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  • Case Opinion

Lakengren, Inc. v. Kosydar

Lakengren, Inc. v. Kosydar

Supreme Court of Ohio

December 31, 1975, Decided

No. 75-461

Opinion

 [**815]   The only question presented in this case is whether the amendment to R. C. 5733.05, adopted December 20, 1971, whereby the income of a corporation was made an alternative basis for computing the corporate franchise [***3]  tax, is a retroactive law as to accounting years already closed prior to the enactment of the statute. ] The amendment applies the tax rate to the net income of the corporation earned during the accounting year "preceding the date of commencement of its annual accounting period which includes the first day of January of the tax year" ( R. C. 5733.05[B]), so that this taxpayer's corporate franchise tax obligation for the tax year 1972 would be based upon the net income earned in the accounting year ending February 28, 1971.

The validity of the corporation franchise tax is not challenged, but appellant argues that to apply the amendment to the net income of the company earned in a preceding accounting year is to give the amendment a retroactive effect, in violation of Section 28, Article II of the Ohio Constitution.

] Section 28, Article II provides that:

"The General Assembly shall have no power to pass retroactive laws, or laws impairing the obligation of contracts * * *."

The state urges that the franchise tax is levied only upon the privilege of engaging in business during the tax year, even though it uses income earned in a past year as a  [*201]  measure of the tax levy. The [***4]  state agrees that the tax is based on past events, but argues that this does not render the tax retroactive, because it is a fee levied for the exercise of the future privilege of engaging in business.

The obvious difficulty with that contention is that it allows the state to impose new taxes upon income earned at any time in the past simply by stating that the levy is a payment for future privileges.  The prohibition against retroactive laws is not a form of words; it is a bar against the state's imposing new duties and obligations upon a person's past conduct and transactions, and it is a protection for the individual who is assured that he may rely upon the law as it is written and not later be subject to new obligations thereby. "The General Assembly having the power to enact laws, and * * * having enacted laws with certain limitations, and persons having conformed their conduct and affairs to such state of the law, the General Assembly is prohibited, estopped, from passing new laws to reach back and create new burdens, new duties, new obligations, or new liabilities not existing at the time." Miller v. Hixson (1901), 64 Ohio St. 39, 51, 59 N. E. 749. See, also, Society  [***5]  v. Wheeler, 2 Gall (U. S. C. C.) 105, 139; Rairden v. Holden (1864), 15 Ohio St. 207; Commissioners v. Rosche Bros. (1893), 50 Ohio St. 103, 33 N. E. 408. The case of Safford v. Metropolitan Life Ins. Co. (1928), 119 Ohio St. 332, 164 N. E. 351, is in accord, upon facts very similar to the case at bar. In that case, the General Assembly, by an Act passed on May 11, 1927, increased the "tax upon business done" in the state by foreign insurance companies by one half of one percent.  The company was required to pay the assessed tax in the following November, and failure to do so was grounds for revocation of the license to do business in the state. The issue presented was whether the tax increase could be levied on  [**816]  premiums for the calendar year 1926, before the passage of the increase, as payment for the privilege of doing business in the state during 1926. The court held that it could not.

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44 Ohio St. 2d 199 *; 339 N.E.2d 814 **; 1975 Ohio LEXIS 611 ***; 73 Ohio Op. 2d 502

LAKENGREN, INC., APPELLANT, v. KOSYDAR, TAX COMMR., APPELLEE

Prior History:  [***1]  APPEAL from the Board of Tax Appeals.

Disposition: Decision reversed.

CORE TERMS

retroactive, accounting, levied, retroactive law, franchise tax, do business, income earned

Business & Corporate Law, Corporate Finance, Franchise Tax, Computation, Governments, Legislation, Effect & Operation, Retrospective Operation, Tax Law, State & Local Taxes, Income Taxes, General Overview, Federal Taxpayer Groups, S Corporations, Taxable Year, Administration & Procedure, Franchise Taxes, Imposition of Tax, State & Territorial Governments, Legislatures, Constitutional Law, Case or Controversy, Constitutionality of Legislation, Prospective Operation, Sales & Exchanges, Installment Sales, Future Payments, Sales Taxes