Beaver Excavating Co. v. Testa

• Decision Date: 07 December 2012
• Docket Number: No. 2011–1536.,2011–1536.
• Citation: 134 Ohio St.3d 565,983 N.E.2d 1317
• Parties: BEAVER EXCAVATING COMPANY et al., Appellants, v. TESTA, Tax Commr., Appellee.
• Court: Ohio Supreme Court

134 Ohio St.3d 565

983 N.E.2d 1317

BEAVER EXCAVATING COMPANY et al., Appellants,

v.TESTA, Tax Commr., Appellee.

No. 2011–1536.

Supreme Court of Ohio.

Submitted July 11, 2012.

Decided Dec. 7, 2012.

Syllabus of the Court

The allocation under R.C. 5751.20 of commercial-activity-tax revenues derived from the gross receipts of the sale of motor-vehicle fuel to nonhighway purposes violates the Ohio Constitution, Article XII, Section 5a.

Vorys, Sater, Seymour and Pease, L.L.P., and Thomas Ridgley, Anthony Ehler, Jeffrey Miller, and Robert Krummen, Columbus, for appellants.

Michael DeWine, Attorney General, Stephen Carney and Matthew Hampton, Deputy Solicitors, and Julie Bringer and Barton Hubbard, Assistant Attorneys General, for appellee.

Peck, Shaffer & Williams, L.L.P., Thomas A. Luebbers, Cincinnati, and Victor A. Linnebom, urging affirmance on behalf of amici curiae County Commissioners Association of Ohio, Ohio Municipal League, and Ohio School Boards Association.

Bricker & Eckler, L.L.P., and Mark Engel, West Chester, urging affirmance on behalf of amici curiae Ohio Manufacturers' Association and Ohio Society of Certified Public Accountants.

Frederick A. Vierow, urging reversal for amicus curiae County Engineers Association of Ohio.

Brady, Coyle & Schmidt, Ltd., and Brian P. Barger, Toledo, urging reversal on behalf of amici curiae Flexible Pavements, Inc., Ohio Aggregates and Industrial Minerals Association, and Ohio Ready Mix Concrete Association.

Timothy R. Fadel, Cleveland, urging reversal for amicus curiae International Union of Operating Engineers, Local 18.

Ice Miller, L.L.P., and Patrick A. Devine, Columbus, urging reversal on behalf of amicus curiae Ohio Contractors Association.

Kegler, Brown, Hill & Ritter and Ralph Breitfeller, Columbus, urging reversal on behalf of amicus curiae Ohio Equipment Dealers Association.

Jennifer Rhoads, urging reversal on behalf of amici curiae Ohio Petroleum Marketers and Convenience Store Association.

Roetzel & Andress, L.P.A., Thomas Rosenberg, and Michael Traven, Columbus, urging reversal on behalf of amicus curiae American Council of Engineering Companies of Ohio.

CUPP, J.

[Ohio St.3d 565]{¶ 1} This case challenges the constitutionality of the Ohio commercial-activity tax (“CAT”), R.C. Chapter 5751, as applied to gross receipts from motor-vehicle-fuel sales. In particular, we are asked to determine whether the imposition of the CAT on revenues derived from the sales of motor-vehicle fuel is unconstitutional becauseit contravenes the Ohio Constitution, Article XII, Section 5a. For the reasons that follow, we hold that the expenditure of the CAT revenue that is derived from motor-vehicle-fuel sales contravenes the Ohio Constitution. Therefore,[Ohio St.3d 566]we reverse the judgment of the court of appeals and remand the cause to that court for further proceedings.

I. Factual and Procedural Background

{¶ 2} Appellants consist of two groups: contractors and county engineers. The parties who are contractors are Beaver Excavating Company; Broshear Contractors, Inc.; Gerken Paving, Inc.; Independence Excavating, Inc.; Kokosing Construction Company, Inc.; Lykins Companies, Inc.; Ohio Machinery Co., Inc.; Prus Construction Company; The Ruhlin Company; and J.D. Williamson Construction Company, Inc. (collectively, the “taxpayers”). The remaining appellants are the county engineers of Ashland and Highland Counties (collectively, the “county engineers”).

{¶ 3} In 2008, appellants filed a declaratory-judgment action in the Court of Common Pleas of Franklin County against appellee, the Tax Commissioner of Ohio. The taxpayers claimed that in the course of their business, they generated gross receipts derived from motor-vehicle-fuel sales and that they have been improperly subject to, and have paid, the CAT as measured by those gross receipts since July 2007. The county engineers claimed that their budgets for county-infrastructure projects (e.g., highway and bridge construction and repair) depend, in part, on moneys derived from taxes relating to motor-vehicle-fuel sales and that they are being deprived of that money because the CAT is not collected and distributed in a manner consistent with the Ohio Constitution, Article XII, Section 5a. Appellants sought a judgment declaring that the CAT, as it relates to motor-vehicle-fuel sales, violates Section 5a. Additionally, they requested an injunction to prevent the tax commissioner from levying, enforcing, or collecting the CAT as it relates to gross receipts derived from the sales of motor-vehicle fuel.

{¶ 4} The parties filed motions for summary judgment. The trial court granted the tax commissioner's motion and denied the taxpayers and county engineers' motion. The trial court relied heavily on Ohio Grocers Assn. v. Levin, 123 Ohio St.3d 303, 2009-Ohio-4872, 916 N.E.2d 446, reasoning that if the imposition of the CAT on gross receipts derived from food sales is constitutional, then by analogy, the imposition of the CAT on gross receipts derived from motor-vehicle-fuel sales is similarly constitutional. In Ohio Grocers, this court held that the CAT was not an excise tax on the sale of food for off-premise consumption and did not violate the prohibition of sales or excise taxes on food found in the Ohio Constitution, Article XII, Sections 3(C) and 13. Ohio Grocers at ¶ 1.

{¶ 5} The appellate court also applied the rationale and conclusions of Ohio Grocers to the issue presented by appellants, and it affirmed the trial court's judgment. The appellate court concluded that the background and history of Section 5a did not support the contention that the CAT was a tax “relating to” [Ohio St.3d 567]motor-vehicle-fuel sales. Beaver Excavating Co. v. Levin, 10th Dist. No. 10AP–581, 2011-Ohio-3649, 2011 WL 3074417, ¶ 34. The court acknowledged that a relationship exists between the CAT and motor-vehicle-fuel sales, but it held that the “relationship is too attenuated to find that the statutory allocation of the CAT moneys violates Section 5a.” Id. Based on this rationale, the court overruled appellants' first assigned error and overruled without discussion the two remaining assigned errors.

{¶ 6} We accepted appellants' appeal under our discretionary jurisdiction. Beaver Excavating Co. v. Testa, 130 Ohio St.3d 1493, 2011-Ohio-6556, 958 N.E.2d 956.

II. Standing

{¶ 7} Appellants assert that the CAT is unconstitutional because the revenue derived from the CAT relates to the sale of motor-vehicle fuel and the revenue is not being expended in accordance with the restricted purposes of the Ohio Constitution, Article XII, Section 5a.

{¶ 8} As an initial matter, the tax commissioner asserts that appellants lack standing. Standing is a threshold requirement that must be met before a court may consider the merits of a legal claim. Ohio Pyro, Inc. v. Ohio Dept. of Commerce, 115 Ohio St.3d 375, 2007-Ohio-5024, 875 N.E.2d 550, ¶ 27;Cuyahoga Cty. Bd. of Commrs. v. State, 112 Ohio St.3d 59, 2006-Ohio-6499, 858 N.E.2d 330, ¶ 22. Standing exists only when (1) the complaining party has suffered or has been threatened with direct and concrete injury in a manner or degree different from that suffered by the public in general, (2) the law in question caused the injury, and (3) the relief requested will redress the injury. Cuyahoga Cty. Bd. of Commrs. at ¶ 22.

{¶ 9} The tax commissioner contends that appellants do not have standing because the relief appellants requested cannot redress their injury. In support of this argument, the tax commissioner states that the taxpayers question the validity of collecting the CAT and advocate for the cancellation of that tax with respect to its application to motor-vehicle-fuel sales.

{¶ 10} The tax commissioner distinguishes the taxpayers' claim from one that would assert that tax revenues were being expended outside the permissible scope of Section 5a, in which case the proper remedy would be enforcement of the spending restriction. Thus, according to the tax commissioner, because the only remedy a court can impose for violating Section 5a is the enforcement of the spending restraint, not the cancellation of the collection of the CAT as applied to motor-vehicle-fuel sales, the taxpayers' requested relief differs from the relief that is available under Section 5a. The tax commissioner contends that because the relief requested by the taxpayers cannot be obtained, the injury is not [Ohio St.3d 568]redressable in this case, and, thus, the taxpayers lack standing. See, e.g., Clifton v. Blanchester, 131 Ohio St.3d 287, 2012-Ohio-780, 964 N.E.2d 414, ¶ 25–29.

{¶ 11} The tax commissioner acknowledges that the county engineers could have standing but contends that they do not have standing in this case, because they have not requested enforcement of the spending restraint of Section 5a. Finally, the tax commissioner argues that “standing is jurisdictional, the issue is non-waivable, and the Court must satisfy itself that standing exists.”

{¶ 12} We conclude that appellants do have standing.¹ Appellants originated this matter as a declaratory-judgment action. The Declaratory Judgment Act authorizes a party to seek a determination of legal rights, even in the context of a broad constitutional challenge to the imposition of a tax. SeeR.C. 2721.03; Ohio Grocers, 123 Ohio St.3d 303, 2009-Ohio-4872, 916 N.E.2d 446, at ¶ 8;Herrick v. Kosydar, 44 Ohio St.2d 128, 339 N.E.2d 626 (1975). In fact, the General Assembly explicitly anticipated the constitutional challenge raised by appellants. A provision in the CAT legislation, R.C. 5751.31, expressly creates a special procedure for a direct appeal from a tax commissioner's determination to this court, in cases involving the commissioner's authority to assess taxes, if the primary issue is “an issue arising under Section * * * 5a * * * of Article XII, Ohio Constitution.”

{¶ 13} Moreover, in addressing an analogous matter, the United States Supreme Court has found that the argument that a...