Citizens Financial Corp. v. Kosydar

• Decision Date: 16 July 1975
• Docket Number: No. 74-1076,74-1076
• Citation: Citizens Financial Corp. v. Kosydar, 43 Ohio St.2d 148, 331 N.E.2d 435 (Ohio 1975)
• Parties: , 72 O.O.2d 83 CITIZENS FINANCIAL CORP., Appellant, v. KOSYDAR, Tax Commr., Appellee.
• Court: Ohio Supreme Court

Page 148

43 Ohio St.2d 148

331 N.E.2d 435, 72 O.O.2d 83

CITIZENS FINANCIAL CORP., Appellant, v. KOSYDAR, Tax Commr., Appellee.

No. 74-1076.

Supreme Court of Ohio.

July 16, 1975.

Gingher & Christensen and Ray G. Brown, Columbus, for appellant.

William J. Brown, Atty. Gen., and John C. Duffy, Jr., Columbus, for appellee.

PER CURIAM.

Taxpayer's contention with respect to the off-line computerization method is that the 'printout' received by the customer is an inconsequential element of a personal service transaction for which no separate charge is made, and is therefore excepted from the sales tax under R.C. 5739.01(B). Taxpayer contends also that the use of its equipment by customers in connection with the on-line method does not constitute a license for such use, but is a part of its programming and related personal service, and such use is an inconsequential element for which no separate charge is made and is excepted from sale tax under R.C. 5739.01(B).

OFF-LINE METHOD.

Accountant's Computer Services v. Kosydar (1973), 35 Ohio St.2d 120, 298 N.E.2d 519, provides the criteria for determining whether a sale of tangible personal property is excepted from taxation under the last sentence of R.C. 5739.01(B). Such sentence reads, in pertinent part ("Sale' and 'selling' do not include professional, insurance, or personal service transactions which involve the transfer of tangible personal property as an inconsequential element, for which no separate charges are made.' There is no question here that a consequential service was rendered.

Paragraph one of the syllabus in Accountant's recites, in part: 'If a consequential service is rendered, then it must be ascertained whether the transfer of the tangible personal property was an inconsequential element of the transaction.' Paragraph two of the syllabus then leads us to the more specific determination which is necessary for ascertaining whether in a mixed transaction (including both personal service and transfer of tangible personal property), as here, the transfer of tangible personal property is an inconsequential element of the transaction. The test recited in Accountant's is whether '* * * the real object sought by the buyer (is) the service per se or the property produced by the service.' As stated in the syllabus in distinction must be made as to the 'True object of the transaction contract.'

The board concluded that the real object sought by the taxpayer's customers was the property produced, i. e. 'hard copy printouts.' There was no claim by taxpayer of being consulted with respect to analysis or problem solving. As noted by the board: '* * * Appellant did sort, classify and arrange the data to conform to the needs of its clients, but it did not advise the clients regarding what direction the clients should take in formulating their approach to the business world.' The board correctly resolved the factual determination on the basis of the test set forth in Accountant's, and such resolution is supported by the record.

ON-LINE METHOD.

Of relevance here is the first sentence of R.C. 5739.01(B), which reads, in pertinent part, that 'sale' shall include all transactions where '* * * a license to use or consume tangible personal property is or is to be granted * * * for a consideration in any manner * * *.' Taxpayer argues, as in the off-line method, that the use of its equipment by its customers is inconsequential as relates to its computer system and programming thereof, and constitutes a personal service transaction under the last sentence of R.C. 5739.01(B) which grants exception for '* * * personal service transactions which involve the transfer of tangible personal property as an inconsequential element, for which no separate charges are made.'

The board's decision, supported by the record, reflects mechanized transactions initiated by the customers subsequent to original programming by appellant, so that '(t)he overall service was not substantially made by the persons rendering the service, and a personal service transaction did not occur * * *.' The board cites Koch v. Kosydar (1972), 32 Ohio St.2d 74, 290 N.E.2d 847, as to the criteria to be used in determining whether a personal service transaction exists. Further, the record supports the decision of the board in applying the test in Accountant's, supra, 'that the use of appellant's computer system is the real reason for and the true object of the transaction contracts between appellant and its clients.'

The decision of the Board of Tax Appeals is neither unreasonable nor unlawful, and is, therefore, affirmed.

Decision affirmed.

C. WILLIAM O'NEILL, C. J., and HERBERT, J. J. P. CORRIGAN, STERN and CELEBREZZE, JJ., concur.

WILLIAM B. BROWN and PAUL W. BROWN, JJ., dissent.

PAUL W. BROWN, Justice (dissenting).

The board's decision in the instant case is both unreasonable and unlawful, and is neither supported by any evidence nor by the board's own finding.

The 'personal service exception' contained in R.C. 5739.01(B) excepts from sales taxation any inconsequential transfer of tangible personal property incidental to a personal service transaction. As I indicated in my dissent in United States Shoe Corp. v. Kosydar (1975), 41 Ohio St.2d 68, 322 N.E.2d 6 68, this exception must be seriously distorted before it can be construed to impose a tax upon a service transaction.

A transaction which consists of full service data processing of customer furnished information by the use of a computer program is a service transaction not subject to sales tax under the Ohio sales and use tax laws. Althouth the incidental delivery to the customer of a printed write-out of the data processing result of such a service, for which no separate charge is made, is a transfer of tangible personal property, its presence does not make the service transaction taxable. That the service contract is performed by persons rather than machines is of interest, in my view, only to the extent that it bears upon determination as to whether the service performed is personal in nature, thus excepting from taxation the incidental transfer of tangible personal property.

Where the service is 'personalized,' that is, where the charges are for processing...