Mci Telecommunications Corp., Successor by Merger To Mci Leasing, Inc. v. Joanne Limbach, Tax Commissioner of Ohio
| Decision Date | 20 September 1990 |
| Docket Number | 89AP-870,90-LW-4619 |
| Parties | MCI Telecommunications Corporation, Successor by Merger to MCI Leasing, Inc., Appellant-Appellant v. Joanne Limbach, Tax Commissioner of Ohio, Appellee-Appellee. |
| Court | Ohio Court of Appeals |
APPEAL from the Board of Tax Appeals.
ATTY. MESSRS. JONES, DAY, REAVIS & POGUE, and MR. JOHN C. DUFfY JR., for appellant.
ATTY. MR. ANTHONY J. CELEBREZZE, JR., Attorney General, and MR JAMES C. SAUER, for appellee.
Appellant, MCI Telecommunications Corporation ("appellant"), successor by merger to MCI Leasing, Inc. ("MCI Leasing"), appeals from the judgment of the Ohio Board of Tax Appeals ("board") affirming and modifying the order of appellee, Joanne Limbach, Tax Commissioner of Ohio ("appellee"), concerning personal property tax assessments for the tax years 1981 and 1982.
During the time in question, MCI Leasing was the wholly owned subsidiary of appellant. MCI Leasing acquired telecommunications equipment which was then leased by appellant and integrated into its long distance telecommunications system. As MCI Leasing was the owner of the property, it was required to file an Ohio personal property tax return. This case concerns taxes assessed on equipment owned by MCI Leasing and located in Ohio during the 1981 and 1982 tax years.
Appellant appeals from the judgment of the board asserting the following assignments of error:
The first assignment of error involves five microwave radio transmission and receiving facilities. The parties have stipulated that none of the facilities were licensed to operate by the Federal Communications Commission ("FCC") on the tax listing date for the tax year 1981 and that only three of the facilities were licensed by the tax listing date for 1982. Appellant maintains that, as these facilities were legally incapable of operation, they did not qualify as taxable personal property under R.C. Chapter 5709.
R.C. 5709.01(B) (1) provides that "[a]ll personal property located and used in business in this state *** [is) subject to taxation ***." R.C. 5701.08 defines the term "used in business" and designates four general classes of personal property considered to be used in business and thus subject to taxation.
R.C. 5701.08 reads in pertinent part:
***"
As the facilities in question were as yet unlicensed by the FCC, they were not placed in operation as a part of appellant's telecommunications system. The facilities were, however, installed and physically capable of operation pending only the grant of a license to operate. Appellant maintains that the facilities were legally incapable of operation within the meaning of R.C. 5701.08 until such time as an FCC license to operate was granted. The board rejected this argument, finding that the exclusion applied only to property physically incapable of operation.
Statutory language is given its plain and ordinary meaning, Provident Bank v. Wood (1973), 36 Ohio St. 2d 101. The word "capable" is synonymous in this context with the word "capability," which is defined as being "able, fit or adapted for" or "processing legal power or capacity." Black's Law Dictionary (5 Ed. 1979) 188; see, also, Webster's Third New International Dictionary (1986) 330. Given its plain and ordinary meaning, the word "capable" may refer to either physical or legal capability.
Moreover, this definition is consistent with the legislative intent behind the enactment and amendment of R.C. 5701.08. Ultimately, only personal property "used in business" is subject to taxation. R.C. 5701.08 serves only to further define the term "used in business." In Standard Oil Co. v. Glander (1951), 155 Ohio St. 61, the court held that equipment acquired for business purposes was "used in business" and subject to taxation even though the equipment was then being installed as an addition to a plant otherwise capable of operation. Two years later, the General Assembly amended R.C. 5701.08 "to exclude construction in progress from taxation." Pfizer v. Porterfield (1971), 25 Ohio St. 2d 5, 9. After the amendment, the statute clearly indicated that equipment while under construction or installation to become part of a new or existing plant is not "used in business" until it is placed in operation or capable of operation. Id. In amending R.C. 5701.08, the General Assembly intended to exclude from taxation newly acquired personal property not yet capable of contributing to the business enterprise for which it was acquired. The issue is not whether the equipment is capable of operation in the abstract, but whether it is capable of operation or use in the business for which it was acquired.
Focusing on the equipment's intended use, rather than the equipment alone, is also consistent with other Supreme Court cases on this subject. Where equipment is capable of operation or use in the taxpayer's business, but is currently idle or held in reserve, the equipment is nevertheless capable of operation and thus used in business within the meaning of R.C. 5701.08. Syro Steel Co. v. Kosydar (1973), 34 Ohio St. 2d 9. On the the other hand, where otherwise operable equipment is obsolute and of no use to the taxpayer, and is retained only for disposal, that equipment is not capable of operation in the business for which is acquired and is not subject to taxation. Gannett Satellite Information Network, Inc. v. Limbach (1989), 45 Ohio St. 3d 148.[1]
The microwave transmission and receiving facilities in this case were not capable of operation in the business for which they were acquired. Likewise, the facilities were neither used, nor capable of being used, in appellant's business until the FCC licenses were granted. Newly installed and otherwise operable equipment which is nevertheless incapable of operation in the business for which it is acquired due to a regulatory impediment is not used in business within the meaning of R.C. 5701.08(A).
In the alternative, the board noted that the taxpayer was not engaged in the telecommunications business, but was engaged in the business of leasing telecommunications equipment. Appellee relies on Equilease Corp. v. Donahue (1967), 10 Ohio St. 2d 81, which held that leased equipment is used in business within the meaning of the statute by both the lessee and the lessor. Appellee maintains that, even though appellant was unable to operate the equipment due to the lack of an FCC license, this did not prevent MCI Leasing from leasing the equipment and thus using it in their business.
Appellee's reliance on Equilease, supra, is misplaced. "*** That case merely stands for the proposition that a lessor of leased property is the proper entity to be taxed on such property. ***" CC Leasing Corp. v. Limbach (1982), 23 Ohio St. 3d 204, 207. The issue in CC Leasing concerned the taxation of nuclear fuel assemblies leased by the taxpayer to an electric company. Had the property been owned by the electric company, it would have been taxed at its full value pursuant to R.C. 5711.22(C), as property used for the generation of electricity. The taxpayer-lessor argued that it was engaged in the leasing business and was not subject to the one hundred percent listing requirements applicable to equipment used for the generation of electricity. Finding that the taxpayer's position would allow a utility company to avoid the appropriate tax burden by leasing all its equipment, the court concluded that the property's ultimate use was determinative with regard to R.C. 5711.22. Thus, the property was ultimately used for the generation of electricity regardless of whether it was owned or leased by the electric company.
Although the court did not directly address R.C. 5701.08 in CC Leasing, this court finds the rationale contained therein to be equally applicable to this case. Like CC Leasing, the issue in this case is whether the property was used in the leasing business or the telecommunications business. If the ultimate use test announced in CC Leasing is applicable to determining whether property is taxable, as well as to determining at what rate the property is subject to taxation, appellee's argument is not convincing. See Mid-Ohio Chemical...
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