Pi in the Sky, L. L.C. v. Testa
119 N.E.3d 417
| Ohio | 2018Background
- Pi In The Sky, LLC (single-member entity owned by Mitchell's Salon and Day Spa) purchased a $1.2M aircraft but did not pay Ohio sales/use tax at purchase; same-day lease (dry lease) assigned the aircraft to Mitchell's with $80/hour rent. Deborah Schmidt signed for both entities and personally financed most of the purchase.
- Ohio Tax Commissioner assessed use tax (plus interest and penalty), concluding Pi In The Sky’s purchase was taxable because it was not a bona fide resale (sale-for-resale exception) and the lease was a sham under R.C. 5703.56(A)(1).
- Tax commissioner relied on factors: single lessee (owner’s affiliate), no marketing to third parties, no separate business location, unusually low rent relative to purchase debt service, one person signing for both entities, flight logs suggesting personal use, and Schmidt’s personal loan.
- Pi In The Sky petitioned the BTA, waived an evidentiary hearing, submitted additional exhibits that were not part of the certified record, and the BTA affirmed the commissioner’s determination.
- The Supreme Court reviewed whether Pi In The Sky was “engaging in business” under the sale-for-resale exception and whether the BTA erred in excluding supplemental exhibits and certain discovery requests.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Pi In The Sky’s purchase qualified for the sale-for-resale exception (R.C. 5739.01(E)) because it leased the aircraft | Pi In The Sky: It intended to lease the aircraft and received lease payments; holds vendor’s license; therefore purchase was for resale (nontaxable). | Tax Commissioner: Lease lacked substance and arm’s-length characteristics; entity was not engaging in business for gain; purchase therefore taxable. | Held: Not engaging in business; sale-for-resale exception not met; assessment affirmed. |
| Whether the lease was a sham under R.C. 5703.56(A)(1) | Pi In The Sky: Arrangement was legitimate aircraft-holding and leasing structure protecting privacy and administrative convenience. | Tax Commissioner: Transaction was structured solely to avoid tax; indicia show single-purpose, noncommercial arrangement. | Held: Court declined to reach sham-transaction issue because sale-for-resale failed; BTA’s findings support tax result. |
| Whether the BTA erred by refusing to consider seven exhibits submitted with Pi In The Sky’s brief | Pi In The Sky: Exhibits are legal authority and relevant evidence that the BTA should have considered. | Tax Commissioner: Exhibits were not part of the certified record and Pi In The Sky waived a hearing; BTA properly limited record. | Held: BTA acted reasonably and lawfully in confining decision to materials certified by the commissioner; any error as to non-binding legal materials was harmless. |
| Whether the BTA abused discretion on discovery rulings (motion to compel; deeming admissions) | Pi In The Sky: Commissioner’s discovery responses were deficient; late responses should have been deemed admitted. | Tax Commissioner: Requests for discovery went beyond record; Pi In The Sky forfeited ability to supplement record by waiving a hearing; any late admission would not alter outcome. | Held: No reversible abuse of discretion; even if one late admission (vendor’s license) was deemed admitted, it would not establish engaging-in-business for resale exemption. |
Key Cases Cited
- Satullo v. Wilkins, 111 Ohio St.3d 399 (2006) (explains sale-for-resale exception and standard that nonretail purchases for resale are not taxable)
- Standards Testing Laboratories, Inc. v. Zaino, 100 Ohio St.3d 240 (2003) (defines sale-for-resale exception context)
- Crown Communication, Inc. v. Testa, 136 Ohio St.3d 209 (2013) (BTA’s legal questions reviewed de novo)
- HealthSouth Corp. v. Testa, 132 Ohio St.3d 55 (2012) (BTA’s factual credibility determinations reviewed for abuse of discretion)
- HK New Plan Exchange Property Owner II, L.L.C. v. Hamilton Cty. Bd. of Revision, 122 Ohio St.3d 438 (2009) (BTA’s discovery rulings reviewed for abuse of discretion)
- Mason City School Dist. Bd. of Edn. v. Warren Cty. Bd. of Revision, 138 Ohio St.3d 153 (2014) (declines to address undeveloped arguments)
- Corrigan v. Illuminating Co., 151 Ohio St.3d 85 (2017) (arguments raised first in a reply brief are waived)