Willoughby Hills Dev. & Distribution, Inc. v. Testa
| Decision Date | 07 November 2018 |
| Docket Number | No. 2016-1137,2016-1137 |
| Parties | WILLOUGHBY HILLS DEVELOPMENT AND DISTRIBUTION, INC., Appellant, v. TESTA, Tax Commr., Appellee. |
| Court | Ohio Supreme Court |
Timothy G. Teresczuk Co., L.P.A., and Timothy G. Teresczuk, Willoughby Hills, for appellant.
Michael DeWine, Attorney General, and Barton A. Hubbard, Assistant Attorney General, for appellee.
{¶ 1} Appellant, Willoughby Hills Development and Distribution, Inc. ("WHDD"), appeals a Board of Tax Appeals ("BTA") decision that affirmed appellee tax commissioner's denial of WHDD's request for a commercial-activity-tax ("CAT") refund. Subject to certain exclusions, the CAT is levied on each person or entity with taxable gross receipts above a certain threshold for the privilege of doing business in Ohio. See R.C. 5751.01 et seq. The issue here involves whether WHDD can meet the requirements of a gross-receipts exclusion that applies when a person or entity acts as an agent for another. We conclude that WHDD falls short of the requirements necessary for the exclusion to apply, and we accordingly affirm the BTA's decision.
{¶ 2} WHDD is a Wickliffe-area distributor engaged in the business of purchasing and reselling gasoline to retailers located throughout northern Ohio. WHDD's purchasing activities with Sunoco, Inc. (R&M) ("Sunoco") and its reselling activities with retailer Sopinski Enterprises, Inc. ("Sopinski") lie at the heart of this appeal.
The Sunoco agreement
{¶ 3} In 2004, WHDD negotiated an agreement with Sunoco under which Sunoco agreed to sell and WHDD agreed to purchase a Sunoco product styled "branded motor fuel," a term referring to gasoline that Sunoco manufactures/supplies and delivers for purposes of resale under trademarks, trade names, and trade dress in which Sunoco has exclusive rights. We will refer to Sunoco's bundle of trademarks, trade names, and trade dress as its "intangible assets."
{¶ 4} The agreement's initial term was for 11 years, commencing January 1, 2004, and ending December 31, 2014. For each year, the agreement specifies the volume of gasoline that WHDD would purchase from Sunoco. WHDD's purchasing volume generally increased over those 11 years, with WHDD agreeing to purchase 11.5 billion gallons in the first year and 15.5 billion gallons in the final year. The parties elected not to fix WHDD's purchase price; instead, WHDD was to pay the price in effect at the time and place of delivery—WHDD refers to this as a type of "open price term" contemplated by R.C. 1302.18.
{¶ 5} WHDD and Sunoco agreed that WHDD's purchase and resale of gasoline to retailers consistently with Sunoco's brand and image requirements formed the "essence" of their agreement. To this end, their agreement memorializes WHDD's understanding of the "importance of the image conveyed to the public" by retailers that are authorized to use Sunoco's intangible assets. Sunoco subjects those retailers to minimum standards and requirements that are set forth in a Sunoco image-standard manual. For example, the building, poles, and curbs located at each retailer's premises must be painted in Sunoco-approved colors.
{¶ 6} The agreement denominates WHDD as an independent contractor and forbids WHDD to act as Sunoco's agent or employee. Additionally, the agreement provides that WHDD may not "make any commitments or incur any expense or obligations of any kind on behalf of" Sunoco in the absence of Sunoco's approval.
The Sopinski agreement
{¶ 7} In 2009, WHDD negotiated an agreement with Sopinski, a retailer, entitled "Product Sales Agreement." This is the only agreement in the record between WHDD and a retailer; however, the parties have treated it as representative of WHDD's contractual relationships with other retailers.
{¶ 8} Under the agreement, Sopinski agreed to purchase its requirements of gasoline from WHDD. The agreement spans 15 years, commencing June 1, 2009, and ending May 31, 2024. Over this term, Sopinski obliged itself to purchase 33.375 million gallons of gasoline from WHDD. Sopinski agreed to pay the price that Sunoco charged to WHDD, subject to various upward adjustments. The agreement bars WHDD from "direct[ing] or control[ling]" Sopinski's operations and employees.
Proceedings before the tax commissioner
{¶ 9} WHDD filed returns and paid taxes pursuant to the CAT statute. Thereafter, in January 2012, WHDD filed with the tax commissioner an application for a CAT refund, see R.C. 5751.08, in the amount of $417,228 for the period October 2007 through September 2011. WHDD predicated its refund claim on an alleged agency relationship with Sunoco. The tax commissioner, however, determined that no agency relationship existed and accordingly denied the claim. The tax commissioner based his decision in significant part on the language of the Sunoco agreement that describes WHDD as an independent contractor that lacks authority to act as Sunoco's agent. The tax commissioner rejected the contention that Sunoco exercised sufficient control over WHDD such that it elevated their relationship to one of principal and agent, noting that Sunoco did not place supervisors or managers on WHDD's premises to monitor WHDD's work.
BTA proceedings
{¶ 10} WHDD appealed to the BTA, where its counsel asserted that WHDD should be deemed the agent of Sunoco because of what WHDD viewed as its responsibility to protect Sunoco's intangible assets when they are used by retailers such as Sopinski. WHDD presented testimony from Tony Continenza, WHDD's operation director, who testified that Sunoco instructs WHDD concerning the implementation at retail sites of credit-card programs, imaging operations, uniform protocols, and color schemes. He further explained that WHDD's distributorship is exclusive to Sunoco and that all of WHDD's relationships with retailers are memorialized in written agreements. No one from Sunoco or from any retailer appeared to testify.
{¶ 11} The BTA affirmed the tax commissioner's final determination, finding no agency relationship between WHDD and Sunoco. The BTA determined that WHDD was not acting on behalf of Sunoco when WHDD sold gasoline to retailers; rather, the BTA observed, the sales were made between WHDD and retailers in accord with their respective sales agreements. The BTA further determined that Sunoco did not exercise sufficient control over WHDD's operations for WHDD to be its agent and that WHDD offered no evidence to justify the disregard of its agreement with Sunoco forbidding it to act as Sunoco's agent. WHDD then filed this appeal.
{¶ 12} We will affirm a BTA decision that is reasonable and lawful. Satullo v. Wilkins , 111 Ohio St.3d 399, 2006-Ohio-5856, 856 N.E.2d 954, ¶ 14. We apply de novo review to the BTA's resolution of legal questions. Crown Communication, Inc. v. Testa , 136 Ohio St.3d 209, 2013-Ohio-3126, 992 N.E.2d 1135, ¶ 16. But the BTA's findings concerning the weight of the evidence receive deference if there is record support for them. Kinnear Rd. Redevelopment, L.L.C. v. Testa , 151 Ohio St.3d 540, 2017-Ohio-8816, 90 N.E.3d 926, ¶ 14.
{¶ 13} The CAT is "levied * * * on each person with taxable gross receipts for the privilege of doing business in this state." R.C. 5751.02(A) ; see also R.C. 5751.01(A) (). "[G]ross receipts" is defined as "the total amount realized by a person, without deduction for the cost of goods sold or other expenses incurred, that contributes to the production of gross income of the person, including the fair market value of any property and any services received, and any debt transferred or forgiven as consideration."
R.C. 5751.01(F). As an example, "gross receipts" includes "[a]mounts realized from the sale, exchange, or other disposition of the taxpayer's property to or with another." R.C. 5751.01(F)(1)(a).
{¶ 14} In spite of its broad sweep, the term "gross receipts" is not without limits. One limitation is that "[p]roperty, money, and other amounts received or acquired by an agent on behalf of another in excess of the agent's commission, fee, or other remuneration" are excluded from "gross receipts." R.C. 5751.01(F)(2)(l). An "[a]gent" is "a person authorized by another person to act on its behalf to undertake a transaction for the other," R.C. 5751.01(P), and includes "[a] person retaining only a commission from a transaction with the other proceeds from the transaction being remitted to another person," R.C. 5751.01(P)(2).1
Which of WHDD's activities matter for the purpose of determining whether it is an agent of Sunoco under the CAT?
{¶ 15} Before determining whether WHDD is an agent of Sunoco, we address an antecedent question: which of WHDD's activities matter for the purpose of determining whether it is an agent under the CAT statute?
{¶ 16} WHDD's argument that it is Sunoco's agent rests on the claim that it is responsible for managing and protecting Sunoco's intangible assets. WHDD points to language in its agreement with Sunoco that directs it to "use [its] best efforts to require [its] Retailers to operate retail locations identified with [Sunoco's intangible assets]" in a manner consistent with Sunoco's "minimum requirements as to product offering, image, appearance and service." At the BTA hearing, Continenza fleshed out aspects of this directive. He discussed a Sunoco manual that prescribes, among other things, the proper placement of logos, signs, and stickers at retail sites. Continenza explained that Sunoco "hold[s] us, [WHDD], directly responsible for complete imaging of that station." If WHDD or a retailer served by WHDD fails to comply with Sunoco's "minimum image standards and requirements," WHDD shall be deemed "noncomplian[t] with a material provision" of the agreement.
{¶ 17} The tax commissioner, on the other hand, claims that these activities have nothing to do...
To continue reading
Request your trial
-
State ex rel. Parisi v. Dayton Bar Ass'n Certified Grievance Comm.
...in the outcome.{¶ 34} Our longstanding policy is not to address an unbriefed issue. E.g. , Willoughby Hills Dev. & Distrib., Inc. v. Testa , 155 Ohio St.3d 276, 2018-Ohio-4488, 120 N.E.3d 836, ¶ 14, fn. 1 ; State v. Roberts , 150 Ohio St.3d 47, 2017-Ohio-2998, 78 N.E.3d 851, ¶ 85 ; Risner v......
-
Gibson Bros., Inc. v. Oberlin Coll.
...bind Oberlin to the business relationship that it had with the bakery. See, e.g., id.; Willoughby Hills Dev. & Distrib., Inc. v. Testa, 155 Ohio St.3d 276, 2018-Ohio-4488. {¶66} Therefore, this Court confines its review to the argument briefed by the parties: whether Bon Appetit, the allege......