASSESSMENT OF ITS

AD VALOREM PROPERTY TAX AGAINST IMPORTED

RAW MATERIALS VIOLATES THE IMPORT-EXPORT

CLAUSE.

III. WHETHER SUBSEQUENT TO MICHELIN THE

DECISION OF THIS COURT IN HOOVEN & ALLISON

CO. v. EVATT, 324 US. 652 (1945), RETAINS ANY VI-

TALITY REGARDING THE ABILITY OF THE STATES

TO TAX IMPORTED RAW MATERIALS.

IV.WHETHER COLLATERAL ESTOPPEL MAY BE

APPLIED WHEN IT WOULD RESULT IN ONE MANU-

FACTURER BEING PERPETUALLY IMMUNE FROM

OHIO’S AD VALOREM PROPERTY TAX ON ITS IM-

PORTED RAW MATERIALS WHILE ALL OTHER

BUSINESSES’ IMPORTED GOODS, INCLUDING RAW

MATERIALS, WOULD BE SUBJECT TO THAT TAX

BECAUSE OF A SUBSEQUENT CHANGE IN THE CON-

TROLLING LEGAL PRINCIPLES APPLICABLE TO

i

IMPORT-EXPORT CLAUSE CASES ENUNCIATED IN

AN INTERVENING DECISION OF THIS COURT.

PARTIES

The petitioner in this action is Joanne Limbach in her

capacity as Tax Commissioner of Ohio. She is the suc-

cessor to Edgar L. Lindley who in his capacity as Tax

Commissioner of Ohio was a party to the proceedings be-

low. The respondent is The Hooven & Allison Company.

TABLE OF CONTENTS

QUESTIONS PRESENTED FOR

REVIEW

PARTIES

DECISIONS BELOW

JURISDICTION

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

STATEMENT OF THE CASE

ARGUMENT IN SUPPORT OF ALLOWING

WRIT OF CERTIORARI

fe

3.

The Decision of the Ohio Supreme Court

Below Conflicts With This Court’s Decision

in Michelin Tire Corp. v. Wages..........

The Decision Below Failed to Properly

Apply This Court’s Decision in

Commissioner v. Sunnen.........0000005

The Decision Below Raises an Issue

Regarding the Scope of This Court’s

Decision in Michelin That Will Have Sig-

nificant Consequences Not Only in Ohio,

But Throughout the States, Regarding

the Ability of the States To Tax

Pmbepaebeh CHE: is a'a sos 5 kon ee eae

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S.2 4.2 6: 8:.0 6 2 b's 8.0.3 4°06) 576 8.8 6 Oe 6 8 -6'o. 6. @

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TABLE OF AUTHORITIES

Cases

Page

Brown v. Maryland, 25 U.S. (12 Wheat.)

I ee, UNS ies yin Wek a aes 10

Commissioner v. Sunnen,

Se MPa OE CBOOED ck vlc vecccacccess 3, 4,8, 12-14

Hooven & Allison Co. v. Evatt,

324 US. 652 (1945).......... 2-4,6,8-11,13,15,16

License Cases, 46 U.S. (5 How.) 504 (1847) ......... 10

Low v. Austin, 80 US. (13 Wall.) 29 (1872)... . 6,7,8,10

Michelin Tire Corp. v. Wages,

ES AEE PUR s. o:6 hops ow dice Son Mie ess 3,4,6-17

Montana v. United States, 440 U.S. 147 (1979). ...... 12

Washington Revenue Dept. v. Association of

Washington Stevedoring Cos., 435 U.S. 734

sa SAR SIRENE EE AS Sa erg ae are me 6,7,9,11

Youngstown Sheet & Tube Co. v. Bowers and

United States Plywood Corp. v. Algoma,

OMI EUED dicks a pvdvlacbarucdeseend gauw 9

Constitutional Provisions

Article 1, Section 10, clause 2,

United States Constitution,

Import-Export Clause .............. 2,4,6-12,)4-16

Statutes

Ohio Revised Code (R.C.) Chapter 5711............. 2

iv

Textbooks

P. Hartman, Federal Limitations on State

and Local Taxation § 5:2, § 5:4

1B Moore’s Federal Practice §0.422,§0.422[5] .

Periodicals

W. Hellerstein, State Taxation and the

Supreme Court: Toward a More Unified

Approach to Constitutional Adjudication?,

75 Mich. L. Rev. 1426 (1977)

S @ 8.464 a 6's 6:6 2 4 8 68 4

DECISIONS BELOW

The Opinion of the Ohio Supreme Court is reported at

Hooven & Allison Company v. Lindley, 4 Ohio St. 3d 169,

447 N.E. 2d 1295 (1983). (A—2). The Decision and

Order of the Ohio Board of Tax Appeals is unreported.

(A—10).

JURISDICTION

The Opinion of the Ohio Supreme Court was entered

as its judgment on April 20, 1983 (A — 2) and this Petition

for Certiorari was filed within 90 days of that date. The

jurisdiction of this Court is invoked under 28 U.S.C.

§ 1257 (3).

vi

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

This case involves Article I, § 10, cl. 2 of the United

States Constitution, and Ohio Revised Code (R.C.)

sections 5709.01, 5711.01 (A) and 5711.16

Article I, § 10, cl.2 of the United States Constitution:

No State shall, without the Consent of the Con-

gress, lay any Imposts or Duties on Imports or

Exports, except what may be absolutely neces-

sary for executing its inspection Laws: and the

net Produce of all Duties and Imposts, laid by

any State on Imports or Exports, shall be for the

Use of the Treasury of the United States; and

all such Laws shall be subject to the Revision

and Controul of the Congress.

R.C. § 5709.01:

All real property in this state is subject to tax-

ation, except only such as is expressly exempted

therefrom. All personal property located and

used in business in this state, and all domestic

animals kept in this state and not used in agri-

culture, except unmanufactured tobacco which

shall be exempt from taxation for state purposes

to the extent of the value, or amounts, of any

unpaid nonrecourse loan or loans thereon grant-

ed by the United States government or any agency

thereof, are subject to taxation, regardless of the

residence of the owners thereof. All ships, vessels,

and boats, and all shares and interests therein, de-

fined in section 5701.03 of the Revised Code as

Vii

R.C.

personal property and belonging to persons re-

siding in this state and not used in in business

wholly in another state, other than aircraft

licensed in accordance with sections 4561.17 to

4561.21, inclusive, are subject to taxation. All

property mentioned as taxable in this section

shall be entered on the general tax list and

duplicate of taxable property.

§ 5711.01 (A):

(A) ‘Taxable property” includes all the kinds

of property, except real property mentioned in

section 5709.01 and 5709.02 of the Revised Code,

and also the amount or value as of the date of

conversion of all taxable property converted into

bonds or other securities not taxed on or after

the first day of November in the year preceding

deposits after the date of which deposits are re-

quired to be listed in such year, except in the

usual course of the taxpayer’s business, to the

extent he may hold or control such bonds, se-

curities, or deposits on such day, without de-

duction for indebtedness created in the purchase

of such bonds or securities from his credits; but:

taxable property does not include such invest-

ments and deposits as are taxable at the source

as provided in sections 5725.01 to 5725.26 of

the Revised Code, nor surrender values under

policies of insurance.

viii

R.C. $5711.16:

A person who purchases, receives, or holds

personal property for purpose of adding to its

value by manufacturing, refining, rectifying, or

combining different materials with a view of

making a gain or profit by so doing is a manu-

facturer. When such person is required to return

a statement of the amount of his personal pro-

perty used in business, he shall include the aver-

age value, estimated as provided in this section,

of all articles purchased, received, or other-

wise held for the purpose of being used, in

whole or in part, in manufacturing, combining,

rectifying, or refining, and of all articles which

were at any time by him manufactured or changed

in any way, either by combining, rectifying, re-

fining or adding thereto, which he has on hand

during the year ending on the day such property

is listed for taxation annually, or on the part of

the year during which he was engaged in business.

He shall separately list finished products not kept

or stored at the place of manufacture or at a

warehouse in the same county.

The average value of such property shall be

ascertained by taking the value of all property

subject to be listed on the average basis, owned

by such manufacturer on the last business day of

each month the manufacturer was engaged in

business during the year. The result shall be the

average value to be listed. A manufacturer shall

also list all engines and machinery, and tools and

implements, of every kind used, or designed to be

used, in refining and manufacturing, and owned

or used by such manufacturer.

ix

NO. an

IN THE

SUPREME COURT OF THE UNITED STATES

JOANNE LIMBACH,

TAX COMMISSIONER OF OHIO,

Petitioner,

Vv

THE HOOVEN & ALLISON COMPANY

Respondent

PETITION FOR WRIT OF CERTIORARI TO

THE SUPREME COURT OF OHIO

Petitioner, the Tax Commissioner of Ohio, respectfully

prays that a Writ of Certiorari issue to review the judg-

ment and opinion of the Supreme Court of Ohio entered

in this case. ea

2

STATEMENT OF THE CASE

Petitioner, the Tax Commissioner of Ohio, assessed ad

valorem personal property taxes under R.C. Chapter 5711

against certain raw materials imported by respondent, The

Hooven & Allison Co., from various foreign countries and

retained in their original packages by respondent in its

warehouse in Ohio for their intended use by respondent

in the manufacture of cordage.

In its Inter-County Corporation Returns of Taxable

Property for return years 1976 and 1977, respondent had

deducted imported raw materials retained in their original

packages from its manufacturing inventory, giving the fol-

lowing explanation:

The inventories represent fibres imported by

the taxpayer from foreign countries, held in the

original packages in its warehouse in Xenia prior

to being used in manufacturing cordage, and

when they are removed therefrom or placed in

the production line in the factory, such imported

fibres so used, or removed from the original

package, are thereupon transferred to the Goods

in Process, and are included in the taxable in-

ventories in Xenia City.

Subsequent to the assessment, respondent filed an appli-

cation for review and redetermination of the assessment,

arguing that the Import-Export Clause of the United States

Constitution precludes, and the decision of this Court in

Hooven & Allison Co. v. Evatt, 324 US. 652 (1945)

(hereinafter Hooven /) collaterally estops, the Tax Com-

missioner from levying Ohio’s ad valorem personal proper-

ty taxes upon the subject imported raw materials. In the

3

Certificate of Determination affirming the assessment,

the Tax Commissioner rejected respondent’s arguments

on the basis of this Court’s decision in Michelin Tire Corp.

v. Wages, 423 US. 276 (1976). The Certification of De-

termination is set forth in full in the Decision and Order

of the Board of Tax Appeals (A — 11).

Respondent appealed to the Ohio Board of Tax Appeals

from the Tax Commissioner’s Certificate of Determination

specifying the following errors, inter alia, in its notice of

appeal:

2. The Commissioner erroneously determined

that the State of Ohio was not collaterally estop-

ped by the United States Supreme Court decision

in The Hooven & Allison Co. v. Evatt, 324 US.

652 (1945) from assessing the Appellant’s im-

ported raw materials inventory retained in its

original packages on tax-listing date.

3. The Commissioner erroneously determined

that the levying of Ohio’s personal property tax:

upon Appellant’s imported raw materials inven-

tory retained in its original packages on tax-listing

date does not impair the federal government’s

regulation of foreign trade in contravention of

the ‘“‘Import-Export” clause, or of the Commerce

clause of the United States Constitution.

The Board of Tax Appeals held that the Tax Commis-

sioner was collaterally estopped by the decision of this

Court in Hooven I. Although the Tax Commissioner,

relying on this Court’s decision in Commissioner v. Sun-

nen, 333 US. 591 (1948), argued before the Board of

Tax Appeals that collateral estoppel was inapplicable

because the legal principles upon which Hooven I was

based had been abandoned by the decision of this Court

in Michelin Tire Corp. v. Wages, supra, the Board’s de-

4

cision contained no reference to that decision or its effect

on the application of collateral estoppel based on Hooven

I, The Board of Tax Appeals did not consider the consti-

tutional issues raised by respondent, stating that it lacked

jurisdiction to determine those issues. (A—10).

Respondent filed a notice of appeal from ‘his decision

to the Ohio Supreme Court to secure a determination on

its constitutional claims. The Tax Commissioner filed a

notice of appeal from the decision to the Ohio Supreme

Court, specifying the following error:

The Board erred in holding that the Tax

Commissioner is collaterally estopped by the

decision of the United States Supreme Court in

Hooven & Allison Co. v. Evatt, 324 U.S. 652

(1945), from assessing the personal property tax

for the tax years 1976 and 1977 on taxpayer’s

imported raw materials inventory retained in its

original packages on tax listing day and, based

on such holdings, deciding that the final deter-

mination of the Tax Commissioner in issue in

BTA Case Nos. 79-C-637 and 79-C-6%8 should

be reversed.

The Tax Commissioner argued before the Ohio Supreme

Court that this Court’s decision in Michelin so changed the

legal principles controlling in Import-Export Clause cases

as to render the doctrine of collateral estoppel inapplicable

relying on this Court’s decision in Commissioner v. Sunnen,

supra.

The Ohio Supreme Court rejected the Tax Commission-

er’s argument that collateral estoppel was in inapplicable

because Michelin had repudiated the “original package”

doctrine upon which Hooven I was based and affirmed

the decision of the Board of Tax Appeals that the Tax

5

Commissioner was collaterally estopped from assessing

respondent’s imported raw materials. Having held that

the Tax Commissioner was barred by the doctrine of

collateral estoppel from levying Ohio’s ad valorem personal

property tax on respondent’s imported raw materials, the

Ohio Supreme Court declined to address the constitution-

al issues raised by respondent in its appeal. (A —2).

This Petition has followed.

6

ARGUMENT IN SUPPORT OF

ALLOWING WRIT OF CERTIORARI

1.The Decision of the Ohio Supreme Court Below

Conflicts With This Court’s Decision in Michelin

Tire Corp. v. Wages

The decision of the Ohio Supreme Court that petitioner

was collaterally estopped from assessing Ohio’s ad valorem

personal property tax against respondent’s imported raw

materials was apparently based upon its holding that the

decision of this Court in Hooven J, in which such goods

were held to be immune from that tax under the “original

package” doctrine, was of continued vitality subsequent to

this Court’s decision in Michelin Tire Corp. v. Wages, 423

US. 276 (1976). That holding is in direct conflict with

the Michelin decision.

For over a century following this Court’s decision in

Low v. Austin, 80 US. (13 Wall.) 29 (1872), wherein the

“original package” doctrine was spawned, the Import-

Export Clause was viewed as a broad prohibition against

all taxes on imports. Washington Revenue Dept. v. Associ-

ation of Washington Stevedoring Cos., 435 U.S. 734, 752

(1978); P. Hartman, Federal Limitations on State and

Local Taxation § 5:2, at 192-193, § 5:4, at 199; W. Hel-

lerstein, State Taxation and the Supreme Court: Toward

a More Unified Approach to Constitutional Adjudication ?,

75 Mich. L. Rev. 1426 (1977). The primary consideration

in such cases was whether the challenged tax reached im-

ports; the question to be decided was whether the goods

had lost their status as imports. Washington Revenue Dept.

v. Association of Washington Stevedoring Cos., supra., at

752, 760. Until Michelin, imported goods retained their

status as imports so long as they remained in their original

packages, and as imports they were considered to be im-

7

mune from all forms of state taxation under the Import-

Export Clause.

In Michelin, this Court expressly overruled Low v.

Austin, supra, and abandoned the century-old “original

package”’ doctrine along with the concept that the Import-

Export Clause constituted a broad prohibition against all

forms of state taxation which fall upon imports. 423 US.,

at 279, 290 and 301; Washington Revenue Dept. v. Associ-

ation of Washington Stevedoring Cos., supra, at 760; P.

Hartman, supra, § 5:4 at 198-199; W. Hellerstein, supra,

at 14.

This abandonment constituted an historic break from

the controlling legal principles upon which the determi-

nations regarding the application of the Import-Export

Clause had been based. Michelin adopted a fundamentally

different approach to Import-Export Clause cases. Rather

than looking at whether the goods had lost their status as

imports, the Court focused upon the nature of the tax

being challenged to ascertain whether it was an “Impost

or Duty” forbidden by the Import-Export Clause. Wash-

ington Revenue Dept. v. Association of Washington Steve-

doring Cos., supra, at 752; P. Hartman, supra, at § 5:4,

at 198-199; W. Hellerstein, supra, at 1429-1430.

The Michelin Court ed to the purposes behind the

inclusion of the IIBOrt-Export Clause in the Constitution

and determined that nondiscriminatory state ad valorem

property taxes were not the type of exactions the Framers

of the Constitution considered as creating the three main

concerns or evils the clause was intended to eliminate:

Our independent study persuades us that a

nondiscriminatory ad valorem property tax is

not the type of state exaction which the Framers

of the Constitution or the Court in Brown had in

mind as being an “‘impost”’ or “‘duty” and that

8

Low v. Austin’s reliance upon the Brown dictum

to reach the contrary conclusion was misplaced.

423 US., at 283.

Having held that the prohibition of the Import-Export

Clause was only against the laying of ‘“‘Imposts or

Duties,’ and that a nondiscriminatory state ad valorem

property tax was not such an exaction, the Court held

that irrespective of whether the tires had lost their

status as imports, Georgia’s assessment of its nondis-

criminatory ad valorem property tax against the im-

ported tires was not prohibited by the Import-Export

Clause.

The Michelin Court’s overruling of Low v. Austin,

supra, was based upon a cogent historical analysis of

the original purpose and scope of the Import-Export

Clause and a very critical analysis of the “original

package”’ rule as formalized in Low v. Austin. While

the Michelin Court expressly overruled only Low uv.

Austin, which it considered to be the leading decision

applying the “original package”’ rule, 423 US., at 282,

its decision implicitly overruled all of the cases de-

cided subsequent to Low v. Austin which applied the

rationale of that case and unquestionably changed the

controlling legal principles applicable in Import-

Export Clause cases. Among such cases applying the

“original package’’ analysis of Low v. Austin was

Hooven I.

In its decision below, the Ohio Supreme Court held

that Michelin had neither implicitly overruled Hooven J

nor altered the legal principles upon which that deci-

sion was based. The Court expressly found that Hooven

I retained its vitality even subsequent to Michelin and,

based on that finding, rejected petitioner’s argument

based on Commissioner v. Sunnen, supra, that Michelin

eviscerated the collateral estoppel effect of Hooven I.

9

The Ohio Supreme Court’s reasoning in its attempt to

distinguish Michelin and Hooven I reveals the Court’s

basic misunderstanding of this Court’s decision in

Michelin. The Ohio Supreme Court distinguished the

two cases based on the factual distinctiveness of the

goods involved and their status as imports and on lan-

guage regarding Hooven J contained in this Court’s

decision in Youngstown Sheet & Tube Co. v. Bowers

and United States Plywood Corp. v. Algoma, 358 USS.

534 (1959), a decision which was rendered prior to

Michelin and which was based upon the “current op-

erational needs’ doctrine which was merely another

test formalized to determine whether the goods at

issue had lost their status as imports.

This attempt to distinguish the two cases ignores

the fundamentally different approach to Import-Ex-

port Clause cases initiated by this Court in Michelin.

Whether the goods had lost their status as imports

was the specific inquiry abandoned by Michelin; the

Court expressly refrained from addressing that quest-

ion because the relevant inquiry was no longer the

nature of the goods but the nature of the tax at issue.

Washington Revenue Dept. v. Association of Washing-

ton Stevedoring Cos., supra, at 752, 760. Under “the

central holding of Michelin that the absolute ban is

only of ‘Imposts or Duties’ and not of all taxes,’’/d.,

at 759, the relevant inquiry is whether the tax at issue

constitutes a prohibited “Impost’”’ or “Duty.” If the

challenged tax is determined not to be an “Impost”

or “Duty,” it will not offend the Import-Export

Clause even if the goods have not lost their status as

imports.

Therefore, Hooven I may properly be distinguished

from Michelin only if the nature of the taxes at issue

in the two cases differed. In Michelin, this Court held

10

that a nondiscriminatory state ad valorem property

tax was not an “Impost’’or “Duty” and therefore was

not barred by the Import-Export Clause. 423 US., at

283. In /’ooven J, the Court held that a nondiscrimi-

natory state ad valorem property tax could not be

assessed against imported goods so long as those goods

retained their status as imports. It cannot be disputed

that the taxes at issue in Michelin and Hooven I were

of the very same type. The only relevant distinction

between the two cases is the fact that Hooven J invoked

the “‘original package” doctrine of Low v. Austin in

holding that Ohio could not levy its nondiscriminatory ad

valorem property tax upon imported goods until they

lost their status as imports and that this Court repudiated

the “‘original package’ doctrine in Michelin. However,

rather than supporting the Ohio Supreme Court’s finding

that Hooven J is of continued vitality, this distinction con-

clusively establishes that Hooven J retains no more va-

lidity than did the decision formalizing the ‘‘original

package”’ doctrine, Low v. Austin, which was expressly

overruled in Michelin.

Any suggestion that Hooven I was not based upon

the same legal principles as was Low v. Austin is simply

spurious. A review of Low and Hooven I reveals that

Hooven I reiied on the same language of Brown v. Mary-

land, 25 US. (12 Wheat.) 419 (1827), and The License

Cases, 46 U.S. (5 How.) 504, 575 (1847), upon which

Low had based its “original package’’ doctrine. Obvi-

ously, if Low had misread Brown and The License Cases,

as the Michelin Court expressly found, 423 US., at 282-

283 and 299-301, so did Hooven IJ, and its holding based

thereon is no more currently valid than the expressly

overruled decision in Low.

The Ohio Supreme Court’s holding below that peti-

tioner was collaterally estopped by Hooven IJ from as-

11

sessing Ohio’s nondiscriminatory ad valorem property

tax against respondent’s imported raw materials held

for use in manufacture necessarily adopted the legal

principle upon which Hooven I was based, the “origi-

nal package”’ doctrine. Because the opinion below resur-

rects the “‘original package” doctrine expressly repudiated

in Michelin, it is in direct conflict with Michelin. This

attempt to resurrect the “original package’ doctrine

after its burial in Michelin must be rejected, just as this

Court rejected such an attempt in Washington Revenue

Dept. v. Association of Washington Stevedoring Cos.,

supra, at 760.

There is no logical or legal justification which would

support a retention of the “original package’ doctrine

in cases involving imported manufacturing inventory

while applying the fundamentally different analysis of

Michelin in cases involving imported goods held for

resale. The reasoning underlying Michelin’s abandon-

ment of the “original package”’ doctrine is just as com-

pelling with respect to imported manufacturing inventory

as it is to imported goods held for resale. To allow

manufacturers who use imported raw materials to retain

their immunity under the “original package”’ doctrine

and thus avoid contributing their share of the state’s cost

of providing its various. services to all those

within its borders would accord such manufacturers

preferential treatment resulting in an unfair competitive

advantage over manufacturers who use domestic raw

materials. Such a result is counter to the express lan-

guage in Michelin that the Import-Export Clause cannot

be read to accord preferential treatment to imported

goods. 423 US., at 287. Any attempt to distinguish

Michelin because it involved imported goods held for

resale is also inconsistent with the holding in Hooven J

that whether the imported goods were held for resale or

12

for use in manufacturing was not relevant to a determi-

nation of their immunity from taxation under the Import-

Export Clause. 324 US., at 667-668.

The opinion below represents the first time since this

Court’s decision in Michelin that the highest court of a

state or a federal court has barred the assessment of a

nondiscriminatory state ad valorem property tax against

imported goods as being in violation of the Import-Export

Clause. By granting this Petition, this Court can reject

this potentially far-reaching opinion before it spawns

voluminous litigation throughout the states on what had

been considered by the states to be a settled issue after

Michelin.

2.The Decision Below Failed to Properly Apply

This Court’s Decision in Commissioner uv.

Sunnen.

In its decision holding that petitioner was barred by

the doctrine of collateral estoppel from assessing re-

spondent’s imported raw materials held for use in manu-

facture, the Ohio Supreme Court failed to properly apply

this Court’s decision in Commissioner v. Sunnen, supra,

that collateral estoppel is ‘‘confined to situations. . . where

the controlling facts and applicable legal rules remain un-

changed.”’ 333 US., at 599-600. The doctrine is inappli-

cable when an intervening decision of this Court modifies

the controlling legal principles upon which the first de-

cision was based. The reason for the limitation was the

concern that such a modification could render a prior

decision inconsistent with the current legal theory and

that if that prior decision is perpetuated by applying

collateral estoppel the taxpayer involved in that prior

litigation will be treated differently from other taxpayers

in the same class. Jd., at 599; Montana v. United States,

13

440 U.S. 147, 161 (1979); 1B Moore’s Federal Practice

§ 0.422, at 3042, § 0.422 [5] , at 3451. The obvious ra-

tionale of this limitation on the applicability of collater-

al estoppel is equality and uniformity in the treatment of

taxpayers. Although the opinion below does not clearly

and definitively articulate the precise reason for not

limiting the application of collateral estoppel’ , the effect

of the decision is clear. It will result in “inequalities in

the administration of the revenue laws, discriminatory

distinctions in tax liability, and a fertile basis for litigious

confusion,” the avoidance of which was the fundamental

reason for the limitation on the doctrine of collateral

estoppel enunciated in Sunnen, 333 US. at 599.

If left standing, the Ohio Supreme Court’s decision

barring petitioner from assessing Ohio’s nondiscriminatory

ad valorem property tax against respondent’s imported

raw materials will result in respondent avoiding forever

the tax on its imported raw materials inventory because

of a prior decision, Hooven I, which was based on a now

repudiated legal principle, the “‘original package’’ doc-

trine, while all other taxpayers would be subject to that

tax on their imported raw materials inventory under the

fundamentally different legal principles enunciated in

Michelin.*- Respondent alone would be perpetually im-

' As an example, while the Ohio Supreme Court apparent-

ly acknowledged that Michelin repudiated the “original

package”’ doctrine, at n. 1 of its Opinion (A — 6), which

indicates that it recognized that Michelin had changed

the controlling legal principles in Import-Export Clause

cases, its finding that Hooven | was of continued vitality

subsequent to Michelin runs counter to that indication.

? Petitioner’s argument that Michelin changed the con-

trolling legal principle upon which Hooven I was decided,

the ‘‘original package’’ doctrine, is fully addressed in the

immediately preceding part of this Petition.

14

mune from such taxation, while all other taxpayers

would subsidize the services and benefits provided by

Ohio to this one taxpayer, a result not countenanced by

the Michelin Court. 423 U.S. at 287, 289. Respondent

would be accorded a distinct competitive advantage over

other manufacturers, a result directly contrary to the

admonition in Sunnen that collateral estoppel is not to be

blindly applied where, because of an intervening change

in the controlling legal principles, to do so would cause

tax inequality.

Such a result would raise serious questions regarding

discriminatory application of the tax laws and may

well result in litigation by those manufacturers who are

subject to the tax. The decision below may also result in

litigation by other manufacturers who had received ju-

dicial determinations issued prior to Michelin declaring

that their imported goods were immune from taxation

under the Import-Export Clause. It must be assumed

that a substantial number of such decisions were issued

during the one-hundred plus years that the “original

package”’ doctrine was considered to be controlling in

Import-Export Clause cases.

The failure of the Ohio Supreme Court to properly

apply this Court’s decision in Sunnen and the importance

of avoiding both the widespread tax inequality that will

result from the decision below and the further litigation

that is likely to occur until this matter is settled justify

the granting of this Petition.

3. The Decision Below Raises an Issue Regard-

ing the Scope of This Court’s Decision in

Michelin that Will Have Significant Conse-

quences Not Only in Ohio, But Throughout

the States, Regarding the Ability of the

States To Tax Imported Goods.

15

While avoidance of the tax inequality that will result

from the decision below would itself justify granting

certiorari, the potential impact of the decision below on

Ohio and other states is much more far-reaching.

The finding of the Ohio Supreme Court that Hooven /

was of continued vitality even after Michelin has serious

consequences not just for Ohio but for all states which

impose ad valorem property taxes. The potential effect of

such a decision is to open the floodgates to litigation by

manufacturers which, since Michelin, have had Ohio’s

and other states’ ad valorem property taxes levied against

all of their manufacturing inventory, including imported

raw materials retained in their original packages. Ohio

and other states which impose ad valorem property taxes

have considered such imported goods to be subject to

these taxes since the decision of this Court in Michelin

repudiated the “original package”’ doctrine and held that

such taxes were not “Imposts or Duties” barred by the

Import-Export Clause.*

For the past seven years, Ohio, and no doubt other states

assessed and collected these taxes from manufacturers on

their imported raw materials just as they did with respect

to imported goods held for resale. Based on the opinion

below, these manufacturers are likely to seek refunds of

those portions of their tax payments which were based

on the amount of their current operational needs and

retained in their original packages and claim deductions

* Less than two months after the Michelin decision was

issued, petitioner issued Tax Commissioner's Bulletin No.

244 which set forth Ohio’s understanding that all import-

ed property no longer in transit was subject to its ad val-

orem property tax, whether it was held for resale or for

use in manufacturing. (A — 25).

16

on current and future returns for the amount of such

inventory.

The decision of the Ohio Supreme Court erroneously

limited the scope of this Court’s decision in Michelin in

its finding that Hooven I retained its vitality regarding im-

ported raw materials held for use in manufacture. This

finding is in direct conflict with the fundamental holding

in Michelin that a nondiscriminatory state ad valorem pro-

perty tax is not an “Impost”’ or “Duty” prohibited by

the Import-Export Clause. 423 U.S., at 283. the decision

below unsettles a fundamental question regarding the

ability of the states to tax imported goods which Ohio

and other states perceived as resolved by Michelin.

Because of the potentially crippling financial impact

that the decision below may have on Ohio and other

states, the voluminous litigation that it will generate,

the importance of the issue of the breadth of the ability

of the states to constitutionally tax imported goods and

most importantly, the fact that the decision below di-

* Petitioner makes the representation in her official capa-

city as Tax Commissioner that subsequent to the decision

of theOhioSupreme Court below numerous requests for re-

funds have been filed and numerous claims for deductions

have been made on current returns based upon that de-

cision and that many more such requests for refunds and

claims for deductions are expected based upon statements

by taxpayers and various counsel for taxpayers. Petitioner

further represents that based on prior years’ figures it is

estimated that approximately $30 million is collected

annually by Ohio alone from the assessment of Ohio’s

ad valorem property tax against such inventory. Nation-

wide the figure would be in the hundreds of millions of

dollars per year.

17

rectly conflicts with this Court’s decision in Michelin, it

is essential that this Court grant this Petition and reaffirm

the right of the states to impose a nondiscriminatory ad

valorem property tax on all imported goods which have

come to rest within the state.

18

CONCLUSION

For these reasons, a writ of certiorari should issue to

review the judgment and opinion of the Supreme Court

of Ohio.

Respectfully submitted,

ANTHONY J. CELEBREZZE, JR.

Attorney General of Ohio

RICHARD C. FARRIN

Counsel of Record

Assistant Attorney General

State Office Tower, 15th Floor

30 East Broad Street

Columbus, Ohio 43215

(614) 466-3142

ATTORNEYS FOR PETITIONER

19

CERTIFICATE OF SERVICE

I hereby certify that the requisite number of copies of

the foregoing Petition for Writ of Certiorari have been

served on the respondent by forwarding such copies to

Michael A. Nims, Kenneth E. Updegraft, Jr., and Charles

H. Mollenberg, Jr., Jones, Day, Reavis & Pogue, 1700

Union Commerce Building, Cleveland, Ohio 44115,

counsel for respondent, by United States mail, postpaid,

this day of July, 1983. I further certify that all

parties required to be served have been served.

RICHARD C. FARRIN

Assistant Attorney General

A-1

APPENDIX

Page

Opinion, April 20, 1983

Cone ne CONN. ick eae eve die ees A-2

Decision and Order, March 19, 1982

Ohio Board of Tax Appeals................04 A—10

Tax Commissioner’s Bulletin No. 244

Pees B.S. oo scr enero eka A—25

A-2

NO. 82 - 559

THE SUPREME COURT OF OHIO

HOOVEN & ALLISON COMPANY,

APPELLANT AND CROSS-APPELLEE, v.

LINDLEY, TAX COMMR.,

APPELLEE AND CROSS-APPELLANT.

OPINION

Decided and Filed April 20, 1983

APPEAL and CROSS-APPEAL

from the Board of Tax Appeals

Appellant and cross-appellee, The Hooven & Allison

Company (“Hooven"’), is a domestic producer of cordage.

In order to manufacture cordage, Hooven imports the re-

quisite raw materials—hemp, sisal, jute and manila~from

several foreign countries. Upon arriving in the United

States, the materials are transported via rail to Hooven’s

plant in Xenia, Ohio, where they are inspected and stored

in their original packages for future use in the manufac-

turing process.

In conformity with R.C. 5711.16, Hooven timely filed

its 1976 and 1977 personal property tax returns. Relying

on the United States Supreme Court's decision in Hooven

& Allison Co. v. Evatt (1945), 324 U.S. 652 (hereinafter

Hooven 1), Hooven did not list as taxable property on its

return the stored imported raw materials. In Hooven J,

the court had determined that the state’s taxation of

Hooven’s imported raw goods still stored in their original

packages violated the Import-Export Clause of the United

States Constitution.

Following an audit of Hooven’s returns, appellee and

cross-appellant, Tax Commissioner of Ohio (‘‘commis-

A-3

sioner’), found the value of the imported raw material

inventory to be taxable and increased Hooven’s tax liabil-

ity. Hooven subsequently filed an application for a review

and redetermination of the commissioner’s ruling, arguing

that the Import-Export and Commerce Clauses of the

United States Constitution preclude, and Hooven J collat-

erally estops, the commissioner from levying state ad

valorem personal property taxes upon the subject goods.

In upholding the assessment, the commissioner answered

that the United States Supreme Court's decision in

Michelin Tire Corp. v. Wages (1976), 423 U.S. 276,

permits the imposition of such taxes on imported goods

no longer in transit when the taxes are applied in a

nondiscriminatory fashion, i.e., in a manner not based on

the status of the goods as imports.

Upon appeal, the Board of Tax Appeals reversed the

assessment, declaring that, as Hooven I had not been

overruled, the doctrine of collateral estoppel barred the

taxation of the subject imports. The board, lacking

jurisdiction, did not consider the constitutional issues

which Hooven raised. Thus, on April 16, 1982, Hooven

filed a notice of appeal in this court to secure a deter-

mination of its constitutional claims.

On April 19, 1982, the commissioner filed his notice

of appeal, contesting the board’s reversal of the personal

property tax assessed against Hooven.

The cause is now before this court upon an appeal and

cross-appeal as of right.

Messrs. Jones, Day, Reavis & Pogue, Mr. Michael A.

Nims, Mr. Kenneth E. Updegraft, Jr., and Mr. Charles H.

Moellenberg, Jr., for appellant and cross-appellee.

Mr. Anthony J. Celebrezze, Jr., attorney general, and

Mr. Richard C. Farrin, for appelle and cross-appellant.

A-4

Per Curiam. In the case at bar, this court must first

decide whether the doctrine of collateral estoppel bars

the commissioner from imposing an ad valorem property

tax upon imported raw goods stored by Hooven in its

warehouse,

In Montana v. United States (1979), 440 U.S. 147, the

United States Supreme Court clearly set forth the opera-

Lional features of the interrelated doctrines of res judicata

and collateral estoppel. The court therein declared:

“* ** Under res judicata, a final judgment on the

merits bays further claims by parties or their privies

based on the same cause of action. * * * Under collateral

estoppel, once an issue is actually and necessarily deter-

mined by a court of competent jurisdiction, that deter-

mination is conclusive in subsequent suits based on a

different cause of action involving a party to the prior

litigation. * * * *’ (Citations omitted.) Montana v. United

States, supra, at 153. See, also, Parklane Hosiery Co. v.

Shore (1979), 439 U.S. 322, 326, fn. 5; State, ex rel.

Westchester, v. Bacon (1980), 61 Ohio St. 2d 42, 44 [15

0.0.3d 53}.

As the instant cause does not involve returns for the

same years at issue in Hooven J, it ig arguable whether the

more restrictive doctrine of res judj‘ata is apposite here.

The applicability of collateral esto pel to the case sub

judice, however, is undeniable. Bot: parties to the prior

action (the Hooven & Allison C any and the Tax

Commissioner of Ohio) are parties tq,the present, and the

ultimate issue decided in Hooven [is that now under

consideration—whether an ad valorem personal property

tax may constitutionally be assessed against imported raw

materials stored in their original containers for future use.

The commissioner offers this court’s decision in

A-5

Beatrice Foods Co. v. Lindley (1982), 70 Ohio St. 2d. 29

{24 0.0.3d 68], and Standard Oil Co. v. Zangerle (1943),

141 Ohio St. 505 [26 0.0. 82], as precedent for pre-

cluding the application of collateral estoppel to the

instant action. Both cases, however, are readily distin-

guishable. In Beatrice Foods, supra, the taxpayer im-

properly essayed to invoke collateral estoppel where

the subject issue had not been previously resolved in an

adversary proceeding and where the principle argued for

had not, through unchallenged operation over a period of

time, gained acceptance as law. Similarly, our ruling in

Standard Oil, supra, is not germane to the instant action

as the applicability of res judicata, not collateral estoppel,

was at issue there. Moreover, in Standard Oil, the tax-

payer sought to shield property found to be tax-exempt

in a prior year because of its then use from assessment

in a later year when the property was employed in a

different manner.

Nonetheless, despite the inappositeness of Beatrice

Foods and Standard Oil, it must be acknowledged that, at

least in the context of tax determinations, the applicabil-

itv of collateral estoppel is not untempered. As the

United States Supreme Court observed, in Commissioner

v. Sunnen (1948), 333 U.S. 591, at 599-600:

“*** [C]ollateral estoppel is a doctrine capable of

being applied so as to avoid an undue disparity in the

impact of income tax liability. A taxpayer may secure

a judicial determination of a particular tax matter, a

matter which may recur without substantial variation for

some years thereafter. But a subsequent modification of

the significant facts or a change or development in the

controlling legal principles may make that determination

obsolete or erroneous, at least for future purposes. * * *

[A] judicial declaration intervening between *** two

A-6

proceedings may so change the legal atmosphere as to

render the rule of collateral estoppel inapplicable. * * *”’

The commissioner argues that the United States

Supreme Court’s decision in Michelin Tire Corp. v.

Wages, supra (423 U.S. 276), so altered the “legal atmos-

phere” relative to the constitutionality of personal

property taxation of imports as to eviscerate Hooven’s

collateral estoppel claims. We strongly disagree.

Although the Michelin court clearly felt no compunc-

tion in explicitly overruling Low v. Austin (1871), 80

U.S. 29, the commissioner asks us to hold that that same

court experienced a sudden diffidence and only tacitly

overruled Hooven I. We are thus requested, in effect, to

infer an implicit or “constructive” overruling. This we

cannot do. Though twice citing Hooven J in its Michelin

decision, the United States Supreme Court made no

effort to overrule the former. See Michelin Tire Corp. v.

Wages, supra, at 281, 301, fn. 13. The court’s action—or

inaction—must be accorded conclusive effect, at least in

regard to its intent in reappraising its earlier ruling in

Hooven I.

Moreover, that the Michelin court did not attempt to

overrule Hooven I should be evident given the factual

distinctiveness of the two cases. In Michelin, the court

upheld the constitutionality of a state ad valorem proper-

ty tax levied upon imported tires that had been mixed

with domestically manufactured ones and stored for

future sale and delivery to various franchised dealers,

without regard to the tires’ point of origin.' Hooven I,

'In Michelin, the court additionally overruled Low v.

Austin, supra, to the extent the latter interdicted the

imposition of state taxes of any type upon imported

goods, particularly the levying of ad valorem personal

property taxes. Michelin has also been viewed as sounding

A-7

however, involved the validity of a state personal pro-

perty tax assessed against, not imported finished goods

ready for sale, but imported raw materials stored in

their original packages for later use in the manufacturing

process. Indeed, the court, in Michelin, specifically re-

served judgment on the taxability of imported tire tubes

still in their original cartons and segregated from their

domestic counterparts, the issue most analogous to that

presented in the herein action.- Thus, the commissioner’s

contention that the holding in Michelin controls the

disposition of the case at bar must fail.

The United States Supreme Court’s decision in Youngs-

town Sheet & Tube Co. v. Bowers and United States

Plywood Corp. v. Algoma (1959), 358 U.S. 534, also

attests to the continued vitality of Hooven J. In Hooven!I,

the court declined to consider whether the taxpayer’s

inventory of imported raw goods was so integral to its

daily manufacturing process that the goods lost their

status as imports and, thus, became susceptible to state

property taxation. In Youngstown Sheet & Tube, supra,

wherein guidelines for making such a calculation are

' continued

the death knell for the “original package”’ theory, i.e.,

that imports still in their original containers are immune

from all forms of state taxation. Michelin Tire Corp. v.

Wages, supra, at 297.

> As the court stated, in Michelin Tire Corp. v. Wages,

supra, at 279, fn. 2: ‘The respondents [Gwinnett County,

Georgia, Tax Commissioner and Assessors] did not

cross-petition from the affirmance of the holding of the

Superior Court that the tubes in the corrugated shipping

cartons were immune from the tax, and that holding is

therefore not before us for review.”

A-8

established, Hooven I was explicitly distinguished. The

court stated: ‘‘Unlike Hooven, these are not cases of the

mere storage in a warehouse of imported materials

intended for eventual use in manufacturing but not found

to have been essential to current operational needs.”

Youngstown Sheet & Tube Co. v. Bowers, supra, at 544.

Clearly, the United States Supreme Court has issued no

decree that invalidates its decision in Hooven I.

The commissioner’s attempt to distill from Michelin a

rigid and unassailable principle which would permit the

taxation of imported raw materials, like those represented

in the case at bar, is inappropriate, In Brown v. Maryland

(1827), 25 U.S. (12 Wheat.) 419, which still contains the

preeminent judicial analysis of the Import-Export Clause

of the federal Constitution, Chief Justice Marshall dis-

dained the adoption of an inflexible rule for determining

which forms of state taxation of imported goods the

clause proscribes. In discussing the prerogative of the

state to levy such taxes under the clause, he stated:

“* * * The power, and the restriction on it, though

quite distinguishable when they do not approach each

other, may yet, like the intervening colours between white

and black, approach so nearly as to perplex the under-

standing, as colours perplex the vision in making the dis-

tinction between them. Yet the distinction exists, and

must be marked as the cases arise. Till they do arise, it

might be premature to state any rule as being universal

in its application.* * ** Brown v. Maryland, supra, at

441. The United States Supreme Court has, in short,

‘decreed that no single prescription can adequately treat

the constitutional issues raised by state taxation of vari-

ous imported goods. Thus, the commissioner’s attempts,

through a misplaced reliance on Michelin to do so, must

be rejected.

A-9

Finally, it has been suggested that we ignore the dic-

tates of Hooven I as Michelin indicates at the very least

the United States Supreme Court's intention presently

to abandon the principles embodied in the former action.

Were this court to comply with such a request, we would

be guilty of overreaching. As was cogently stated in Pen-

field Co. of California v. SEC (C.A. 9, 1944), 143 F. 2d

746, at 749, certiorari denied (1944), 323 U.S. 768:

“We cannot agree that an inferior federal court may

make its prognostication of the weather in the Supreme

Court chambers, however well fortified in judicial reason-

ing, and forecast that the Supreme Court ‘seems’ about to

overrule its prior decision, and outrun that Court to the

overruling goal.’’ Like the federal district and appellate

courts, we are constrained to abide by the decisions of

the nation’s highest court until expressly overruled by

that tribunal.

Finding the commissioner's levying of an ad valorem

personal property tax upon the subject imported goods

barred by the doctrine of collateral estoppel, we decline

to address the constitutional issues raised by Hooven in

its appeal.

Accordingly, the decision of the Board of Tax Appeals

is affirmed.

Decision affirmed.

CELEBREZZE,C.J.,.W.BROWN ,SWEENEY,LOCHER,

HOLMES, C.BROWN and J.P. CELEBREZZE, JJ., concur.

A-10

BOARD OF TAX APPEALS

STATE OF OHIO

The Hooven & Allison Company,

Appellant,

CASE NOS. 79-C-637

VS, 79-C-638

(PERSONAL PROPERTY

TAX)

Edgar L. Lindley,

Tax Commissioner of Ohio,

Appellee.

DECISION AND ORDER

Filed March 19, 1982

REPRESENTATIVES:

For the Appellant - Jones, Day, Reavis & Pogue

By: Diane L. Beauchesne

and Kenneth Updegraft, Jr.

1700 Union Commerce Building

Cleveland, Ohio 44115

For the Appellee- William J. Brown

Attorney General of Ohio

By: Richard Farrin

Assistant Attorney General

State Office Tower

30 East Broad Street

Columbus, Ohio 43215

A-11

Case Number 79-C-637 and Case Number 79-C-638

came on to be considered by the Board of Tax Appeals

upon notices of appeal filed herein by the above named

appellant on November 14, 1979. Said appeals are taken

from a final order of the Tax Commissioner, dated Oc-

tober 17, 1979. The final order is evidenced by Certi-

ficate of Determination No. 14690 and relates to a

personal property tax assessment for years 1976 and

1977.

The Tax Commissioner's final order in these matters

reads as follows:

“This proceeding, being the application of

Hooven & Allison Company, Xenia, Greene Coun-

ty, Ohio for review and redetermination of the

personal property tax assessments for the years

1976 and 1977, after being duly heard, came

on to be considered for final determination.

“The applicant is a manufacturer of cord-

age, importing certain quantities of raw material

(hemp, sisal, jute, manila, etc.) each year from

Tanzania, Ecuador, Kenya, Thailand, Bangla-

desh, et al. Such imported manufacturing inven-

tory is ordered on credit from foreign producers

and shippers through their brokers in various US.

coastal cities, who then arrange for its transport

by ocean-going vessel to the United States. Upon

arrival in this country, the imports are transport-

ed overland by rail to the applicant's Xenia plant.

At the Xenia plant, the bales of raw materials

are placed in a warehouse and inspected, with

payment then being made to the broker by pro

forma invoice; any weight variations or quality

grade differences discovered upon inspection

result in a claim for partial refund. (However,

A-—12

whether the materials are subsequently approved

as inspected or a claim fordamage or misgrading is

filed, Hooven & Allison takes title to all the bales

of materials when they are boarded overseas on

the ocean-going vessels.) After complete tagging

and inspection, the imported bales of raw materi-

als are then stored in a dry area in their original

packages until placed into ffroduction.

‘The applicant timelf filed its 1976 and 1977

Inter-County CorpordAtion Returns of Taxable

Property, reporting therein, inter alia, an aver-

age value of its manufacturing inventory located

in Xenia City, Greene County pursuant to

Section 5711.16 of the Revised Code; however,

taking the position that its imported inventory,

as addressed above, is exempt from taxation

under the‘Import-Export’ clause of the federal

Constitution as long as it remains in its original

packages, the applicant excluded such inventory

in the computation of the average value of its

taxable manufacturing inventory. '

The Applicant included the following footnote in Sched-

ule 3 of its returns: *‘The inventories represent fibres im-

ported by the taxpayer from foreign countries, held in the

original packages in its warehouse in Xenia prior to

being used in manufacturing cordage, and when they are

removed therefrom or placed in the production line in the

factory, such imported fibres so used, or removed from

the original package, are thereupon transferred to the

Goods in Process, and are included in the taxable inven-

tories in Xenia City. . . the Supreme Court of the United

States had held such fibres constitutionally immune from

Ohio personal property taxes in the case of The Hooven

& Allison Co. v. Evatt, 324 U.S. 652 (1945).”

A-13

“Upon audit, it was determined that County

Auditor Bulletin No. 244, dated March 8, 1976,

governed the applicant’s ‘excluded’ imported in-

ventory, and that such inventory, imported from

a foreign source, for resale or for use in manufac-

turing was subject to Ohio’s nondiscriminatory ad

valorem personal property taxation since it was

used in business in Ohio, was no longer in tran-

sit in interstate or foreign commerce and had

attained a situs in Ohio on the subject tax-listing

dates. Accordingly, such imported inventory was

included in the computation of the average value

of taxable manufacturing inventory pursuant to

Section 5711.16 of the Revised Code, resulting

in an increased valuation thereof as reflected in

amended preliminiary assessment certificates is-

sued pursuant to Section 5711.24 of the Revised

Code.

“The applicant object to the increased assess-

ments and timely filed an application for review

and redetermination thereof pursuant to Section

5711.31, Revised Code, contending as follows: (1)

The State of Ohio is collaterally estopped from as-

sessing the applicant’s imported raw materials

inventory retained in its original packages on

tax-listing date by the United States Supreme

Court’s decision in Hooven & Allison Co. v. Evatt,

324 US. 652 (1945). ‘Because this decision has

not been overruled by the United States Supreme

Court (in Michelin Tire Corp. v. Wages, 423 US.

276 (1976) ) it is controlling precedent which is

binding on the State of Ohio, its courts and its

tax officials.” (parenthetical matter added); (2)

The levying of Ohio’s personal property tax in

A~-14

this case operates to impair the federal govern-

ment’s regulation of foreign trade in contravention

of the ‘Import-Export’ clause of the federal Con-

stitution. Department of Revenue of the State of

Washington v. Association of Washington Steve-

doring Companies, et al., 435 U.S. 734(1978); The

tax in its application acts to inhibit the applicant’s

importation of fibers from certain countries be-

cause it increases the per-pound cost differential

between the applicant's U.S. processing and the for-

eign, internal processing of raw fibers imported

from certain third-world nations with state-con-

trolled, planned economies; (3) To the extent that

the applicant’s imported raw materials inventory

exceeds its current operational needs, such excess

is not ‘used in business’ within the context of

Section 5701.08 of the Revised Code.

“Upon consideration of the information at hand

and under the authority of Section 5711.31, Re-

vised Code, the Tax Commissioner finds that the

applicant's contentions are not well taken.

“In January of 1976, the United States Supreme

Court held that a state’s nondiscriminatory ad

valorem personal property taxation of imported

goods is not proscribed by the ‘Import-Export’

clause of the federal Constitution. Michelin Tire

Corp. v. Wages, 423 U.S. 276 (1976).? While not

See Southwestern U.L. Rev. 7:247-72, Summer '75 and

J. Taxation 44:244-5, Ap °76 for analyses of the impact

of the Michelin decision in the area of ad valorem personal

property taxation of imported goods.

A-15 :

specifically reversing Hooven & Allison, supra,

(which addressed manufacturing rather than mer-

chandising inventory), the following rationale of

the Michelin decision in the area of a state’snondis-

criminatory personal property taxation of import-

ed goods is equally persuasive, whether the goods

are held for use in manufacturing or for resale:

‘Nor will such taxation deprive the F eder-

al Government of the exclusive right to all

revenues from imposts and duties on

imports and exports, since that right by

definition only extends to revenues from

exactions of a particular category; if non-

discriminatory ad valorem taxation is not

in that category, it deprives the Federal

Government of nothing to which it is en-

titled. Unlike imposts and duties, which

are essentially taxes on the commercial

privilege 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 Import-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 with-

out regard to foreign origin for services

which the State supplies.’

A~-16

“In accordance with such policy, the Ohio

Board of Tax Appeals has determined that, as a

result of the U.S. supreme Court ruling in Miche-

lin Tire Corp., supra, ‘it is no longer necessary to

determine whether imported goods have become

mingled with domestic goods, or have been sepa-

rated from their commercial unit of shipment, or

have otherwise lost their status as imports and,

therefore, become subject to state taxation (:)

(r)ather, it is sufficient that the goods are no longer

in transit and that the property tax sought to be

assessed is nondiscriminatory.’ The Hammer Com-

pany v. Lindley, B.T.A. Case No F-448 (April 9,

1979). See also The Akron Distributing Company v.

Lindley, B.T.A. Case No. E-1593 (September 21,

1978).

“Accordingly, the Tax Commissioner finds no

error in the assessments here under review.

‘Finding no error in the assessments as heretofore

made, it is the order of the Tax Commissioner that

such assessments be, and the same hereby are affirm-

ed. Pursuant to the provisions of Section 5711.31.

Revised Code, the Tax Commissioner hereby issues

this certificate of determination which is his final

order with regard to the assessments here under re-

view.

“In conformity with Sections 5711.31 and

5717.02, Revised Code, upon the expiration of

thirty days from the date appearing on this certifi-

cate of determination, a copy hereof will be for-

warded to the Auditor of State or proper county

auditor, whichever is applicable.”

A-17

Appellant’s notices of appeal in each case are identical

except that they relate to different tax years (1976 and

1977). Appellant’s notice of appeal reads, in pertinent

part, as follows:

“II. The Appellant specifies that such Certificate

of Determination and the assessment shown thereon

is erroneous in the following respects:

‘1. The Commissioner erroneously included as

taxable tangible personal property of Appellant

certain raw materials inventory imported by Appel-

lant from foreign sources for use in manufacturing,

and retained by it in the original packages on tax-

listing date, which was exempt from personal pro-

perty taxation for the tax vear involved.

2. The Commissioner erroneously determined

that the State of Ohio was not collaterally estopped

by the United States Supreme Court decision in

The Hooven & Allison Co. v. Evatt, 324 U.S. 652

(1945) from assessing the Appellant’s imported raw

materials inventory retained in its original packages

on tax-listing date.

**3. The Commissioner erroneously determined

that the levying of Ohio’s personal property tax

upon Appellant’s imported raw materials inventory

retained in its original packages on tax-listing date

does not impair the federal government's regulation

of foreign trade in contravention of the ‘Import-

Export’ clause, or of the Commerce clause of the

United States Constitution.

“4. The Commissioner erroneously determined

that the Appellant’s imported raw materials inven-

tory which exceeded its current operational needs

was ‘used in business’, within the meaning of Section

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5701.08 of the Revised Code, in Ohio on tax-listing

date and subject to personal property taxation

under Section 5709.01 of the Revised Code.

“5. The foregoing Determination of the Tax

Commissioner upholding the assessment for per-

sonal property taxes against Appellant for the Tax

Year[s] 1976[ and 1977 ] isnot supported by either

the facts or the law, but is contrary to both the facts

and the law.

“III. Wherefore Appellant prays that pursuant

to Section 5717.02 of the Revised Code, the Board

of Tax Appeals

“1. Reverse the Determination of the Tax

Commissioner;

“2. Vacate the deficiency assessment against

Appellant for personal property tax for the Tax

Year[s] 1976 and [1977];

3. Find and determine that the deficiency as-

sessment for personal property taxes against Ap-

pellant for the Tax Year[s] 1976 [and 1977] is

erroneous and illegal and that Appellant is not

liable for such deficiency assessment; and

“4. Grant to Appellant such other and further

relief to which it may be entitled.

“IV. Appellant hereby applies to the Board of

Tax Appeals to order that a hearing of argument

and evidence (in addtion to the record and evidence

required to be certified to the Board of Tax Ap-

peals by the Tax Commissioner) be held, pursuant

to Section 5717.02 of the Revised Code.”

_ (Bracketed material added by Board)

A-19

This matter was submitted to the Board of Tax Ap-

peals upon the notices of appeal, the statutory transcript

filed by the appellee pursuant to Section 5717.02, Ohio

Revised Code, and the briefs submitted by counsel for

the parties and other evidence. By agreement of the par-

ties, the evidentiary hearing before this Board has been

waived.

These matters have been consolidated, sua sponte,

for resolution.

Appellant, the Hooven & Allison Company, (here-

after HAC) is an Ohio corporation with its principal place

of business being located in Xenia, Ohio. Further facts

about HAC and additional information as to the origina-

tion of these appeals are stated by appellee in his Certifi-

cate of Determination. Said Certificate of Determination

has heretofore been reproduced and therefore, there

exists no need to do so again.

At pages 6 and 7 of HAC’s Requested Findings of

Fact and Brief of Appellant, it is noted that two issues

are presented in this appeal. They are:

“1. Is the State of Ohio collaterally estopped

by the decision of the United States Supreme

Court in Hooven & Allison Co. v. Evatt, 324 US.

652 (1945), from assessing the personal property

tax imposed by Ohio Revised Code Ch. 5711 on

Appellant’s imported raw materials inventory re-

tained in its original packages on tax-listing day?

“2. In the alternative, does the levying of

Ohio’s personal property tax upon Appellant’s

imported raw materials inventory retained in its

original packages on tax-listing day impair the

Federal Government’s regulation of foreign trade

A-—20

or disrupt the harmonious relations of the several

states in contravention of the ‘Import-Export’

clause (Article I, § 10, cl. 2) or the Commerce

clause (Article I, § 8, cl. 3) of the United States

Constitution?”

Further, HAC properly notes, at page 7 of the above

brief that:

“The second issue presented by this appeal is

strictly a constitutional question. Although Ap-

pellant recognizes that the Board may not con-

sider this question, Appellant is raising it in this

action so that it may preserve its specification

of error concerning this point.”

See: S.S. Kresge Co. v. Bowers, 170 Ohio St. 405 (1960).

The first issue concerns the doctrine of collateral estop-

pel. This doctrine was explained by the Court in White-

head v. General Telephone Co., 20 Ohio St. 2d 108 (1969).

At page 112, the Court stated:

‘The second aspect of the doctrine of res

judicata is ‘collateral estoppel.’ While the merger

and bar aspects of res judicata have the effect of

precluding a plaintiff from relitigating the same

cause of action against the same defendant, the

collateral estoppel aspect precludes the relitiga-

tion, in a second action, of an issue that has been

actually and necessarily litigated and determined

in a prior action which was based on a different

cause of action. Restatement of the Law, Judg-

ments, Section 45, comment (c), and Section 68

(2); Cromwell v. County of Sac (1876), 94 US.

A-21

351. In short, under the rule of collateral es-

toppel, even where the cause of action is differ-

ent in a subsequent suit, a judgment in a prior

suit may nevertheless affect the outcome of the

second suit.”

The Court further explained the doctrine of collateral

estoppel in the case of State, ex rel. Westchester v. Bacon,

61 Ohio St. 2d 42 (1980). At page 44, the Court stated:

“Res judicata is the sole basis given for the

decisions below. In order for a prior decision to

act as a bar there must be identity of parties or

their privies and identity of issues. Whitehead v.

Genl. Tel. Co. (1969), 20 Ohio St. 2d 108. If the

prior cause of action involves identical issues, then

that prior cause of action is conclusive of the

rights, questions and facts in issue as between the

parties or their privies. If identical causes of ac-

tion are involved, the prior action is res judicata.

If different causes of action are involved but some

issues are identical, the earlier decision can be

used to bar litigation of identical issues in the

later case under the doctrine of collateral estop-

pel,”’

Further, the Court in State, ex rel. Westchester spoke to

the impact of a change in circumstances as to collateral

estoppel. The Court stated:

“In Trautwein, supra, this court ruled that

where the material issue had been disposed of in

an earlier action, an alleged change of circum-

stances did not necessarily prevent the doctrine

of res judicata or collateral estoppel from barring

a later cause of action. Where, however, there

A—22

has been a change in the facts in a given action

which either raises a new material issue, or which

would have been relevant to the resolution of a

material issue involved in the earlier action, nei-

ther the doctrine of res judicata nor the doctrine

of collateral estoppel will bar litigation of that

issue in the later action,”

(at page 45)

Here, HAC argues that appellee is collaterally estopped

by the decision of the U.S. Supreme Court in Hooven &

Allison Co. v. Evatt, 324 U.S. 652 (1945), (hereinafter

Hooven 1) from assessing the personal property tax

for tax years 1976 and 1977 imposed on HAC’s imported

raw materials inventory retained in its original packages

on tax listing day. The facts relied on by HAC are stated

at pages 12 and 13 of its primary brief. There it is stated:

“In 1945, the United States Supreme Court

found that Appellant was the importer of raw

materials under contracts that it entered into

with the United States brokers of foreign pro-

ducers and shippers of those materials (Hooven &

Allison Co, v. Evatt, supra at 664). The Certificate

of Determination of the Tax Commissioner ap-

pealed from herein states that Appellant imports

the raw materials in question (S.T. 60). The

Certificate of Determination admits that these

raw materials ‘[a]fter complete tagging and in-

spection, . . . are. . stored in a dry area in their

original packages until placed into production’

(S.T. 60), as were the imported raw materials of

Appellant that the Supreme Court in 1945 held

to be immune from property taxation (Hooven &

Allison Co. v. Evatt, supra at 654).

A-23

“At no point does the record dispute that the

facts of importation, storage and use in 1975 and

1976 of the imported raw materials which the

Tax Commissioner now seeks to subject to the

Ohio personal property tax are identical in all

material respects to those upon which the Supreme

Court of the United States decided in 1945 that

similar inventory of Appellant present in its

warehouse in 1938, 1939 and 1940 was consti-

tutionally immune from the imposition of the

same Ohio personal property tax under the

Import-Export clause of the United States Consti-

tution. Indeed, in view of what has been stated

above, one could scarcely dispute this point.

The pertinent facts for 1975 and 1976 are simply

no different from those that were at issue in the

earlier vears which were before the United States

Supreme Court in Hooven & Allison Co. v. Evatt.”

The evidence before the Board of Tax Appeals estab-

lishes that the parties involved in this matter are identical

to those involved in Hooven 1. The taxability of raw

materials issue involved in the case at bar was also an

issue in Hooven 1. The raw materials and the type of

taxation involved in this cause are identical to those

involved in Hooven 1. Hooven 1 has not been reversed by

the U.S. Supreme Court and thus, has the force and

effect of law. Under the doctrine of collateral estoppel,

litigation of the instant [taxability of the involved raw

materials] issue is barred in this matter and the exemp-

tion from taxation was improperly held to be unavailable.

Accordingly, it is the decision and order of the Board

of Tax Appeals that the decisions of the appellee in

Case Numbers 79-C-637 and 79-C-638 should be, and

hereby are, reversed.

lah

A-—24

I hereby certify the foregoing to be a true

and correct copy of the action of the Board

of Tax Appeals of the State of Ohio, this

day taken, with respect to the above matter.

s Robert E. Boyd, Jr.

Chairman

A-25

DEPARTMENT OF TAXATION OF OHIO

Bulletin No. 244

March 8, 1976

TO: ALL COUNTY AUDITORS

FROM: Edgar L. Lindley, Tax Commissioner

RE: Personal Property Taxation of Foreign Imports

A recent decision of the United States Supreme

Court has drastically changed the applicability of the

Ohio personal property tax to property imported from

foreign sources.

In Michelin Tire Corp. v. Wages, Tax Commissioner,

et al., January 14, 1976, 96S. Ct. 535, 46 L. Ed. 2d 495,

the United States Supreme Court held that personal

property imported from a foreign source is subject to a

state’s non-discriminatory ad valorem (property) tax in

the same manner as domestic property.

Prior to this decision foreign imports were considered

immune from state and local property taxes so long as

they had not become a part of the mass of general pro-

perty within a state. Previously, the determining factors

were whether such property was still in the original

package in which it was imported or, in the case of goods

imported for use in manufacturing, whether such pro-

perty was necessary to meet the current operational

needs of the importer.

As the result of the Michelin decision, all property

imported from a foreign source, whether it be for resale

or for use in manufacturing, is subject to the Ohio per-

sonal property tax provided:

A-—26

1.) the property is used in business as provided

by Section 5701.08, Ohio Revised Code, and

2.) the property is no longer in transit in inter-

state or foreign commerce, and

3.) the property has a situs in a taxing district in

Ohio.

All personal property tax returns for the years 1976

and thereafter shall be prepared and filed in accord with

these principles.