Steven A. Dimengo Noteworthy Cases

1. Marc Glassman, Inc. v. Levin, Ohio Supreme Court, Slip Opinion No. 2008-Ohio-3819 (August 5, 2008). A pharmacy’s purchase of a service involving the electronic transmission of customers’ medical insurance claim information from the relevant insurance companies was not a taxable “electronic information service”.  To be taxable, the pharmacy must have access to computer equipment to receive data.  The Court adopted the rationale of the Ohio Board of Tax Appeals in PNC Bank, Inc. v. Tracy (1995), BTA No. 93-T-1316 involving the mere transmission of credit card authorization information which was found to be a nontaxable service.  The Court concluded that the pharmacy did not receive data, but merely the insurance companies’ conclusions as to coverage.  Moreover, the pharmacy did not have access to the insurance companies’ computers.

COMMENT:  The Tax Commissioner was prepared to extend a taxpayer loss to many other transactions such as credit card authorization transactions.

2. The Dannon Company Co., Inc. v. Tracy, Ohio BTA Case No. 97-M-233 (September 11, 1998).  A clean-in-place (“CIP”) sanitation system used in processing by a yogurt manufacturer qualified for the manufacturing exemption (despite R.C. §5739.011(C)(9) which provides that equipment used to “clean, repair or maintain real or personal property in the manufacturing facility is taxable).  The system cleaned production lines and equipment after in-process yogurt passed through them.  The system’s primary purpose was to totally regulate the environment within the equipment holding in-process product which was essential for production to occur.  See R.C. §5739.011(C)(5). Yogurt cultures added to the milk needed a contaminant free environment to allow them to grow, transforming the milk into yogurt.  For blended yogurt, the production process ended at the surge tanks (prior to the fillers) since the milk had become yogurt at this point.  However, “traditional yogurt” was not complete until after the filling process since yogurt cultures were added when the yogurt was placed in the cup.  Therefore, the corresponding portions of the CIP system through such points were exempt from tax.

3. Stein, Inc. v. Tracy, Ohio (1999), 84 Ohio St. 3d. 501.  The taxpayer was engaged in the business of slag/scrap reclamation activities on property owned by various steel manufacturers.  Equipment provided to the steel manufacturers along with operators was not leased to the manufacturers since the operators were employees of the taxpayer.  Accordingly, the resale exemption was not available.  However, since the equipment was used directly in the production of steel, the taxpayer’s purchase of such equipment was entitled to the manufacturing exemption, even though the taxpayer did not sell the steel being manufactured.

4. Funtime, Inc. v. Zaino (2004), 105 Ohio St. 3d 74. In a four to three decision, the Court held that property associated with an amusement park consisting of a water ride (Grizzly Run), a roller coaster (Mind Eraser) and an enclosed ride that elevated patrons to the top of a “needle” to view the park (Skyscraper), as well as their station houses, were personal property being classified as “business fixtures”.  Under the Court’s two prong test, an item is real property only if it: 1) fits the definition of one of the enumerated categories of real property set forth in the statute; and 2) is not within the definition of “business fixture”.  A “business fixture” is any property that primarily benefits a business conducted by the occupant of the property.

Applying the test, the Court held that special use buildings and structures are personal property.  Although Grizzly Run, Mind Eraser and Skyscraper were structures or buildings, they were personal property because:

a) “There was no evidence that the rides would be of any benefit to a buyer of the land who engaged in a different business”; and

b) "No use independent of an amusement park business was shown for the Mind Eraser station house."

5. General Electric Credit Corp. of Tennessee v. Tracy, Ohio BTA Case No. 95-K-221 (June 27, 1997); E.G. Baldwin & Associates, Inc. v. Tracy, Ohio BTA Case No. 95-K-222 (May 30, 1997).  Magnetic resonance imaging (“MRI”) equipment and film purchased and used by Mid-American Imaging, Inc. (“MAI”) was exempt from Ohio sales and use tax under the manufacturing and printing exemptions.  The Board held that MAI was a manufacturer of tangible personal property for sale. Since the MRI equipment and film was used directly in production of tangible personal property for sale, these purchases were exempt from sales tax.  Essential to this conclusion was that the primary purpose of the contracts between MAI and its customers was the provision of tangible personal property (i.e., the MRI photograph) with no consequential services being provided.

6. Express Packaging, Inc. v. Limbach, BTA Case No. 89-K-22 (September 18, 1992).  The Board of Tax Appeals found the requisite transformation in state or form to exist with respect to shrinkwrapping and blister packing operations thereby supporting the manufacturing exemption.

7. U.C. Industries v. Limbach, Ohio B.T.A. Case No. 89-J-1070 (August 7, 1992).  The Tax Commissioner assessed sales and use tax upon the purchase of tangible personal property installed at a polystrene insulation board manufacturing facility.  The Board of Tax Appeals found that much of the assessed property was exempt as adjunct to the manufacturing process.  The exempt property included a blowing agent metering system used to regulate and maintain the temperature and pressure of raw material, a tunnel conveyor system which regulated the atmosphere to control the density of the product, a cooling tower and water lines essential to the product's cooling process, and a circulatory dust collection and reclaim system.  Additionally, the Board found that certain tangible personal property, the purchase of which was included in the assessment, was incorporated into real property and, therefore, exempt from tax.  This property included a rainhood and air distribution hood which was part of the facility's ventilation system, a steel pond cover which served as part of the plant's floor, concrete steps built into the floor, and the concrete foundation upon which the cooling tower rested.

8. Pallay v. Zaino, Ohio BTA No. 2000-M-884 (Dec. 14, 2001). Tax Commissioner attempted to impose personal liability upon a COO and minority owner of a delinquent corporation for the corporation’s failure to pay sales tax.  The Board of Tax Appeals refused to impose personal liability finding that due to the corporation’s workforce of over 200 employees and value of well over $3 million that the Corporation’s finances were managed wholly separate from its operations.  Since the officer’s day-to-day management responsibilities did not encompass the financial dealings of the corporation, the officer was not a “responsible corporate officer” and not personally liable for delinquent sales taxes.

9. Haberman v. Tracy, Ohio BTA No. 91-A-1639 (March 19, 1993). The Tax Commissioner contended that compensation received for a covenant not to compete, granted in conjunction with a nonresident taxpayer’s sale of a business, was allocated to Ohio.  However, compensation for such a covenant is for refraining from services and not for personal services rendered. Therefore, the payment was not allocated to Ohio.

10. WCI Steel, Inc. v. Testa, Ohio Supreme Court, Slip Opinion No. 2011-Ohio-3280 (July 7, 2011). The Court's 7-0 decision essentially allows a property owner to introduce a new appraisal to the Ohio Board of Tax Appeals (BTA) even though it was not previously presented at the administrative appeal to the Ohio Tax Commissioner.  Further, the decision ruled that "The jurisdiction of the Board of Tax Appeals (BTA) is invoked to review an assessment in which the tax commissioner has determined the value of personal property if the notice of appeal from the determination (1) states the appellant's objection to the commissioner's actions in valuing the property and (2) identifies the treatment the commissioner should have applied."  The Supreme Court remanded the case to the BTA to address the value of WCI's property, taking into consideration the appraisal at issue.