*1 Bay Appellant, Corporation, & Electrical Mechanical Appellee.
v.
Commr.,
Testa, Tax
Corp.
Testa,
Elec.
Mechanical &
[Cite as
423,
mechanical “employment taxable allegedly respect purchase commissioner through from January which extends period, the audit During services.” treated two entities. the services from Bay purchased December International, Labor Inc. and Construction Tradesmen supplied by (“CLC”) and therefore re- employees “permanent-assignment” Contractors garded the attendant employment services as exempt pursuant to R.C. 5739.oi(jj)(3).1 *2 audit, On the commissioner Bay’s overruled treatment of exempt
{¶ 2} transactions on the that primary ground Bay had failed to supply “facts and circumstances” evidence relation to the assignment of individual employees. appeal, On the BTA testimony found that the summary and the exhibits offered by Bay were prove insufficient to entitlement to exemption, with the result that the BTA affirmed the commissioner’s denial the exemption. Bay Me- Levin, Corp. 2008-K-1687, chanical & Elec. 2446198, No. 2011 WL *3-4 (June 2011). 14, court, Before Bay this renews its contention that language of its
{¶ 3} contracts and the testimony satisfy offered the one-year and permanent-assign- 5739.01(JJ)(3). ment criteria of R.C. We disagree, and we therefore affirm the decision of the BTA. proceedings
I. Course of Bay Mechanical & Electrical Corporation construction contractor that provides various services such HVAC, as plumbing, piping, electrical wiring, and maintenance work. Bay directly employed employees” “core to carry out its projects, but additionally relied on labor supplied by parties third other —in words, Bay purchased services,” “employment which are generally subject to tax sales unless specifically excepted. During the period, audit which 1, 2003, stretches from January through
December Bay held direct-payment permit. Although the sales-tax usually law requires vendors to charge the tax to their consumers and then remit state, collected tax to the 5739.29, see R.C. 5739.03 and another section —R.C. empowers the commissioner to issue direct-payment permits to con- 5739.031— sumers. Under such a permit, the consumer monthly files sales-tax returns that ascertain its own liability to the tax pay on its own purchases.
1. The audit and assessment tax The commissioner commenced his audit of Bay’s purchases awith 13, notification letter February dated 2006. Over months, the course of several the tax agent worked out the method for the Bay. audit with On December 2006, Bay representatives met with the tax agent at Lorain headquarters, issue, period 1. After the audit at Assembly the General “employment amended the definition of 5739.01(JJ) (5). service” at exception paragraph R.C. and added an Sub.H.B. No. 151 Ohio Laws, V, 8842, Part analysis 8864. The amendment is not material of the statute in this opinion, (3) change language and it did not paragraph opinion, however, at all. In this R.C. 5739.01(JJ) refer to during period. the version in effect the audit Laws, III, 4009, Part Tradesmen from purchases taxability meeting, that during February meeting A second subject of discussion. a principal CLC taxability of regarding disagreement not the issues but resolved several that the Tradesmen argued Bay Bay purchased. had services employment sales under assignment” as exempt “permanent were transactions and CLC informa- additional 5739.01(JJ)(3). Bay produce would agreed parties included have information would That additional review. agent’s tax tion for the “job as cost as well and CLC from Tradesmen invoices employment-service accrual information.” supporting sheets and summary had announced Bay’s controller March By letter dated recited The letter information. the additional produce decided not it and contracts between employment-service agent furnished to the had services tax on had sales paid and that Tradesmen and CLC *3 took the vendors. by other employees supplied temporary to specified to regard of the law with intent and the letter “followed the had position his to issue agent proceed the tax to and asked construction labor” leased of additional documentation. without the benefit report preliminary position. own department’s tax audit remarks reveal agent’s The 8}{¶ contracts, the Tradesmen and the three the two CLC contracts reviewing After aas disqualified contracts were that two of the Tradesmen tax concluded agent assignments. nonpermanent referred to they for because exemption basis the existence of clauses contracts, first confirmed agent other reviewing the required by year” were “for at least one that the contracts that established three 5739.01(JJ)(3). Next, remaining although stated agent R.C. employees, they assignment of permanent to indefinite or contracts referred those they specify failed as a basis for because qualify did not With assignment. or indefinite subject permanent to such positions or employees had been Tradesmen, employees arose whether question the additional respect permanent-assign- contract temporary-service to the assigned pursuant contract. ment a use-tax assessment audit, issued department of the As result tax, $105,078.77 of use 25, 2007, payment for May calling
against Bay tax, In addition to services.2 $74,574.65 employment related to which were assessed. and interest penalties tax, no The distinction has not as sales tax. tax owed as use commissioner assessed the context, undisputed of the benefit realization practical significance in this because long as the purchases a taxable “use” as entail within Ohio means services (transactions 5741.02(C)(1) subject unpaid. obligation R.C. separate remains See sales-tax Moreover, tax, paid). if the only tax has been exempted use but the sales tax are from the sales if 5741.02(C)(2). tax, tax, excepted is no use either. purchases from sales there are
2. Petition reassessment for 17, 2007, On July Bay filed petition reassessment, for which chal- lenged the employment-services portion the assessment and stated that Bay was not requesting hearing. An attorney with the tax department’s Office of counsel, Chief Counsel Bay’s wrote to noting that the audit agent had requested information, “additional including comprehensive invoice and time sheet informa- tion for employees supplied to the petitioner by International, Tradesmen Inc. and Construction Labor Contractors.” The attorney stated that the information was “necessary in order to determine whether or not the employees were placed with the petitioner on a permanent H.R. Options, Inc. v. Zaino per basis (2004), 740,” Ohio St.3d and requested that Bay supply it. After second, receiving letter, similar responded counsel that Bay “has declined any to submit information, additional including comprehensive invoice and time sheet information employees supplied Mechanical Tradesmen International, Inc. Contractors,” and Construction Labor while also asserting that provided “[t]he to the auditor during the course of the audit.” The record does not support the latter statement. July On the tax commissioner issued his determination, final
which denied the exemption on the ground had failed to supply “facts and circumstances” evidence in the form of “comprehensive invoice and time- sheet information” and that Bay had failed submit the tax department’s employment-services questionnaire. The commissioner additionally faulted Bay for not supplying contracts with individual employees. The commissioner con- cluded that he could not grant the exemption because Bay had “not supplied *4 the regarding employees’ contracts or the facts and circumstances the regarding employees’ assignments.”
3. The BTA appeal and, appealed to the BTA at the BTA {¶ 12} hearing, presented the testimony Bay’s along controller (1) four summary exhibits. The exhibits (2) identified assigned name, the employees by associated each employee with (3) CLC, either Tradesmen or set forth precise the duration of each employee’s (4) assignment, and stated the reason each employee had stopped working for Bay. The controller testified that she had prepared the by documents referring to the employment-service invoices received from Tradesmen and CLC—documents that the tax agent had requested during the audit but that produced.3 were not brief, reply argues production that its discovery invoices BTA should produce during substitute its failure to them the audit. We address legal this contention in the analysis below. objected tax The commissioner to the introduction of the exhibits on the
grounds evidence, that invoices themselves constituted the but the board received exhibits and them a part made of the record. 14, 2011, June the BTA On issued its decision. BTA stated that
Bay had the burden to that each prove employee covered under the contracts was Bay on assigned meaning permanent were basis— assigned for period indefinite and not either assigned as a substitute for an employee who was on leave or to meet or seasonal short-term workload condi- Mechanical, 2008-K-1687, tions. Bay 2446198, *2, BTA No. 2011 WL citing Zaino, H.R. Options, 373, Inc. v. 2004-Ohio-l, 740, Ohio St.3d 800 N.E.2d ¶ BTA exhibits, 21-22. The found that the controller’s testimony and presenting as they did information from “gleaned us,” records not before did rise to the level of proof required H.R. by Options. Accordingly, the board affirmed the commissioner, final determination of the cause is now us on an before appeal right. Legal Analysis
II.
In a claim for
exemption,
is on
“onus
to show that
taxpayer
language
‘clearly
the statute
expresses]
in relation
exemption’
Levin,
facts of
claim.”
v.
Partnership
127 Ohio St.3d
Anderson/Maltbie
¶
presumptively
absent a
findings
demonstration
those
are clearly
”
Schulman,
Levin,
unreasonable
unlawful.’ A.
Inc. v.
2007-
¶
Ohio-5585,
Zaino,
876 N.E.2d
quoting
Nusseibeh
Ohio
issue. Effective Ohio imposes provision sales and use tax the on 428 Laws, IV, 904, 144 Part at Ohio services.” AmuSub.H.B. No. “employment
of
5739.01(JJ).
5739.01(B)(3)(k)
6698,
and
6598, 6688-6689,
and
codified at R.C.
the definition of
service,
be
to
pursuant
that a
taxable
have held
We
“(1)
5739.01(JJ),
requirements:
meet
at
must
three
employment services R.C.
(2)
basis,
a
or
the
supply personnel
temporary
long-term
on
provide
must
or
or
labor under the
control
perform
supervision
work or
personnel must
(3)
salary,
another,
wages,
must
their
or other
personnel
receive
and
Serv., Inc. v.
of the service.” Moore Personnel
provider
compensation from
¶
Zaino,
337,
429 Options, H.R. that official two types directed to look at of evidence when (1) itself, auditing a claim of exemption: employment-services contract see (2) (JJ)(3), it whether is consistent with the forth at requirements set and in assignment, facts circumstances of the to ascertain actual order whether character, assignment particular was practice employees “indefinite” seasonal, substitutional, or whether the were or to meet assignments designed Id., short-term workload conditions. These our legal analysis appeal. standards furnish the basis for of Bay’s
1. Bay’s argument that contract entitles it to language exemption regard
without
and circumstances is wrong
facts
that “the
of
argues
plain language
[employment
service
21}
{¶
alone is
exemption
contracts]
sufficient”
establish the
with
respect
purchase
employees
services associated
assigned
under those
view,
In Bay’s
contracts.
presence
“permanent”
mere
“indefinite”
assignment terminology in its contracts is
no
dispositive:
inquiry into facts and
circumstances
of individual
assignment
is
employees
necessary.
The foregoing discussion
H.R.
In
establishes that
is mistaken.
22}
{¶
373,
exempt basis under serving are not as they an that period -i.e., to work for indefinite provided — leave, workers, employees on or as labor regular as substitutes for seasonal all It follows that a contract can contain meet workload. needed to a short-term seasonal, substitutional, or on a if a is language, particular employee but right the employee is that provider “supplying” not assignment, short-term-workload R.C. exemption for of for under purposes qualifying to” the agreement “pursuant 5739.01(JJ)(3). production employees contracts with individual
2. The existence and
of
R.C.
exemption
not a
condition
under
necessary
is
for
determination,
faults
for not produc-
In his final
the commissioner
to
Although the commissioner
employees.
appears
contracts with individual
ing
contention,
and
it.
prudent
dispose
think it
to address
of
have abandoned this
373,
ing notably, facts-and-circumstances the employment-service invoices. evidence— But amade deliberate decision to refuse to honor request. Under these *8 circumstances, reasonably lawfully the commissioner acted when he denied the of because failure to produce requested pertinent the documentation. In holding, so we acknowledge may cases arise where a taxpayer’s
{¶ 31} good-faith produce efforts to documentation could failure. In given lead to a case, for example, may destroyed a fire have the relevant records the records in may be of than possession someone other taxpayer by unattainable taxpayer. in Such circumstances might proper justify case suspending the requirement that facts-and-circumstances evidence produced be reviewed. Nor do a taxpayer we hold that comply arbitrary requests must with by the indeed, the power production commissioner’s to require is con- commissioner— principle strained that the request reasonably be calculated to lead to production matter to relevant whether have been permanently within assigned the intendment as construed by II.R. Options. case, however, This presents straightforward refusal by Bay to
{¶ 32} produce clearly request, relevant documents on some of which the taxpayer itself later used to prepare summary exhibits at the BTA. The commissioner therefore acted appropriately denying in the exemption. and, reasonably The BTA acted lawfully affirming in
I.
the commissioner’s denial
the exemption
discussed,
BTA,
As
at the
took a
step beyond
reliance on the
employment-service contracts when it
not
presented
only
testimony
of its
controller, but also four summary
concerning
assignments
exhibits
the individual
that were referable to the
summary
purport
contracts
issue. The
exhibits
periods
particular
show
names and
employees pursuant employment-service
testimony
contracts. The
that their
establishes
founda-
without
requested
had
agent
previously
that the
in invoices
partly
tion lies
of its
because
was not sufficient
the evidence
BTA held
success.
the board.
not before
nature,
documentation
primary
with the
summary
words, the
In other
2008-K-1687,
*3-4.
Mechanical,
2011 WL
BTA No.
to the exhibits.
weight
evidentiary
to accord
decided
discussed)
of the credibil-
(as
BTA’s determinations
already
Because
subject
highly
are
of the evidence
weighing
and its
of witnesses
ity
only if we find
we will reverse
appeal,
review
abuse-of-discretion
deferential
the taxpayer’s contemporaneously submitted claim that had been taxpayer’s support his assess- predicated had on which the commissioner tax returns original contrast, HealthSouth, underlying facts-and-circum- By 25-26. ment. during tax agent neither shown to the in the case was present stances evidence *9 reassessment, nor offered for audit, support petition presented nor record in this case was Accordingly, the hearing. at the BTA as an exhibit summary exhibits on which corroborate the would devoid of documentation rely. chose to to the tax underlying documentation by producing Bay suggests BTA, its earlier at the it cured during discovery commissioner’s counsel CDs for petition in connection with the the audit or during it produce failure producing Bay, penalized it “should not be According to reassessment. before during proceedings [the BTA].” for the first time requested is: did the The issue completely point. beside penalty But imposing BTA could the record so part of documentation ever become primary commission- Neither nor the It did not. deciding Bay’s appeal? it in review Bay had the exhibit. And because hearing as a the documentation presented er determination, it not the commission- the commissioner’s rebutting burden evidence, if he did obtain them even to offer the documents responsibility er’s to relief Moreover, BTA is not entitled at the discovery. taxpayer through Higbee contra his claim. no evidence commissioner adduces merely because the (1942). Evatt, N.E.2d 273 v. Ohio St. Co. To show that BTA no by according weight abused its discretion exhibits, unreasonable, that the hearing prove must BTA’s “attitude is Smucker, Levin,
arbitrary, or unconscionable.” J.M.
L.L.C.
¶
337,
under Evid.R.
the BTA was constrained to accord them some evidential
weight.
disagree.
We
The Rules of Evidence are not
at the
binding
even
though they may be consulted for guidance. Plain Local Schools Bd. Edn. v.
Revision,
Cty.
230,
III. Conclusion reasons, For the foregoing the BTA acted reasonably lawfully when it upheld the tax commissioner’s sales-tax assessment against Bay. We therefore affirm the decision of BTA.
Decision affirmed. O’Connor, C.J., Brown, JJ., and McGee concur. Lanzinger, Cupp, Lundberg JJ., dissent. Stratton, Pfeifer J., not participating.
O’Donnell, *10 J., dissenting.
Pfeifer, The issue before us is a close It Bay one. boils down to whether Mechanical & Corporation Electrical has claim submitted evidence for an exclusion from sales tax. Bay Mechanical believes that the contracts submitting summary assignments of the work at issue to the (“BTA”), Board of Tax Appeals having testify regarding its controller BTA, assignments contracts and work before the submitting underlying counsel are sufficient to establish its documentation to the tax commissioner’s claim. I agree. It would have been better if Mechanical had submitted the necessity appeal earlier —to the tax commissioner before the BTA. It if Mechanical had submitted the would have been better But documentation to the BTA as well as the tax commissioner.
underlying available, readily bottom line is that the information is now was available time of the and is sufficient to establish Mechanical’s appeal I entitlement to the exclusion. dissent.
Lundberg J., foregoing opinion. concurs Stratton, McDowell, L.P.A., Dattilo, T. Joseph Ubbing, Brouse Thomas J. and Caroline Marks, L. for appellant. DeWine, General, Hussain, Attorney Sophia Attorney
Michael Assistant General, for appellee. Appellant. Ohio, Appellee, D.W., State D.W., as State v.
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