2016 Ohio 756
Ohio2016Background
- Veolia Water N.A. Operating Services, Inc. owns and operates a wastewater-treatment plant in Franklin, Ohio, serving three municipalities and several industrial customers (paper/board mills).
- The plant was publicly owned and fully tax-exempt before sale to a private operator; Veolia applied for an exempt-facility certificate under R.C. 5709.20–.21 for real property and personal property at the plant.
- Ohio EPA reviewed the application and recommended certifying only a portion of the property as exempt, calculating a 17% exemption based on the percentage of total wastewater flow that was industrial (Veolia had reported ~17% industrial flow).
- The Tax Commissioner adopted the EPA recommendation and issued a final determination granting a 17% exemption of personal property; Veolia appealed to the Board of Tax Appeals (BTA), which affirmed.
- Veolia argued (1) the entire facility should be fully exempt because industrial pollutants allegedly constitute the primary purpose of the plant, and (2) the Tax Commissioner should have forwarded supplemental evidence to the Ohio EPA; the Supreme Court of Ohio affirmed the BTA.
Issues
| Issue | Plaintiff's Argument (Veolia) | Defendant's Argument (Tax Commissioner/Testa) | Held |
|---|---|---|---|
| Whether the entire facility is tax-exempt as an industrial-water-pollution-control facility | The plant’s primary purpose is treating industrial waste (industrial pollutants predominate), so all property is exempt | Statute requires analyzing property function-by-function (exclusive vs auxiliary); not all items perform pollution-control functions | Denied — exemption must be applied to individual articles; global/full-facility exemption improper |
| Proper measure for partial exemption: flow volume vs pollutant concentration | Exemption percentage should follow share of pollutants (concentration), not mere flow | Use of industrial flow percentage is a practical, permissible measure; concentration varies and lacked sufficient supporting data | Affirmed — flow measurement reasonable and lawful; concentration-based approach unreliable here |
| Burden of proof and application of "primary purpose" test | Primary purpose of plant (treat industrial waste) dictates exemption | Primary-purpose and auxiliary/exclusive-property rules require item-level functional analysis and strict construction against exemptions | Affirmed — applicant bears stringent burden; functionality test controls, not a but-for rationale |
| Whether Tax Commissioner had duty to forward supplemental hearing evidence to Ohio EPA | Tax Commissioner should have submitted Veolia’s supplemental documentation to Ohio EPA for reconsideration | No statutory duty to forward after EPA’s initial review; Veolia could have requested EPA participation at the tax-department hearing but did not | Denied — no error; Tax Commissioner complied with statutory process; EPA would not have adopted a concentration approach anyway |
Key Cases Cited
- Anderson/Maltbie Partnership v. Levin, 937 N.E.2d 547 (Ohio 2010) (exemptions construed strictly; applicant bears clear-burden of showing entitlement)
- Newman v. Levin, 896 N.E.2d 995 (Ohio 2008) (strict-construction principle applied to tax-exemption statutes)
- Transue & Williams v. Lindley, 376 N.E.2d 1341 (Ohio 1978) (certification limited to property used exclusively for pollution control; reject but-for acquisition test)
- Timken Co. v. Lindley, 416 N.E.2d 592 (Ohio 1980) (functional test; disregard taxpayer’s subjective acquisition purpose)
- Sun Oil Co. v. Lindley, 383 N.E.2d 908 (Ohio 1978) (similar limitation to exclusively used pollution-control facilities)
- Ares, Inc. v. Limbach, 554 N.E.2d 1310 (Ohio 1990) (applicant must clearly demonstrate statutory exemption)