GOODYEAR TIRE & RUBBER COMPANY, APPELLANT, v. TRACY, TAX COMMR., APPELLEE.
No. 98-1010
SUPREME COURT OF OHIO
Decided June 16, 1999.
85 Ohio St.3d 615 | 1999-Ohio-325
Submitted March 10, 1999. APPEAL from the Board of Tax Appeals, No. 96-M-1149.
Thompson, Hine & Flory, L.L.P., Stephen L. Buescher and James C. Koenig, for appellant.
Betty D. Montgomery, Attorney General, and Robert C. Maier, Assistant Attorney General, for appellee.
MOYER, C.J.
{¶ 1} Pursuant to
{¶ 2} Pursuant to the net worth method of
{¶ 3} Taxpayer-appellant, the Goodyear Tire & Rubber Company, is a multinational corporation headquartered in Ohio. Following an audit, the Tax Commissioner assessed Goodyear a corporate franchise tax deficiency for the tax year 1987. The assessment, including interest, totaled $1.1 million and was based, in part, on the commissioner‘s conclusion that Goodyear had understated its franchise tax base by applying an understated property factor to one-half of its issued and outstanding shares of stock.
{¶ 4} Prior to 1986, Goodyear had established and funded a trust in connection with a defined benefit pension plan benefiting certain Goodyear employees. The pension plan agreement stated that Goodyear had no right to the trust property until all liabilities were paid. However, in the event all liabilities were satisfied, residual assets were to be returned to Goodyear. The trust agreement also provided that residual assets were to be returned to Goodyear.
{¶ 5} In 1986, Goodyear determined that the pension trust was overfunded in that the value of the assets in the pension trust exceeded the liability to pay retirement benefits. To reduce the surplus, Goodyear used a portion of the pension trust assets to purchase annuities to fund approximately ninety percent of the total of the retirement plan liabilities. It thereby reduced, but did not eliminate, the pension trust surplus.
{¶ 6} In accounting for these transactions in the company‘s financial books, Goodyear recorded a pro-rata amount of the remaining surplus as a gain in intangible
{¶ 7} In 1988, Goodyear purchased additional annuities to benefit the remaining pension plan participants, thereby providing for payment of all remaining retirement plan liabilities. The remainder of the pension surplus funds were actually received by Goodyear in 1988, after the additional annuities had been purchased to settle the remaining retirement plan liabilities.
{¶ 8} Thus, although Goodyear booked a gain for 1986, those funds were not available to it until termination of the pension plan in 1988, when Goodyear actually received the funds.
{¶ 9} The transactions Goodyear made in 1986 were reflected on Goodyear‘s franchise tax return for tax year 1987. Consistent with its own balance sheet, Goodyear included the value of the pension surplus in reporting the total of “other assets” it owned. It did not, however, report the value of the pension surplus as an asset that it owned in Ohio. Accordingly, in determining the property allocation ratio, Goodyear failed to include the value of the remaining surplus in the numerator of the property fraction.
{¶ 10} In auditing Goodyear‘s 1987 tax return, the commissioner deemed the correct situs of the pension surplus to be Ohio and added its value to the value of Goodyear‘s property in Ohio. The commissioner accordingly increased the property factor (ratio of property owned or used in Ohio to net book value of total property wherever situated) that is used to apportion the value of Goodyear‘s stock for purposes
{¶ 11} Goodyear appealed to the Board of Tax Appeals (“BTA“) from the commissioner‘s final determination. The BTA affirmed, holding that the pension surplus should be included in the value of Goodyear‘s Ohio property and included in the numerator of the property fraction.
{¶ 12} The cause is before this court upon an appeal as of right.
{¶ 13} Goodyear posits as its sole proposition of law that “[a]n intangible asset representing a retirement plan surplus is not includible in the numerator of the property fraction set forth in
{¶ 14}
{¶ 16} Goodyear was required by standard accounting practice to recognize the pension gain on its balance sheet and does not argue that the pension refund amount should not have been shown on its books. By including the intangible asset representing the pension surplus on its books as an asset, it effectively acknowledged that, for franchise tax purposes, the surplus was an asset that it “owned or used.” Therefore, the pension gain was required to be sitused and valued as property either within or without Ohio for purposes of determining the property factor required by
{¶ 17} Goodyear argues that inclusion of the words “owned or used * * * in this state” in
{¶ 18} We reject Goodyear‘s suggestion that
{¶ 19} Moreover, for purposes of determination of franchise tax, Goodyear “used” the pension surplus.
{¶ 20} The next question is whether Goodyear owned or used the intangible property in Ohio. The general theory of the taxation of intangibles is that they are taxed at the residence of the owner (mobilia sequuntur personam). That general theory is set forth in
{¶ 22} In Bush & Cook Leasing, Inc. v. Tracy (1997), 79 Ohio St.3d 87, 90, 679 N.E.2d 1077, 1079, a franchise tax case, this court stated, “Under
{¶ 23}
{¶ 24} Moreover, Goodyear‘s position that the pension surplus should not be included in the property factor numerator is insupportable from a purely mathematical perspective. In calculating the property factor, Goodyear included the pension surplus as an intangible asset in the denominator, as part of all its property, wherever situated. However, Goodyear did not include any value for that intangible asset in the numerator of the property fraction that represents the net book value of the property owned or used by Goodyear in Ohio. Goodyear assigned no value to Ohio for the intangible surplus representing the pension surplus. However, it is axiomatic that the
{¶ 25} Goodyear has not claimed that the pension surplus should be valued as property sitused somewhere other than Ohio. Goodyear merely contends that the pension surplus should not be valued in Ohio. If the pension surplus is an intangible asset that represents part of the value of Goodyear‘s property everywhere, then it must be sitused somewhere, and valued where it is sitused. If the pension surplus is not sitused outside Ohio, then it must be valued in Ohio. If the pension gain is sitused in Ohio, then it must be valued in Ohio and included in the numerator of the franchise tax property fraction.
{¶ 26} We conclude that the pension surplus was an intangible asset not exempt from being sitused in Ohio. Goodyear owned the intangible asset representing the pension surplus. The retirement plan surplus, as an intangible asset owned by an Ohio corporation whose principal office is in Ohio, and not falling within an exemption from being sitused in Ohio, is properly sitused in Ohio. It therefore is includible in the numerator of the property fraction for franchise tax purposes.
{¶ 27} Accordingly, the decision of the BTA, being reasonable and lawful, is affirmed.
Decision affirmed.
DOUGLAS, RESNICK, F.E. SWEENEY, PFEIFER, COOK and LUNDBERG STRATTON, JJ., concur.