Watch Out For That Alleged “Business Fixture”, I Mean Bunker, In Front Of The Green!

In light of the Ohio Supreme Court’s decision in Funtime v. Wilkins (2004), 105 Ohio St.3d 74, the Ohio Department of Taxation (the “Department”) seems to have an increased interest in auditing golf courses for Ohio sales/use taxes. In Funtime, the Ohio Supreme Court held, in sum, that an item permanently affixed to real property remains personal property, constituting a business fixture, if it primarily benefits the business conducted on the land.  The Department has used this reasoning to assert that contracts for the improvement of golf courses, such as adding or repairing tee boxes and sandtraps, are sales of personal property subject to Ohio sales/use tax.

The Department’s position, however, was rejected in Inverness Club v. Wilkins, Ohio BTA Case No. 2004-R-338 (May 11, 2007).  In this case, the Board of Tax Appeals (the “BTA”) found that many improvements to the golf course at issue became real property upon installation, and were not business fixtures (or taxable landscaping services).  The BTA dismissed the Department’s contention that the ultimate inquiry was whether the property was used primarily for a business or commercial venture, commenting that “it is unnecessary to consider whether or not the renovations ‘primarily benefit the business conducted’ on the property because these items fail to constitute an item of personal property … in the first instance.”  The BTA concluded that the tee boxes, sand used for bunkers, PVC pipe incorporated into an irrigation system and mason used for cart paths and green dressings were real property.  Therefore, when these materials are provided under a construction contract, the contractor is the consumer of such tangible personal property in performing the contract, meaning the golf course is not responsible for sales or use tax thereon. (It should be noted that the taxpayer in Inverness purchased certain materials to be incorporated by the contractor. Since the taxpayer purchased the personal property, it was responsible for sales tax thereon.)

In our experiences, the Department has taken an aggressive position, even failing to follow the BTA’s ruling in Inverness, asserting that nearly all improvements to golf courses constitute business fixtures, thereby assessing sales/use tax on the same provided by a construction contractor.  One should be sure to review the Inverness Decision and the Ohio Tax Commissioner Opinion No. 07-001 (March 29, 2007) when involved in a sales/use tax audit of a golf course.