By: STEVEN A. DIMENGO, DAVID W. HILKERT, AND RICHARD B. FRY III
Buckingham, Doolittle & Burroughs, LLP
Messrs. Dimengo and Hilkert represented the taxpayer in the case that is the subject of this article. This article appears in and is reproduced with the permission of the Journal of Multistate Taxation and Incentives, Vol. 21, No. 9, January 2012. Published by Warren, Gorham & Lamont, an imprint of Thomson Reuters. Copyright (c) 2011 Thomson Reuters/WG&L. All rights reserved.
In WCI Steel, Inc. v. Testa, 129 Ohio St. 3d 256, 951 NE2d 421 (2011), the Ohio Supreme Court clarified the standard for specifying errors in an appeal from an Ohio Tax Commissioner's Final Determination to the Ohio Board of Tax Appeals (BTA). In Ohio, after the initial administrative appeal before the Tax Commissioner, the first level of appeal is to the BTA, a quasi-judicial agency. The purpose for requiring a taxpayer to specify its errors is to notify the BTA and the Commissioner of the nature and extent of the claimed objections. In determining whether the notice of appeal is sufficient to confer jurisdiction upon the BTA, the court recognized that the specified errors must be read in conjunction with the objections previously presented at the administrative level before the Tax Commissioner.
Just as important, the court held that, consistent with the BTA's authority to conduct a de novo hearing, a new property valuation not previously presented to the Tax Commissioner may be presented at the BTA, when valuation is at issue. In this case, the taxpayer, WCI Steel, Inc., challenged the Tax Commissioner's valuation of its personal property under the prescribed, and presumptively valid, "302 computation" (described below). At the BTA, WCI presented a new appraisal of the property to support the lower value previously reported to the Tax Commissioner. After being dismissed on jurisdictional grounds, the Ohio Supreme Court reversed the BTA's decision and held that the BTA must consider the new appraisal, even though it had not been presented to the Tax Commissioner during the administrative appeal.
Factual and procedural background. The steel industry suffered horribly during 2001 and 2002, resulting in significant losses realized by steelmakers, and WCI in particular. For its tax years ending 10/31/00 and 10/31/01, WCI reported and paid Ohio personal property tax on its manufacturing machinery and equipment ("M&E") pursuant to the method prescribed by the Tax Commissioner, referred to as the "302 computation," which employs industry-specific valuation tables based on composite annual allowances by which categories of business assets are depreciated from cost. Although Ohio may tax personal property based only upon its true value, the 302 computation has been determined to be a reasonable and lawful method for the Tax Commissioner to value property, depreciating the cost thereof based on the property's expected useful life.
For the 2003 tax year, WCI appraised its M&E at a much lower value, based on a study it conducted analyzing comparable sales, production, and obsolescence. Additionally, WCI retroactively adjusted the M&E's value for the 2001 and 2002 tax years based on its study, and filed refund claims reciting the updated values.
In rejecting WCI's value of the M&E for the 2001, 2002 and 2003 tax years, the Tax Commissioner issued final-assessment certificates pursuant to Ohio Rev. Code Ann. §5711.26 without specifying the grounds for rejecting WCI's valuation. WCI appealed the Tax Commissioner's determination and filed a notice of the appeal with the BTA: (1) specifying the categories of the property at issue; (2) specifying that the value previously asserted by WCI was correct; (3) specifying that the Tax Commissioner's valuation based on the 302 computation was overstated; and (4) citing the statutes and administrative rules upon which the appeal was premised.
At the evidentiary hearing before the BTA, WCI presented a new appraisal of the M&E prepared by AccuVal Associates, Inc. The new appraisal, prepared specifically for the BTA appeal, retrospectively determined the M&E's value for the tax years at issue based on a replacement cost value, adjusted for physical deterioration, functional and economic obsolescence, and a sales-comparison analysis. The Tax Commissioner objected to the introduction of the new appraisal, contending that the BTA did not have jurisdiction to consider such evidence since it had not been introduced earlier at the administrative appeal before the Tax Commissioner.
Additionally, after the evidentiary hearing had closed, the BTA raised another jurisdictional issue, sua sponte (i.e., on its own), based upon its reading of the Ohio Supreme Court's recent decision in Ohio Bell Telephone Co. v. Levin, 124 Ohio St. 3d 211, 921 NE2d 212 (2009). Ultimately, after receiving briefs on the issue, the BTA dismissed the taxpayer's appeal on jurisdictional grounds for failing to sufficiently specify any error (WCI Steel, Inc. v. Wilkins, Ohio Bd. of Tax App., No. 2005-V-1565, 5/18/10).
Applicable standard for specifying error in an appeal to the BTA. A stated error fails to confer jurisdiction on the BTA if it is so broad and vague that it may be advanced in nearly any case or fails to alert the BTA of the specific determinations of the Tax Commissioner being challenged. See, e.g., Queen City Valves, Inc. v. Peck, 161 Ohio St. 579, 120 NE2d 310 (1954); and General Motors Corp. v. Wilkins, 102 Ohio St. 3d 33, 806 NE2d 517 (2004). For instance, simply challenging the Tax Commissioner's determination as "utiliz[ing] a method that does not reasonably reflect true value" (quoting from the petition for reassessment at issue in Ohio Bell) will generally not suffice as such an objection could be raised in any property tax dispute and does not narrow the potential issues in any manner. Rather, "a notice of appeal is sufficient to give notice of a particular error when it has ‘specified the commissioner's action that it questioned, cited the statute under which it objected, and asserted the treatment that it believed the commissioner should have applied.’" (WCI Steel, quoting General Motors Corp.)
The basic purpose of the specification of error standard is still notice. Further, the notice of appeal must be read in context with the specific objections previously raised with, and evidence presented to, the Tax Commissioner. In this case, WCI undisputedly challenged the Tax Commissioner's valuation of the M&E pursuant to the 302 computation and presented its study supporting a significantly lower value. Then, in its notice of appeal, WCI again objected to the Tax Commissioner's valuation, asserted a specific value as to the M&E's true value, and identified statutes and administrative rules supporting its claim.
Clearly, both the BTA and the Tax Commissioner were on notice of WCI's objection to the Commissioner's determination and the action the Commissioner should have taken. Thus, in WCI Steel, the court found that the BTA's jurisdiction was invoked "to consider a claim for reduced value, at least to the extent of the evidence, arguments, and considerations that formed part of the tax commissioner's review of that claim."
The BTA must consider additional evidence encompassed in the taxpayer's specified error. After determining that the BTA had jurisdiction over WCI's appeal because an error had been sufficiently specified, the court then reviewed whether WCI's new appraisal could be considered. The Tax Commissioner argued that, based on the court's decision in Ohio Bell, the BTA was without jurisdiction to consider an alternative valuation method not presented during the initial administrative appeal before the Tax Commissioner. The court, however, distinguished Ohio Bell since that dispute related to a different taxing statute (utility tax, as opposed to general personal property tax) and because the taxpayer in that case presented a completely different valuation method (unit-appraisal valuation, which the court found bore a "fundamental dissimilarity" to the cost-less-depreciation approach presented during the administrative appeal before the Tax Commissioner) that fell outside the purview of the errors specified to the BTA. Ohio Bell attempted to present for the first time at the BTA a unit appraisal—an alternative method allowing all taxable property of a public utility to be valued as one unit, as opposed to valued on an item-by-item basis—which constituted an objection completely distinct from that raised in the taxpayer's notice of appeal. Accordingly, the court's holding in Ohio Bell was narrowly construed, with the "alternative valuation method" language applicable only in utility tax cases.
Conversely, WCI simply sought to present additional evidence, in the form of a newly prepared appraisal, to support the M&E's significantly lower value previously asserted to the Tax Commissioner. This new appraisal—the AccuVal appraisal—began by determining the M&E's replacement cost and then made adjustments based on the M&E's production and obsolescence, and a sales-comparison analysis. The court found this appraisal was not a completely new objection, as was the case in Ohio Bell, but rather probative evidence presented to dispute the Tax Commissioner's determined value pursuant to the 302 computation. Because the new appraisal presented "no such ‘fundamental dissimilarity’" from the valuation previously presented to the Tax Commissioner, based upon WCI's initial study of the M&E's value, the court held that the BTA did have jurisdiction to consider the new appraisal consistent with its express authority to conduct a de novo hearing and accept "additional evidence" (see Ohio Rev. Code Ann. §5717.02).
Practical effect of WCI Steel decision. First, the Ohio Supreme Court re-emphasized that the primary purpose of the specification error standard is notice, and that a taxpayer's asserted errors must be read in light of the objections and evidence previously presented to the Tax Commissioner. Recently, the Tax Commissioner has been successful in getting a large number of BTA appeals dismissed on jurisdictional grounds. WCI Steel reaffirms that a notice standard is applicable to specifying errors to the BTA and does not require taxpayers to identify additional evidence to be presented in support thereof. In raising errors before the BTA, however, taxpayers must always identify the Tax Commissioner's specific actions to which they are objecting and the action the Tax Commissioner should have taken.
Second, this decision allows a taxpayer to present a new valuation to the BTA, consistent with the taxpayer's error specified in the notice of appeal and objections previously raised with the Tax Commissioner. Although WCI Steel involved Ohio personal property tax, which has since been repealed, this holding will apply also to Ohio real property valuation appeals, which have become increasingly prevalent in light of decreasing real property values. Therefore, provided property valuation has been placed at issue, taxpayers with pending real property valuation appeals may wish to consider having a new property appraisal performed to support an asserted value.
(Ohio's "commercial activity tax" (CAT) (H.B. 66, 6/30/05; Sess. Law No. 28), codified at Ohio Rev. Code §5751.01 et seq., replaced the state's corporate franchise (income) tax and the personal property tax. See Sutton, Yesnowitz, Ford, Zins, and Conley, "Ohio's New Commercial Activity Tax: What It Means for Business," 15 J. Multistate Tax’n 8 (February 2006).) 
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