Global Knowledge Training, L.L.C. v. Levin

• Decision Date: 23 September 2010
• Docket Number: No. 2009-1543.,2009-1543.
• Parties: GLOBAL KNOWLEDGE TRAINING, L.L.C., Appellant, v. LEVIN, Tax Commr., Appellee.
• Court: Ohio Supreme Court

936 N.E.2d 463

2010 -Ohio- 4411

GLOBAL KNOWLEDGE TRAINING, L.L.C., Appellant,

v.LEVIN, Tax Commr., Appellee.

No. 2009-1543.

Supreme Court of Ohio.

Submitted May 11, 2010.

Decided Sept. 23, 2010.

Buckingham, Doolitle & Burroughs, L.L.P., Steven A. Dimengo, and David Hilkert, Akron; and Ropes & Gray, L.L.P., William I. Sussman, and Michael P. Robotti, for appellant.

Richard Cordray, Attorney General, and Damion Clifford, Assistant Attorney General, for appellee.

O'DONNELL, J.

*34 {¶ 1} Global Knowledge Training, L.L.C., a self-described "world leader in education in the areas of information technology, telecommunications, and broadband," appeals from a decision of the Board of Tax Appeals ("BTA"), which affirmed a determination of the tax commissioner to impose a use tax on 34 computer-related training courses that Global provides to employees of its corporate clientsin Ohio based on the commissioner's conclusion that the courses were actually taxable computer-services training.

{¶ 2} On appeal, Global raises constitutional challenges, asserting that the taxing statutes violate free speech by taxing speech based on content and that they deny equal protection of the law by taxing certain types of training courses and not others without a compelling reason for the distinction. Global further claims that the regulatory language is unconstitutionally void for vagueness, as it fails to clarify definitions such as "computer equipment" and "computer systems." Global also challenges the tax imposed on training courses involving routers and switches, which it asserts are not computer equipment; courses involving nontaxable application-software training as opposed to systems-software training; and beginning courses taught to employees who do not, in Global's view, qualify as "computer programmers and operators." The tax commissioner posits that the constitutional claims presented by Global are not properly raised in this court and that Global has not demonstrated that the decision of the BTA with respect to the other challenges is unreasonable or unlawful.

{¶ 3} We lack jurisdiction over Global's free speech and equal protection claims because Global failed to raise them in its notice of appeal to the BTA, and we lack jurisdiction over its void-for-vagueness claim because Global failed to specify it in its notice of appeal to this court. Regarding its nonconstitutional claims, Global has not demonstrated that the decision of the BTA was unreasonable or unlawful *35 except with respect to two courses, which involved nontaxable application-software training, erroneously characterized as taxable by the commissioner.

{¶ 4} Accordingly, except for its decision regarding tax assessed on two courses, the decision of the BTA is affirmed.

Facts and Procedural History

{¶ 5} According to its Senior Vice President for Product Management and Enterprise Solutions, Global "provide[s] training for courses on a variety of topics to corporate employees, funded by the corporation, [and] to professionals in that corporation employed by the corporation." The tax commissioner performed an audit of Global as a vendor of such services for the period July 1, 1997, through June 30, 2000, and determined that Global had improperly failed to collect and remit use tax on a number of courses taught in various business locations in Ohio during that period. The commissioner determined that the courses at issue constituted taxable "computer services" under the "training" provision of R.C. 5739.01(Y)(b). With preassessment interest and penalty, the assessment amounted to $103,269.45. In his final determination, the tax commissioner remitted the penalty, resulting in a final assessment of $91,872.15.

{¶ 6} When purchased for use in business, computer services are subject to sales or use tax in Ohio. R.C. 5739.01(B)(3)(e), 5739.02, and 5741.02(A)(1) and (C)(2). The definition of "computer services" includes "training of computer programmers and operators" when the training is "provided in conjunction with and to support the sale, lease, or operation of taxable computer equipment or systems." R.C. 5739.01(Y)(1)(b).

{¶ 7} The tax commissioner promulgated an administrative rule to clarify the statutory language. The version of the rule in effect during the audit period defined "computer services" as "[t]raining computer programmers and operators," subject to the additional definitions for "programming" and "training." FormerOhio Adm.Code 5703-9-46(A)(2), (5), and (6), 1992-1993 Ohio Monthly Record 824-825, effective March 21, 1993.¹

{¶ 8} The rule defined "training" to mean "instructing computer programmers and operators in the use of computer equipment and its system software." Id. at 825. The rule then defined "systems software" as "all programming that controls the basic operations of the computer, such as arithmetic, logic, compilation or similar functions whether it is an integral part of the computer hardware or is contained on magnetic media." Id. Explicitly excluded from "training" was "instruction in the use of application software or other result-oriented procedures." Id. Reinforcing the same point, the rule stated that "the service of *36 writing, changing, or debugging of application software" was not included in "programming." Id. Finally, the rule defined "application software" to include "programs that are intended to perform business functions or control or monitor processes." Id. Thus, with respect to software training, the rule in effect during the audit period extended the tax to training on "systems software" but not to application software. Id. However, with respect to the types of equipment involved in the training or the persons attending the training, the rule relied more broadly upon the terms "computer equipment" and "computer programmers and operators." Id.

{¶ 9} Global appealed the tax commissioner's final determination to the BTA, arguing that the services it provided did not qualify as "taxable computer services" because (1) it involved training on routers and switches, not "computer equipment," (2) several classes involved nontaxable application software rather than taxable systems software, and (3) some of those attending courses often did not qualify as "computer programmers and operators" as required by statute. Its notice of appeal to the BTA, however, did not raise any constitutional challenges to R.C. 5739.01(Y)(1)(b).

{¶ 10} In its hearing before the BTA, Global presented the testimony of Michael Kevin Fox, a vice-president of Global, and offered ten exhibits in support of its contentions. The BTA rejected Global's claims, finding that routers and switches qualified as "computer equipment," the courses challenged pertained to systems software, except with respect to two challenged courses, and the persons trained qualified as "computer programmers and operators" as used in R.C. 5739.01(Y)(1)(b).

{¶ 11} Global appealed the BTA's decision to this court, challenging the constitutionality of R.C. 5739.01(Y)(1)(b) with respect to free speech and equal protection and urging that the statute as utilized with the tax commissioner's rule is void for vagueness. Global also presents three propositions of law contesting matters raised before the BTA.

Standard of Review

{¶ 12} In Columbus City School Dist. Bd. of Edn. v. Zaino (2001), 90 Ohio St.3d 496, 497, 739 N.E.2d 783, we reiterated that our standard of review from a decision of the BTA is whether it is "reasonable and lawful." While we "will not hesitate to reverse a BTA decision that is based on an incorrect legal conclusion," Gahanna-Jefferson Local School Dist. Bd. of Edn. v. Zaino (2001), 93 Ohio St.3d 231, 232, 754 N.E.2d 789, we will affirm the BTA's resolution of factual issues if the record contains reliable and probative evidence that supports the BTA's findings.Am. Natl. Can Co. v. Tracy (1995), 72 Ohio St.3d 150, 152, 648 N.E.2d 483; Satullo v. Wilkins, 111 Ohio St.3d 399, 2006-Ohio-5856, 856 N.E.2d 954, ¶ 14. As we noted in *37 Nusseibeh v. Zaino, 98 Ohio St.3d 292, 2003-Ohio-855, 784 N.E.2d 93, ¶ 10, the tax commissioner's findings "are presumptively valid, absent a demonstration that those findings are clearly unreasonable or unlawful." Consequently, the taxpayer carries the burden "to show the manner and extent of the error in the Tax Commissioner's final determination." Stds. Testing Laboratories, Inc. v. Zaino, 100 Ohio St.3d 240, 2003-Ohio-5804, 797 N.E.2d 1278, ¶ 30. Specifically, "when an assessment is contested, the taxpayer has the burden ' "to show in what manner and to what extent" ' the commissioner's investigation and audit, and the findings and assessments based thereon, were faulty and incorrect." Maxxim Med., Inc. v. Tracy (1999), 87 Ohio St.3d 337, 339, 720 N.E.2d 911, quoting Federated Dept. Stores, Inc. v. Lindley (1983), 5 Ohio St.3d 213, 215, 5 OBR 455, 450 N.E.2d 687, quoting Midwest Transfer Co. v. Porterfield (1968), 13 Ohio St.2d 138, 42 O.O.2d 365, 235 N.E.2d 511, syllabus.

Constitutional Claims

{¶ 13} Global presents three propositions of law challenging R.C. 5739.01(Y)(1)(b), asserting that it infringes on constitutionally protected speech, violates its constitutional right to equal protection, and is void for vagueness. The tax commissioner contends that these claims are jurisdictionally barred because they either were not specified in the notice of appeal to the BTA or were not sufficiently specified in the notice of appeal to this court.

Free Speech-and Equal-Protection Challenges

{¶ 14} Global asserts that R.C. 5739.01(Y)(1)(b) violates the free-speech guarantees of the First Amendment to the United States Constitution and Section 11, Article I of the Ohio Constitution because the definition of "training" provided in former Ohio Adm.Code 5703-9-46(A)(6), 1992-1993 Ohio Monthly Record 825, impermissibly distinguishes between training in systems software and application software based on the content of speech. Global also advances an...