Greenscapes Home & Garden Prods., Inc. v. Testa, 17AP-593
| Decision Date | 07 February 2019 |
| Docket Number | No. 17AP-593,17AP-593 |
| Citation | 2019 Ohio 384,129 N.E.3d 1060 |
| Parties | GREENSCAPES HOME AND GARDEN PRODUCTS, INC., Appellant-Appellant, v. Joseph W. TESTA, Tax Commissioner of Ohio, Appellee-Appellee. |
| Court | Ohio Court of Appeals |
On brief: Brouse McDowell LPA, Terry W. Vincent, and Anastasia J. Wade, Cleveland, for appellant. Argued: Anastasia J. Wade.
On brief: [Dave Yost ], Attorney General, Daniel G. Kim, and Daniel W. Fausey, Columbus, for appellee. Argued: Daniel W. Fausey.
DECISION
{¶ 1} Appellant, Greenscapes Home and Garden Products, Inc., appeals from a decision issued by the Ohio Board of Tax Appeals ("BTA") affirming the assessment of the commercial-activity tax ("CAT") by appellee, Joseph W. Testa, tax commissioner, for revenue Greenscapes receives from the sale of lawn and garden products that are shipped into the state of Ohio. For the reasons that follow, we affirm.
{¶ 2} Greenscapes is a Georgia corporation. It does not have any locations in Ohio and does not employ any agents, representatives, or employees in Ohio. Greenscapes' primary customers are "big-box" retailers such as Walmart, Home Depot, and Lowe's. These retailers have distribution centers located in Ohio. When an order is placed, Greenscapes is provided with a delivery address. It prepares a bill of lading but is not responsible for shipping. The retailer arranges for a carrier to pick up the product at Greenscapes' facility. Once loaded into the carrier's truck, the product becomes the property of the retailer. After the product leaves the facility, Greenscapes cannot track the final destination of the product. In this case, we are concerned with the situsing of the total gross receipts that Greenscapes receives when it sells goods that are shipped by the retailer to Ohio.
{¶ 3} In April 2012, an auditor for the Ohio Department of Taxation sent Greenscapes a nexus letter. The letter stated that it appeared that Greenscapes was doing business in Ohio but had not registered or filed for the CAT. It requested that Greenscapes take one of three actions: (1) register, file, and remit any taxes owed; (2) provide information if already registered and filed; or (3) explain why the company should not be required to register for the CAT. In response, Greenscapes registered for the CAT in May 2012 and filed returns for all quarters of 2011 and 2012.
{¶ 4} Greenscapes also received notice in 2012 that a CAT audit was to be conducted. After initially complying and sending some sales information, Greenscapes declined to further participate in the audit. It also stopped filing CAT reports and paying any taxes to Ohio. The auditor used the sales information provided to determine the total gross receipts for 2007-2012 and estimated the total gross receipts for 2005 and 2006. In February 2014, a notice of assessment was issued to Greenscapes in the amount of $ 64,064 for taxes owed for the period of 2005-2012, plus interest, penalty, and late payment penalty. The department also issued notices of assessment for each quarter of 2013 and 2014 based upon estimated tax owed due to Greenscapes' failure to file a return.
{¶ 5} Greenscapes filed petitions for reassessment for 2005-2014 and also filed a refund claim for the CAT payments that it made in 2011 and 2012. Greenscapes contended that it was not liable for the CAT because it did not own the goods shipped to Ohio, was not responsible for the goods being shipped to Ohio, and Ohio may not be the final destination for the goods as they were sent to Ohio distribution centers. The tax commissioner issued a final determination on December 29, 2015. Relying on R.C. 5751.033(E) and Dupps Co. v. Lindley , 62 Ohio St.2d 305, 405 N.E.2d 716 (1980), the tax commissioner found that when a purchaser buys tangible personal goods in Georgia and subsequently ships those goods to a retail location in Ohio, the seller's gross receipts from that sale must be sitused to Ohio. He further noted that Greenscapes failed to produce any evidence that Ohio was not the final destination for the goods. The tax commissioner affirmed the assessments and denied the refund claim.
{¶ 6} Greenscapes filed a timely notice of appeal with the BTA. At the hearing before the BTA, Greenscapes presented evidence and the testimony of Donald Hayes, an executive vice president. The exhibits were examples of orders from retailers such as Lowe's, Home Depot, and Wal-Mart. They reflected that the retailers were billed at their home offices, which are located outside of Ohio, and that common carriers were hired by the retailers to pick up the goods in Georgia and deliver them to Ohio. Hayes testified that Wal-Mart, Home Depot, and Lowe's constitutes 95 percent of its customer sales and that Greenscapes has not successfully marketed to customers outside of these retailers. He acknowledged that Greenscapes had some online presence during the audit period but that it did not have a catalog nor did it advertise its products. Hayes admitted that Greenscapes was aware that retailers like Lowe's have a national presence and that is the reason that Greenscapes likes to work with them. He also confirmed that Greenscapes' products have been shipped to all 50 states and to Canada.
{¶ 7} The tax commissioner presented the testimony of Janelle Rahn, who conducted the audit of Greenscapes. She stated that during the audit Greenscapes had provided a document showing sales by state from 2007 to 2012. Rahn was then contacted by an accountant for Greenscapes, who clarified that the document did not represent sales in Ohio but that it showed sales by ship to destination. Rahn explained that this distinction was immaterial because under the situsing statute the final destination controls where the goods would be sitused. Because the document reflected goods shipped to Ohio, she used that data to determine the tax owed for 2007-2012 and estimated the tax owed for 2005 and 2006. Rahn also testified that she offered to consider additional information showing that Ohio was not in fact the final destination for the goods but did not receive any.
{¶ 8} The BTA agreed with the tax commissioner that the ultimate destination of the products sold by Greenscapes after all transportation has been completed controls where the sales are sitused. It acknowledged that some of the goods that were shipped to Ohio may have ended up in retail locations outside of Ohio but also noted that Greenscapes failed to present any evidence of further transportation. The BTA found that Greenscapes knew its products would be transported to Ohio based on its customers' orders and the bills of lading it provided to the drivers responsible for transportation. The BTA recognized that Greenscapes had raised arguments under the Commerce Clause and Due Process Clause of the U.S. Constitution but declined to make any findings as constitutional challenges are outside of its authority. The BTA found that Greenscapes failed to meet its burden on appeal and affirmed the determination of the tax commissioner.
{¶ 9} Greenscapes appeals the decision of the BTA and assigns the following errors:
{¶ 10} In its assignments of error, Greenscapes alleges that the application of the CAT to its sale of goods to retailers based outside of Ohio is unconstitutional and a violation of the dormant Commerce Clause and the Due Process Clause of the U.S. Constitution. In response, the tax commissioner contends that we lack jurisdiction to consider these claims because Greenscapes failed to (1) properly specify error as to the tax commissioner's final determination or the BTA decision, (2) specify the statute or statutes that are unconstitutional, and (3) preserve the substantial nexus challenge because it was not raised as part of its petition for reassessment. The tax commissioner initially notes that Greenscapes' assignments of error incorrectly state the BTA's holding. He contends that the BTA did not hold that there was a substantial nexus or minimum contact with Ohio. Instead, the BTA affirmed the final determination that the gross receipts for products delivered into Ohio were properly sitused to Ohio. Because the errors specified in the notice of appeal to the BTA and to this court do not actually address the actual holding made in the final determination or in the BTA's decision, the tax commissioner contends that we lack jurisdiction over this matter. The tax commissioner also notes that the only statute referenced in the notice of appeal is R.C. 5717.033(E). That statute is concerned with situsing but does not reference substantial nexus or minimum contact. The tax commissioner argues that Greenscapes has abandoned any claim based on the statute because it did not brief that issue.
{¶ 11} R.C. 5717.02 authorizes the BTA to hear appeals from final determinations of the tax commissioner. The notice of appeal to the BTA "shall contain a short and plain statement of the claimed errors in the determination or redetermination of the tax commissioner * * * showing that the appellant is entitled to relief and a demand for the relief to which the appellant claims to be entitled." R.C. 5717.02(C). In similar fashion, the notice of appeal from the...
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