Summarized here are relevant Ohio legislative enactments and court opinions from 2000 relating to Ohio taxation. This listing is intended to provide the highlights of and to summarize current information about tax issues and is not for the purposes of legal guidance.

Index

Ad Valorem Taxation
Dealers in Intangibles Taxation
Estate Taxation
Income & Franchise Taxation
Kilowatt Hour Tax
MCF Tax
Procedures
Public Utility Taxation
Sales & Use Taxation
Unclaimed Funds

Ad Valorem Taxation

H.B. No. 612, effective September 29, 2000, enacts R.C. 5711.11(I) to preclude prospective changes in the prescribed true value computation from being introduced in proceedings as evidence of value for past years.

Sub. H.B. No. 493, effective October 27, 2000, makes various minor changes to the collection of delinquent real and personal property taxes. Most significantly, it amends R.C. 5719.05 to extend the term of agreements for the payment of delinquent of personal property tax from two to five years. R.C. 5719.03 is amended to expand the circumstances under which partial payment of personal property taxes may be accepted.

Sub. H.B. No. 589, effective October 16, 2000, amends R.C. 5709.61 to expand the definition of a "facility" that qualifies for exemption under the enterprise zone program by removing the limitation on the hours of operation for an electric generating plant. It also amends R.C. 5727.47 with respect to procedures surrounding the appeal of public utility property tax assessments, including limiting reductions in value to the amount specified by the taxpayer in its petition for reassessment and authorizing the payment of only the undisputed portion of a tax assessment.

Am. Sub. S.B. No. 287, effective December 21, 2000, amends R.C. 5727.11 to provide that, beginning with the 2001 tax year, the value of current natural gas stored underground shall be measured by the average month-end value of the gas for the 12 months preceding the tax lien date. It also amends R.C. 5727.111(C)(2) to provide the taxable property of natural gas companies shall be assessed at 25% of true value, rather than at 88 %.

Valuation

In Campbell Soup Company v. Tracy, 88 Ohio St.3d 473, 727 N.E.2d 1259 (2000), the Supreme Court affirmed the Board of Tax Appeals in holding that an appraisal that (i) did not separate items of real and tangible personal property in making an obsolescence adjustment; (ii) was based in part on a lifing study that was too short; and (iii) was based in part on the "Iowa curves" was not probative to overcome the presumption that the value of tangible personal property derived from the Tax Commissioner's true value computation was correct. In addition, the Court ruled that salvage value did not represent the minimum acceptable value for tangible personal property still used in business because it represented the value after the property was no longer used in business.

In Aristech Chemical Corporation v. Tracy, No. 97-M-586, 2000 Ohio Tax LEXIS 384 (Ohio BTA, March 17, 2000), aff'd, 89 Ohio St. 3d 1450, 731 N.E.2d 1138 (2000), the Board of Tax Appeals ruled the price paid for the stock of a company with 23 locations in 15 states, allocated and pushed down for accounting purposes to the books of the acquired company, represented the true value of the assets of the company for Ohio personal property tax purposes.

In Ohio Locomotive Crane Co. v. Tracy, No. 76805, 2000 Ohio App. LEXIS 3631 (Cuyahoga App., August 10, 2000), the Court of Appeals held that a lump-sum sale of inventory 18 months after the end of one tax year, and six months after the end of a second tax year, absent evidence of a change in conditions, was evidence of the value of the inventory. It was not necessary for the price to be allocated among the items contained in the inventory. The court of appeals rejected a claim to reduce the value of obsolete inventory on the basis that testimony indicated the inventory was retained, and not scrapped, in part because a customer might want it.

In Gahanna-Jefferson Public Schools v. Board of Revision, 89 Ohio St.3d 450, 732 N.E.2d 978 (2000), the Court noted the price at which real property is transferred in an arms-length transaction will normally reflect the true value of the property for property tax purposes. However, where the property is conveyed to a partner that purchases all other interests in the partnership, the price paid for the other partnership interests is not probative evidence of the value of the real property conveyed. Absent any other evidence of value, the transfer did not justify a change in the value of the property.

Exemption

In Bush Industries, Inc. v. Tracy, No. 98-S-396, 2000 Ohio Tax LEXIS 835 (Ohio BTA, June 9, 2000), the taxpayer located a new warehouse in an enterprise zone in March 1990 and received a 75% property tax exemption for five years, beginning in the first year for which the property would be taxable but for the exemption. The exemption was claimed on the 1990 first year partial return, and on the full year returns for 1991 through 1995. The Tax Commissioner disallowed the exemption for 1995. The Board of Tax Appeals agreed, holding the terms of the exemption agreement were clear on their face and made no distinction between full or partial year returns.

In Rosemont Industries, Inc. v. Tracy, No. 97-V-1311, 2000 Ohio Tax LEXIS 1652 (Ohio BTA, December 8, 2000), the taxpayer had entered into an enterprise zone agreement pursuant to which it was granted a 50% exemption for "the tangible personal property first used in business in the State of Ohio and improvements to real property in conjunction with the . . . Project." The actual cost of the improvements exceeded the estimates indicated in the agreement and the tax commissioner tried to limit the exemption to the estimates contained in the agreement. The Board of Tax Appeals disagreed, holding the agreement did not limit the exemption to 50% of the amount stated in the agreement, but rather applied it to all real and tangible personal property first used in Ohio in conjunction with the project. Since the agreement was clear on its face, there was no need to consider the intent of the parties.

In Dayton Central Chapter C.O.F., Inc. v. Lawrence, No. 99-N-647, 2000 Ohio Tax LEXIS 721 (Ohio BTA, May 19, 2000), the taxpayer was a not-for-profit entity engaged in charitable activities. It owned a building that was used for meetings by community, religious and other charitable organizations. It was also rented to private groups at a rate designed to cover the costs of the events. Even so, it operated the property at an annual loss. The Board of Tax Appeals found the taxpayer was a charitable entity, and that because the property was made available to other charitable entities, it was exempt from property taxation pursuant to R.C. 5709.121.

In Consumer Credit Counseling Service of Central Ohio, Inc. v. Lawrence, No. 99-K-688, 2000 Ohio Tax LEXIS 998 (Ohio BTA, July 7, 2000), the Board of Tax Appeals found that parking lots used by patrons of the taxpayer were used for charitable purposes. The taxpayer is a not-for-profit corporation that is exempt from federal income taxes and provides credit and debt counseling services to the general public. Creditors benefiting from the services may provide compensation to the taxpayer, but are not required to do so. The Board found these activities qualified as charitable ones, and the use of the parking lots by clients and employees furthered its charitable purposes so that they were exempt from property taxation.

In Wilmington City School District v. Board of County Commissioners, No. CA99-12-037, 2000 Ohio App. LEXIS 2377 (Clinton App., June 5, 2000), the Court of Appeals held that a school district that does not receive notice pursuant to R.C. 5709.83 of a proposed property tax exemption could not sue to collect back taxes that had not been collected. However, the school district did have standing to bring a declaratory judgment action to have the exemption declared invalid prospectively.

Procedure

In Cincinnati School District v. Board of Revision, 87 Ohio St.3d 363, 721 N.E.2d 40 (2000), the Court held that where a board of revision fails to give statutory notice of the filing of a complaint as to the value of real property, a notice of hearing, or a copy of its decision, to the owner, its decision is void. However, if that decision is not appealed, the Board of Revision (BOR) has no authority to vacate that decision later and the error may not be corrected through the filing of a counter-complaint.

Dealers in Intangibles Taxation

In Bank One Capital Corporation v. Tracy, Nos. 96-D-646, 96-D-647, 2000 Ohio Tax LEXIS 241 (Ohio BTA, February 18, 2000), when it acquired another business, the taxpayer paid more than the nominal value of the assets and recorded the difference between the two as goodwill, which it amortized over a period of 15 years. In computing the "fair value" of its capital pursuant to R.C. 5725.15 for purposes of the dealers in intangibles tax, the taxpayer excluded the unamortized amount of the goodwill. The Board of Tax Appeals agreed with the Tax Commissioner that the value should not be deducted. It ruled that "fair value" was not limited to market or book value of the bare assets and that the taxpayer failed to establish either that it had not paid fair value for the assets, or that the seller had not provided fair value for the price paid.

Estate Taxation

In Estate of Roberts v. Tax Commissioner, No. 2000 CA 15, 2000 Ohio App. LEXIS 4741 (Miami App., October 13, 2000), the Court of Appeals ruled that the proceeds of an individual retirement account were includable in the gross estate of the decedent for estate tax purposes. When the decedent retired, he opened an IRA with his own funds, and then contributed funds contributed to a retirement account by his employer. The Court of Appeals held R.C. 5731.09(A) excluded such funds to the extent they were held by the employer, but was ambiguous with respect to such funds once the decedent had withdrawn them from the employer's account. Applying the rule of strict construction against exemptions from taxation, the court concluded the amounts must be included.

Income & Franchise Taxation

Corporation Franchise

Am. Sub. H.B. No. 640, effective June 15, 2000, amends R.C. 5733.33(I) to narrow the types of taxpayers that must claim the manufacturing machinery and equipment franchise tax credit as a group to corporate groups that are related through stock ownership and permits a retroactive election of the credit. The bill also provides that partnerships claiming the credit must compute it in the same manner as corporations under the franchise tax law, rather than under the personal income tax laws.

Am. Sub. S.B. No. 287, effective December 21, 2000, amends the transferor/transferee provisions of R.C. 5733.053 to insure that in the case of the transfer of substantially all the assets of one company to another, any income or loss realized by the transferor will be considered, by either the transferor or transferee, but not both, in computing their franchise tax liability for the taxable year of the transfer.

In Emerson Electric Co. v. Tracy, 90 Ohio St.3d 157, 735 N.E.2d 445 (2000), the Supreme Court held that the Ohio corporation franchise tax exclusion for 85% of the dividends of foreign subsidiaries discriminated against foreign commerce when 100% of the dividends from domestic subsidiaries were excluded. The provision that permits related corporations to combine net income and eliminate intercorporate transactions does not remedy the problem because a foreign subsidiary that was not subject to franchise tax did not have to be included in the combination.

In IBM Corp. v. Lawrence, No. 99-K-616, 2000 Ohio Tax LEXIS 1255 (Ohio BTA, August 25, 2000), appeal docketed No. 00-1700 (Sup. Ct., September 22, 2000), the Board of Tax Appeals held that where a taxpayer files a petition for reassessment to contest a tax assessment and raises an issue that results in an overpayment of tax, the overpayment may reduce or eliminate the deficiency assessment; however, a refund may not be granted unless the taxpayer files an application for refund pursuant to R.C. 5733.12.

In US Telecom, Inc. v. Tracy, No. 97-K-879, 2000 Ohio Tax LEXIS 783 (Ohio BTA, May 26, 2000), the taxpayer was a foreign corporation that was a general partner in a partnership doing business in Ohio. Other than its interest in the partnership, taxpayer had no other contact with Ohio and was not otherwise subject to the franchise tax. The Board of Tax Appeals rejected the Tax Commissioner's argument that Ohio's recognition of the "aggregate nature" of partnerships subjected general partners to the franchise tax. Thus, the partnership interest is allocated to the state of the partner's domicil.

Personal Income

H.B. No. 612, effective September 29, 2000, amends R.C. 5747.09 to raise the threshold at which taxpayers are required to make estimated quarterly tax payments from $300 to $500, and amends R.C. 5747.07 to lower the threshold at which employers must remit income taxes by electronic transfer from $180,000 to $84,000 per year.

Am. Sub. S.B. No. 287, effective December 21, 2000, amends R.C. 5733.042 and R.C. 5747.39 to permit owners of pass-through entities that qualify for the job training tax credit to claim the credit. Applicants may appeal disallowance of the credit by the director of job and family services administratively to the Board of Tax Appeals.

In Kemppel v. Tracy, No. 98-K-698, 2000 Ohio Tax LEXIS 126 (Ohio BTA, January 21, 2000), appeal docketed, No. 00-358 (Sup. Ct., February 22, 2000), the Board of Tax Appeals ruled that Ohio's definition of business income in R.C. 5747.01(B) encompassed both a transactional test and a functional test. Applying the functional test, the Board concluded that capital gain resulting from the sale of intangible goodwill assets by a subchapter S corporation was business income that was taxable to the nonresident shareholders of the corporation.

Municipal Income Tax

Sub. H.B. No. 483, effective September 21, 2000, amends several provision of Chapter 718 and creates new Chapter 5745 in order to provide a uniform method for the reporting and payment of municipal income taxes by electric companies. The bill provides a uniform tax base which is to be apportioned among municipalities by means of property, payroll, and sales factors. A uniform filing is prescribed pursuant to which a single filing and payment are made with the state, which distributes the tax to the municipalities. The bill also prescribes uniform collection, assessment, and appeals procedures. The provisions take effect January 1, 2002.

Sub. H.B. No. 477, effective July 26, 2000, amends Chapter 718 to provide more uniform measures relating to municipal income taxes. It includes a uniform definition of the income subject to tax, filings dates, and forms; it mandates that forms be made available on the internet; and it provides for uniform due dates and amounts for estimated tax payments, uniform appeals procedures, and credits and treatment of income from pass-through entities.

In Tetlak v. Village of Bratenahl, No. 74807, 1999 Ohio App. LEXIS 6358 (Cuyahoga App., December 31, 1999), appeal allowed No. 00-380, 89 Ohio St. 3d 1412, 729 N.E.2d 383 (2000), the Court of Appeals ruled the Village had no authority to impose its municipal income tax on the taxpayer's distributable share of income received from a subchapter S corporation that did not engage in business within the village. Rather than compensation, the income was characterized as intangible income that municipal corporations are prohibited by law from taxing.

Kilowatt Hour Tax

Am. Sub. S.B. No. 287, effective December 21, 2000, makes several revisions to the kilowatt hour tax provisions of Chapter 5727. R.C. 5727.81(A) is amended to provide the tax becomes effective with the measurement period that includes May 1, 2001.

R.C. 5727.81 is amended to lower the threshold at which a consumer qualifies as a self-assessing purchaser from 120 million kwh to 45 million kwh and permits multiple meters at a single location to be aggregated for purposes of meeting the threshold. A new purchaser that expects to consume more than 45 million kwh in the coming 12 months may apply for self-assessing status and must provide any information requested by the tax commissioner and needed to act on the application. If the tax commissioner revokes the self-assessing purchaser status of a purchaser who estimated its consumption because it does not reach the threshold amount, that official shall bill the consumer for the difference between the tax paid and the tax owed; the consumer shall pay the tax, without interest or penalty, within 60 days. If the amount remains unpaid at the end of 60 days, the amount is to be collected by assessment and is subject to penalties and interest.

The tax rate for self-assessing purchasers is amended to $.00075 per kwh of the first 504 million kwh, plus 4% of the purchased price of electricity. The purchased price of electricity is the total amount paid, or promised to be paid, for electricity service, including generation, transmission, and distribution. If services other than electric service, such as consulting, engineering, and other services are provided in conjunction with electric service, the charges for such nontaxable services must be separately stated from the charges for electric service.

R.C. 5727.80 and 5727.81 are amended to provide an exemption from the kwh tax for electricity converted to other forms of energy where the energy will be used to generate electricity for others.

MCF Tax

Am. Sub. S.B. No. 287, effective December 21, 2000, enacts R.C. 5727.811 to impose an excise tax upon natural gas distribution companies on the monthly mcf of natural gas distributed through the meter of an end user in Ohio, beginning July 1, 2001. The tax is imposed at $.1593 for the first 100 mcf billed per month; $.0877 for the next 101- to 2000 mcf per month; and $0411 for 2001 and more mcf per month. "Flex" customers pay the tax at a flat $.02 per mcf billed. The tax does not apply to the distribution of natural gas to the federal government, or to natural gas produced by an end user that is consumed by that end user or its affiliates and is not distributed through the facilities of a natural gas company. R.C. 5727.82(A)(2) is amended to provide the tax is paid, and returns are filed, quarterly and all payments are to be made electronically. Changes are made to R.C. 5727.83 through R.C. 5727.89 to make the various assessment and procedural provisions relating to the kwh tax, applicable to the mcf tax.

Procedures

H.B. No. 612, effective September 29, 2000, makes both general and tax-specific changes. General changes include making the imposition of certain tax-related penalties discretionary, rather than mandatory; lengthening the deadline for taxpayers to file administrative appeals from 30 to 60 days after a notice of assessment or final determination is issued; and eliminating the requirement that certain taxpayers must be penalties on an assessment when they file "penalty-only" appeals for personal income, corporation franchise, or qualifying entity taxes. The bill also authorizes the Tax Commissioner to permit alternative forms for filing tax-related documents, including electronic forms; to prescribe the form of any signature or declaration required to be made by taxpayers; and to designate delivery services other than the U.S. Postal Service that may be used to send tax-related documents. Taxpayers are authorized to round amounts entered on all returns to the nearest dollar.

Sealing the Record

In Cincinnati Gas & Electric Co. v. Clermont County Board of Revision et al, Nos. 98-K-707, 98-K-708, 2000 Ohio Tax LEXIS 1447 (Ohio BTA, October 27, 2000), the Board of Tax Appeals granted the taxpayer's motion to seal a portion of the record because the exhibits in question are trade secrets. First, the Board concluded that even though its proceedings are public, it had the authority to seal the exhibits because trade secrets are specifically excluded from the statutory definition of public documents. Second, it concluded the documents were indeed trade secrets under R.C. 1333.61(D). It considered several factors, including the extent to which the information is generally known in the industry, the precautions taken by the holder to protect the information, the time, expense and effort expended in developing the materials, and the time and expense for others to duplicate the information.

Taxpayer Bill of Rights

In Basic Distribution Corp. v. Ohio Department of Taxation, No. 99AP-1309 (Franklin App., August 29, 2000), motion for reconsideration denied (October 31, 2000), motion to accept appeal filed, No. 00-1911 (Sup. Ct., October 23, 2000), the Court of Appeals reversed a decision of the Court of Claims, finding (i) that a cause of action under the taxpayer bill of rights, R.C. 5703.54, was a cause of action separate from any administrative appeal and that it was not necessary to exhaust administrative remedies prior to bringing an action; (ii) the tax commissioner frivolously disregards a statute or rule when he ignores it without stating a good faith reason for doing so; and (iii) under the facts presented in that case, the tax commissioner had frivolously disregarded several provisions with respect to a sales tax audit and assessment of the taxpayer.

Appealable Order

In Shane v. Tracy, No. 77025, 2000 Ohio App. LEXIS 3844 (Cuyahoga App. Aug. 26, 2000), the Court of Appeals ruled the denial of the tax commissioner's motion to dismiss was not a final appealable order. Taxpayer brought suit against the tax commissioner and certain employees, alleging false arrest and the denial of state and federal constitutional rights. When the motion to dismiss for failure to state a claim and sovereign immunity was denied, the tax commissioner attempted to appeal based on a statute that permitted immediate appeals in such instances and federal law. The Court of Appeals noted the state statute upon which the tax commissioner relied had been declared unconstitutional and the federal statute applied only to federal lawsuits.

Burden of Proof

In Ohio National Bank v. Franklin County Board of Revision et al., No. 98-S-769, 2000 Ohio Tax LEXIS 1323 (Ohio BTA, Sept. 15, 2000), unreported. Where a property owner submits credible appraisal evidence in support of its opinion of value, the opposing parties have an obligation to submit contrary evidence of value. In the absence of such value, the taxpayer's evidence of value will be accepted by the Board of Tax Appeals. The Board also held that value in exchange, rather than value in use, is the appropriate standard to be used to determine fair market value for tax purposes.

Evidence

In CASA 94, LP v. Board of Revision, 89 Ohio St.3d 622, 734 N.E.2d 369 (2000), the Court interpreted R.C. 5715.39(G), which precludes the introduction of evidence in the possession of a party in a real property valuation case at the Board of Tax Appeals that was not presented before the initial hearing at the Board of Revision, absent a showing of good cause. Where documents were proffered to the Board of Revision, but were never authenticated by a competent witness, the Board of Tax Appeals improperly allowed testimony from a witness about the documents at its hearing. The statute precluded the consideration of the testimony and the taxpayer never attempted to establish good cause for the omission.

Jurisdiction

In Cincinnati Gas & Electric Co. v. Board of Revision, No. 98-L-1386, 2000 Ohio Tax LEXIS 1611 (Ohio BTA, December 1, 2000), the Board of Tax Appeals reversed a decision of the Board of Revision that a real property tax valuation complaint was defective. The complaint listed nine parcels, one of which was not contiguous to the other eight and bore an incorrect parcel number; and one parcel was co-owned by a tenant who was not listed on the complaint. The Board of Revision held where one co-tenant is named in the complaint, notice is, in effect, given to all owners. With respect to the parcel incorrectly identified, the Board of Tax Appeals held the correct remedy was to exclude that parcel from consideration by the Board of Revision, not dismissal of the valid complaint for the remaining eight parcels.

Unauthorized Practice of Law

In C.R. Truman L.P. v. Board of Revision, No. 76713, 2000 Ohio App. LEXIS 3388 (Cuyahoga App., July 27, 2000), a real property tax valuation complaint was filed on behalf of a limited partnership by its managing partner. R.C. 5715.19(A)(1)(e) had been amended to permit such persons to file valuation complaints in response to a court decision that filing valuation complaints was the practice of law. The Court of Appeals noted only the Supreme Court could regulate the practice of law and that the law, attempting to confer such authority on a non-attorney, was unconstitutional.

Exhaustion of Remedies: In BP Communications, Alaska, Inc. v. Central Collection Agency, 136 Ohio App. 3d 807, 737 N.E.2d 1050 (2000), the taxpayer had, for several years, filed a municipal income tax return on a consolidated basis with several other related entities. Because it and several others no longer had nexus with the taxing municipalities, it sought permission to be separated from the consolidation, which was denied by the administrator. Although an administrative appeal had been filed and was pending, the taxpayer also filed a declaratory judgment action, seeking to have the action of the administrator declared invalid. Reversing the decision of the trial court, the court of appeals ruled that taxpayer's failure to exhaust administrative remedies precluded the instant action. It characterized the case as one involving the computation of tax, to which the doctrine applies, rather than one of the power to tax in the first instance, which it hinted might result in a different decision.

Public Utility Taxation

In Ohio Power Co. v. Tracy, No. 98-K-191, 2000 Ohio Tax LEXIS 672 (Ohio BTA, April 28, 2000), Ohio Power Co. sold electricity transmission services to AMP-Ohio, a not-for-profit corporation that provided electricity to its members. AMP-Ohio purchased electricity from suppliers located outside Ohio for delivery to member-customers located inside Ohio. For public utility excise tax purposes, receipts from the transmission of electricity from points outside Ohio to points inside Ohio are not excluded as receipts from business transacted wholly in interstate commerce because a portion of the transmission system is physically located in Ohio (R.C. 5727.33(B)(1)). However, the Board of Tax Appeals agreed that the services were resold to AMP-Ohio's customers, so that the receipts were excluded pursuant to R.C. 5733.27(B)(5).

Sales & Use Taxation

Am. Sub. H.B. No. 640, effective June 15, 2000, amends R.C. 5739.02(B)(15) to exempt from the sales and use taxes, the purchase and use of machinery and equipment used to produce labels, preparing products manufactured for sale for labels, and applying labels to the products.

H.B. No. 612, effective September 29, 2000, amends R.C. 5739.02(B)(9) to expand the six-day sales tax exemption for sales by charitable exemptions to include all federally tax-exempt organizations. The bill also amends R.C. 5739.03(B) to extend the amount of time allowed for consumers and sellers to demonstrate that a sale is tax-exempt when an exemption certificate has not been supplied from 60 to 120 days and amends R.C. 5741.02(B) to extend the requirement of an exemption certificate to use tax transactions. The bill also amends R.C. 5739.17 to eliminate the vendor's license annual renewal requirement and fee and to allow sellers to move from one location in a county to another without having to obtain a new vendor's license. R.C. 5739.032 is amended to lower the threshold for determining whether sellers, consumers, and direct payers must pay taxes electronically from $600,000 to $60,000 annually.

In American Watchmakers-Clockmakers Institute v. Tracy, No. C-990880, 2000 Ohio App. LEXIS 3854 (Hamilton App., August 25, 2000), the Court of Appeals reversed a sales tax assessment related to the production of a magazine published by the taxpayer, a trade association, for its members. First, it held that if the taxpayer could not be a consumer for purposes of the exemption for producing printed matter in a suitable condition for sale under R.C. 5739.01(E)(8), then it was not a consumer for use tax purposes, either. Alternatively, it found there was no requirement that magazines be sold for the exemption in R.C. 5739.01(E)(8); the statute only required the magazine be produced in a condition suitable for sale.

In CMW Resource Recovery, Inc. v. Tracy, No. 97-L-811, 2000 Ohio Tax LEXIS 992 (Ohio BTA, June 30, 2000), the taxpayer processed liquid wastes and solvents that it acquired from others. In some cases, the resulting product was sold; in other cases, it was treated for disposal only. For purposes of the sales tax manufacturing exemption, the Board of Tax Appeals found the taxpayer was manufacturing a product for sale, notwithstanding that a majority of the end product, as measured by volume, was disposed, rather than sold. Having found the taxpayer to be a manufacturer, the Board proceeded to analyze various purchases and determine whether the items qualified for the manufacturing exemption.

In Dean Supply Co. v. Tracy, No. 96-P-206, 2000 Ohio Tax LEXIS 327 (Ohio BTA, March 10, 2000), appeal docketed No. ____, (Cuyahoga App., April 7, 2000), the taxpayer was a vendor audited for sales tax purposes on the basis of a test check methodology. While the taxpayer was found to have voluntarily entered into a test check agreement and to have selected the period tested, the Board of Tax Appeals found that since the taxpayer lost a major customer, to which all transactions were nontaxable, immediately prior to the period tested, all sales to that customer were removed from the amount of gross sales against which the percentage of error was applied.

In ETS, Inc. v. Tracy, No. 97-S-1613, 2000 Ohio Tax LEXIS 553 (Ohio BTA, April 14, 2000) the taxpayer provided consulting and engineering services. It solicited projects and provided personnel to perform the projects. The Board of Tax Appeals found the services were not taxable employment services; rather, the transactions involved the performance of a discreet project, rather than the providing of employees to perform various tasks. Consequently, the transactions were excluded from the tax by R.C. 5739.01(JJ)(1) as contract services.

In Harsco Corp. v Tracy, No. 97-P-1560, 2000 Ohio Tax LEXIS 552 (Ohio BTA, April 14, 2000), the taxpayer processed slag at steel mills and collected the metallics, which it sold back to the steel companies; the processed slag was sold to outside contractors. Slag pots were used to transport the molten slag from the steel furnaces to the reclamation area. Because of their unique shape, slag pots facilitated the processing of the slag and were exempt from sales tax on the basis they were used in manufacturing a product for sale.

In Bellemar Parts Industries, Inc. v. Tracy, 88 Ohio St.3d 351, 725 N.E. 2d 1132 (2000), the Supreme Court ruled that purchasers of temporary employees could not claim the benefit of the resale or manufacturing exceptions to the sales tax. The resale exception did not apply because the benefit of the service was a flexible work force, rather than the product produced by the temporary employees. Therefore, the benefit of the service was not resold, but was enjoyed by the purchaser. The manufacturing exception did not apply because that exception is limited to things that are transferred, and an employment service was not a thing.

In Laurel Transportation, Inc. v. Tracy, No. 97-J-1617, 2000 Ohio Tax LEXIS 671 (Ohio BTA, April 28, 2000), appeal docketed, No. 00-1018 (Sup. Ct., May 30, 2000), the taxpayer was assessed sales tax on the purchase of an airplane that it claimed was purchased or resale (lease). The taxpayer provided the airplane, with a pilot, to a select group of users, most of whom were members of the family that owned the taxpayer. Sales tax was collected and paid on each lease of the airplane. The Board of Tax Appeals agreed the taxpayer intended to, and in fact did, resell the aircraft in the form of leases for its use and reversed the assessment.

In USS/Kobe Steel Co. v. Tracy, No. 98-J-731, 2000 Ohio Tax LEXIS 78 (Ohio BTA, January 14, 2000), the Board ruled that coke used in the production of pig iron that was further processed into steel was both an ingredient and a fuel, and that its primary use was as an ingredient; consequently, equipment that handled the coke, including bins specially shaped to insure a steady flow of coke, was exempt from sales and use tax under the manufacturing exemption. Similarly, a moisture analyzer used to test the coke was exempt because it was used to test a raw material.

In Q3 Stamped Metal, Inc. v. Tracy, No. 98-A-506, 2000 Ohio Tax LEXIS 547 (Ohio BTA, April 14, 2000), appeal docketed, No. 00-914 (Sup. Ct., May 15, 2000), the Board of Tax Appeals held the provision of temporary employees provided pursuant to an agreement for a term of one year was not subject to sales tax, even though the specific employees were not identified in the agreement. Welding goggles that enabled welders to see the work they were performing, and a lift truck used to position and remove dies in a stamping press were exempt from sales tax because they were used in a manufacturing operation to produce property for sale.

Success Employment Service, Inc. v. Tracy, No. 98-A-489, 2000 Ohio Tax LEXIS 543 (Ohio BTA, April 14, 2000). The Board of Tax Appeals determined that temporary employee services were not taxable when written agreements were for a period of one year and the agreement stated the employees were provided to the customer on a permanent basis. The Board rejected the Tax Commissioner's argument it was necessary that the name of each employee covered by the agreement be mentioned in, or attached to, the agreement.

In Quail Hollow Management Inc. v. Lawrence, No. 99-K-594 (Ohio BTA, September 29, 2000), appeal docketed No. 00-____ (Sup. Ct., October 26, 2000), initiation fees charged by a sports club to members that are refundable after a period of time and are used to fund capital improvements, were found not to be taxable recreation and sports club services as defined in R.C. 5739.01(JJ). That statute includes on-going, continuing obligations that must be paid in order for the member to obtain use of the facilities. The fees in question were characterized as in the nature of interest-free loans.

In Litton Systems, Inc. v. Tracy, 88 Ohio St.3d 568, 728 N.E.2d 389 (2000), the Supreme Court upheld the decision of the Board of Tax Appeals that a warehouse conveyor system that was bolted to various structural elements of the building in which it was located, remained tangible personal property after installation. The Court observed the conveyor system was neither a building, a structure, an improvement to a building or structure, nor a fixture, because it could easily be removed without significant damage to it or the building. Thus, the transaction between the property owner and the installer was not a construction contractor, and sales tax was properly charged and collected on the transaction.

Unclaimed Funds

Am. Sub. H.B. No. 640, effective June 15, 2000, amends R.C. 169.01(B)(2) to exempt from the Unclaimed Funds Law certain payments and credits on business-to-business transactions, and R.C. 169.02(N) to specify that certain credits to be refunded to retail customers after three years are unclaimed funds.