2022 Ohio 725
Ohio2022Background:
- Cincinnati Federal paid Fiserv for account-processing services (2013–2015); Fiserv maintained the bank’s general ledger and provided real-time updates for teller and non-teller transactions.
- The bank sought a $57,412.58 sales-tax refund, arguing the charges were for nontaxable "personal or professional services": (a) accounting services under R.C. 5739.01(Y)(2)(a) and (b) custom software/design services under R.C. 5739.01(Y)(2)(e).
- The Tax Commissioner denied the refund; the Board of Tax Appeals (BTA) affirmed, treating the customization provision as an exemption and applying a strict-exemption rule.
- The Ohio Supreme Court reviewed whether Fiserv’s services constituted taxable automatic data processing (ADP) or electronic information services (EIS) or instead nontaxable personal/professional services.
- The Court affirmed the BTA’s denial as to the accounting-services claim (Y)(2)(a), vacated the BTA’s decision as to the customization claim (Y)(2)(e), and remanded for the BTA to apply the statutory true-object test to individual charges.
Issues:
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether software customization (R.C. 5739.01(Y)(2)(e)) makes charges nontaxable | Fiserv customized software for Cincinnati Federal (general-ledger, reports) so charges are for custom-software/design services and thus nontaxable | Transactions are payments for services using Fiserv’s software (ADP/EIS), not purchases of custom software; no sufficient customization evidence | BTA erred treating (e) as an exemption. Court vacated BTA on (e) and remanded: apply the true-object test to individual charges to determine taxability |
| Whether Fiserv’s services are nontaxable accounting services (R.C. 5739.01(Y)(2)(a)) | Fiserv effectively replaced the bank’s accounting/bookkeeping functions (maintained general ledger), so services are accounting and nontaxable | Fiserv’s work is performed by computer systems (ADP/EIS); no evidence of accounting services performed by individuals or licensed professionals | Affirmed: services are ADP/EIS and taxable because record shows no accounting services performed by individuals or licensed accountants |
| Whether the BTA’s findings lack probative evidence | BTA ignored expert/fact testimony characterizing services as accounting | Record (invoices, testimony) supports the BTA’s findings | Rejected plaintiff’s challenge; factual findings supported the denial on accounting claim, but remand required on customization claim |
| Whether items in R.C. 5739.01(Y)(2) function as exemptions requiring strict construction | Plaintiff treats listed services as exempt; BTA applied strict-exemption rules | State argues taxability of ADP/EIS and treats (Y)(2) items as personal/professional services that can be ‘‘bundled’’ with ADP/EIS | Court: (Y)(2) items identify distinct personal/professional services, not standalone exemptions; apply the true-object test to mixed transactions (majority). Concurring justice cautioned against a presumption favoring taxation in statutory construction |
Key Cases Cited
- Satullo v. Wilkins, 111 Ohio St.3d 399 (Ohio 2006) (statements about strict construction of tax exemptions)
- N.A.T. Transp., Inc. v. McClain, 165 Ohio St.3d 250 (Ohio 2021) (standard of review for BTA decisions; taxpayer burden on exemption claims)
- Marc Glassman, Inc. v. Levin, 119 Ohio St.3d 254 (Ohio 2008) (ADP/EIS determinations as ultimate facts subject to review)
- ComTech Sys., Inc. v. Limbach, 59 Ohio St.3d 96 (Ohio 1991) (presumption that transactions involving ADP/EIS are taxable, subject to taxpayer rebuttal)
- Genuine Parts Co. v. Limbach, 62 Ohio St.3d 93 (Ohio 1991) (services incidental to accounting may be nontaxable where the provider performed broad, person-based bookkeeping/accounting functions)
- Epic Aviation, L.L.C. v. Testa, 149 Ohio St.3d 203 (Ohio 2016) (rejecting all-or-nothing approach; taxability can be determined per transaction or purchase)
- Anderson/Maltbie Partnership v. Levin, 127 Ohio St.3d 178 (Ohio 2010) (discussion of exemptions and burden of proof)
- Application of American Legion, 151 Ohio St. 404 (Ohio 1949) (tax-exemption principles requiring clarity of statutory exemption)