R. R. Donnelley & Sons Co. v. Porterfield

• Decision Date: 07 June 1972
• Docket Number: No. 71-673,71-673
• Citation: 284 N.E.2d 171,30 Ohio St.2d 219
• Court: Ohio Supreme Court
• Parties: , 59 O.O.2d 260 R. R. DONNELLEY & SONS CO., d. b. a. The Lakeside Press, Appellant, v. PORTERFIELD, Tax Commr., Appellee.

Page 219

30 Ohio St.2d 219

284 N.E.2d 171, 59 O.O.2d 260

R. R. DONNELLEY & SONS CO., d. b. a. The Lakeside Press, Appellant, v. PORTERFIELD, Tax Commr., Appellee.

No. 71-673.

Supreme Court of Ohio.

June 7, 1972.

Syllabus by the Court

The only tangible personal property purchased for use in the printing business which is excepted from sales tax by virtue of that portion of R.C. § 5739.01(E) (2), excepting from such taxation property used or consumed 'directly in the production of tangible personal property for sale by manufacturing (or) processing,' is that property which is used directly in the transformation or conversion of other tangible personal property into marketable products, and does not include tangible personal property used or consumed prior to such transformation or conversion, even where essential to the operation of an 'integrated plant.' (Paragraph four of syllabus of National Tube Co. v. Glander, 157 Ohio St. 407, 105 N.E.2d 648; and Youngstown Building Material & Fuel Co. v. Bowers, 167 Ohio St. 363, 149 N.E.2d 1, approved and followed.)

Appellant herein, the Willard division of R. R. Donnelley & Sons Co., is engaged in the business of printing, under the name of 'The Lakeside Press' in Willard, Ohio. It prints a variety of items, including encyclopedias, dictionaries, textbooks and telephone directories. Appellee, the Tax Commissioner, assessed appellant for sales and use taxes on equipment or supplies purchased by it for use (1) in its composing room or (2) in its offset plate making operations.

In essence, the activity of the composing room is to prepare standing type. Where the appellant has previously done work for the customer, such as in the printing of telephone directories, it is not necessary to prepare completely new standing type, but instead corrections are made in the standing type retained from a prior printing. Standing type is prepared or corrected in the manner described hereafter.

Literary material is received from the customer, along with specifications as to quantity and form. The material to be printed may be received in various forms by the composing room. In the printing of a revised telephone directory, the data may be received in the form of a 'slip copy' (a page of a previous telephone book which has been marked to indicate deletions and additions); a plain typed sheet of paper showing additions and deletions; a teletype print-out showing the additions and deletions; or a punched paper type already programmed to drive appellant's linecaster.

This raw data (except in the case of the punched paper tape which is already in final form) is keypunched onto IBM cards. These cards are run through a computer which transfers the data in accordance with the customer's specifications as to form onto a punched paper tape.

This tape (whether prepared by appellant or supplied by the customer) is then used to drive the linecaster which produces the lines of standing type. By this method of operation the use of a keyboard manually operated linotype machine is eliminated.

Where corrections are to be made as to retained standing type, new lines of type are produced by the linecaster and these, together with a list of the lines of type to be deleted, are given to a compiler who then pulls out the delete or dead lines and inserts the new lines. When the standing type is in final form, its image is transferred either by the use of ink onto a sheet of acetate, or by physical impressions upon a 'hacker proof' or a 'paper plate.'

With the production of the acetate, or the 'hacker proof' or 'paper plate,' the activity of the composing room is completed. The process then moves to the offset plate making area. There, the offset printing plate is produced either from the acetate, the 'hacker proof' or the 'paper plate.' The procedure as to production of the offset printing plate is somewhat different, depending upon which is used.

After the offset printing plate has been attached to the press, ink is applied, and the desired images are transferred (printed) onto a roll of paper. The printed pages are then arranged into sections or 'signatures' (usually 32 pages for a folded section) which are in turn, combined to form the book. The book is then bound in the desired form and delivered to the customers.

On February 28, 1969, the Tax Commissioner issued to the appellant a notice of sales and use tax assessment, including penalty, in the amount of $31,502.43 for the period from January 1, 1965, to December 31, 1967. Thereafter appellant filed petition for reassessment, and, after hearing, the Tax Commissioner reduced the assessment to the sum of $26,387.54. Appeal was then taken to the Board of Tax Appeals which, by entry of September 21, 1971, reduced the assessment to $24,083.29, but rejuected appellant's contention that all items purchased by it for use in its composing room or in the making of the offset plates were excepted from taxation.

The cause is here pursuant to appeal by the taxpayer from the decision of the Board of Tax Appeals.

Mayer, Tingley, Hurd & Emens, Shelby V. Hutchins and David M. Kauffman, Columbus, for appellant.

William J. Brown, Atty. Gen., and Peter A. Stratigos, Canfield, for appellee.

LEACH, Justice.

The issue in this case is whether materials and equipment purchased and used by appellant in its composing room or in its offset plate making operations are excepted from the Ohio sales and use taxes.

Only the question of sales tax need be discussed herein, in view of R.C. § 5741.02(C)(2), which provides that the use tax does not apply to the acquisition of tangible personal property which, if made in Ohio, would be a sale not subject to the sales tax imposed by R.C. §§ 5739.01 to 5739.31.

In order to bring the issues involved herein into proper focus, it should be pointed out that appellant is not asserting that its purchases for use in the composing room and in the offset plate making operations were exempt under the 'use on use' provisions of R.C. § 5739.02(B)(17) as in force and effect from January 2, 1962, until September 1, 1967. See Canton Malleable Iron Co. v. Porterfield (1972), 30 Ohio St.2d 163, at page 174, 283 N.E.2d 434. The application of R.C. § 5739.02(B)(17) was not raised before the Board of Tax Appeals, and thus need not be considered here. Wesleyan University Press, Inc. v. Donahue, Tax Commr. (1966), 8 Ohio St.2d 4, 5, 221 N.E.2d 590. Moreover, such issue was not raised in this court and, in response to questions propounded to counsel for appellant during oral argument, we were informed that a 'policy decision' had been made not to raise such issue.

It should also be pointed out that appellant is not asserting that its purchases were excepted from the definition of 'sale' by that portion of R.C. § 5739.01(E)(2) which excepts sales in which the purpose of the consumer is to use or consume the thing transferred 'directly in making retail sales.' It was upon this basis that this court held in City Blue Printing Co. v. Bowers (1955), 163 Ohio St. 6, 125 N.E.2d 181 that:

'One engaged in the business of producing by photostating, blueprinting, Ozaliding and other similar processes copies of documents, drawings, photographs, prints, etc., the price thereof charged to the customer being largely dependent on the quantity of copies ordered and the type of processing used in their production, is a vendor, and the purchases of the materials he consumes and uses in his business are not subject to sales and use taxes under Sections 5546-2 and 5546-26, General Code (Sections 5739.02 and 5741.02, Revised Code).'

Thus, City Blue Printing does not stand for the proposition that all purchases made by a printing company are excepted or exempted from the sales tax. As noted at page 9 in the opinion, the question there under consideration was 'whether, in the operation of its business, appellant was merely performing a 'service' for its customers and must therefore pay the sales and use taxes as to the items utilized by it in rendering such services, or whether, in producing and delivering copies to its customers of materials submitted by them, it was making a 'sale,' thus obligating the purchasers to pay the tax.'

Subsequent to our decision in City Blue Printing, all doubts as to whether such transactions should be considered as the performance of a 'service,' or as the making of a 'sale,' were resolved by the expansion of the definition of sale in R.C. § 5739.01(B) to 'include all transactions by which printed, imprinted, overprinted, lithographic, mutilithic, blue printed, photostatic, or other productions or reproductions of written or graphic matter are or are to be furnished or transferred.' 128 Ohio Laws 423, effective July 29, 1959. While the 1959 amendment of R.C. § 5739.01(B) enlarged the scope of the transactions by which the customers of a printer the subjected to sales tax, no amendment was made enlarging the scope of R.C. § 5739.01(E)(2) as to exceptions from taxation of tangible personal property purchased by the printer.

Appellant asserts, in effect, that under the provisions of R.C. § 5739.01(E) (2) all of the materials and equipment used by it in its composing room and offset plate making operations are excepted from taxation as being 'used...