Decided July 7, 1943.
Corporations — Nonprofit hospital service plan — Section 669 et seq., General Code — Corporation engaged in business substantially amounting to insurance — No liability for franchise tax levied on domestic insurance companies — Section 5414-8 et seq, General Code.
1. A corporation organized under the provisions of Sections 669 to 669-13, inclusive, General Code, for the purpose of establishing, maintaining and operating a nonprofit hospital service plan whereby hospital care may be provided by a nonprofit hospital or a group of such hospitals, is engaged in a business substantially amounting to insurance. ( State, ex rel. Duffy, Atty. Genl., v. Western Auto Supply Co., 134 Ohio St. 163, and State, ex rel. Herbert, Atty. Genl., v. Standard Oil Co., 138 Ohio St. 376, approved and followed.)
2. Such corporation is not liable for the franchise tax levied on domestic insurance companies under the provisions of Sections 5414-8 to 5414-13, General Code, a method of taxation thereof different from such franchise tax having been specifically prescribed by the provisions of Section 669-3, General Code.
APPEAL from the Court of Appeals of Franklin county.
This case originated in the Court of Common Pleas of Franklin county as an action to enjoin Donald Ebright as Treasurer of State from collecting from the plaintiff hospital association the franchise tax imposed upon domestic insurance companies under the provisions of Sections 5414-8 to 5414-13, inclusive, General Code.
The case was tried in the Court of Common Pleas on the petition of plaintiff, the answer of the defendant, the stipulation of certain facts and the evidence, and that court found for the plaintiff and granted an injunction perpetually enjoining the defendant from collecting or making any attempt to collect from the plaintiff any tax levied by those sections and Section 5414-17, General Code.
The case was appealed to the Court of Appeals on questions of law and fact and that court heard the case on the pleadings, stipulation of facts and testimony of witnesses, and thereafter entered a like judgment as that of the Common Pleas Court. The case is before this court upon the allowance of a motion to certify the record of the Court of Appeals.
The case was submitted to this court on the pleadings and finding of facts of the Court of Appeals set out in the journal entry of that court. The complete finding of facts is as follows:
"1. That the plaintiff-appellee is a nonprofit corporation, duly qualified and operating under Section 669 et seq., General Code, and so licensed by the Superintendent of Insurance.
"2. That the plaintiff-appellee has paid all of the fees and charges provided by Section 669-3, General Code.
"3. That the plaintiff-appellee is an agent for certain charitable and benevolent hospitals located in and about the city of Cleveland, Ohio.
"4. That the operations of plaintiff-appellee make possible necessary hospitalization for a large part of the public at a low cost and further make it possible to assure in the aggregate the payment of a larger sum for these services than would be otherwise received and thus enable the hospitals to render a better and more extended general service.
"5. That none of the contracts issued by plaintiff-appellee to its subscribers are sold upon a commission basis and the employees of the plaintiff-appellee are all paid upon a salary basis and no part of said salary is based upon the number of contracts issued or sold.
"6. That any surplus remaining after the payment of hospital charges incurred by subscribers and operating expenses is held as a reserve for the benefit of subscribers.
"7. That the plaintiff-appellee is a charitable and benevolent institution.
"8. That the contracts issued by the plaintiff-appellee amount substantially to insurance."
Upon these facts the Court of Appeals entered the following conclusions of law:
"a. That plaintiff-appellee is an insurance company within the meaning of the term as defined in Section 5414-8, General Code.
"b. That plaintiff-appellee is a charitable and benevolent institution, as so declared in Section 669-13, General Code.
"c. That by virtue of the provisions of Section 669-13, General Code, plaintiff-appellee is exempt from any liability for taxes of any kind or character or the payment of any sum for the privilege of operating or doing business other than that provided for in Sections 669 to 669-13, both inclusive, General Code, and more particularly plaintiff-appellee is exempt from the provisions of Sections 5414-8 to 5414-13, both inclusive, and Section 5417-17 [ sic], General Code, and from any and all taxes levied by said sections."
The defendant was thereupon perpetually enjoined from collecting these taxes, and ordered to remove the name of the plaintiff from the duplicate kept by the defendant for the purposes of the tax.
Messrs. Garfield, Daoust, Baldwin Vrooman and Messrs. Arnold, Wright, Purpus Harlor, Mr. Vernon R. Burt and Mr. Earl F. Morris, for appellee.
Mr. Thomas J. Herbert, attorney general, and Mr. David M. Spriggs, for appellant.
The sole question presented is whether the court erred in granting the injunction against the collection of the tax sought to be imposed.
Since, under the finding of facts by the Court of Appeals the plaintiff is a nonprofit corporation, duly qualified and operating under Section 669 et seq., General Code, the precise question is whether, under the provisions of these sections, the plaintiff is exempt from the franchise tax levied against domestic insurance companies by Sections 5414-8 et seq., General Code.
Section 669, General Code, provides: "Any corporation heretofore or hereafter organized not for profit under the General Corporation Act of the state of Ohio, for the purpose of establishing, maintaining and operating a nonprofit hospital service plan, whereby hospital care may be provided by a non-profit hospital, or by a group of such hospitals, with which such corporation has a contract for such purpose, to such of the public as become subscribers to said plan under a contract which entitles each subscriber to hospital care, shall be governed by this act, and such corporation, and the hospital or hospitals so contracting with such corporation, shall be exempt from all other provisions of the insurance laws of this state, unless otherwise specifically provided herein."
Section 669-3, General Code, provides: "Every corporation subject to the provisions of this act shall pay to the Superintendent of Insurance, upon the filing of its application for a certificate of authority or license, a fee of two hundred fifty dollars, and thereafter on the first day of March of each year, a fee equal to one-tenth of one cent ($.001) for each contract issued by such corporation and then outstanding."
Section 669-13, General Code, provides: "Every corporation subject to the provisions of this act is hereby declared to be a charitable and benevolent institution, and its funds and property shall be exempt from taxation."
The Court of Appeals found that the contracts written by the plaintiff amounted substantially to contracts of insurance, relying on State, ex rel. Duffy, Atty. Genl., v. Western Auto Supply Co., 134 Ohio St. 163, 16 N.E.2d 256, 119 A. L. R., 1236; State, ex rel. Herbert, Atty. Genl., v. Standard Oil Co., 138 Ohio St. 376, 35 N.E.2d 437. With that conclusion we are in complete accord.
Being a company engaged in business substantially amounting to insurance, is it exempt from this franchise tax, assessable against insurance companies? The state has the undoubted authority to determine the manner in which domestic corporations shall be taxed and, if it chooses, it may relieve some corporations from certain taxes which corporations of a different character are required to pay, or substitute a different form of taxation, provided, however, such method of taxation is in accordance with the provisions of the Constitution. State, ex rel. Struble, v. Davis et al., Tax Comm., 132 Ohio St. 555, 9 N.E.2d 684.
An examination of these statutes discloses that the General Assembly has determined that these corporations shall be taxed in the specific manner provided by Section 669-3, General Code. The Court of Appeals found that the corporation has complied with these statutory requirements and paid taxes thereby imposed. Construing Section 669-3, General Code, in pari materia with Section 669-13, General Code, leads to the inevitable conclusion that the taxes levied under Section 669-3, General Code, are to the exclusion of other taxes, insofar as constitutionally permissible. The state has broad power and discretion in the levy of excise taxes. Calerdine, a Taxpayer, v. Freiberg, Treas., 129 Ohio St. 453, 457, 195 N.E. 854.
It follows, therefore, that the plaintiff is not subject to the franchise tax levied on other domestic insurance companies. The judgment of the Court of Appeals is accordingly affirmed.
WEYGANDT, C.J., HART, ZIMMERMAN, WILLIAMS and TURNER, JJ., concur.
BELL, J., not participating.