Manfredi Motor Transit Co. v. Limbach

• Decision Date: 03 February 1988
• Docket Number: No. 86-1334,86-1334
• Citation: 35 Ohio St.3d 73,518 N.E.2d 936
• Parties: MANFREDI MOTOR TRANSIT CO., Appellant, v. LIMBACH, Tax Commr., Appellee.
• Court: Ohio Supreme Court

Page 73

35 Ohio St.3d 73

518 N.E.2d 936

MANFREDI MOTOR TRANSIT CO., Appellant, v. LIMBACH, Tax Commr., Appellee.

No. 86-1334.

Supreme Court of Ohio.

Feb. 3, 1988.

Manfredi Motor Transit Co., appellant, appeals the refusal of the Board of Tax Appeals ("BTA") to except certain of its purchases from sales and use taxes. The parties stipulated that the appellant, during the audit period of January 1, 1977 through December 31, 1977, operated as a motor transportation company under regulation of the Interstate Commerce Commission and the Public Utilities Commission of Ohio, and as a hauler of liquid waste material not under any specific regulation. The stipulation of the parties provided that the appellant operated in its regulated activity both as a common carrier and as a contract carrier. The stipulation also broke down the three aspects of the appellant's business into revenue, miles operated, and the number of loads hauled.

The Tax Commissioner, appellee, sustained appellant's objection that the hauling done for several of its customers was a public utility activity, but upheld the remainder of the assessment. The initial assessment was reduced from $387,651.30 to $337,442.08. Upon appeal, the BTA affirmed this decision.

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

Thompson, Hine & Flory, Paul W. Brown, Columbus, Stephen L. Buescher and Kent L. Mann, Cleveland, for appellant.

Anthony J. Celebrezze, Jr., Atty. Gen., and Richard C. Farrin, Columbus, for appellee.

PER CURIAM.

In its first proposition of law, appellant challenges the finding of the BTA that appellant was not engaged primarily in rendering a public utility service. The BTA determined that the purchases of items used interchangeably in appellant's public utility service and its non-public utility service were not entitled to an exception. Appellant argues that it was engaged primarily in rendering a public utility service, and that all its purchases of equipment were used or consumed in the rendition of that public utility service and were thus excepted.

The appellant and the BTA misread the statute, R.C. 5739.01(E)(2), which provides for the tax exception, and our decisions which have considered it. The BTA is to determine, first, if the appellant is rendering a public utility service, and, second, whether the items purchased were used directly in the rendition of that public utility service.

Exception from the sales tax pursuant to R.C. 5739.01(E)(2) is provided for items purchased for use or consumption directly in the rendition of a public utility service:

"(E) 'Retail sale' and 'sales at retail' include all sales except those in which the purpose of the consumer is:

" * * *

"(2) * * * to use or consume the thing transferred * * * directly in the rendition of a public utility service * * *."

For the audit period under review, the phrase "used directly in the rendition of a public utility service" was found in R.C. 5739.01(Q) (now [P] ) as follows:

" 'Used directly in the rendition of a public utility service' means that property which is to be incorporated into and will become a part of the consumer's production, transmission, transportation, or distribution system and which retains its classification as tangible personal property after such incorporation; fuel or power used in the production, transmission, transportation, or distribution; and tangible personal property used in the repair and maintenance of the production, transmission, transportation, or distribution system, including only such motor vehicles as are specially designed and equipped for such use." ¹

In Midwest Haulers, Inc. v. Glander (1948), 150 Ohio St. 402, 38 O.O. 261, 83 N.E.2d 53, this court considered the situation where a motor carrier, which had authority to act as a common carrier for the entire audit period, operated as a common carrier only for the second portion of the audit period. It had operated solely as a contract carrier in the first portion of the audit period. We affirmed the decision of the BTA that the taxpayer did not render a public utility service in the first portion of the audit period when it acted as a contract carrier, and the tax was found to be properly assessed. When it operated as a common carrier in the later portion of the audit period, it was rendering a public utility service, the purchases it made were used directly in the rendition of such public utility service, and we affirmed the exception of these purchases from the sales tax. We held that authorization to act as a common carrier is, by itself, insufficient grounds for a taxpayer to take advantage of the exception, but that the "actual operation of a business determines its legal status, and, although Midwest and Mutual were authorized to act as common carriers, they did not in fact so operate but instead acted as contract carriers." Id. at 406, 38 O.O. at 263, 83 N.E.2d at 55.

The actual operation of the business determines whether it is or is not rendering a public utility service. In Midwest Haulers, the taxpayer was entitled to take advantage of the sales tax exception for purchases made by it for direct use in rendering a public utility service, only when it actually operated as a common carrier, rendering such service.

Later, in A.J. Weigand, Inc. v. Bowers (1960), 171 Ohio St. 78, 12 O.O.2d 90, 167 N.E.2d 772, we considered a sales and use tax assessment against a motor carrier which, during the audit period, was engaged both as a common carrier and as a contract carrier. The purchased items under review were all used in furnishing the motor carrier service, and were used interchangeably for both operations. The taxpayer derived the greater part of its revenue from such operations from those services it rendered as a contract carrier. Further, the equipment traversed a greater number of miles in the taxpayer's operation as a contract carrier, rather than as a common carrier. The BTA found that the appellant was principally engaged in operating as a contract carrier and not entitled to exception for the sales tax for these purchases. We affirmed the BTA, agreeing that the principal and primary use to which the purchased property was put was in the taxpayer's operation as a contract carrier, a non-excepted use. This court cited as support Mead Corp. v. Glander (1950), 153 Ohio St. 539, 42 O.O. 24, 93 N.E.2d 19, which first set forth the primary use test for application to sales and use tax exceptions.

Thus, where a taxpayer was engaged in an operation which would provide an exception for its purchase of equipment and also in an operation which would require the levy of the tax, the primary and principal use of the property in question was determinative of the availability of the exception. In Weigand, consideration of the two operations was important only as it bore upon the use of the equipment for which exception was sought. We approved the consideration of the ratio of revenue and the ratio of miles only to determine if the equipment was used more in an excepted versus a non-excepted way. A public utility service was rendered by the taxpayer in Weigand. The question there was whether the use of the equipment was primarily in the taxpayer's operation as public utility service or as a contract carrier.

The BTA places great reliance upon Pittsburgh & Conneaut Dock Co. v. Limbach (1985), 18 Ohio St.3d 320, 18 OBR 365, 481 N.E.2d 579. There, this court considered the operation of a taxpayer which was not regulated by the Public Utilities Commission or the Interstate Commerce Commission, but which voluntarily filed rates and charges with the Interstate Commerce Commission. It claimed that it served an indefinite public, that the public had a right to demand its services, and that it should be considered a "public utility." We disagreed and distinguished Midwest Haulers as a case where the taxpayer was subject to...