Legislative Developments

Municipal Tax Policy (H.B. 24). The bill in part amends R.C. 718.01 and R.C. 718.02 to authorize municipalities to allow self-employed taxpayers to take a municipal income tax deduction for amounts paid for medical care insurance, and to allow individuals to deduct for municipal income tax purposes amounts paid into health savings accounts. The bill, signed December 21, 2007, took effect immediately as emergency legislation.

Municipal Taxes (H.B. 224). The bill specifies that the municipal income tax annual return filing date for individuals shall not be earlier than the federal income tax filing date, allows return preparers to use facsimile signatures on returns, and permits taxpayers to authorize return preparers to communicate directly with municipal tax administrators. The bill was signed on December 21, 2007; it is effective March 20, 2008.

Homestead Exemption (H.B. 119). The bill makes the Ohio Homestead Exemption available to all Ohio homeowners, regardless of income, who are either age 65 or older or permanently and totally disabled. All households who qualify for the Homestead Exemption receive a flat $25,000 property tax exemption on the market value of their homestead. Signed on June 30, 2007, the provision applies to real property taxes paid in 2008 (i.e., tax year 2007 taxes).

Income Tax (H.B. 73). The bill increases the amount of time an individual may spend in Ohio before being presumed to be an Ohio resident for income tax purposes. It requires taxpayers to file a statement of nonresidency with the Tax Commissioner for the presumption to be irrebutable. The bill also exempts active-duty military pay and allowances from the state income tax regardless of whether the serviceperson is serving in a declared combat zone, forbids taxpayers from applying the exemption to pay and allowances received for active duty service while stationed in Ohio, and permits taxpayers to apply the exemption to school district income taxes using the same tax base as the state income tax.

Income Tax Returns, Sales and Use Tax, I.R.C. Changes (H.B. 157). The bill amends Chapter 5747 of the Revised Code to require a box on personal income tax returns that a taxpayer may check to authorize a paid tax preparer to speak to the Department of Taxation about certain matters concerning the return. The bill also exempts property used to provide electronic publishing services from sales and use taxation, and amends the franchise and income tax laws to incorporate changes in the Internal Revenue Code since December 28, 2006, into Ohio’s tax law.

Tangible Personal Property Tax Phase Out Update (H.B. 66). H.B. 66 was signed into law in 2005. It phases out the tax on tangible personal property (“TPP”) of general businesses, telephone and telecommunications companies, and railroads. The tax on general business and railroad TPP will be eliminated by 2009, and the tax on telephone and telecommunications company TPP will be eliminated by 2011. In 2008, the assessment percentages on general business and railroad TPP will decrease from 12.5 percent to 6.25 percent. In 2009, the tax will be eliminated on general business and railroad TPP. In 2008, the assessment percentage on telephone and telecommunications company TPP decreases from 20 percent to 15 percent and decreases five percent per year until eliminated in 2011.

Administrative Developments

The Department of Taxation issued the following information releases:

Commercial Activity Tax:

CAT 2007-03: Commercial Activity Tax Credits, Explained.

CAT 2007-02: Pre-Income Tax Trusts, Explained With Revocation Procedures.

CAT 2007-01: Rule Estimation and Statutory Estimation Procedures, Compared.

Excise and Motor Fuel Tax:

XT 2007-01: Cuyahoga County Cigarette Tax Increase.

XT 2007-03: Motor Fuel Shrinkage Allowances.

XT 2007-02: Severance Tax Increase on Coal.

Income Tax

IT 2007-08: Personal Income Tax: Residency Guidelines - Tax Imposed on Resident and Nonresident Individuals for Post-2006 Taxable Years.

IT 1996-01: Personal Income Tax: Federal Law Preempting State Taxation of Retirement Plan Income.

IT 2007-03: Personal Income Tax: Employer Withholding Tax - State and School District Due Date Change.

IT 2007-02: Personal Income Tax: Taxable Year 2006 Changes - Due Date Change and Notice of Correction.

IT 2007-01: Personal Income Tax: Residency Guidelines - Tax Imposed on Resident and Nonresident Individuals.

Property Tax

PP 2007-01: Classification of Certain Business Assets as and Real or Personal Property.

RP 2007-01:

Sales Tax

ST 2007-06: Accelerated and Electronic Sales and Use Tax Payments.

ST 2007-02: Delivery Charges” a Part of the “Price” of a Sale.

ST 2007-05: Origin Sourcing of Delivery Sales.

ST 2007-01: Delay in Sourcing of Delivery Sales.

ST 2007-04: Sales of Motor Vehicles to Nonresidents of Ohio.

ST 2002-02: Portable Grain Bins, Field Tile, Livestock Structures; Horticulture Structures.

ST 2007-03: Sales by School Support Groups / Other Charitable Organizations.

Cases & Rulings

AD VALOREM TAXES

Real Property Tax: Procedure & Jurisdiction

In Owens Illinois, Inc. v. Lucas Cty. Bd. of Revision, B.T.A. Case No. 2005-V-1101 (November 9, 2006), the Board of Tax Appeals (“BTA”) reversed the Board of Revision’s (“BOR”) dismissal of the taxpayer’s complaint for lack of jurisdiction. The BOR dismissed the complaint for tax year 2003 because a continuing complaint for a prior year was pending before the BTA. The BTA held the filing of the new complaint halted the carryover effect of any prior year’s valuation complaint, but was a valid new complaint for that tax year. The BTA also held that the complaint is not jurisdictionally deficient where: (1) at least one of multiple owners listed on the complaint was the owner on the lien date and the filing date, (2) a non-attorney signs the complaint so long as an attorney also signs, or (3) where an attorney lists his or her name as “attorney for tax appeal” in the line 2 space labeled “Complainant if not owner” so long as it is clear that the attorney is acting in a representative capacity for the owners.

In Black Run Church of God v. Wilkins, B.T.A. Case No. 2005-A-1472 (January 12, 2007), the Board of Tax Appeals held that its jurisdiction was limited to the issues raised in the notice of appeal and considered by the Tax Commissioner below.

In Bd. of Educ. of the Columbus City Sch. v. Franklin Cty. Bd. of Revision, B.T.A. Case No. 2006-A-1173 (March 2, 2007), the Board of Tax Appeals (“BTA”) denied the school district’s motion to dismiss. At issue was whether the Board of Revision (“BOR”) complaint could be properly signed and filed by a member of the LLC that owned the property that is the subject of the complaint. While a BOR typically has jurisdiction to hear a complaint only if it is filed by an attorney, the BTA acknowledged that the Supreme Court of Ohio, in Dayton Supply & Tool Co., Inc. v. Montgomery Cty. Bd. of Revision, 111 Ohio St.3d 367, 2006-Ohio-5852, made an exception to the rule. In Dayton Supply, the Court ruled that a corporate officer does not engage in the unauthorized practice of law by preparing and filing a complaint with the board of revision and by presenting the value of the property before the board of revision on behalf of his or her corporation, as long as the officer does not make legal arguments, examine witnesses, or undertake any other tasks that can be performed only by an attorney. The BTA extended the Supreme Court’s corporate officer exception in Dayton Supply to members of LLC’s.

In Parma City Sch. Dist. v. Cuyahoga Cty. Bd. of Revision, B.T.A. Case No. 2006-M-454 (March 2, 2007), the Board of Tax Appeals (“BTA”) disapproved a stipulation filed by appellant Board of Education (“BOE”) and co-appellee Cuyahoga County Board of Revision (“BOR”). The BOE appealed from a BOR determination regarding valuation of property for which the BOE had filed a complaint. The owner at no time participated in proceedings either before the BOR or before the BTA. While the appeal was pending, the BOE and BOR agreed on the parcel’s value and submitted a stipulation to that effect. The BTA disapproved the stipulation stating “a stipulation cannot be used against a party who has not agreed thereto because, as to the non-agreeing party, it is not a stipulation and, therefore, it is not usable against him.”

In City of Toledo v. McAndrew, B.T.A. Case No. 2004-B-183 (April 20, 2007), the Board of Tax Appeals (“BTA”) reversed the Tax Commissioner’s grant of tax-exempt status to the City and remanded the case to the Commissioner with an order to dismiss the exemption application for lack of jurisdiction. The City applied to have the property placed on the tax exempt list for tax year 2002, but the Commissioner did not receive the application until March 2003. Although exemption applications are required to be filed by December 31 of the year for which application is made, the tax commissioner overlooked the error and granted exemption for 2003 and remitted taxes, penalties and interest for tax years 2000 through 2002. The City had requested remission for all payments made since 1994 on the basis that the subject property is used by the U.S. Government and cannot be taxed by the state. The BTA held that the Commissioner was without jurisdiction to consider the application because the application included an attached treasurer’s certificate for 2001 and not for 2002. As a result, there were unremittable taxes that were unpaid as of the date the application was filed. The BTA remanded to the Commissioner with orders to dismiss the exemption application for lack of jurisdiction. The City filed an appeal to the Supreme Court of Ohio in May 2007.

In Sylvania Church of God v. Wilkins, B.T.A. Case No. 2006-B-48 (May 4, 2007), the Board of Tax Appeals (“BTA”) affirmed a final determination of the Tax Commissioner that denied the owner’s application for exemption from real property tax that was filed for the year in which the owner acquired the property, after January 1 of that year. The BTA stated that under R.C. 5713.08(B) the Tax Commissioner lacks jurisdiction to remit taxes, penalties and interest which have become lien prior to the applicant’s acquisition of the said property. Further, R.C. 323.11 provides that the lien of the state for taxes shall attach to all real property on the first day of January, annually. Thus, the BTA held that the Commissioner only has jurisdiction to consider exemption applications filed by applicants who own the subject property on January 1 of the year in question. The owner filed an appeal to the Supreme Court of Ohio in May 2007. See also, St. Stephen the First Martyr Orthodox Church v. Levin, B.T.A. Case No. 2007-M-113 (August 10, 2007); see also, Allshred Serv. v. Wilkins, B.T.A. Case No. 2007-B-70 (June 29, 2007), where the BTA held that the Tax Commissioner has no jurisdiction to consider an application for real property tax exemption if the applicant does not own the subject property on the date the application is filed.

In Cabot II-OH1MO6 LLC v. Franklin Cty. Bd. of Revision, B.T.A. Case No. 2006-B-177 (June 15, 2007), the Board of Tax Appeals (“BTA”) reversed the decision of the Board of Revision (“BOR”) dismissing the owner’s original complaint for failure to prosecute. The BTA determined that Cabot II-OH1MO6 LLC (“Cabot”) was the actual owner at the time of the BOR hearing. The BOR provided advance notice of the hearing to Trenberth, LLC, which was the owner when the complaint was filed. The BTA held that Cabot had a right to intervene in the hearing because the intervenor’s potential prejudice and loss was far greater than prejudice to the original parties considering the ramifications of losing the right to contest the tax year for which the subject complaint was filed. The BTA, therefore, reversed and remanded to the BOR for further proceedings.

In El-Rif, Trustee v. Cuyahoga Cty. Bd. of Revision, B.T.A. Case Nos. 2005-H-1547, 2005-H-1755 (July 20, 2007), the Board of Tax Appeals held that the owner’s complaint failed to meet the threshold requirements of R.C. 5715.19(A)(2) and, thus, failed to invoke the jurisdiction of the Board of Revision. Here, the owner had filed a complaint in a prior year of the same triennium and failed to allege in her complaint any of the circumstances that allow such a filing.

In Glass City Christian Fellowship v. Wilkins, B.T.A. Case No. 2006-V- 2349 (August 24, 2007), the Board of Tax Appeals (“BTA”) affirmed a decision of the Tax Commissioner that the official lacked jurisdiction to consider a real property tax exemption application. The Commissioner averred that he lacked jurisdiction because the treasurer’s certification indicated that there were unpaid taxes that became a lien before the applicant acquired the property; therefore, the taxes were not subject to remission. The BTA agreed and affirmed.

In Newark City Sch. Bd. of Educ. v. Licking Cty. Bd. of Revision, B.T.A. Case No. 2007-V-481 (December 21, 2007), the Board of Tax Appeals (“BTA”) denied the property owner’s motion to compel discovery. The owner claimed the school district’s responses to discovery, that it did not intend to present any additional evidence, were inadequate. The BTA held such a response was adequate, especially since the school district was under a duty to supplement its answers if anything changed.

In Weastec, Inc. v. Highland Cty. Bd. of Revision, B.T.A. Case No. 2007- V-85 (December 21, 2007), the owner sought summary judgment and petitioned the Board of Tax Appeals (“BTA”) to establish the true value of the subject parcel because of the county’s failure to respond to requests for admissions. The BTA held that it has no authority to grant summary judgment requests. The BTA also held that Civ.R. 36, which states that requests for admissions are deemed admitted if timely responses are not provided, applies to appeals from county boards of revision. However, the BTA construed the owner’s motion as a motion to compel discovery and granted it.

In Davis Estates Ltd., v. Franklin Cty. Bd. of Revision, B.T.A. Case Nos. 2006-V-388, 2006-V-389 (December 28, 2007), the Board of Tax Appeals (“BTA”) denied the owner’s motion to stay the BTA proceedings on the basis that “the two instant appeals and three cases currently before the Supreme Court of Ohio all involve the same issue.” The owner based its motion on concerns of judicial economy and the “needless burden of conducting hearings … involving the same issues.” The BTA held that there is no guarantee the cases pending before the Court will negate the need for a hearing on the present appeals. Further, the other parties did not agree or stipulate that the parties would be bound by the outcome in the cases before the Court. Thus, the BTA held there was not good cause to stay the appeals.

Real Property Tax: Classification

In 2007 Ohio Tax Comm’r.Ops. No. 07-0001, issued March 29, 2007, the Tax Commissioner opined as to the proper classification of 25 separate types of golf course related property. The Commissioner applied R.C. 5701.02-.03 in his determination that some items were real property because they were realty or land itself (restrooms, driving ranges, putting greens, irrigation pond) or fixtures (cart paths). Other items were determined to be personal property because they were business fixtures (scoreboard, yardage markers, tee signs) or because they did not meet any of the definitions in R.C. 5701.02 (ball washers).

Real Property Tax: Exemptions

In Girl Scouts – Great Trail Council v. Levin, 113 Ohio St.3d 24, 2007- Ohio-972 (decided March 27, 2007), the Supreme Court of Ohio affirmed the Board of Tax Appeals decision that a merchandise shop operated by a not-for-profit organization qualified for a tax exemption. The shop sold merchandise targeted at the owner’s membership so they could recognize their participation in the owner’s activities. The Court determined that income generated by the shop did not disqualify the shop from tax exemption when the shop was not operated with a view to profit; did not compete with commercial, for-profit enterprises; and prices charged were intended merely to cover the cost of operation. The Court held that the primary use of the property was to fulfill the owner’s charitable function, and the property, therefore, met the statutory requirement for real property tax exemption.

In Cincinnati Cmty. Kollel v. Levin, 113 Ohio St.3d 138, 2007-Ohio- 1249 (decided April 4, 2007), the Supreme Court reversed the Board of Tax Appeals (“BTA”) decision denying the real property tax exemption claimed by the owner pursuant to R.C. 5709.121. At issue was whether a Jewish organization that provides classes and research facilities to several resident scholars and also offers classes to the Jewish community in Cincinnati (the “Kollel”), was a “charitable or educational institution” for R.C. 5709.121 purposes. The BTA denied the exemption because the Kollel “provides very little formal teaching to local community members and … does not award degrees.” The Court held the following criteria are necessary to qualify as an educational institution: presence of students and teachers, educational opportunities to the public, transfer of knowledge or skills via structured classes instead of mere social activities, and have as its primary function the presentation of formal instruction. So long as these criteria are met, an institution is educational even if no grades are given nor degrees awarded.

In Cmty. Health Prof’ls, Inc. v. Levin, B.T.A. Case No. 2004-K-689 (May 5, 2006), affd., 113 Ohio St.3d 432, 2007 Ohio-2336, the Board of Tax Appeals (“BTA”) reversed a final determination of the Tax Commissioner denying the owner’s application for exemption from real property tax. The Tax Commissioner determined that the owner was a charitable institution but denied the exemption because he determined that the property was not used in furtherance of a charitable purpose without a view to profit (required for exemption under R.C. 5709.121). The property was primarily used as administrative offices for the owner’s charitable subsidiaries, which were all tax-exempt 501(c)(3) organizations. Private Duty, one of the owner’s charitable subsidiaries, provided home-health and adult day care services (on the property) on a private pay basis. Payments were made either by the individual or by government funds that impose certain age, income and/or independence restrictions. The BTA held that the property was exempt under R.C. 5709.121 because it was owned by a charitable institution and being used in furtherance of appellant’s charitable purpose – providing nursing services for ill, disabled, injured or otherwise mentally and physically impaired persons, without regard to the recipient’s ability to pay.

On appeal to the Supreme Court, the Tax Commissioner contended that R.C. 5709.121 does not permit property to be exempt from real estate tax unless that owner offers services at its own expense or on a sliding scale based on a patient’s ability to pay. The Court announced that when “considering R.C. 5709.121 and the question of whether a charitable institution uses its property in furtherance of or incidentally to its charitable purposes, [the focus is] on the relationship between the actual use of the property and the purpose of the institution.” The Tax Commissioner argued that the owner did not qualify for exemption because it charged patients for services rendered, accepted payment from private and government sources, wrote off unpaid amounts, and did not offer its services free of charge or in accordance with a sliding scale. The court determined that these circumstances concern the threshold question of whether the owner is a charitable institution (which was not at issue in the appeal). In affirming the BTA, the Supreme Court reiterated that “it is the use of property rather than the fact that revenues are collected and received from property which is controlling,” and that the owner did not use the property with a view to profit.

In 88/96 LP and Cmty. Hous. Network v. Wilkins, B.T.A. Case No. 2005- A-55 (July 20, 2007), the Board of Tax Appeals (“BTA”) reversed the Tax Commissioner’s denial of the owner’s application for exemption from real property taxation. The parcel in question was owned by a limited partnership comprised of a limited/for-profit partner and a general/nonprofit partner. The Tax Commissioner concluded that the ownership structure of the parcel (insofar as it included a for-profit entity) disqualified the parcel from exemption. The BTA held otherwise. Focusing on the parcel’s use, the BTA held that R.C. 5709.12 requires the parcel to be (1) owned by an institution and (2) used primarily for charitable purposes. The parcel owner qualified as an institution. Further, the owner used the parcel as a long-term residence for the chronically homeless and unemployed and acted as a liaison between the residents and social service providers. Under these circumstances, the BTA held that the Tax Commissioner’s denial of tax exemption was erroneous.

In Private Duty Serv. v. Zaino, B.T.A. Case No. 2004-B-688 (August 31, 2007), the Board of Tax Appeals (“BTA”) considered a related case to Health Prof’ls, Inc. v. Wilkins, B.T.A. Case No. 2004-K-689 (May 5, 2006), summarized above. Here, the owner, Private Duty Services, owned land and office space shared by its sister entities. The Tax Commissioner denied the owner’s application for exemption from real property tax because the owner failed to show that it underwrote some of the cost of service to persons who could not afford to pay for them. The owner had a policy of serving all who requested service without regard to ability to pay, and showed that it followed that policy. The BTA reversed on the same grounds as in Health Prof’ls, supra.

In NE Ohio Psychiatric Inst. v. Wilkins, B.T.A. Case No. 2005-M-1683 (December 14, 2007), the Board of Tax Appeals (“BTA”) affirmed a final determination of the Tax Commissioner denying the owner’s application for real property tax exemption. The Tax Commissioner determined that the owner was not a charitable institution because (1) non-profit corporations are not conclusively charitable, (2) a parent entity’s charitable status does not vicariously inure to its subsidiary and (3) the owner’s activities of job placement and consulting services to the psychiatric services industry was not a charitable activity. The BTA agreed and so held. Further, the BTA held that in determining whether the owner was a charitable institution, the proper inquiry was not limited to the owner’s activities on or relative to the parcel in question. The BTA further held that the owner’s use of the property was not exclusively (primarily) charitable because the owner commercially leased the property to non-profit and for-profit entities. Thus, the BTA held that the owner primarily used the property for a noncharitable purpose and affirmed the Tax Commissioner.

Real Property Tax: Valuation

In Strongsville Bd. of Educ. v. Cuyahoga Cty. Bd. of Revision, 112 Ohio St.3d 309, 2007-Ohio-6 (decided January 17, 2007), the Supreme Court affirmed a Board of Tax Appeals (“BTA”) valuation decision. The BTA relied on appraisal evidence instead of a recent sale price in arriving at the property value for tax purposes. The BTA did so because it determined the sale was made under duress. The Court held that a finding of duress is analogous to a determination that a sale was not an arm’s-length transaction and that in such situations “sale price is not a controlling, or even a reliable, indication of property value.” Where sale price is not controlling or reliable, it is necessary to rely on appraisal evidence to determine value.

In Medallion Group, Ltd. v. Delaware Cty. Board of Revision, B.T.A. Case No. 2004-A-1203 (January 19, 2007), the Board of Tax Appeals (“BTA”) affirmed the Board of Revision’s valuation. The dissent found that while the BTA rightly questioned the accuracy of some portions of the owner’s appraisal, the owner did, indeed, present some competent and probative evidence of value. The dissent noted that upon such a showing, the burden shifts to the board of education to adequately rebut the evidence. Because the school district did not rebut the evidence, the dissent would have found the owner’s alternative value determinative; but see, Woda Ivy Glen Ltd. Part. v. Fayette Cty. Bd. of Revision, B.T.A. Case No. 2005-A-749 (September 21, 2007), where the BTA held that it was not required to accept the owner’s faulty appraisal even where the appellee did not present rebuttal evidence.

In AP Hotels of Illinois, Inc. v. Franklin Cty. Bd. of Revision, B.T.A. Case No. 2004-K-349 (February 16, 2007), the Board of Tax Appeals (“BTA”) revalued the subject parcel according to the owner’s appraisal despite criticisms from the school district that the appraisal used yearold data. The BTA noted that reliance on appraisal evidence that does not opine value for the pertinent tax lien dated is improper. The BTA found, however, that the owner’s witness sufficiently established that the appraisal remained reliable because the market remained stable between the tax lien date and the date of the appraisal. Thus, the BTA valued the property according to the owner’s appraisal. 

In 285 E. 15th Avenue, LLC v. Franklin Cty. Bd. of Rev., B.T.A. Case No. 2005-B-505 (March 23, 2007), the Board of Tax Appeals (“BTA”) ordered the auditor to value the subject parcel according to the Board of Revision’s (“BOR”) valuation. The BTA determined that the owner’s opinion of value, without evidentiary foundation, is not probative evidence of value. Since there was no other evidence of value submitted, the value determined by the BOR was reinstated.

In Shaw v. Montgomery Cty. Bd. of Revision, B.T.A. Case No. 2005- K-1453 (April 20, 2007), the Board of Tax Appeals (“BTA”) approved the Board of Revision’s value determination. In so doing, the BTA disapproved of the owner’s appraisal evidence because the appraisal was conducted for mortgage finances purposes only and because the appraisal was 12 months removed from the lien date and there was no showing that the determination was reflective of the parcel’s value on tax lien date.

In Dayton-Montgomery Cty. Port. Auth. v. Montgomery Cty. Bd. of Revision, 113 Ohio St.3d 281, 2007-Ohio-1948 (decided May 9, 2007) and Bedford Bd. of Educ. v. Cuyahoga Cty. Bd. of Revision, 115 Ohio St.3d 449, 2007-Ohio-5237 (decided October 10, 2007), the Supreme Court reversed decisions of the Board of Tax Appeals )”BTA”) relating to the valuation of appellant’s real property. The owner constructed a downtown office building. The county auditor used a 1.6 grade factor adjustment in valuing the real property that increased the taxable value by 60 percent over actual cost. The Board of Revision (“BOR”) determined a value that seemingly incorporated the auditor’s grade adjustment factor. The BTA rejected the owner’s suggested valuation based on cost and found itself “constrained to revert to the auditor’s valuation.” The Court held that the close relation between the auditor’s cost schedules and the actual-cost evidence produced by the owner negated the applicability of the grade adjustment factor. The Court further held that no independent evidence supported use of the grade adjustment factor. Finally, the Court held that “when the evidence presented to the (BOR) or the BTA contradicts the auditor’s determination in whole or in part, and when no evidence has been adduced to support the auditor’s valuation, the BTA may not simply revert to the auditor’s determination.”

In St. Bernard Self-Storage, L.L.C., v. Hamilton Cty. Bd. of Revision, 115 Ohio St.3d 365, 2007-Ohio-5249 (decided October 10, 2007), the Supreme Court affirmed a Board of Tax Appeals (“BTA”) valuation decision. The owner argued that a portion of the business’ purchase price should be allocated to goodwill and thus should be subtracted from the price to yield the value of the real estate. The BTA concluded that goodwill was inseparable from the value of real property purchased in the present case. The Court held that the proponent of allocation of sales price bears the initial burden of showing the propriety of allocation. The Court held that the owner failed to meet this burden for two reasons. First, the owner’s business was leasing storage space, a real estate activity, and thus was related to the value of the real property. Second, the goodwill asserted was not separately stated. Thus, the Court affirmed the BTA’s decision.

In AEI Net Lease Income and Growth Fund v. Erie Cty. Bd. of Revision, B.T.A. Case No. 205-T-902 (October 12, 2007), the Board of Tax Appeals (“BTA”) held that the sale price of a parcel that was sold in a sale-leaseback transaction was determinative of the parcel’s value. Absent evidence to the contrary, the fact that the parcel’s new owner purchased the property for its lease value did not change the fact that the sale was at arm’s length; but see, Cincinnati Sch. Dist. Bd. of Educ. v. Hamilton Cty. Bd. of Revision, B.T.A. Case No. 2005-M-1069 (June 8, 2007), where the BTA held that a recent sale of a property relating to build-to-suit lease was not a valid indicator of value; see also, Polaris Mall, LLC v. Delaware Cty. Bd. of Revision, B.T.A. Case No. 2005-T-1434 (June 15, 2007), where the BTA held that a sale made between related parties, not on the open market and based upon a partial membership redemption rather than market value was not at arm’s length.

In Cincinnati Sch. Dist. Bd. of Educ. v. Hamilton Cty. Bd. of Revision, B.T.A. Case No. 2005-K-1543 (November 16, 2007), the Board of Tax Appeals (“BTA”) affirmed the Board of Revision (“BOR”) decision reducing the auditor’s initial valuation of real property. The BTA considered the evidence to be lacking overall. The owner’s appraisal failed to show how the appraiser applied his methodology to the property in question. The BTA held that the owner did not meet its affirmative burden of proof. The BTA was reluctant to reinstate the auditor’s value “where it (was) challenged by the taxpayer, there exists some evidence of a lesser value from the BOR’s hearing, and both the auditor’s employee (testifying before the Board) and his representative on the BOR concluded to significantly lesser amounts.”

In Bd. of Educ. of the Worthington City Sch. v. Franklin Cty. Bd. of Revision, B.T.A. Case No. 2006-H-381 (November 21, 2007), the Board of Tax Appeals (“BTA”) reversed the Board of Revision determination regarding the subject property’s value. The school district argued that the May 2003 sale provides the best evidence of the parcel’s value for the 2004 and 2005 tax years. The property owner argued that the sale was at arm’s-length because the sale was arranged for tax purposes, the expected full tenant occupancy never materialized, and the buyer was not knowledgeable about the local property market. The BTA agreed with the school district because the owner “presented no competent or probative evidence … regarding how the alleged 1031 like-kind exchange affected the arm’s-length nature of the transaction.” Further, the BTA held that lack of knowledge of the local market, inability to resell and loss of tenants did not rebut the arm’s-length nature of the sale. The BTA reversed and ordered the Franklin County Auditor to value the subject real property according to the May 2003 sales price. See also, Nowak v. Delaware Cty Bd. of Revision, B.T.A. Case No. 2006-Z-673 (October 5, 2007), where the BTA held that a recent sale is the best evidence of value even where the owner’s intended use may have been delayed or limited in some way.

In Parkside Towers Apartments v. Cuyahoga Cty. Bd. of Rev., B.T.A. Case No. 2005-K-1000 (December 7, 2007), the Board of Tax Appeals (“BTA”) ordered the auditor to revalue the property in accordance with the BTA’s decision. Here, both parties presented expert opinions. The BTA, in rendering its decision, found that the appraisal of the owner was more detailed, used more comparable properties, and offered better data in support of its conclusions. Thus, the BTA ordered the property be valued in line with owner’s appraisal.

In 545 South Walnut, LLC v. Coshocton Cty. Bd. of Revision, B.T.A. Case No. 2006-B-708 (December 14, 2007), the Board of Tax Appeals (“BTA”) reversed the Board of Revision decision to retain the auditor’s values despite evidence of a recent arm’s-length sale. The BTA held that the sale was not remote insofar as it occurred 15 months after the tax lien date. Further, the county and school district presented no evidence to suggest a relationship between the buyer and seller or that the sale was consummated under duress. The auditor’s conclusion that the property’s economic prospects supported a higher value and negated the arm’s-length nature of the transaction was not supported by evidence. Thus, the BTA held that the sale price was conclusive as to the parcel’s taxable value. See also, Bd. of Educ. for the Westerville City Sch. v. Franklin Cty. Bd. of Revision, B.T.A. Case No. 2002-R-1739 (July 13, 2007), where the BTA held that a sale price was reliable where the sale occurred 19 months from the tax lien date; see also, Berea City Sch. Dist. Bd. of Educ. v. Cuyahoga Cty Bd. of Revision, B.T.A. Case No. 2006-A-1522 (November 21, 2007) where the BTA held that sufficient, competent and probative evidence is required to rebut the presumption that an arm’s-length sale conclusively establishes taxable value.

Real Property Tax: CAUV

Nothing to report.

Personal Property Tax: Procedure & Jurisdiction

In Safeway Tire Co., Inc. v. Wilkins, B.T.A. Case No. 2006-B-284 (January 5, 2007), the Board of Tax Appeals (“BTA”) affirmed the Tax Commissioner’s final determination that dismissed the owner’s request for final assessment. The Tax Commissioner based his dismissal on lack of jurisdiction because the Tax Commissioner did not receive the owner’s amended return until after the filing deadline had passed. The owner claimed to have relied on its accountants’ advice to mail by the deadline. However, R.C. 5711.26 considers returns timely filed only if they are received by the Tax Commissioner or mailed via certified mail on or before the statutory filing deadline. The BTA held the statutory deadline was mandatory in nature and affirmed the Tax Commissioner’s dismissal.

In J.M. Smucker, L.L.C. v. Levin, 113 Ohio St.3d, 2007-Ohio-2073 (decided May 16, 2007), the Supreme Court affirmed a Board of Tax Appeals (“BTA”) decision regarding the taxpayer’s request for abatement of late filing penalties. The taxpayer was organized in 2002 as the manufacturing arm of its parent corporation. It then acquired manufacturing assets in 2002. The taxpayer filed its first personalproperty- tax return more than one year late and its 2003 tax return for business property three months late. The Tax Commissioner assessed late-filing penalties and later denied the taxpayer’s request for abatement of the penalties. The BTA affirmed the Tax Commissioner and the Court affirmed the BTA. The Court held that the Tax Commissioner’s policy of denying abatements for taxpayers with multiple delinquent filings during a five-year lookback period was not an abuse of discretion. The Court also held that the mere fact that the Tax Commissioner had previously granted an abatement to the parent corporation during the same period did not amount to an abuse of discretion regarding the Tax Commissioner’s denial of the taxpayer’s request for abatement.

In Carlisle Equip. Group, L.P. v. Wilkins, B.T.A. Case No. 2004-B-93 (May 25, 2007), the Board of Tax Appeals (“BTA”) held that the taxpayer was required to report taxable personal property as of the date it engaged in business. A corporation organized for a certain business purpose is “engaged in business” if it is “at a given time pursuing and carrying on in body and substance the business enterprise for which it was organized,” and not on the date it came into existence.

Personal Property Tax: Valuation

In Vertis, Inc. v. Wilkins, B.T.A. Case No. 2004-V-381 (March 9, 2007), the Board of Tax Appeals (“BTA”) affirmed the Tax Commissioner’s final determination that denied the taxpayer’s petition for reassessment. The taxpayer petitioned for deviation from the Tax Commissioner’s standard 302 valuation computation as related to personal property used in its printing press operation. The taxpayer offered testimony that its 24 hours, 7 days-per-week use of the property was a special and unique circumstance that justified a departure from the Class Life IV valuation schedule (the norm for printing press related personalty). The BTA recognized that heavy use of equipment that deviates from standard industry practice may justify a different valuation method. However, the BTA held that the taxpayer did not present reliable evidence to show that its equipment’s usage or rate of deterioration (from abnormal use or otherwise) deviated from the industry norm in any meaningful way. The BTA, therefore, affirmed the Tax Commissioner.

In Rent-Way Inc. v. Wilkins, B.T.A. Case No. 2004-A-331 (April 13, 2007), the Board of Tax Appeals (“BTA”) affirmed the Tax Commissioner’s decision regarding the valuation of the taxpayer’s personal property. The taxpayer asserted that the nature of its “rent-to-own” business justified the use of a shorter class life in valuing its schedule 4 short-term rental property. It offered evidence that the Tax Commissioner’s use of the standard 302 computation, when applied to its personal property, produced an unjust result. The BTA questioned the reliability of the taxpayer’s studies which were prepared by an auditing firm on a contingency fee basis (i.e., the auditing firm received approximately 30 percent of the tax savings linked to its study). The BTA further found that the studies were deficient in that no information on individual items was included, no distinction was made between the different types of appellant’s merchandise, and no underlying details or records regarding disposal of the merchandise were provided. Thus, the BTA affirmed the Tax Commissioner’s valuation of the property.

In The Mead Corp. v. Wilkins, B.T.A. Case No. 2005-T-787 (June 15, 2007), the Board of Tax Appeals (“BTA”) affirmed the Tax Commissioner’s final determination affirming his 2000 assessment of the taxpayer’s personal property. The taxpayer claimed that the computer equipment (the property in question) should have been assessed as class life I property rather than the standard class life II property. The BTA was unconvinced that the owner’s computer upgrades to ensure Y2K compliance evidenced a decrease in the useful lives of its various computer equipment. Further, the taxpayer’s evidence of articles, written in 2001, describing rapid computer obsolescence was equally unconvincing. Finally, the BTA discounted the taxpayer’s contention that the Commissioner’s actions in 2003 moving computer equipment to class life I property evidenced an improper valuation of appellant’s property in 2000.

In HealthSouth Corp. v. Wilkins, B.T.A. Case No. 2005-A-1386 (November 9, 2007), the Board of Tax Appeals (“BTA”) reversed the Tax Commissioner’s determination of value and denial of the taxpayer’s refund request. The taxpayer sought a refund for taxes assessed on nonexistent assets. The BTA held that the Tax Commissioner’s denial of the taxpayer’s refund request was erroneous because the sole reason for the denial was that the taxpayer provided evidence to support its request in a form other than that requested by the Department of Taxation. The BTA reversed and granted the refund request because it determined that the taxpayer’s proffered evidence sufficiently established the nonexistence of certain assets.

Personal Property TAX: Exemption

In A. Schulman, Inc. v. Levin, No. 2006-1944, 2007-Ohio-5585, the Supreme Court reversed the Board of Tax Appeals (“BTA”) decision that held “barrel and screw devices” (i.e., extruders) were exempt from property tax under R.C. 5701.03(A). The BTA concluded that the extruders fell within the definition of “die” and were exempt from property tax. The Court cited cases where it “confined the definition of “die” to “those parts” of a machine that have “specially designed surfaces” for “imprinting or impressing special designs … upon material placed in such a machine.” The Court concluded that “barrel and screw devices” are akin to the machine, “but they are not themselves “parts” of that machine that are entitled to the tax exemption that Ohio accords to “dies.”

In Rumpke Waste, Inc. and Rumpke Container Serv., Inc. v. Wilkins, B.T.A. Case Nos. 2004-K-477, 2004-K-479 (March 30, 2007), the Board of Tax Appeals (“BTA”) affirmed in part and reversed in part the final determinations of the Tax Commissioner. In both cases, the Tax Commissioner classified certain parts and equipment attached to refuse trucks as taxable personal property. The BTA relied on the Supreme Court opinion in Parisi Transp. Co. v. Wilkins, 102 Ohio St.3d 278, 2004-Ohio- 2952, and determined that equipment attached to motor vehicles could be classified as either personalty or part of the vehicle by answering four questions: (1) does the apparatus become an integral part of the truck, (2) is the equipment per se truck equipment, (3) does the equipment function as a part of the truck’s special use, and (4) does the equipment carry or assist in carrying the truck load. The BTA held that equipment attached to refuse trucks that aided in loading or unloading the truck was properly classified as personalty. The BTA held that equipment that carried, secured, compressed, and contained refuse was properly classified as part of the motor vehicle and not personalty.

Personal Property Tax: Public Utility Property

In MCI Metro Access Transmission Servs., LLC and MCI WorldCom Network Servs., Inc. v. Wilkins, B.T.A. Case Nos. 2004-K-749, 2004-K- 750 (April 13, 2007), the Board of Tax Appeals (“BTA”) affirmed a final determination of the Tax Commissioner regarding assessments of public utility property tax. The taxpayer petitioned for a reassessment of its 2003 property tax and claimed it erroneously overstated the true value of its personal property on its property tax return insofar as it used values as of 2001. The taxpayer’s petition was based on the notion that its corporate parent’s asset impairment write down should be applied pro-rata to all subsidiaries. The BTA rejected this notion. The BTA recognized that special circumstances may require a deviation from the statutory valuation methodology in R.C. 5727.11. The taxpayer offered no other evidence showing its Ohio assets’ values had been impaired to the same degree as its parent’s. Thus, the BTA held that the taxpayer did not demonstrate by competent and probative evidence that the 2003 assessed values did not accurately reflect the true value of its Ohio assets.

In The Ohio Bell Tel. Co. v. Wilkins, B.T.A. Case No. 2005-K-202 (August 31, 2007), the Board of Tax Appeals (“BTA”) reversed the final determination of the Tax Commissioner regarding an assessment of public utility property tax. The BTA rejected the Tax Commissioner’s argument that it could only review his decision to use the statutory valuation methodology instead of an alternate valuation method according to an abuse of discretion standard. Further, the BTA rejected the Tax Commissioner’s contention that the taxpayer could not properly base its petition on appraisal evidence not previously presented to the Tax Commissioner during his initial valuation. The BTA recognized that the goal of R.C. 5727.11 was to determine the true value of public utility property and held that the BTA need not adhere to the cost-based statutory method of valuation in deciding true value. The BTA considered the taxpayer’s witness, and the appraisal methodology concerning obsolescence of telecommunications equipment, to be competent and probative. The BTA reversed the Tax Commissioner’s final determination and reduced the true value of appellant’s taxable property by $764 million or approximately 30 percent.

In McLeodUSA Network Serv., Inc. v. Zaino, B.T.A. Case No. 2003-T- 2111 (November 9, 2007), the Board of Tax Appeals (“BTA”) affirmed the Tax Commissioner’s final determination denying the taxpayer’s petition for reassessment of its public utility property tax assessment for tax year 2002. The BTA held that the taxpayer presented insufficient evidence of special and unique circumstances to rebut the Tax Commissioner’s use of the 302 valuation computation. Specifically, the BTA held that special and unique circumstances must be special and unique to the taxpayer, and not shared among all industry participants. The taxpayer presented evidence of network obsolescence to support a more aggressive depreciation factor. The BTA determined that evidence of the taxpayer’s nationwide network’s obsolescence was not determinative and that specific evidence as to the taxpayer’s Ohio assets was required. The BTA found the appraisal report deficient because its assumptions were not supported by historical data. The BTA also found that the appraisal report was unreliable because it was merely extrapolated from the taxpayer’s parent corporation’s freshstart accounting; the report provided “little to support the accuracy of the date relied upon or the methodology utilized in reaching a value for the subject property.”

SALES AND USE TAX

In Time Warner Operations, Inc. v. Wilkins, 111 Ohio St.3d 559, 2006- Ohio-6210 (decided December 13, 2006), the Supreme Court reversed a decision by the Board of Tax Appeals (“BTA”) granting the sales tax exemption. The BTA had determined that the monthly rental fee charged by the taxpayer to its cable service customers for use of cable converter boxes was exempt from sales tax. The Court held the BTA erroneously applied the statutory exemption in R.C. 5739.02(B)(42)(a) (formerly, R.C. 5739.01(E)(2)) which only applies when the provider of public utility services is the “consumer” of a “thing.” Here, the Court determined that the taxpayer, a public utility service provider, was the seller and not a consumer, the exemption was inapplicable and the rentals were subject to sales tax. The dissent determined that the cable converter boxes were essential components of the cable service in most cases and, thus, primarily benefited the taxpayer by enhancing its ability to deliver additional programming at higher prices. Therefore, the dissent favored application of the aforementioned statutory exemption.

In Smink Electric, Inc. v. Wilkins, B.T.A. Case No. 2005-B-1277 (January 12, 2007), the Board of Tax Appeals (“BTA”) affirmed a final determination of the Tax Commissioner whereby a use tax assessment was affirmed but granted the taxpayer’s motion for remission of the Tax Commissioner’s penalty. The Tax Commissioner’s final determination had reduced the statutory penalty by 50 percent. However, the BTA eliminated the penalty entirely. The BTA held that no penalty was warranted where the taxpayer acted with exceptional good faith. The record reflected that the taxpayer received erroneous guidance from an Ohio Department of Taxation employee regarding its responsibility to collect and remit use tax. The dissent argued that reliance on erroneous Department of Taxation guidance is not a valid excuse as applied to state taxation statutes and that the remission of penalties lies solely in the Tax Commissioner’s discretion.

In Ameritech Publ’g, Inc. v. Wilkins, B.T.A. Case No. 2005-M-238 (March 2, 2007), the Board of Tax Appeals (“BTA”) affirmed a final determination of the Tax Commissioner whereby the taxpayer’s use tax refund claim was denied. The BTA held that telephone directories produced out of state and brought into the state for distribution to telephone customers at no charge are subject to use tax even if the directories are brought into the state in a saleable condition, and some directories are, in fact, sold. In the present case, the taxpayer made “use” of the directories by bringing them in-state and distributing them to its customers free of charge. The BTA further held that the amount of use tax is properly based on the price paid by the taxpayer for the directories.

Although not an Ohio case, in St. Tammany Parish Tax Collector v. BarnesandNoble.com, et. al., Civ. Act. No. 05-5695 (E.D. La., March 22, 2007), the court found for the taxpayer and held that a substantial nexus did not exist upon which to base sales and use tax liability. Plaintiff, St. Tammany Parish Tax Collector, brought a civil action for collection of sales and use taxes under Louisiana law. The taxpayer was an online bookseller. Its corporate parent owned a separate corporation that operated one bookstore with a physical presence within the tax collector’s tax district. The court concluded that the activities of the bookstore in St. Tammany Parish on behalf of the taxpayer “were not of the order of magnitude necessary to establish that [the bookstore] marketed defendant’s products on defendant’s behalf in the Parish.” A “close corporate relationship between companies does not mean that the physical presence of one is imputed to the other.” The court cited to SFA Folio Collections, Inc. v. Tracy (1995), 73 Ohio St.3d 119, in which the Supreme Court of Ohio rejected the unitary business entity argument that would impute nexus to an affiliated, out-of-state retailer. Specifically, the court recognized that the bookstore did not solicit business for the taxpayer and the two entities did not share revenue. Further, as in SFA Folio, the bookstore’s return policy preference for the taxpayer’s merchandise was not a relationship that established substantial nexus.

In Cross v. Wilkins, B.T.A. Case No. 2004-H-780 (May 4, 2007), the Board of Tax Appeals (“BTA”) modified the Tax Commissioner’s final determination imposing use tax on the taxpayer’s use of a charter fishing boat during the taxable period. The BTA held that an assessment of use tax was proper but ordered that the tax be based on the purchase price of the boat instead of the N.A.D.A. Marine Appraisal report (“blue book”) estimate. The BTA rejected the taxpayer’s contention that S.W.Y., Inc. (“SWY”) was liable for the use tax instead of the taxpayer because the boat was owned by SWY, a corporation created by the taxpayer to operate a commercial charter fishing boat business. The BTA determined that the taxpayer was properly liable for the use tax. The taxpayer was unable to prove the boat was actually owned by SWY.

In Strategic HR Partners, Inc. v. Wikins, B.T.A. Case No. 2005-V- 100 (May 5, 2006), the Board of Tax Appeals (“BTA”) affirmed a final determination of the Tax Commissioner arising from an assessment of tax on the sale of employment services. The BTA denied the taxpayer’s motion to reconsider its order vacating an order to remand. The BTA held that if the taxpayer lacked an opportunity to present evidence, it was its own fault. This was because the taxpayer did not show good cause for a fourth continuance and declined to participate in the hearing as scheduled. The BTA also held that the taxpayer provided employment services to two clients and that the services met the R.C. 5739.01(JJ) definition of “employment services” (i.e., temporary or long-term, under supervision of another, and receipt of compensation from the provider). The employment services were thus taxable under RC 5739.01(B)(3)(k).

In Inverness Club v. Wilkins, B.T.A. Case No. 2004-R-338 (May 11, 2007), the Board of Tax Appeals (“BTA”) affirmed in part and reversed in part, the Tax Commissioner’s final determination relating to use tax imposed with respect to the taxpayer’s reconstruction and renovation of a golf course. Landscaping and lawn care service is subject to sales tax, but construction contracts are not. The BTA held that the reconstruction of the golf course in the present case was undertaken pursuant to a construction contract and, thus, largely exempt from use tax. Further, the BTA determined that certain “items” added to the realty during the reconstruction were taxable personal property as business fixtures, such as PVC pipe for irrigation, sand used in bunkers, and masonry for cart paths. The BTA held that additions of soil or modifications to land were not taxable as business fixtures because, under Section 2, Article XII of the Ohio Constitution, improvements to land are considered to be part of the land and included in the value thereof. The BTA affirmed the Tax Commissioner’s assessment of use tax as to other improvements to the realty or services in conjunction with the reconstruction that the taxpayer purchased separate from the construction contract.

In Childers v. Wilkins, B.T.A. Case No. 2004-R-1236 (May 18, 2007), the Board of Tax Appeals (“BTA”) affirmed the Tax Commissioner’s final determination of use tax relating to the taxpayer’s tangible personal property used and stored in Ohio. Here, the taxpayer argued that the tangible personal property at issue, taxicabs and limousines, were exempt from taxation under R.C. 5739.02(B)(42)(a) (formerly, R.C. 5739.01(E)(2)), which excepts tangible personal property used directly in rendering a public utility service. The BTA held that the taxicabs and limousines did not qualify for the exception. The BTA found that the strict state and local regulations of taxicabs provides evidence that the operation of a taxicab service may qualify as a public utility. However, the taxpayer operated his vehicles as vehicles-for-hire, a far less regulated mode of operation. As such, the lack of regulation removed the business from the greater regulation typical of public utilities, and the business did not qualify for the public utility exception.

In Ohio Tax Comm’r.Op. No. 07-0003, issued August 27, 2007, the Tax Commissioner opined that the sale of customized software, as part of the sale of a company’s assets to the buyer was not subject to Ohio sales tax. The sale qualified as a “casual sale” within the meaning of R.C. 5739.01(L) because the seller (“Taxpayer”) previously obtained the customized software for its own use and the software was previously subject to Ohio’s jurisdiction to tax its sale or use by Taxpayer. The Tax Commissioner determined that the “casual sale” definition does not require that a seller’s acquisition or use of the item have actually been taxed, only that it was previously subject to a state’s taxing jurisdiction.

COMMERCIAL ACTIVITY TAX

In 2007 Ohio Tax Comm’r. Op. No. 07-0002, issued June, 18, 2007, the Tax Commissioner opined as to whether a homeowners association (“Association”) organized as an Ohio nonprofit corporation is a person subject to Ohio’s commercial activity tax (“CAT”). Nonprofit organizations are specifically excluded from CAT liability under R.C. 5751.01(A). The Commissioner applied the two-prong test in Ohio Adm. Code 5703-29-10 to determine whether the Association was a person subject to the CAT. The Association satisfied both prongs because it was (1) organized other than for pecuniary gain or profit and (2) operating consistent with its organization (i.e., not operated for pecuniary gain or profit).

In Ohio Grocers Ass’n v. Wilkins, No. 06CVH02-2278 (Franklin Comm. Pleas, Aug. 24, 2007), the Court considered the issue of whether Ohio’s commercial activity tax (“CAT”) was constitutionally valid as applied to gross receipts derived from the sale of food. The Court determined the CAT was an excise tax because it is imposed on the privilege of doing business in Ohio. The Ohio Constitution prohibits sales and excise taxes on food and packaging for food under certain circumstances. The Court recognized that the privilege being taxed was not the sale of food or packaging for food. Rather, the tax was imposed upon the general privilege of doing business. The Court held that an excise tax on the privilege of doing business did not turn the levy into a tax on some underlying component of the business. Further, the Court noted that while the cost of the tax may ultimately be passed to the customer in the form of a higher price, the person legally liable for the tax was the business entity. Such indirect impact did not, therefore, unconstitutionally convert the incidence of the tax to the consumer. Thus, the Court held that the CAT was constitutional as applied to gross receipts derived from the sale of food. 

In Mosser Constr., Inc. v. City of Toledo, 6th App. Dist. No. L-07-1060, 2007-Ohio-4910 (decided September 21, 2007), the Court affirmed the trial court’s judgment that the contractor validly sought reimbursement from the City for additional charges under a construction contract that were related to the contractor’s commercial activity tax (“CAT”) liability. After the parties contracted for construction services, Ohio imposed the CAT which affected the contractor’s construction costs. The Court determined that the parties’ contract allowed for changes to the cost of work by virtue of changes in law. The Court found that the contract contemplated changes in the law relating to sales, consumer, or use tax. The Court held the CAT is similar to a sales or consumer tax and not an overhead tax because the CAT is calculated as a percentage of gross receipts. Then, the Court held that R.C. 5751.02(B) does not prohibit the contractor from including the cost of the tax in the price charged for its services. Finally, the Court held that although the contractor billed the City directly for the CAT, an act otherwise prohibited by the statute, the billing was the result of the increased cost of work due to the new CAT and therefore permissible under the contract.

INCOME TAX: STATE

In Novelli v. Levin, B.T.A. Case No. 2007-A-227 (June 15, 2007), the Board of Tax Appeals (“BTA”) affirmed the Tax Commissioner’s dismissal of the taxpayer’s petition for reassessment. The taxpayer had not filed a return. The Commissioner assessed tax and interest, and the taxpayer appealed. The Commissioner dismissed for lack of jurisdiction based on the fact that the taxpayer had not paid the assessed tax and interest. The BTA held that full payment of the assessment is a condition precedent to the right of a taxpayer to have an income tax assessment reviewed.

In Lindeman v. Levin, B.T.A. Case No. 2007-M-170 (September 28, 2007), the Board of Tax Appeals (“BTA”) affirmed the Tax Commissioner’s dismissal of the taxpayer’s petition for reassessment. Dismissal was based on the taxpayer’s failure to remit the portion of the assessment required by R.C. 5747.13(E). The statutory transcript reflected the taxpayer’s admission that he did not file an income tax return. The BTA held that amounts previously withheld from the taxpayer’s paycheck did not satisfy the statute which requires that the tax and interest portion of the assessment be paid prior to review. The BTA indicated the withholding was insufficient because the Commissioner determined more tax and interest was assessed than tax withheld. See also, Gibson v. Levin, B.T.A. Case No. 2007-T-176 (December 21, 2007) dismissing for failure to pay the assessment.

In Wagenknecht v. Wilkins, B.T.A. Case No. 2006-T-1007 (December 21, 2007), the Board of Tax Appeals (“BTA”) determined that taxpayer was required to file an amended return with the Tax Commissioner because his income tax liability was altered per an adjustment to his federal income tax return. The BTA also determined that the Tax Commissioner properly assessed the taxpayer because the four-year statue of limitations does not bar assessment against a taxpayer who fails to file an amended return. Further, the BTA held that the Tax Commissioner did not have subject matter jurisdiction to consider the taxpayer’s petition for reassessment because the taxpayer had not yet paid the assessment.

INCOME TAX: MUNICIPAL

In Jankowski v. Monclova-Maumee-Toledo Joint Econ. Dev. Zone Bd. of Dir., 6th Dist. No. L-05-1156, 2005-Ohio-6652, the Supreme Court reversed the trial court’s grant of summary judgment to appellee residents and business owners. The primary issue was whether factual issues remained regarding the validity of appellant’s joint economic development zone (“JEDZ”) contract. The JEDZ contract, by its own terms, automatically terminated if the JEDZ board failed to adopt a valid income tax resolution within 120 days after the effective date of the contract. The parties conceded that the JEDZ board timely adopted an income tax resolution. Under Ohio law, however, a JEDZ may not levy an income tax until and unless it is approved by the electors residing within the JEDZ. Appellee argued that the income tax resolution was not valid because the tax could not be timely levied. The time constraints associated with certifying and holding an election would simply not allow the tax to be approved and levied before the 120-day deadline. The Court disagreed. Theoretically, a majority of electors living in the JEDZ could submit a petition approving the tax under R.C. 715.691. Thus, the tax could have been levied in a timely manner. The Court held that factual issues remained regarding the enforceability of the JEDZ contract and reversed and remanded to the trial court for further proceedings.

In City of Marion v. City of Marion Bd. of Review and Shannon Leary, B.T.A. Case No. 2005-T-1464 (August 10, 2007), the Board of Tax Appeals (“BTA”) affirmed a determination of the Marion Board of Review (“MBOA”), a municipal board of appeal established pursuant to R.C. 718.11, that Ms. Leary was not liable for the city’s 2004 income tax. The MBOA based its determination on an erroneous interpretation of a municipal code exception to the income tax. Separately, the MBOA determined that Ms. Leary was not a resident of Marion in 2004. The Marion City Code 193.02(R) defines resident to be an “individual domiciled in the municipality.” The BTA affirmed the MBOA determination because Ms. Leary had in effect abandoned her domiciliary status in Marion. She worked overseas in 2004 and five years previously and had not indicated any intent to quit this assignment or to return to Marion. Maintaining a mailing address and voter registration was mere convenience and not dispositive of domicile.

In Pritchard, et. al. v. Village of Butler Income Tax Bd. of Appeals, B.T.A. Case No. 2006-A-1484 (December 21, 2007), the Board of Tax Appeals (“BTA”) held that where an income tax credit is reduced during the tax year, it may apply to the entire tax year’s taxable income because “the relevant credit to be applied is that which was in effect at the time the credit is claimed.” The credit reduction went into effect in June 2005 (i.e., during the tax year in question). Since credits were claimed in the next year (i.e., when returns were filed), the BTA held the ordinance reducing the credit was not retroactively applied.

In Joann Koenig, et. al. v. Village of Botkins Bd. of Review, B.T.A. Case No. 2005-T-1692 (August 10, 2007), the Board of Tax Appeals (“BTA”) granted in part the taxpayers’ motion to compel discovery of certain tax returns filed with the village of Botkins. The taxpayers sought discovery of all documents, including tax returns, that showed the Village was imposing a tax on the distributive share of the net profit of a non-resident subchapter S corporation on or before December 6, 2002. The Village refused to produce the documents on the basis that disclosure of confidential information in municipal tax returns violates R.C. 718.13. The BTA held that Ohio Adm. Code 5717-1-11(D) granted it authority to issue a protective order restricting discovery. Thus, the BTA ordered that the Village disclose returns only during the relevant time period and also ordered the redaction of non-party taxpayer names, addresses, account numbers, Social Security numbers and other personal identifying information. The BTA determined that the redaction of non-party information adequately addressed the Village’s confidentiality concerns.

CORPORATION FRANCHISE TAX

Nothing to report.

BUDGET COMMISSION DISPUTES

Nothing to report.

Miscellaneous

In UBS Fin. Serv., Inc. v. Zaino, B.T.A. Case No. 2003-T-1139 (May 25, 2007), the Board of Tax Appeals (“BTA”) affirmed the Tax Commissioner’s final determination affirming three dealer in intangibles tax (“DIT”) assessments issued for tax years 1999, 2000 and 2001. The BTA determined that it lacked jurisdiction to consider whether the Tax Commissioner should have issued a refund to the taxpayer. Taxpayer argued that its own miscalculation of its DIT liability led to an overpayment of DIT that entitled it to a refund. The BTA held that the taxpayer’s failure to file amended returns or an application for a refund deprived the BTA of jurisdiction to review the taxpayer’s refund claim. On the taxpayer’s second claim, it argued that the portion of its leasehold improvements paid for by its landlord should be deducted from its net worth in the DIT calculation. The BTA held that all of the taxpayer’s leasehold improvements, including the portion funded by the landlord, are includable in the taxpayer’s net worth for DIT purposes.

In Newman v. Levin, No. 2007-1054, 2007-Ohio-5507, (decided October 23, 2007), the Supreme Court held that the Tax Commissioner did not have standing to appeal the decision of the Board of Tax Appeals (“BTA”) insofar as it upheld the final determination of the Tax Commissioner. The county auditor appealed the Tax Commissioner’s grant of thermal efficiency improvement certificates (resulting in a tax reduction) to taxpayers. During the appeal, the Tax Commissioner changed his mind about the certificates and urged the certificates be denied. The BTA denied the grant, in part, and affirmed, in part. All parties appealed to the Supreme Court. R.C. 5717.04 authorizes aggrieved persons to appeal a BTA decision to the Supreme Court. The Court held that the Tax Commissioner had no standing to appeal affirmation of the grants because insofar as the grants were affirmed, the decision did not aggrieve the Tax Commissioner.

In DPL, Inc. v. Wilkins, B.T.A. Case No. 2004-A-1437 (August 1, 2007), the Board of Tax Appeals (“BTA”) denied the taxpayer’s motion to strike a portion of the Tax Commissioner’s post-hearing brief that raised a new argument in support of the Tax Commissioner’s final determination regarding the taxpayer’s franchise tax refund claims. The taxpayer argued that due process would be violated if the Tax Commissioner was allowed to “abruptly change his entire theory of the case” because such conduct “deprived (appellant) of any ability to gather and present evidence” to refute the new argument. The BTA held that the Tax Commissioner may raise a new or additional basis or change the original basis for his determination at any time in the proceedings before the BTA. The BTA did, however, grant the taxpayer’s motion to reopen discovery for the limited purpose of gathering evidence relevant to the Tax Commissioner’s new argument.