Columbus & Southern Ohio Elec. Co. v. Peck

• Decision Date: 03 March 1954
• Docket Number: No. 33619,33619
• Citation: 118 N.E.2d 142,161 Ohio St. 73
• Parties: , 53 O.O. 21 COLUMBUS & SOUTHERN OHIO ELECTRIC CO. v. PECK.
• Court: Ohio Supreme Court

Page 73

161 Ohio St. 73

118 N.E.2d 142, 53 O.O. 21

COLUMBUS & SOUTHERN OHIO ELECTRIC CO. v. PECK.

No. 33619.

Supreme Court of Ohio.

March 3, 1954.

Syllabus by the Court.

1. In the levying of taxes on intangible property pursuant to the provisions of Section 5638-1, General Code, Section 5707.03, Revised Code, the word, 'investments,' must be considered as having the meaning assigned to it in the definition contained in Section 5323, General Code, Section 5701.06, Revised Code.

2. As defined in Section 5323, General Code, Section 5701.06, Revised Code, the term, 'investments,' does not include or embrace a lease of tanglible personal property under which instrument the lessor receives rental or compensation for the use of the personal property covered by the lease.

3. Where a corporation which owns electrically propelled trolley coaches, customarily used in public transportation, leases such coaches for a term of years to another corporation engaged in public transportation, and which lease provides for the payment of an annual amount in money to the lessor as rent for the use of such equipment, provides for the maintenance of such equipment by the lessee and for its return to the lessor at the expiration of the term of the lease, and provides for payment of annual property taxes upon such equipment by the lessor, the lease is not taxable intangible property and the lessor is not required to make an intangible tax return of such lease or of the rental income received under it.

Appeal from the Board of Tax Appeals.

Prior to November 1, 1949, Columbus & Southern Ohio Electric Company, hereinafter referred to as electric company, owned and operated street transportation equipment in the service of the public in Columbus, Ohio. As of that date it transferred all its street transportation equipment to Columbus Transit Company, hereinafter referred to as transit company. A large portion of the equipment was sold outright to the transit company. However, 138 electrically propelled trolley coaches were not sold but were leased by the electric company to the transit company. For reasons here unimportant, three separate leases were executed covering 83, 15 and 40 coaches, respectively. The leases bear the same dates and contain essentially the same provisions. For the purposes of this case they will be referred to herein collectively as one lease.

All the equipment in question had been recently purchased by the electric company and under the applicable depreciation rule for federal taxation the equipment was considered as having a 15-year service life. The term of the lease to the transit company is approximately 13 years which is the remainder of the 15-year service life allowed for depreciation. The lease provides for payment to the lessor, the electric company, of an annual 'rent' comprised of three elements, first, and amount equal to one-fifteenth of the original cost of the equipment, second, an amount equal to three per cent of the currently remaining cost not eliminated by depreciation charges (the base for calculating this three per cent was reduced each year by the payment made during the preceding year) and, third, an amount which would equal the property taxes and insurance charges. The lease also provides for maintenance by the lessee and for return of the coaches to the lessor at the expiration of the lease.

In its Ohio tax return for the tax year 1951, the electric company reported all the 138 coaches as physical property subject to tax, and it paid the property tax thereon in the amount of approximately $28,400. It did not report the lease or the money received under it as taxable intangible property. The Tax Commissioner, upon audit, increased the electric company's return for the year 1951 by including what he considered as the income received from the lease of the trolley coaches and levied an additional assessment of tax in the approximate amount of $10,874. The additional tax so levied represents five per cent of the total amount received by the electric company under the lease for the tax year 1951.

Upon appeal, the Board of Tax Appeals, with slight and immaterial modification, approved the assessment made by the Tax Commissioner.

From the decision of the Board of Tax Appeals the electric company appealed to this court.

Porter, Stanley, Treffinger & Platt, Edmund D. Doyle and William G. Porter, Jr., Columbus, for appellant.

C. William O'Neill, Atty. Gen., Everett H. Krueger, Jr., Cleveland, and W. E. Herron, Columbus, for appellee.

MIDDLETON, Judge.

The taxes here in question were levied pursuant to Section 5638-1, General Code, Section 5707.03, Revised Code, which provides for taxing intangible property and which specifies that 'investments' shall be taxed at five per cent of the income yield. The specific question at issue is whether a lease of personal property is an 'investment' within the definition contained in Section 5323, General Code, Section 5701.06, Revised Code, and, therefore, taxable as intangible property.

Section 5323, General Code, Section 5701.06, Revised Code, upon which the Board of Tax Appeals relied, reads in part:

'The term 'investments' as used in this title, includes the following:

'Shares of stock in corporations, associations and joint stock companies, under whatever laws organized or existing, excepting * * *.

'Interest bearing obligations for the payment of money, such as bonds, certificates of indebtedness, debentures and notes; certificates of deposit, * * *.

'Annuities, royalties and other contractual obligations for the periodical payment of money and all contractual and other incorporeal rights of a pecuniary nature whatsoever from which income is or may be derived, however evidence, excepting * * *.' (Emphasis supplied.)

Briefly stated the exceptions last above mentioned are interests in land, contracts of employment or partnership and salaries, wages, commissions, contracts of insurance, stock purchase plans, pensions and profitsharing plans.

The Board of Tax Appeals also cited and stressed the definition of 'income yield' contained in Section 5389, General Code, Sections 5701.10 and 5711.18, Revised Code. It provides in part:

"Income yield' as used in section 5388 of the General Code [which provides how it shall be listed] and elsewhere in this title means the aggregate amount paid as income by the obligor, trustee or other source of payment to the owner or owners, or holder or holders of an investment, whether including the taxpayer or not, during such year, and includes the following:

'In the case of an obligation bearing interest, the...