Reserve Life Insurance Co. v. Bowers

PETITIONER:Reserve Life Insurance Co.
RESPONDENT:Bowers
LOCATION:United States District Court for the Eastern District of Louisiana

DOCKET NO.: 96
DECIDED BY: Warren Court (1962-1965)
LOWER COURT: State appellate court

CITATION: 380 US 258 (1965)
ARGUED: Mar 04, 1965
DECIDED: Mar 15, 1965

Facts of the case

Question

Audio Transcription for Oral Argument – March 04, 1965 in Reserve Life Insurance Co. v. Bowers

Earl Warren:

Number 96, Reserve Life Insurance Company, Appellant, versus Stanley J. Bowers, Tax Commissioner of Ohio.

Mr. Weston.

Harris K. Weston:

Mr. Chief Justice, may it please the Court, Mr. Lindley.

This case comes to this Court on an appeal from a decision of the Supreme Court of Ohio, which in effect upheld certain taxing statutes of the State of Ohio against the claim that they were invalid under the Equal Protection Clause of the Fourteenth Amendment of the United States Constitution.

The facts in this case are not in dispute and they were stipulated in the lower proceedings.

Appellant, Reserve Life Insurance Company, is a Texas Insurance Company, a stock insurance company, a legal reserve company incorporated under the laws of Texas.

It has been doing business in Ohio ever since 1947.

And during that time, it has fully complied with the statutes and all of the rules and requirements of the Department of Insurance.

During this period of time, it has also paid annually the franchise tax which the State of Ohio requires of it.

It has never paid a personal property tax and no request of it was made to pay such a tax until 1959.

At that time, a reserve — a promptly raised the objection of the Equal Protection Clause of the constitution and has pressed out objection at every stage of the proceedings.

The law in question before this Court is the Ohio Personal Property Tax Law.

It is applied generally on all tangible personal property used in business.

As applied to this case, it applies to furniture, fixtures, office equipment owned by Reserve Life Insurance Company.

A foreign life insurance company in Ohio is subject to this personal property tax, probably by the definition of the statute itself.

In addition to that, the tax commissioner has issued a rule under — acting under the statute which gives him the right to designate additional taxpayers not included in the definition and he has issued a specific rule stating that foreign life insurance companies are taxpayers under the Ohio Personal Property Tax Law.

In any event, the Courts of Ohio have construed the law to apply to a foreign life insurance company.

The Court of Appeals in this case said that the foreign insurance company was included in the statute itself and that the rule of the tax commissioner was really of no effect.

In any case, by the statute, the rule of the tax commissioner and the Court, in other words by the legislative executive and judicial branches of the Government of Ohio of foreign insurance company is required to pay this personal property tax.

It is equally clear that a domestic — in other words, an Ohio insurance company does not pay this personal property tax.

This comes about through two statutes; the first is the definition statute Section 5701 in subparagraph (b) (3), excludes a domestic insurance company from the definition of a taxpayer.

It says, “Taxpayer excludes all individuals, partnerships, corporations, associations and joint stock companies, their executors, administrators and receivers who are defined in Title 57 as financial institutions, dealers and intangibles domestic insurance companies or public utilities”.

So a domestic insurance company is excluded from a definition of taxpayer.

In addition to that, the Section of the Ohio Code that imposes a franchise tax on — an Ohio insurance company has a provision that reads in this way, “The real estate of a domestic insurance company shall be taxed in a place where it is located the same as the real estate of other person is taxed”.

But the tax provided for by Section 5725 (0) (1) to 26 includes even — those are the franchise tax sections shall be in lieu of all other taxes on the other property and assets of such domestic insurance company.

So that both by definition section and by this in lieu of provision a — an Ohio insurance company does not pay this personal property tax.

Now, to complete the picture in regard to Ohio taxes as applied to these two types of companies because this may be important to the Court.

I would like to say briefly that both of these types of companies do pay the real estate tax, obviously at the same rate.

Neither pays an intangible personal property tax and both pay a franchise tax.

The franchise tax is not the same, however for the two companies.

Harris K. Weston:

A foreign insurance company pays a franchise tax at the rate of 2.5% of its gross premiums from Ohio business less certain deductions.

A domestic insurance company has a choice of two methods of computing its franchise tax.

One is at the rate of one and two-thirds percent of its gross premiums less the same deductions and the Court will observe that 2.5% is 50% higher than 1 2/3%, so that a foreign insurance company pays a franchise tax 50% higher than a domestic insurance company.

In addition, a domestic insurance company has an alternative method of paying the tax which is based on its capital and surplus and it would use that method only if it should be cheaper.

And of course if it uses that method, then the discrimination between the franchise taxes would be greater than 50%.

But in any case, foreign company pays a franchise tax at least 50% higher than the domestic one.

We thus have the tax structure of Ohio as applied to these companies.

Each pays a real estate tax at the same rate.

Neither pays a personal property tax on intangibles.

A foreign insurance company only pays a personal property tax on tangible personal property, and each pays a franchise tax but the foreign company’s tax is at least 50% higher.

Now, in this case —

Hugo L. Black:

A domestic company doesn’t have personal property tax?

Harris K. Weston:

No sir.

And that is what we are protesting.

We are claiming that the — it is a violation of the Equal Protection Clause to require a foreign insurance company to pay this personal property tax when a domestic company does not do so.

You don’t question the difference of the franchise tax?

Harris K. Weston:

No sir.

Byron R. White:

Well, I suppose that this — the case would have a great bearing on it, wouldn’t it?

Harris K. Weston:

On the franchise tax?

Byron R. White:

Yes.

Harris K. Weston:

Well, I don’t know.

Assuming that this Court should agree with us and declare the personal property tax invalid what the Ohio legislature would do about it, I wouldn’t want to presume.

William J. Brennan, Jr.:

Well, could you (Inaudible) that we agree with you about the phase of property tax even that that wouldn’t support the — your insistent with the discrimination of franchise tax itself which is under that — also in that?

Harris K. Weston:

Your Honor, we have only pointed out the discrimination in the franchise tax to counter an argument that has been made by the State of Ohio and was alluded to by the Court of Appeals and that appears in a previous decision of this Court namely the Concordia Life Insurance Company case.

To indicate that under certain structures of state taxation, there may be some balancing effect of some other tax and we have only set out at considerable length the fact that the foreign company pays a franchise tax greater than a domestic company, one does to show that this so-called in lieu provision is merely words.

There are no taxes that a domestic company pays in lieu of the one that the foreign company pays.

Byron R. White:

You’re not suggesting that there’s any greater reason for discriminating against an out-of-state company in franchise taxes than in personal property tax are you?

Harris K. Weston:

From the point of view of logic Mr. Justice White, I don’t see any but —

Byron R. White:

Yes, but (Voice Overlap) —

Harris K. Weston:

— the courts have nevertheless permitted that.

Byron R. White:

Yes, that wouldn’t be (Inaudible)

Harris K. Weston:

There are number of cases of that have permitted that.

Although interestingly enough, a — the case of Hanover Fire Insurance Company versus Harding suggests that the proper test ought to be that the state could impose through its police power of requirements for admission which would be different from the requirements of a domestic company and while it doesn’t go into this it would appear to be this would be — the amount of securities that it must have on hand to protect policy holders or an adequate provision to be sure that its record are in good shape and so on.

But that — to the extent the tax is to raise revenue for the state as oppose to the police power to protect the citizens, then they should be equal.

However, other cases and later cases of this Court have permitted a discriminatory franchise tax that did not base itself on the police power and we are not here contesting the franchise.

Byron R. White:

Are those cases in your brief, those later cases?

Harris K. Weston:

No, they are not Your Honor because they — we did not consider them necessary but they are, Lincoln National Life Company versus Reed, 325 U.S. 673 and Prudential Insurance Company versus Benjamin, 328 U.S. 408.

Byron R. White:

Thank You.

Harris K. Weston:

The — our principal case on which we rely here is the case of Wheeling Steel Corporation versus Glander, this is 337 U.S. 562.

It is perhaps interesting that this also came up from the State of Ohio and also involved the Ohio personal property tax.

In the Wheeling Steel case, Ohio had construed its statute to apply to accounts receivable owned by — certain account receivable owned by foreign companies but not the same type of accounts receivable owned by domestic companies.

This was challenged on the ground of the Equal Protection Clause, and the Court held that it was invalid.

And it drew this distinction that has been alluded to by Mr. Justice White, in fact perhaps because of this I should read the full quote.

It said, “Under a long settled principles of our federation, Ohio was not required to admit these foreign corporations to carry on intrastate business within its boarders.

The state may arbitrarily exclude them or may license them upon any terms it sees fit apart from exacting surrender of rights derived from the constitution of United States.

Ohio elected however to admit this corporations to transact business and operate manufacturing plants in the state.

For that privilege, they have paid all that the state required by way of franchise or privilege tax which includes in its measure the value of all property owned and business done in Ohio.”

Then this part which I would particularly like to emphasize, “After a state has chosen to domesticate foreign corporations, the adopted corporations are entitled to equal protection with the state’s own corporate progeny, at least to the extent that their property is entitled to an equally favorable ad valorem tax basis.”

Ohio holds this tax on intangibles to be an ad valorem property tax and in no sense a franchise privilege occupation or income tax.

Here of course, again, there is no question whatsoever that this is a property tax, an ad valorem property tax.

And we think that we come clearly within that announcement of this Court.

Let me turn briefly to certain points raised by the Court of Appeals and the State of Ohio.

One is, there are some talk in the — in that decision, that the personal property of domestic insurance company is not expressly exempted (Inaudible) — exempted in quotes does not say in so many word in — does not use the word exempt but the effect is equally clear is a — domestic insurance company is excluded and it does use that word from the definition of a taxpayer under the personal property tax and the franchise tax laws says that it is in lieu of all other taxes.

So it’s perfectly clear that a domestic insurance company does not pay a personal property tax on this personal property.

Secondly, there is the possibility alluded to of an equalizing tax.

Some other form of tax that makes up for this fact and as for that reason that we have explained the real estate tax, the intangible personal property tax, and the franchise tax, to show clearly that there is no tax that an Ohio company pays that a foreign company does not pay that would act as a balancing feature, none whatsoever.

The Court of Appeals mentions the possibility of reasonable classifications and of course a state may classify companies and it may have for instance a different type of tax on utilities or it may have as Ohio has chosen to have for its domestic company the different type of tax for insurance companies that it has for manufacturing companies.

But there is no difference here between the foreign insurance company and the domestic one except the residence of the company.

And again, I would like to make a quote from the Wheeling Steel case.

This is at 572, “If on the taxing date, one of these petitioners and an Ohio competitor –” one of these petitions that were two cases is actually litigating the Wheeling Steel case.

Harris K. Weston:

“One of this petitioners and an Ohio competitor each owns an accounts receivable of the same amount from the same out-of-state customer for the same type of commodity, both shipped from the manufacturing plant in Ohio and both sold out of Ohio by an agent having an office out-of-the state.

Appellant’s account receivable would be subject to Ohio’s ad valorem tax and the one held by the competing domestic corporation would not.

It seems obvious that appellants are not accorded equal treatment and the inequality is not because of the slightest deference in Ohio’s relationship — relation to the decisive transaction, but solely because of the different residence of the owner.”

And we submit that the exact same situation is here.

One or two other brief references, there’s a sort of a suggestion in the Court of Appeals that maybe it’s necessary to look to Texas law and see if there are some sort of balancing feature there.

But it’s clear I think that Texas law could not tax in any way personal property in Ohio and the only law that Texas has that has any bearing on an Ohio insurance company is a so-called Retaliatory Tax Law.

Ohio has this, almost all state possibly all, but I know almost all states have this Retaliatory Tax Law.

And what they say is, “That if another state taxes an Ohio Insurance Company to do business there at a greater rate than Ohio tax is that other state’s company doing business in Ohio, and Ohio shall impose the same tax on a company of another state doing business in Ohio as that other state imposes on an Ohio company.”

Now, Texas has that law but this cannot at all affect the personal property tax.

Oh, I might say by way of passing that because of the discriminatory Ohio franchise tax, there is at least one company in Ohio, insurance company that pays in 33 other states, not on the basis of their franchise tax but on the basis of their Retaliatory Tax because Ohio’s tax on other companies doing business in Ohio is so much higher.

The Court of Appeals also indicates that there might be some difficulty in granting us the relief we asked even if we’re entitled to it.

This seems a little bit weird but there doesn’t appeared to be any difficulty, if this Court should nullify the tax then we just wouldn’t have to pay it and if Ohio wants to — if Ohio legislature wants to look at its tax structure again, it could, but there’s no difficulty in bringing this about.

In one final argument which is raised by the appellee in its answer brief here, and that is essentially that since it may discriminate against us in regard to a franchise tax, why it may discriminate against us in any other form if wants to in addition?

Now, this also seems very strange.

It would indicate that they could discriminate against us if this argument were adopted, the real state tax, type of gasoline taxes we would pay, anything at all.

In addition to the logical difficulty, it seems clear that this Court not only in the Wheeling Steel case but also in the Hanover Insurance Company Case, Hanover Fire Insurance Company versus Harding held exactly to the contrary and I made this quotation from the Wheeling Steel case that they can — Ohio can make us pay an extra franchise tax but must treat us equally on ad velorem taxes and that —

William J. Brennan, Jr.:

Well, if that to say then, I’d —

Harris K. Weston:

Pardon me?

William J. Brennan, Jr.:

That’s to say then that you’re right here, tomorrow the Ohio legislature can just increase the percentage of the franchise tax perhaps to pay and get as much some more than they’re getting from you now on the (Inaudible)?

And you — and you’d have no complaint under these cases as they now offended you?

Harris K. Weston:

This is possible Mr. Justice Brennan and I think — well, obviously what would happen, we don’t know.

It seems to me that perhaps there might be some point at which this would become overbearing and unfair.

William J. Brennan, Jr.:

While is there a great deal of money involved in those personal property tax?

Harris K. Weston:

There is a fair amount involved, partially at least because it goes back to 1948.

But specifically to answer your question, the tax has varied depending on these years as the company has built up and acquired more property.

But it amounts to — although approximately 30 to $35,000 plus certain interest and penalties that might be imposed upon us.

William J. Brennan, Jr.:

That is — that’s the accumulation since 1948?

Harris K. Weston:

Yes.

We are running now at the rate of around $3000 a year, it started around 1000 and still up.

Byron R. White:

But if the possibility of increasing the franchise tax would justify all other types of discriminatory taxes, there would’ve been a blunder of case here?

Harris K. Weston:

That’s right Your Honor.

If it would be agreed with the Court, I’d like to save the remainder of time for rebuttal.

Earl Warren:

You may.

Mr. Lindley.

Edgar L. Lindley:

Mr. Chief Justice, Associate Justices.

I think the first thing that we should do is to place this case in proper perspective of pointing out that it is true that the real estate of both domestic and foreign insurance companies in Ohio is taxed in the same manner and this is pursuant to an Ohio constitutional provision which requires all real estate to be taxed by uniform rule.

It has nothing to do with any belief in the legislature that the real estate tax is tied in any way with franchise tax or the personal property tax insofar as these provisions are concern.

Also, it is true that the intangibles of insurance companies both domestic and foreign are exempted in taxation in the State of Ohio.

The franchise tax on insurance companies in Ohio both foreign and domestic is upon the same basis.

Under certain conditions, the rate of franchise tax on domestics is 1.67% and the rate on foreigns is 2.5%.

The appellant has indicated that this is a 50% discrepancy.

I think it is just as logical to point out that this is a difference in rate of slightly less than 1%.

Using the appellant’s line of argument, the discrepancy in the case of Prudential Insurance Company versus Benjamin which was mentioned is in North Carolina case must have been an infinite discrepancy because there, as I recall that case, the domestics were taxed at 0% and foreigns at 3% and a discrepancy on a ratio of basis from zero to three becomes infinite.

Earl Warren:

Could you speak a little louder please Mr. Lindley.

Edgar L. Lindley:

Yes sir.

Byron R. White:

Could it — a large enough difference where Ohio to be interested in it, as I gather?

Edgar L. Lindley:

Yes it is, certainly.

Just as in the case of the Lincoln National Insurance Company in Oklahoma, the 2% was large enough so that take to be interested.

Now, Section 5725.25 of the Ohio Revised Code does provide that the franchise tax levied on domestic insurance companies shall be in lieu of all other taxes.

And Section 5711.01 of the Ohio Revised Code which levies a personal property tax does provide by the definition of taxpayer that domestic insurance company shall be excluded, these are companion sections.

But the mere fact that you have an in lieu of provision in Section 5725.25 does not automatically mean that we must be able to find some specific substitute for that tax in some other provision.

The legislature of the State of Ohio has attempted and has seen fit to provide a tax discrepancy or may point out I think that we are not here concerned with a question of commerce or equality in commerce such as the appellant mentions at Page 18 in its brief.

I think this Court has recognized and the Congress has recognized that in the area of insurance companies, states have a vital concern in the taxation and regulation of insurance companies.

I submit that as we understand the rule, it is not every discrepancy.

It is not every distinction that has been denied under the Equal Protection Clause of the constitution.

It is our understanding that those distinctions which have a rational basis maybe approved and this Court has held that legislation will be sustained where there are conceivable rational basis for the legislative act.

Now, I think it is certainly conceivable and rational to assume that the legislature of the State of Ohio had a desire to foster the development and creation of insurance companies within the state.

These are desirable types of business.

It is also I think reasonable to assume that the legislature of the State of Ohio knew or believed that domestic insurance companies would own more real estate in Ohio than foreign insurance companies.

After all, most domestic insurance companies have their home offices in the states in which they are domestic company.

Edgar L. Lindley:

In this sense then, even though the franchise tax rate is different and even though the domestic insurance companies are taxed under the franchise tax law and in lieu of personal property tax the domestic companies may have pay in relation to their total business an amount comparable with the amount paid in taxes by foreign insurance companies.

Potter Stewart:

That is because of the real estate tax —

Edgar L. Lindley:

Yes sir.

Potter Stewart:

— is that you’re telling us?

Edgar L. Lindley:

Yes sir.

Potter Stewart:

Because as a matter of fact, the domestic companies likely to own more real estate, is that what you’re telling us?

Edgar L. Lindley:

But I’m saying is —

Potter Stewart:

Is that your point?

Edgar L. Lindley:

— Mr. Justice Stewart is that, these I think are logical basis of assumptions on the part of the Ohio legislature in enacting this in lieu of provision.

Potter Stewart:

I just want to be — I’m not sure I understood the supposed legislative assumption that you are telling us about.

Is it (Inaudible) — domestic insurance companies likely to own more real estate?

Edgar L. Lindley:

I think that is one of the possible justifiable assumptions, yes si8r.

Potter Stewart:

And with respect to real estate, are insurance companies taxed in the same way and at the same rate as any other real — owner of real estate in Ohio?

Edgar L. Lindley:

They are taxed in the same way.

I cannot exactly say at the same rate because in Ohio the rate of taxation varies from taxing district to taxing district depending upon the local levies.

Potter Stewart:

But in any given tax, the taxing district there tax as any other owner real estate in Ohio?

Edgar L. Lindley:

Yes sir.

Yes, sir that is correct.

Potter Stewart:

And if a foreign insurance company does own real estate, that company is taxed with the same rate and in the same way at any given taxing district as a domestic insurance company or as any other owner of real estate, is that right?

Edgar L. Lindley:

That is correct.

Now, the appellant has relied very strongly on Wheeling Steel and we also rely on this case.

And I submit to the Court that the appellant has overlooked one controlling factor in Wheeling Steel.

First of all, Wheeling Steel was a company which had been admitted to do business in Ohio in 1923 and then the companion case National Distillers Products Corporation, that company was admitted in 1936.

Now, this case came up as a result and this is recited in a certificate form the tax commissioner which is quoted by this Court in its opinion, “As a result of not just an interpretation of the bare words of the statute on the statute books but of the interpretation of the law as enacted by the Ohio legislature, as construed by the Ohio Supreme Court and then as administratively applied by the tax commission.”

Now, the construction by the Ohio Supreme Court in that case occurred in 1944.

Before that case was decided by the Ohio Supreme Court, both domestic and foreign companies were insofar as the type of accounts receivable there involved concerned, taxed in exactly the same basis.

The certificate which excluded by this Court and its opinion in the Wheeling Steel case recites that since the decision of the Randolph and Ransom case in 1944, the tax commissioner’s policy was to tax only the accounts receivable of the nature there involved of foreign insurance companies.

Now this Court said in that case that in questions of constitutional law, one must look not only at the law but at the administration and at the application.

So what we had in the Wheeling Steel case was a change in the law through judicial interpretation and administrative application which resulted in a different treatment after the companies had been admitted.

And that difference was to the disparagement of the foreign companies and to the enhancement of the domestics, and this Court I think promptly found that that was an unreasonable distinction.

Edgar L. Lindley:

Now, what do we have in this case?

In this case, we have a foreign insurance company which applied for admission into the State of Ohio in 1947.

It applied for admission under the law as then as it is today, under a law which excluded from the definition of taxpayer, domestic insurance companies.

And under a law which provided that the franchise tax paid by domestic insurance companies shall be in lieu of a tax on a personal property.

Now, as we understand the application and the rulings of this Court, it is that insofar as the admission of a foreign insurance company is concerned a state is not required to admit a foreign company.

Furthermore, if it does admit a foreign company it may impose upon that admission any conditions which it seems fit.

It is only after the company has been admitted that it may not discriminate against that company in favor of local companies or in favor of someone else.

William J. Brennan, Jr.:

Is there anything in the Wheeling Steel opinion to suggest that the Wheeling had come in after 1944, that seems to be — have been different here?

Edgar L. Lindley:

I think, yes Your Honor.

I have to say that — and I believe there is because the Court in that case specifically indicated that it was apply — construing the law as written and as interpreted by the local court — by the state court.

William J. Brennan, Jr.:

Well, is there any reference in that opinion, I’ve forgotten frankly, to the dates of admission to do business of either Wheeling Steel or in the other case, the Distillers case?

Edgar L. Lindley:

No.

The opinion of that case does not state the dates of admission of those two companies other than to indicate that they were admitted before the case arose.

And then of course there is the certificate of the commissioner in the case which defines that the policy which says — starts out with the word “since” 1947, we have done this.

Hugo L. Black:

Quite aside from that brief, the statement a little broad that the state can impose any condition it sees fit before admitting the corporation?

Edgar L. Lindley:

I think — it’s my understanding that as to the admission —

Hugo L. Black:

Oh, I’m talking about uncon — are there not some unconstitutional conditions, does they?

Edgar L. Lindley:

Well, the obvious —

Hugo L. Black:

(Voice Overlap)

Edgar L. Lindley:

— qualification is that it cannot require surrender of constitutional rights as a condition of admission.

Hugo L. Black:

Our federal constitutional rights (Voice Overlap) —

Edgar L. Lindley:

That’s correct.

Hugo L. Black:

(Inaudible)

Edgar L. Lindley:

Yes sir.

Now, what we are suggesting is that in this case, Reserve Life Insurance Company applied for admission under the law as existed in 1947.

It accepted admission under that law.

It never complied with that law but nonetheless, these were conditions under which it applied for and was admitted and impliedly at least accept it as a part of that admission.

Now, we submit that the difference in the taxation here is not such a difference as to be said to be a denial or a surrender of basic constitutional rights.

We think the degree of difference is reasonable that it can be assume to have a rational basis.

In the Lincoln National Insurance Company case which was referred to the discrepancy, the tax involved there was 4% on a franchise tax basis.

Edgar L. Lindley:

Now, it was mentioned that the effect of a ruling in favor of Reserve Life in this case would just be a session of the higher legislature and which they would raise a franchise tax law.

And the appellant apparently agrees that this can be done.

It seems that the appellant is only concern here with the method of taxation and we submit that where there are two methods which are properly employed, a taxpayer cannot challenge one simply because he would have preferred to have the other one employed.

Potter Stewart:

But it’s a little bit — at least conceptually or a matter of principle, it’s a little more than just that, isn’t it?

It’s the — I — as I understand the appellant, he says that at least for purposes of this case, in this argument, he is conceding that a — Ohio or any other state a condition, its permission to a foreign insurance company to come in and do business in the state in any way at least within reason that it wants to by charging a higher price for their — for that permission to do business or in any other condition?

But once having done so, once the company is there doing business as an insurance company in that — and that paying the rules as this company has as superintendent of insurance, then from that point on it has to be treated equally as any — as a domestic insurance company once it’s in, that’s the reason — there’s a real distinction at least conceptually between the franchise tax and the — any difference in between the rate of tax and on the franchise and this personal property tax, isn’t that right?

It’s not just a matter — is maybe as a practical matter you’re quite right it’s just to matter how much money but as a conceptual matter, a constitutional matter, there’s a real difference, isn’t it?

Edgar L. Lindley:

Well, Your Honor, I really don’t think the difference is very great because in the first place, this is not a change which was made after the company was admitted.

This is not a distinction which is being made after the admission which makes some difference between the domestic and the foreign company.

This was a condition which existed long before this company was admitted into Ohio.

And this was a condition under which this company applied for admission.

They knew of this definition of taxpayer or should have known if they read the statutes.

They knew of the in lieu of provision or should have known as they read the statutes and they applied for admission under this condition.

Potter Stewart:

I see your point.

You’re saying that this was one of the conditions under which they were admitted?

Edgar L. Lindley:

That’s right.

And in this sense, it is distinguished for from the Wheeling Steel because those companies were admitted and then the law was changed by judicial interpretation and administrative application.

Byron R. White:

(Inaudible) when they are domesticated to a — that they could maybe treated differently from other domesticated — domestic corporations?

That’s in effect what you’re saying that Wheeling —

Edgar L. Lindley:

I think —

Byron R. White:

In Wheeling, although it said that once you admit them, you must be (Inaudible) you can get them to agree in advance that — to waive that —

Edgar L. Lindley:

I think essentially the admission of a foreign corporation Your Honor is a matter of contract providing the contract does not go so far as to deprive the foreign corporation of their fundamental federal constitutional rights.

Byron R. White:

Well, that’s the question here.

Edgar L. Lindley:

That’s right.

And we submit that under the previous rulings of this Court, the distinction in this case is not so great as to be said not to have a reasonable and rational basis and that the legislature of the State of Ohio may have had a perfectly invalid interest in protecting in advancing the welfare of the people of the State of Ohio in seeking to encourage the location and development of insurance companies in the State of Ohio.

Hugo L. Black:

(Inaudible) foreign corporations is concerned, (Inaudible) to getting to a state, they make a contract anyway and that the state can require them to make a promise that they will pay more taxes than the other whatever the state’s motive.

Edgar L. Lindley:

This —

Hugo L. Black:

Do you say (Inaudible) constitution doesn’t permit that?

Edgar L. Lindley:

This was exactly the case in the Lincoln Insurance Company case in Oklahoma.

The company had agreed to pay all the taxes which the state levied on a year-to-year basis as a condition to the annual renewal of their certificate and the state raised — the State of Oklahoma raised the tax from 2% to 4% and they contested it and it was upheld.

Hugo L. Black:

You agree I suppose that if it had tried to attach a condition that courts held couldn’t be done, they would not enter into the Federal Courts although the federal law gives them the right to do so.

They could not impose such conditions as error.

Edgar L. Lindley:

I think that’s true, they could not go that far.

Hugo L. Black:

But you say here that they need a federal constitution nor provision nor federal law which permits the state if it wishes to the other corporation you can’t come in here unless you agree in the interest of our businesses to pay a little more tax than they do, that’s what you are saying in substance.

Edgar L. Lindley:

No, what I’m saying Justice Black is that it is not every distinction of degree that is unconstitutional.

And what I’m suggesting is that in this case, the difference is not great and the difference is compatible with the desire and public purpose interest of this legislature of the State of Ohio to encourage the location of insurance companies in the State of Ohio.

Byron R. White:

What you’re saying is the state may just ignore (Inaudible) of a foreign corporation as long as it (Inaudible)

Edgar L. Lindley:

No, I don’t think that I would go that far Justice White.

There are areas beyond which you cannot go.

I don’t think for example that you could say that —

Byron R. White:

So you’re(Inaudible)– you’re really saying (Inaudible) —

Edgar L. Lindley:

That’s true, with one minor exception, which I’d like to comment on in the close of my argument.

I would approach that now.

We have raised in our brief one question concerning the basic qualifications of this appellant to raise this question here.

No, I don’t propose to go in to the history of this argument because this has been recited many times and I’m sure the Court is fully familiar with it.

The distinction I would like to make, this is the argument we made to the effect at this corporation is not a person within the meaning of the Fourteenth Amendment.

Now first of all I want to say, we are not arguing that corporations are not persons.

And almost every case we would concede the corporations are persons but what we are saying is that a state creates an artificial being in the nature of a corporation that it endows this artificial being with certain rights and in almost every instance these rights are the same as the rights of persons and they are indistinguishable and therefore the Fourteenth Amendment does apply.

But on rare occasions, a state may endow a corporation with rates less than those of natural persons or with rates greater than those at natural persons.

In this situation, we think the Fourteenth Amendment may not be applied and I can best demonstrate this I think by analogy.

If we were to take two materials and place some here and some here, and to tell you that each of these are white granular in form, each will melt when it’s supposed to aflame, each will dissolve in water that each has the characteristic of participating out a saturated solution in the form of crystals.

You might conclude that these are the same things.

But then I would tell you that this one when dissolved in water will make the solutions sweet and this one will make the solution salty, you know immediately that they are not the same thing that one is sugar and one is salt.

And the reason you know this is because you have recognized the characteristic, the things themselves appear entirely the same.

Well, in the State of Ohio, we have created and admitted a corporation which has been given all the rights of people.

It has the right to sue and the right to be sued, the right to contract and so forth.

But it has an addition to this, been given another rate, a second franchise and this had obtained not directly from the Secretary of State in the sense of each being a corporate charter but from the Director of the Department of Insurance.

And this was a right — to right life insurance in the State of Ohio.

This right, the people of the State of Ohio as individuals do not have.

And what we’re saying is that in the exercise of this peculiar right and only this right as distinguished from all of the other rights that it may have, it may not be a person entitled to claim the benefit of the Fourteenth Amendment.

Edgar L. Lindley:

We submit however that in the final analysis, the Court does not really have to reach at this point because we think this case is controlled by the argument which I have pointed out in connection with the Wheeling Steel Company case, and we submit that there is in essence no question which cannot be resolved on the basis of that case and that the decisions of the lower court should be affirmed.

Thank you.

Earl Warren:

Mr. Weston.

Harris K. Weston:

Mr. Chief Justice, other justices, I’ll be very brief in my reply.

First, there was a reference to the fact that foreign companies may or may not own much real estate.

I don’t think the Court can decide constitutional questions on that.

In any event Reserve Life Insurance Company does own real estate in the State of Ohio.

As far as the more important problems are concern, as I said in my initial presentation a state may make classifications and some discrepancy in taxes may occur because of those classifications, those are the common examples of utility companies or to some extent even insurance companies in Ohio airlines are taxed differently and so on.

But the effect as I understand it of the Equal Protection Clause is that those differences must have some bearing on the matter being cons — being classified and that certain differences are not allowable as classifications, their differences of rates (Inaudible) cannot make a different kind of classification, you cannot do it on — similarly you cannot do it on questions of residence.

And this is what has been pointed out in the Wheeling Steel case that in that case everything was the same except for residence and that is no good as a classification.We maintain the same thing here.

Hugo L. Black:

Well, suppose that in the — suppose Ohio had a law, they had a law at that time provided generally that every foreign corporation that comes into the state to do business, every one of them must pay a little larger personal property tax.

They do that and all they do is follow up our power to say that it is — we — how we want business done by corporate — corporations in the state and the company had agreed to that when it came in, would you say that the Fourteenth Amendment would make that contract unconstitutional?

Harris K. Weston:

Yes, Mr. Justice Black, it would.

Hugo L. Black:

I thought you would have to go to that.

Harris K. Weston:

Yes, I would.

And I would —

Hugo L. Black:

That is because you would say that after they get in — don’t the — didn’t make any difference was the law was or what contract has been made or what the reasons were.

The Fourteenth Amendment required is to be treated in taxes like the others are to be taxed?

Harris K. Weston:

Yes Mr. Justice Black.

And I would like to emphasize that by stating that in the Wheeling Steel case no — nothing was turned in the decision on whether this unequal taxation came about before they came in or afterwards, there was no point mentioned.

Hugo L. Black:

That wasn’t discussed but —

Harris K. Weston:

That’s right.

And furthermore, I would like to call the Court’s attention to the case of Hanover Fire Insurance Company versus Harding at 272 United States and to read briefly from that decision.

It says, “The general principle –”, we’ll let me skip that.

“There is one — there is a very important qualification to the power of the state, the recognition and enforcement of which are shown in a number of decisions in recent years.

That qualification is the state may not exact as the condition of a corporation engaging in business within its limits that its rights secured to it by the constitution maybe infringed.”

Hugo L. Black:

Well, that’s a — that’s not disputed is it?

Harris K. Weston:

Well, it seemed to me that perhaps the state were saying that if they agreed in advance to pay a higher real — property tax, that would be alright.

Hugo L. Black:

But that — you still get back to whether the condition is an unconstitutional.

Harris K. Weston:

That’s correct.

Hugo L. Black:

I do not understand that he contests with the idea, the state (Inaudible) power to do that.

What he said —

Harris K. Weston:

No.

Hugo L. Black:

— with it — this condition would not be an unconstitutional?

Harris K. Weston:

Yes sir.

Now, I just like to point out the Court then goes on to give several examples.

One is under the commerce clause and there’re several citations there.

One is that in a certain case the state attempted to subject foreign corporations to the payment of a tax, not only on the property but property without the estate which violated the Due Process Clause and that could not be imposed.

And then finally, in the cases of a class to which is contented the present case belongs where tax are licensed law operates to deny them — to deny to the foreign corporation the equal protection of the laws.

So specifically, it has been mentioned in the Hanover case that you cannot impose a violation of equal protection of the law at all.

I see that my time is up and I would conclude by stating that we think that this case is controlled by primarily the Wheeling Steel case also the Hanover case that this is a violation of Equal Protection Clause.

Thank you.