2017 Ohio 8798
Ohio2017Background
- Accel, Inc. purchased components and assembled gift sets and contracted with staffing firms (Resource Staffing and Manpower) for production labor; Ohio Tax Commissioner audited Accel for consumer-use tax (2003–2009) and assessed roughly $3.22 million (tax, interest, penalty).
- Accel appealed to the Board of Tax Appeals (BTA); BTA partially reversed the assessment, finding (1) materials used in gift sets were exempt under the exemption for items incorporated by "assembling," and (2) services from Resource Staffing were exempt under the permanent-assignment employment-services exemption, but Manpower services were taxable.
- The Tax Commissioner appealed the BTA findings, arguing the BTA should have deferred to his factual findings and that Accel’s operations were mere "packaging," not "assembling"; Accel cross-appealed on time-bar (R.C. 5703.58(B)), manufacturing exemption, and exemption for Manpower transactions.
- The Ohio Supreme Court reviewed de novo legal issues and for reasonableness and lawfulness the BTA’s factual findings (with deference to credibility and weighing of evidence).
- Court affirmed the BTA: it agreed that Accel’s gift-set production constituted "assembling" (despite also involving packaging), upheld Resource Staffing exemptions under the facts-and-circumstances permanent-assignment test, rejected Accel’s time-bar argument because the statute postdated the assessment, and found no reversible error on experts’ evidence rulings.
Issues
| Issue | Plaintiff's Argument (Accel) | Defendant's Argument (Testa) | Held |
|---|---|---|---|
| Whether gift-set production qualifies as "assembling" (exempt) vs. "packaging" (taxable) | Accel: assembling of components into a new marketable product; thus exemption applies | Testa: activity is packaging (excluded from "assembling") and noscitur a sociis limits "assembling" to transformative operations | Held: Activity legitimately involves assembling (fits R.C. definitions); packaging can be incidental—exemption affirmed for assembled gift sets |
| Whether Accel’s operations constitute "manufacturing operation" independent of assembling claim | Accel: operations meet manufacturing definition and thus exempt | Testa: activity not manufacturing; only packaging/assembly issue is central | Held: Court did not decide manufacturing; because assembling exemption applies, no need to resolve manufacturing claim |
| Whether personnel supplied by Resource Staffing are "assigned on a permanent basis" (employment-service exemption) | Accel: facts show employees returned and were retained across seasons; permanent-assignment exemption applies even if contract lacks magic words | Testa: written contract must "specify" permanent assignment; seasonal fluctuations show assignments were not permanent | Held: BTA reasonably found permanent assignment under H.R. Options facts-and-circumstances test; exemption affirmed |
| Whether personnel supplied by Manpower qualify for permanent-assignment exemption | Accel: affidavit and practice show intended long-term assignments | Testa: evidence insufficient; seasonal/short-term nature | Held: BTA reasonably found Manpower evidence inadequate to show permanent assignment; transactions taxed |
Key Cases Cited
- Hatchadorian v. Lindley, 21 Ohio St.3d 66, 488 N.E.2d 145 (discusses deference/standard for challenging Tax Commissioner findings)
- Sauder Woodworking Co. v. Limbach, 38 Ohio St.3d 175, 527 N.E.2d 296 (distinguishes packaging from exempt manufacturing/assembly)
- Cole Natl. Corp. v. Collins, 46 Ohio St.2d 336, 348 N.E.2d 708 (packaging may be incidental to a product’s primary use)
- H.R. Options, Inc. v. Zaino, 100 Ohio St.3d 373, 800 N.E.2d 740 (permanent-assignment test: indefinite assignment + not seasonal/substitute)
- Bay Mechanical & Elec. Corp. v. Testa, 133 Ohio St.3d 423, 978 N.E.2d 882 (confirms facts-and-circumstances approach over reliance on contract "magic words")
- Scholz Homes, Inc. v. Porterfield, 25 Ohio St.2d 67, 266 N.E.2d 834 (defines "assembling" as more than mere gathering; fitting parts into an operative whole)
- Fichtel & Sachs Indus., Inc. v. Wilkins, 108 Ohio St.3d 106, 841 N.E.2d 294 (packaging is not processing; facts distinct from assembling into new product)
- Krehnbrink v. Testa, 148 Ohio St.3d 129, 69 N.E.3d 656 (taxpayer bears burden to show commissioner’s findings incorrect)