Youngstown Sheet & Tube Company v. Bowers

PETITIONER:Youngstown Sheet & Tube Company
RESPONDENT:Stanley J. Bowers, Tax Comissioner of Ohio
LOCATION:Youngstown Sheet and Tube Co.

DOCKET NO.: 9
DECIDED BY: Warren Court (1958-1962)
LOWER COURT:

CITATION: 358 US 534 (1959)
ARGUED: Nov 12, 1958 / Nov 13, 1958
DECIDED: Feb 24, 1959
GRANTED: Jan 06, 1958

ADVOCATES:
Carlton S. Dargusch, Sr. – for the appellant in 9
Edwin Larkin – for the respondent in 44
John M. Tobin – for the appellee in 9
Roger C. Minahan – for the petitioner in 44
William Saxbe – for the appellee in 9

Facts of the case

These are two consolidated cases concerning the tax consequences of importing goods from foreign countries that are then used for manufacturing in the United States.

In 9, Youngstown Steel and Tube Co. imported ores for manufacturing, which were stored at its plant in Ohio. Under the U.S. Constitution, imports are not taxed. Youngstown took the ore needed for each day of manufacturing from the storage piles to stock bins. The state of Ohio assessed property tax on the ore because Youngstown had changed the ore from an import to a manufacturing supply. Youngstown argued that the ore kept in storage bins was not taxable because it was held for storage only. Youngstown also argued that the tax violated equal protection because it applied to residents of Ohio, but not to non-residents who had property in the state. After exhausting administrative proceedings, the Supreme Court of Ohio upheld the tax.

In 44, Plywood Corp. imported lumber and veneers for manufacturing. Plywood piled the lumber in a yard in Algoma, Wisconsin for storage and drying. The City of Algoma taxed half of the stored supplies on the theory that at least that amount was destined for manufacturing. Plywood paid the tax and sued for a refund. The trial court and the Supreme Court of Wisconsin upheld the tax.

Question

Did the manufacturers act on the imported supplies significantly enough to change their status from imports to taxable property?

Earl Warren:

Number 9, Youngstown Sheet & Tube Company, Appellant, versus Stanley J. Bowers, Tax Commissioner of Ohio.

We’ll wait — we’ll wait a moment.

Carlton S. Dargusch, Sr.:

Yes, Mr. Chief Justice.

Earl Warren:

Mr. Dargusch, you may proceed now.

Carlton S. Dargusch, Sr.:

The Court please, Youngstown Sheet & Tube Company versus Bowers, is Number 9.

And Allied Stores of Ohio Inc. versus Bowers is Number 10, are appeals from the Supreme Court of Ohio.

The Youngstown Sheet & Tube case involved the question of the Ohio State taxation of imported ores and storage merchandise held by a resident manufacturer.

The Allied Stores case involves only the question of the Ohio State Taxation of storage merchandise held by a resident retail merchant.

Since the facts in the two cases differ somewhat, I’ll argue first the Youngstown case and then the Allied case.

More specifically, the questions presented in the Youngstown case are, may an Ohio State statute constitutionally impose an ad valorem tax upon both iron ores, which have been imported from foreign countries and which were stored in the same form as imported and not commingled with other property of the taxpayer.

As to the second question of the taxation of storage merchandise, does an Ohio State statute Section 5701.08, Revised Code of Ohio deny residents to the State the equal protection of the laws under the Constitution of United States by imposing an ad valorem property tax upon resident storage merchandise held for storage only, while at the same time accepting the storage merchandise of non-residents when similarly held for storage only.

Those are the two questions, if the Court please, in the Youngstown case.

Felix Frankfurter:

Mr. Dargusch, you will tell us, in particularity, the fact before you get off the floor.

Carlton S. Dargusch, Sr.:

Yes, sir.

I plan to do so.

Felix Frankfurter:

(Inaudible)

Carlton S. Dargusch, Sr.:

The constitutional questions involved, first, Article I, 10, cl.2, “No state shall without the Consent of Congress, laid any Impost or Duties”.

That has been construed to include taxes on imports or exports except that which may be necessary — absolutely necessary for executing its inspection laws.

The second constitutional provision involved is Section 1 of the Fourteenth Amendment, “No state shall deny to any person within its jurisdiction the equal protection — the equal — the equal protection of the law.”

Basically, the laws of Ohio and I’m referring specifically to 5709.01 Revised Code, lay a tax on personal property which is located in Ohio and used in business in that State.

At this point, it might be well, if I explain the provisions of the old Section 5701.08 Revised Code, which are in issue in this case.

That section was amended effective September 30, 1955, but we are concerned here with the statute as it read before that date.

That — that section imposed a tax upon the storage of property or upon property stored.

With the proviso, but agricultural products and merchandise belonging to a non-resident and held in the storage warehouse for storage only in the State, are not used in business.

So the property of the non-resident was excluded by that provision, while the property of the resident was taxed by the general provision taxing property held for storage.

The section as I said is since been amended with distinction between resident and non-resident withdrawn by the general assembly and a further limitation provided in that for a property to qualify as being stored in Ohio and excepted from taxation, it must’ve been shipped from without the State, held for storage in the State and destined for shipment outside.

That issue was not in the — the case, but I wanted to point out to the Court, the statute has been amended.

The history of this case is the Tax Commissioner for the year 1954, assessed the imported iron ore and storage merchandise of the taxpayer.

On appeal to the State Board of Tax Appeal, the Ohio State Board of Tax Appeals, The imported iron ore was excluded from taxation and the storage merchandise was taxed.

On this appeal of the Supreme Court of Ohio, both the imported iron ore and the storage merchandise were held taxable.

Carlton S. Dargusch, Sr.:

At every stage in the proceedings, we raised the constitutional questions which we present to the Court today.

Now, the — the facts have been stipulated.

The Youngstown Sheet & Tube Company imported ore from five foreign countries, Brazil, Cuba, Mexico, Liberia and the Canada.

The ores from the first four, in other words, Brazil, Cuba, Mexico and Liberia, were purchased for relevant use in the appellant’s open hearth furnaces, while the Seine River ore or Canadian ore was purchased for use in the blast furnaces of the taxpayer.

William J. Brennan, Jr.:

(Inaudible)

Carlton S. Dargusch, Sr.:

Yes, sir.

William J. Brennan, Jr.:

(Inaudible)

Carlton S. Dargusch, Sr.:

33, Justice Brennan, and printed in the brief as well at page 3 in part.

And the movement of the ores from Brazil, Cuba, Mexico and Liberia, the ores were transported by ocean vessel to either Baltimore or Philadelphia.

They were unloaded at those ports and then transported by rail to Youngstown, Ohio, where they were stored in the storage yards of the Youngstown Sheet & Tube Company.

So far as the Seine River ore or Canadian ore was concerned, that ore was transported down the Great Lakes to Cleveland, Ohio and then over the State of Ohio by rail to Youngstown, Ohio and the Youngstown Sheet & Tube Company.

As these ores were received in Youngstown, they were placed in piles and as we received additional shipments of Brazilian ore, for example and the same apply to all the ores, that particular type of ore, that identical ore was placed upon the prior shipment, but there was no commingling of Brazilian with Liberian, Cuban, Canadian or Mexican.

In other words, the ore pile at all times, contained only Brazilian ore.

William J. Brennan, Jr.:

What was the purpose of keeping them in those different piles?

Carlton S. Dargusch, Sr.:

Because their characteristics, Mr. Chief Justice Warren —

Earl Warren:

They what —

(Voice Overlap) —

Carlton S. Dargusch, Sr.:

— because of their characteristics.

Earl Warren:

Characteristics.

Carlton S. Dargusch, Sr.:

Yes, sir.

Earl Warren:

They weren’t used for the same purpose?

Carlton S. Dargusch, Sr.:

Normally not.

Earl Warren:

Normally not.

Carlton S. Dargusch, Sr.:

But the — with the characteristics of the other ores that require them to be kept separately.

They — they differ in their chemical composition as I noted in my statement of facts, for example, the Seine River ore was used wholly in the blast furnaces while the other four classes of ore were used in the open hearth.

But for metallurgical reasons, the iron ores were kept separate in their several piles.

From time to time, and as needed by the taxpayer, the ores in these five different piles were moved from the storage yard, a substantial distance to the plant of the taxpayer or the manufacturing facility, if you please, where they’re either placed in what are known as the stock houses or stock bins that are pertinent to the blast furnaces and open hearth.

There are in the record, maps showing the area over which these ores would travel from their storage yard to the stock bins or stock houses.

Charles E. Whittaker:

May I ask you sir, was that —

Carlton S. Dargusch, Sr.:

Yes, sir.

Charles E. Whittaker:

— one day supply or more than one day supply that would be moved from the piles to these bins within the — the mill at one time?

Carlton S. Dargusch, Sr.:

The stipulation shows that the storage piles represented a minimum of three month’s supply.

And that as needed, ores were moved to the stock bins and the stock houses.

The period of supply there will be relatively short, a matter of days at the outside.

That — that is — you will see that in the stipulation I believe.

Felix Frankfurter:

The pile — the pile would — either (Inaudible) good from their respective piles

Carlton S. Dargusch, Sr.:

Yes, sir.

Felix Frankfurter:

And the pile —

Carlton S. Dargusch, Sr.:

In bulk.

Felix Frankfurter:

— from — in bulk —

Carlton S. Dargusch, Sr.:

In bulk.

Felix Frankfurter:

And the pile — what would be the duration of this continuing pile?

From incoming — from the incoming shipment, is there any —

Carlton S. Dargusch, Sr.:

There’s — there’s nothing in the record on that point.

Felix Frankfurter:

Or as a matter of fact, using that pile certainly (Voice Overlap) —

Carlton S. Dargusch, Sr.:

That’s right.

Felix Frankfurter:

Is there adding to it?

Carlton S. Dargusch, Sr.:

And always added and kept a minimum of three month’s supply in the pile.

Earl Warren:

We’ll recess now.

Carlton S. Dargusch, Sr.:

Yes, sir.