Epic Aviation, L.L.C. v. Testa (Slip Opinion), 74 N.E.3d 358

Background

Epic Aviation (vendor) sought a $1,727,790.27 sales-tax refund on jet fuel sold to AirNet Systems (air-cargo carrier) for purchases from Jan. 1, 2006 to Apr. 30, 2009; Epic filed the claim on AirNet’s behalf.
AirNet operated a hub-and-spoke, scheduled cargo-delivery system (bank services and express services) and held an FAA air-carrier certificate authorizing common-carriage operations under Part 135, but did not hold a DOT certificate of public convenience and necessity (49 U.S.C. § 41102 / Part 121).
R.C. 5739.02(B)(42)(a) exempts sales if the purchaser uses the item “directly in the rendition of a public utility service”; R.C. 5739.01(P) defines that phrase and added in 2006 that a holder of a certificate of public convenience and necessity qualifies.
The Tax Commissioner denied the refund, relying on Castle Aviation and emphasizing AirNet’s lack of a public-convenience-and-necessity certificate and alleged lack of sufficient regulatory control. The BTA affirmed.
The Ohio Supreme Court held that holding the DOT certificate is not a prerequisite to exemption; instead the court reaffirmed the common-carrier/public-utility test and directed remand for apportionment of fungible jet fuel used in exempt common-carrier operations.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether jet fuel purchases are exempt as fuel "used directly in the rendition of a public utility service" under R.C. 5739.02(B)(42)(a) and R.C. 5739.01(P)	Epic: AirNet’s scheduled, non-discriminatory hub-and-spoke cargo service constitutes common carriage/public-utility service, so fuel purchases are exempt	Testa: AirNet lacks a DOT certificate of public convenience and necessity and is not under sufficient regulatory control; Castle Aviation controls and bars exemption	Holding: DOT certificate is not a prerequisite; apply the common-carrier test to determine exempt use; remand for apportionment of fungible fuel used in exempt common-carrier operations
Whether Castle Aviation requires broad exclusion of air carriers without DOT certificates	Epic: Castle Aviation was limited to charter/contract carriage and shouldn’t preclude scheduled common carriers	Testa: Castle Aviation’s emphasis on regulation implies most air carriers cannot qualify absent the DOT certificate	Held: Castle Aviation narrowed to its facts; reaffirm common-carrier test rather than a blanket regulatory-control rule
Proper method to determine exemption when fuel is used for both exempt and nonexempt activities	Epic: Argued full exemption (100%) but did not present apportionment evidence	Testa: Deny exemption absent proof; primary-use approach per Castle would bar exemption	Held: Fungible items like fuel require apportionment (B.F. Goodrich rule); remand for audit and allocation to exempt common-carrier use
Whether the case should be remanded for further evidence despite Epic’s failure to apportion originally	Epic: Sought full refund but lacked apportionment proof	Testa: Epic’s failure to request apportionment would normally bar new evidence	Held: Court announced a clarification of law (common-carrier focus) and remanded to tax commissioner to allow evidence and determine exempt portion

Key Cases Cited

Castle Aviation, Inc. v. Wilkins, 109 Ohio St.3d 290 (2006) (affirmed BTA denial of exemption to a charter air service and emphasized regulatory-control analysis)
R.K.E. Trucking, Inc. v. Zaino, 98 Ohio St.3d 495 (2003) (articulated three-part common-carrier/public-utility test for transportation exemptions)
B.F. Goodrich Co. v. Lindley, 58 Ohio St.2d 364 (1979) (fungible items used for both taxable and nontaxable purposes must be apportioned)
Midwest Haulers, Inc. v. Glander, 150 Ohio St. 402 (1948) (defining the principal characteristic of a public utility as service to an indefinite public without discrimination)
Scofield v. Lake Shore & Michigan Southern Ry. Co., 43 Ohio St. 571 (1885) (common-carrier duty to serve the public on equal terms)