N.A.T. Transp., Inc. v. McClain

• Decision Date: 22 April 2021
• Docket Number: No. 2020-0110,2020-0110
• Citation: 165 Ohio St.3d 250,178 N.E.3d 454
• Parties: N.A.T. TRANSPORTATION, INC., Appellant, v. MCCLAIN, Tax Commr., Appellee.
• Court: Ohio Supreme Court

165 Ohio St.3d 250

178 N.E.3d 454

N.A.T. TRANSPORTATION, INC., Appellant,

v.MCCLAIN, Tax Commr., Appellee.

No. 2020-0110

Supreme Court of Ohio.

Submitted January 12, 2021

Decided April 22, 2021

Calfee, Halter & Griswold, L.L.P., James F. Lang, Kelly A. Callam, Cleveland, and Kari D. Hehmeyer, Columbus, for appellant.

Dave Yost, Attorney General, and Daniel P. Porembski, Assistant Attorney General, for appellee.

Per Curiam.

{¶ 1} Appellant, N.A.T. Transportation, Inc. ("N.A.T."), challenges a decision of the Board of Tax Appeals ("BTA") that upheld three use-tax assessments based on N.A.T.’s purchase of three trucks. N.A.T. contends that because it purchased the trucks for use in its business as a for-hire motor carrier, the purchases were exempt from sales and use tax under the "highway transportation for hire" exemption, R.C. 5739.02(B)(32). Both the tax commissioner and the BTA determined that the purchases did not qualify for the exemption, because the use of the trucks to transport waste material to landfills did not qualify as the transportation of "personal property belonging to others," as required by the statute. After careful review of the record and the arguments of the parties, we affirm the BTA's decision in part and reverse in part.

I. BACKGROUND

A. Facts

{¶ 2} The use-tax assessments at issue relate to N.A.T.’s purchases of (1) a 2015 Peterbilt truck, (2) a 2013 Peterbilt truck, and (3) a 2013 Lodal truck. The Lodal truck is designed to pick up and haul residential waste from the curb and is limited to that function. The two Peterbilt trucks are more versatile vehicles that are suited for picking up and hauling trash containers maintained at commercial, industrial, and "institutional" sites, such as schools.

{¶ 3} N.A.T. has held a certificate from the Public Utilities Commission of Ohio ("PUCO") as a for-hire motor carrier for decades and has hauled items such as iron and steel products, machinery, recyclables, and trash. Michael Torok, founder and chief executive officer of N.A.T., testified at the hearing before the BTA that N.A.T. serves some 7,000 residential generators of trash, including about 1,000 pursuant to contracts with political subdivisions and about 6,000 pursuant to "subscriptions," which are less formal agreements. The record contains four refuse-haulage contracts, one between N.A.T. and Wood County and three between N.A.T. and three villages in Wood County. Each contract specifies that all refuse shall be delivered to the Wood County Landfill, and one of the village contracts designates the village as the "Shipper" and N.A.T. as the "For Hire Carrier." Additionally, the company has some 700 commercial/industrial clients and roughly ten institutional customers. The commercial, industrial, and institutional customers designate the destination for disposal of their waste.

{¶ 4} There are effectively three components that make up the amount that N.A.T.’s customers pay in connection with its hauling of their waste. The first component, which is generally determined by volume for residential customers and by container volume (plus an additional charge for being over a certain weight) for commercial, industrial, and institutional customers, is N.A.T.’s fee for transporting the waste from a designated location to a landfill. The second component is a weight-based charge imposed by the landfill. The final component, which Torok referred to as an "excise tax at the gate," is charged by the landfill primarily to cover solid-waste-district fees and fees imposed by the Ohio Environmental Protection Agency ("EPA").

{¶ 5} The record contains an April 2013 letter Torok wrote to N.A.T.’s customers, stating that N.A.T. has "contractual, written, verbal or implied agreements, with all its customers, on the final destination and the disposal or processing of the materials that [it] transport[s]." The letter acknowledged that customers "expect N.A.T. to honor these agreements without exception" and reassured customers that N.A.T. would notify the customers if it became impossible for N.A.T. to comply.

{¶ 6} Also in the record are resolutions concerning the Wood County Solid Waste Management District, the Hancock County Solid Waste Management District, and the Ottawa-Sandusky-Seneca Joint Solid Waste Management District; these resolutions specify that those counties’ solid-waste-disposal facilities are authorized to receive refuse that is picked up within their jurisdiction.

{¶ 7} Ken Rieman, a former director of the Wood County Solid Waste Management District, testified before the BTA about the obligations imposed on generators and haulers in a solid-waste district. He stated that a district (1) imposes "flow control" measures that designate where waste generators must dispose of their waste and (2) levies disposal fees to fund its operations. Generators and haulers who violate their flow-control obligations will be fined if the violations are discovered. These requirements apply to industrial, commercial, and residential waste. Additionally, based on his previous employment experience, Rieman analogized waste haulage to shipping items from an industrial plant: if the recipient of an item sent a "company truck" to pick up the item, then "ownership transferred when the [item] went on the truck." But "[i]f it was a for-hire carrier, the ownership of that [item] would still belong to the plant until it reached" the recipient.

{¶ 8} An Ohio EPA official from the Division of Materials and Waste Management testified that a residential generator of solid waste—as opposed to a generator of hazardous or infectious waste—"has no ongoing environmental liability once the solid waste is picked up by the hauler for proper transportation and disposal." The official additionally testified that the hauler has environmental liability for the proper transportation and disposal of the waste from the time it takes physical possession and control of the waste until it delivers the waste at the disposal site.

B. The decisions below

{¶ 9} N.A.T. sought use-tax exemptions for the three trucks on the ground that it used them to transport personal property belonging to others for consideration, pursuant to R.C. 5739.02(B)(32) and 5739.01(Z). The tax commissioner denied the exemption claims and upheld the assessment for each truck based on this court's decision in Rumpke Container Serv., Inc. v. Zaino , 94 Ohio St.3d 304, 762 N.E.2d 995 (2002). In each final determination, the tax commissioner stated that the question "whether hauling waste is considered hauling personal property belonging to others" had "already been answered" in the negative in Rumpke . The tax commissioner also rejected N.A.T.’s attempts to distinguish its situation from that in Rumpke , finding that, as in Rumpke , the key fact was that N.A.T.’s customers had "relinquished control" of their trash when it was picked up by N.A.T. N.A.T. then appealed the three assessments to the BTA.

{¶ 10} On appeal, the BTA issued a consolidated decision covering all three assessments. Like the tax commissioner, the BTA rejected N.A.T.’s attempt to distinguish Rumpke . In addition to agreeing with the tax commissioner's reasoning, the BTA noted that most of N.A.T.’s residential customers did not "control the disposition of their waste" and that as a result, the present case fell within the ambit of this court's analysis in Rumpke . BTA Nos. 2018-55, 2018-56, and 2018-57, 2019 WL 7340930, *3 (Dec. 23, 2019). The BTA accordingly affirmed all three assessments, and N.A.T. appealed to this court.

II. ANALYSIS

A. Standard of review

{¶ 11} In reviewing a decision of the BTA, we determine whether the decision is reasonable and lawful, deferring to factual determinations of the BTA but correcting legal errors. Accel, Inc. v. Testa , 152 Ohio St.3d 262, 2017-Ohio-8798, 95 N.E.3d 345, ¶ 11. In this case, the BTA made certain factual findings that merit our deference because they are supported by the record.

{¶ 12} N.A.T. asserts a single proposition of law: "A certified for-hire motor carrier in the business of hauling waste materials that does not take ownership of the waste materials it hauls but simply transports its customers’ property to a third-party landfill is entitled to the ‘transportation for hire’ exemption under R.C. 5739.02(B)(32)." This proposition confronts us with a question of law: What must a waste hauler who holds a PUCO certificate as a for-hire motor carrier show in order to qualify its truck purchases for the transportation-for-hire exemption? We determine this issue regarding the meaning and proper application of the statute de novo. Progressive Plastics, Inc. v. Testa , 133 Ohio St.3d 490, 2012-Ohio-4759, 979 N.E.2d 280, ¶ 15.

B. The transportation-for-hire exemption

{¶ 13} The sales tax and the complementary use tax broadly apply to transfers of tangible personal property for consideration. See R.C. 5739.01(B)(1) (sales-tax definition of "sale" includes such transfers); E. Mfg. Corp. v. Testa , 154 Ohio St.3d 200, 2018-Ohio-2923, 113 N.E.3d 474, ¶ 10 ("Under the sales- and use-tax statutes, every sale or use of tangible personal property is presumed to be taxable"), citing R.C. 5739.02(C) and 5741.02(G). For purposes of the sales and use taxes, "tangible personal property" is defined as "personal property that can be seen, weighed, measured, felt, or touched, or that is in any other manner perceptible to the senses"—and the definition expressly includes "motor vehicles." R.C. 5739.01(YY).

{¶ 14} R.C. 5741.02(A)(1) states that use tax is "collected as provided in" R.C. 5739.025. Under R.C. 5739.025(A), use-tax liability is calculated "by multiplying the [purchase] price by the aggregate rate of taxes in effect." And pursuant to R.C. 5741.02(B), each consumer "using * * * in this state tangible personal property * * * shall be liable for the tax" when the use tax has not been collected and remitted by the seller.

{¶ 15} The sales-tax law sets forth certain exemptions from the...