Boothe Financial Corp. v. Lindley, 82-1305

• Decision Date: 17 August 1983
• Docket Number: No. 82-1305,82-1305
• Citation: 6 OBR 315,452 N.E.2d 1295,6 Ohio St.3d 247
• Parties: , 6 O.B.R. 315 BOOTHE FINANCIAL CORPORATION, Appellant, v. LINDLEY, Tax Commr., Appellee.
• Court: Ohio Supreme Court

Page 247

6 Ohio St.3d 247

452 N.E.2d 1295, 6 O.B.R. 315

BOOTHE FINANCIAL CORPORATION, Appellant, v. LINDLEY, Tax Commr., Appellee.

No. 82-1305.

Supreme Court of Ohio.

Aug. 17, 1983.

Syllabus by the Court

1. A taxpayer, although assessed at not more than true value, may be unlawfully discriminated against by undervaluation of property of the same class belonging to others. (Southern Railway Co. v. Watts, 260 U.S. 519, 43 S.Ct. 192, 67 L.Ed.2d 375, followed.)

2. A taxpayer who leases equipment is denied equal protection when a competitor, who manufactures and leases essentially identical equipment, is allowed to grossly undervalue his property by reporting the value of his equipment at manufacturing cost less depreciation, and the former is not allowed to report the value of equipment in the same manner.

This is an appeal from a decision by the Board of Tax Appeals ("BTA"). In its decision, the BTA imposed assessments on appellant, Boothe Financial Corporation. ¹ These assessments arose out of appellant's operations in tax years 1970 and 1971.

During those years, appellant owned computer equipment which it leased to customers in Ohio. The equipment appellant leased was manufactured by International Business Machines ("IBM"), and appellant acquired this equipment either by direct purchase from IBM or indirectly through third-party transactions. ² During this period, IBM also leased the same type of computer equipment to customers in Ohio.

On their Ohio personal property tax returns, both IBM and appellant were required to report the leased equipment under Schedule Four as property not used in manufacturing. Each was required to report the "true value" of the equipment. The leased computers were taxed at seventy percent of true value.

IBM based true value on manufacturing cost less depreciation. In its tax returns for 1970 and 1971, appellant filed a claim to reduce the value of its equipment to a level uniform with IBM. Like IBM, appellant sought to reach true value by manufacturing cost less depreciation.

Upon an audit of appellant's return, the appellee's agent increased the true value of the equipment to acquisition cost less depreciation. Consequently, appellant's equipment was assigned a true value approximately six times that of IBM's for the same type of equipment. ³

Appellant filed applications for redetermination with the appellee. In part, appellant argued that the disparity of true value between it and IBM constituted a denial of equal protection. The appellee rejected this argument, finding that it did not have jurisdiction to address this constitutional issue.

Appellant appealed to the Board of Tax Appeals. The board affirmed, without addressing appellant's constitutional claim.

The cause is now before this court upon an appeal as of right.

Porter, Wright, Morris & Arthur, Roger F. Day, George M. Hauswirth and Jean Y. Teteris, Columbus, for appellant.

Anthony J. Celebrezze, Jr., Atty. Gen., and James C. Sauer, Asst. Atty. Gen., for appellee.

HOLMES, Justice.

R.C. 5711.22 required appellant and IBM to list their personal property at seventy percent ⁴ of true value in money. The method for determining true value is set forth in R.C. 5711.18, which provides, in pertinent part:

" * * * In the case of personal property used in business, the book value thereof less book depreciation at such time shall be listed, and such depreciated book value shall be taken as the true value of such property, unless the assessor finds that such depreciated book value is greater or less than the then true value of such property in money. * * * "

In State, ex rel. Park Investment Co., v. Bd. of Tax Appeals (1964), 175 Ohio St. 410, 195 N.E.2d 908 , we discussed the meaning of the term "true value," stating at 412, 195 N.E.2d 908:

"In the last analysis the value or true value in money of any property is the amount for which that property would sell on the open market by a willing seller to a willing buyer. In essence, the value of property is the amount of money for which it may be exchanged, i.e., the sales price."

Since then this court has variously stated that standard, but we have consistently held that ultimately true value is to reflect market value. See, e.g., Grabler Mfg. Co. v. Kosydar (1975), 43 Ohio St.2d 75, 330 N.E.2d 924 ; Conalco v. Bd. of Revision (1977), 50 Ohio St.2d 129, 363 N.E.2d 722 (4 O.O.3d 309]; Meyer v. Bd. of Revision (1979), 58 Ohio St.2d 328, 390 N.E.2d 796 ; and Tele-Media Co. v. Lindley (1982), 70 Ohio St.2d 284, 436 N.E.2d 1362 .

Here, the appellee required appellant and IBM to determine the value of their property by using depreciated book value. IBM based its book value on manufacturing cost, while appellant was required to base its book value on acquisition cost. This resulted in appellant's property being valued at between six and seven times that of IBM's, ⁵ even though, for practical purposes, appellant's property is identical to IBM's.

Appellant does not challenge the lawfulness of the valuation of his property. Rather, appellant argues that allowing IBM to determine the value of its property by using manufacturing cost less depreciation, with its concomitant gross undervaluation, without allowing it the same privilege, denies it equal protection. ⁶ Under the facts of this particular case, we conclude that appellant was denied equal protection of the laws, so we reverse.

States have great discretion in laying taxes; however, the taxing power is subject to the Equal Protection Clause. Allied Stores of Ohio, Inc. v. Bowers (1959), 358 U.S. 522, 526, 79 S.Ct. 437, 440, 3 L.Ed.2d 480. In Hillsborough v. Cromwell (1946), 326 U.S. 620, 66 S.Ct. 445, 90 L.Ed. 358, the court discussed the application of the Equal Protection Clause to tax cases and said, at page 623, 66 S.Ct. at page 448:

"The equal protection clause of the Fourteenth Amendment protects the individual from state action which selects him out for discriminatory treatment by subjecting him to taxes not imposed on others of the same class. The right is the right to equal treatment. * * * "

Also, in Southern Railway Co. v. Watts (1923), 260 U.S. 519, 526, 43 S.Ct. 192, 195, 67 L.Ed. 375, the court spoke on the same subject:

" * * * The rule is well settled that a taxpayer, although assessed on not more than full value, may be unlawfully discriminated against by undervaluation of property of the same class belonging to others. Raymond v. Chicago Union Traction Co. [1907], 207 U.S. 20 [28 S.Ct. 7, 52 L.Ed. 78]." ⁷

By applying these standards to the present dispute, its resolution becomes obvious. Both IBM and appellant were required to report the value of their property so that the value approximated market value. However, the appellee allowed IBM, a manufacturer-lessor, to report its property in a manner, manufacturing cost less depreciation, which caused it to be grossly undervalued. Furthermore, only a manufacturer, IBM, was allowed to so undervalue its property. Thus, the appellee intentionally and systematically treats members of the same class, lessors of equipment, differently because one is a manufacturer. This denied appellant the "right to equal treatment." Hillsborough v. Cromwell, supra. Further, appellant was discriminated against by the undervaluation of IBM's property. Southern Railway Co. v. Watts, supra. See, also, Koblenz v. Bd. of Revision (1966), 5 Ohio St.2d 214, 215 N.E.2d 384. .

Nonetheless, appellee argues that the disparate treatment of IBM and appellant does not violate equal protection. First, appellee correctly states that the different treatment of similarly situated taxpayers does not violate equal protection as long as there is rational basis for that treatment. Lehnhausen v. Lake Shore Auto Parts Co. (1973), 410 U.S. 356, 93 S.Ct. 1001, 35 L.Ed.2d 351; Allied Stores of Ohio, Inc. v. Bowers, supra, 358 U.S. at 527, 79 S.Ct. at 441. Further, appellee argues that there is a rational basis for that treatment because appellant and IBM incurred different costs in securing their respective computers.

This does not justify the disparate treatment here, for, as discussed above, the ultimate end of a tax on true value is a tax on market value. State, ex rel. Park Investment Co., v. Bd. of Tax Appeals; Grabler Mfg. Co. v. Kosydar; Conalco v. Bd. of Revision; Meyer v. Bd. of Revision; and Tele-Media Co. v. Lindley, supra. Consequently, cost figures cannot serve as justification for treating a purchaser-lessor differently from a manufacturer-lessor as each should be taxed on market value. ⁸

Based on the foregoing, we hold that a taxpayer who leases equipment is denied equal protection when a competitor, who manufactures and leases essentially identical equipment, is allowed to grossly undervalue its property by reporting the property's value as manufacturing cost less depreciation, and the former is not allowed to value his property in the same manner.

Accordingly, we reverse the decision of the Board of Tax Appeals, and remand this cause in order that appellant may be allowed to report the value of its property in the same manner as IBM.

Judgment accordingly.

WILLIAM B. BROWN, SWEENEY and CLIFFORD F. BROWN, JJ., concur.

FRANK D. CELEBREZZE, C.J., and LOCHER and JAMES P. CELEBREZZE, JJ., dissent.

FRANK D. CELEBREZZE, C.J., dissenting.

Although the majority's holding may appear to reach a fair result, I dissent because I feel that the valuation of appellant's property is constitutional.

While the statement in paragraph one of the syllabus may be correct, it also is incomplete. The quoted statement from Southern Railway Co. v. Watts (1923), 260 U.S. 519, 526, 43 S.Ct. 192, 195, 67 L.Ed. 375, continues: "But, unless it is shown that the undervaluation was intentional and systematic, unequal assessment will not be held to violate the equality clause." (Emphasis added.) This is a critical omission.

Thus, appellant has the burden of showing that the disparity in valuation...