Standards Testing Laboratories, Inc. v. Zaino, 100 Ohio St.3d 240 (Ohio 11/12/2003)
| Decision Date | 12 November 2003 |
| Docket Number | No. 2002-1420.,2002-1420. |
| Citation | 100 Ohio St.3d 240 |
| Parties | STANDARDS TESTING LABORATORIES, INC., APPELLEE, <I>v.</I> Zaino, Tax Commr., Appellant. |
| Court | Ohio Supreme Court |
Appeal from the Board of Tax Appeals, No. 98-G-617.
Ulmer & Berne, L.L.P., Lewis T. Barr and Ronald H. Isroff, for appellee.
Jim Petro, Attorney General, and Duane M. White, Assistant Attorney General, for appellant.
{¶1} Standards Testing Laboratories, Inc. ("STL") tests tire rims and tires. After a purchase audit by the Tax Commissioner, STL was assessed a use tax on its purchases of tires, wheels (also referred to as rims), lug nuts, and studs for the period April 1, 1991, through December 31, 1994.
{¶2} STL filed a petition for reassessment with the Tax Commissioner, contending that it purchased the tires, wheels, lug nuts, and studs for resale in the same form as received and, therefore, the sales should be excepted from taxation as sales for resale. The Tax Commissioner affirmed his assessment, finding that STL purchased the materials in question for testing purposes and that it was the consumer and, therefore, the sale-for-resale exception was not applicable.
{¶3} STL appealed from the Tax Commissioner's decision to the Board of Tax Appeals ("BTA"). The BTA reversed the Tax Commissioner, finding that the tires, rims, lug nuts, and studs purchased by STL were purchased with the primary intent to resell them in the same form as received.
{¶4} When STL tests rims for its customers, tires are mounted on the rims. When a customer wants a rim tested, it sends the rim to STL along with a request stating the specific tests that it wants conducted. Some customers send tires along with the rims they want tested. However, sometimes customers do not send enough tires to complete the tests, and additional tires have to be purchased for them by STL. Other customers do not send any tires with the rims.
{¶5} STL has a standing agreement with one major customer that STL is to obtain the tires it believes are needed for testing a rim and immediately bill the customer for the cost of the tires plus a markup. For other customers that do not initially furnish any tires or do not furnish enough tires to complete the testing, STL contacts the customer to obtain its permission to purchase the needed tires and to bill it. If a customer says no to STL's request for permission to purchase, STL tells the customer how many tires the customer needs to furnish. Likewise, when a customer specifies that special lug nuts or special studs (collectively referred to as "special parts") are to be used in running a test, and they are not furnished by the customer, STL contacts the customer to obtain its permission to purchase those special parts. STL never purchases tires ahead with the expectation of selling them to a customer. All the tires purchased by STL are purchased for a customer's test and billed to a customer. If the required tires or special parts are not furnished by the customer, STL cannot do the testing.
{¶6} When STL purchases tires, it provides its seller with a blanket exemption certificate stating that the sale is a sale for resale. STL does not bill its customers for any sales or use tax, because its customers have provided it with either a direct pay permit number or some other claim of exemption.
{¶7} When the tires are delivered to STL, whether those furnished directly by the customer, those furnished by the customer through delivery from a manufacturer, or those purchased by STL for the customer, they are marked to identify them as belonging to a particular customer. Any tires not used in the testing are stored in STL's warehouse for future use by the customer or otherwise disposed of as directed by the customer. Tires purchased for one customer are never used for another customer. All tires, whether initially furnished by the customer or purchased for the customer by STL, that are destroyed or used up during the testing are scrapped by STL, and the state-mandated disposal fee is charged to the customer.
{¶8} When STL purchases tires or special parts for its customers, it bills the customers at STL's cost plus a markup. Except for the one major customer that is billed for tires at the time of STL's purchase, other customers are billed for the tires and special parts when STL bills for the testing. However, when the charges for the tires or special parts are shown on the same bill as the charges for testing, they are itemized and stated separately from the testing charges.
{¶9} This cause is now before the court upon an appeal as of right.
{¶10} In reviewing decisions of the BTA, we determine whether the BTA's decision is reasonable and lawful. We stated our role in Strongsville Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision (1997), 77 Ohio St.3d 402, 405, 674 N.E.2d 696:
{¶11}
{¶12} The question presented by this case is whether the transactions between STL and its customers were sales for resale. Although the tax in question is a use tax, we will discuss only sales tax provisions because R.C. 5741.02(C)(2) excepts from the use tax 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. Chapter 5739.
{¶13} The Tax Commissioner contends that the purchases in question, i.e., tires, wheels, and special parts, are not entitled to the sale-for-resale exception, because there was no sale of these items by STL to its customers.
{¶14} The sale-for-resale exception in R.C. 5739.01(E)(1) provides:
{¶15} "(E) `Retail sale' and `sales at retail' include all sales except those in which the purpose of the consumer is:
{¶16} "(1) To resell the thing transferred * * * by a person engaging in business, in the form in which the same is, or is to be, received by the person[.]"
{¶17} The term "sale" is defined in R.C. 5739.01(B)(1):
{¶18} "(B) `Sale' and `selling' include all of the following transactions for a consideration in any manner, whether absolutely or conditionally, whether for a price or rental, in money or by exchange, and by any means whatsoever:
{¶19} "(1) All transactions by which title or possession, or both, of tangible personal property, is or is to be transferred, or a license to use or consume tangible personal property is or is to be granted[.]"
{¶20} When STL purchases tires or special parts for a customer, it does so either pursuant to a standing agreement with its customer concerning such purchases or after it contacts the customer and receives permission to make the purchase. In order for there to be a resale of tires or special parts by STL to its customer, there has to be a transfer of title or possession from STL to its customer. There are no title documents for the items in question, and there is no change of possession from STL to its customer. Nevertheless, a determination must be made as to whether there has been a transfer of title from STL to its customer.
{¶21} Unfortunately, the sales tax statutes do not define "title." However, in prior cases we have consulted R.C. 1302.42 when we have needed to determine whether title has transferred for sales tax purposes. PPG Industries, Inc. v. Lindley (1982), 1 Ohio St.3d 212, 1 OBR 237, 438 N.E.2d 907; Arga Co. v. Limbach (1988), 36 Ohio St.3d 220, 522 N.E.2d 1074; Wheeling Steel Corp. v. Porterfield (1970), 21 Ohio St.2d 57, 50 O.O.2d 135, 255 N.E.2d 257.
{¶22} R.C. 1302.42(B), which deals with the passing of title, provides:
{¶23} "(B) Unless otherwise explicitly agreed, title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods * * *."
{¶24} STL made agreements with its customers that it would purchase tires and special parts and sell them to the customer so the items could be furnished to STL for its use in the testing requested by the customer. STL contends that it made these purchases and resold them to its customer as an accommodation because if the items were not furnished by the customer, STL could not perform the testing.
{¶25} In addition to having STL procure the tires and special items needed to perform the testing requested by the customer, STL's customers also furnished STL with the tires and special parts in other ways. Sometimes customers sent the tires and...
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Standards Testing Laboratories, Inc. v. Zaino, 2002-1420.
...100 Ohio St.3d 2402003-Ohio-5804797 NE 2d 1278 ... ...