Huntington Natl. Bank v. Limbach - Ohio Supreme Court Opinion - Ohio Supreme Court Decision

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OPINIONS OF THE SUPREME COURT OF OHIO

**** SUBJECT TO FURTHER EDITING ****

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1992, pursuant to a pilot project implemented by Chief Justice
Thomas J. Moyer.
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Huntington National Bank et al., Appellants, v. Limbach, Tax
Commr., Appellee.
[Cite as Huntington Natl. Bank v. Limbach (1994), Ohio
St.3d .]
Taxation -- Franchise tax -- Legitimate state interest exists
to tax resident banks at a higher rate than foreign banks.
(No. 93-1501 -- Submitted November 1, 1994 -- Decided
December 20, 1994.)
Appeal from the Board of Tax Appeals, Nos. 90-G-863,
90-F-864, 90-J-865, 90-D-866, 90-H-867, 90-C-868, 90-G-869 and
90-C-870.
The Huntington National Bank, appellant, contests, as a
denial of equal protection, paying franchise tax at 15 mills on
its net worth while banks that have no place of business in
Ohio ("foreign banks"), pay as regular corporations at 5.82
mills.
Huntington operates branch banking offices in Ohio. It
maintains physical locations in Ohio and accepts deposits in
these facilities. According to the testimony, the majority of
bank customers will bank in a local bank branch. In franchise
tax years 1984 through 1989, Huntington paid the tax at 15
mills on its net worth. It paid a surtax of 1.54 mills in 1984
and 1985.
Foreign banks perform some of the same services that
Huntington performs. However, foreign banks have no physical
locations in Ohio and can accept deposits only by mail or
transfer. They are not "financial institutions" as defined by
R.C. 5733.04(k) and 5725.01 and are not subject to the higher
franchise tax imposed on "financial institutions" by R.C.
5733.06(D). Instead, R.C. 5733.06 treats foreign banks as
regular corporations and imposes on them the regular corporate
franchise rate of 5.82 mills.
For the disputed tax years, Huntington applied for
refunds, seeking all that it paid in franchise tax,
$34,321,383, or alternatively, the difference in the two rates,

$20,302,504. The Tax Commissioner denied the applications, and
the BTA, on appeal, affirmed her order. The BTA also ruled
that it lacked jurisdiction to consider the equal protection
argument.

The cause is now before this court upon an appeal as of
right. Porter, Wright, Morris & Arthur, Ronald W. Gabriel and
Joseph R. Ervine, appellant.
Lee Fisher, Attorney General, and Richard C. Farrin,
Assistant Attorney General, for appellee.

Per Curiam. Huntington argues that it and foreign banks
are in the same class and that taxing it at a higher rate than
foreign banks denies it equal protection. The commissioner
contends that Huntington's ability to accept deposits in Ohio
forms a rational basis to distinguish between it and foreign
banks.
According to Nordlinger v. Hahn (1992), 505 U.S.
, 112 S.Ct. 2326, 2331-2332, 120 L.Ed. 2d 1, 12:
"The Equal Protection Clause of the Fourteenth
Amendment, Section 1, commands that no State shall 'deny to any
person within its jurisdiction the equal protection of the
laws.' Of course, most laws differentiate in some fashion
between classes of persons. The Equal Protection Clause does
not forbid classifications. It simply keeps governmental
decisionmakers from treating differently persons who are in all
relevant respects alike. F.S. Royster Guano Co. v. Virginia,
253 U.S. 412, 415 [40 S.Ct. 560, 561, 64 L.Ed. 989, 990-991]
(1920).
"As a general rule 'legislatures are presumed to have
acted within their constitutional power despite the fact that,
in practice, their laws result in some inequality.' McGowan v.
Maryland, 366 U.S. 420, 425-426 [81 S. Ct. 1101, 1105, 6 L.
Ed.2d 393, 398-399] (1961). Accordingly, this Court's cases
are clear that, unless a classification warrants some form of
heightened review because it jeopardizes exercise of a
fundamental right or categorizes on the basis of an inherently
suspect characteristic, the Equal Protection Clause requires
only that the classification rationally further a legitimate
state interest. See, e.g., Cleburne v. Cleburne Living Center,
Inc., 473 U.S. 432, 439-441 [105 S.Ct. 3249, 3254-3255, 87
L.Ed. 2d 313, 320-321] (1985); New Orleans v. Dukes, 427 U.S.
297, 303 [96 S.Ct. 2513, 2517, 49 L.Ed.2d 511, 517] (1976)."
In Bank One Dayton, N.A. v. Limbach (1990), 50 Ohio St. 3d
163, 553 N.E.2d 624, we ruled that the franchise tax did not
violate a bank's equal protection guaranty. We concluded that
the unique nature of the banking industry, for instance holding
much more intangible property than other corporations,
justified taxing banks at a higher rate to achieve tax parity
with other corporations.
Nevertheless, as the commissioner argues, having a
physical location in Ohio for receiving deposits in Ohio is a
rational basis on which to distinguish Huntington from foreign
banks. With this locational advantage, Huntington will receive
more Ohio business than a foreign bank because, according to
the testimony, more people will bank with the local bank. Of
course, with this physical presence in Ohio comes Ohio's

responsibility to protect the bank from theft and fire and to
provide roads so that Huntington's customers may reach the bank
to deposit their funds. Thus, a legitimate state interest
exists to tax resident banks at a higher rate than foreign ones.
Accordingly, we affirm the decision of the BTA.
Decision affirmed.
Moyer, C.J., A.W. Sweeney, Douglas, Close, Resnick, F.E.
Sweeney and Pfeifer, JJ., concur.
Michael L. Close, J., of the Tenth Appellate District,
sitting for Wright, J.