Lyden Co. v. TracyLyden Co. v. Tracy
Taxation—Sales tax—Fuel dispensing equipment exempt, when—For purposes of
For purposes of
{¶ 1} Appellant Lyden Co. sells gasoline and other products at wholesale and retail in independently owned gasoline service stations and connected convenience food stores. It owns and operates its own stores, and consigns gasoline to dealer-operated stores, which it also owns. It installs its own gasoline dispensing equipment at both types of locations.
{¶ 2} During 1987 through 1990, Lyden purchased material for, and installed, underground tanks and pumps at various locations. It excavated the sites and set tanks in the excavated cavities. Lyden placed a submersible pump in each tank, laid piping from the submersible pump to the gasoline dispensing islands, and connected the piping to the gasoline dispensing equipment at the islands. Lyden ran electrical wiring through conduit, backfilled with sand or pea gravel, and, finally, covered the site with concrete or blacktop. Lyden‘s customer then could pump gasoline from the underground tank through the dispenser at the island.
{¶ 3} In early 1991, the commissioner, acting through a tax agent, began a sales and use tax audit of Lyden‘s business covering the period July 1, 1987 through June 30, 1990. The agent originally determined that the fuel dispensing equipment purchased by Lyden remained tangible personal property for Ohio sales and use tax purposes even after its installation. This determination was important because the exemption that Lyden claimed, for property purchased to be used directly in making retail sales, was not available for property to be incorporated into real property. Former
“In determining when the improvement into which tangible personal property is incorporated constitutes real property it shall be considered that improvements devoted to the general use of the land or buildings thereon are real property and improvements devoted principally to a business function or use shall be considered as personal property. * * * Determinations of the status of improvements shall be consistent with classifications made under rules 5703-3-01 and 5703-3-02 of the Administrative Code. * * *” (Emphasis added.) 1982-1983 Ohio Monthly Record 498, eff. Oct. 18, 1982.
{¶ 4}
“For the purpose of classifying property for taxation, items of property devoted primarily to the general use of the land or buildings thereon are to be considered as real property and all other items of property including their foundations and all things accessory thereto which are devoted primarily to the business conducted on the premises are to be considered as personal property.”
{¶ 5} In 1991 we decided E. Ohio Gas Co. v. Limbach (1991), 61 Ohio St.3d 363, 575 N.E.2d 132, and held that pumps attached to concrete pads and underground gasoline tanks were real, rather than personal, property. Subsequent to announcement of E. Ohio Gas Co. the commissioner rejected the position set forth in the above-quoted rules in favor of deeming any installer of fuel tanks to be a “construction contractor,” liable for payment of sales tax at the time it purchases the materials to be installed.
{¶ 6} Accordingly, in September 1991, the tax agent received correspondence from his superiors instructing him to treat fuel tank installations as real property and advising him that “it is policy that persons who install below ground tanks, pumps and pads are construction contractors. Especially affected by the decision and policy are companies that engage in this business for retail petroleum marketers. Instead of being vendors to other vendors, they become consumers.”
{¶ 7} On October 4, 1991 the appellee‘s tax agent issued his audit report in which he concluded that the fuel equipment used by Lyden in its underground fueling installations “were items of a taxable nature on which the proper tax was not charged or self assessed.” In justifying this conclusion, the agent explained that “[d]ue to the recent East Ohio Gas Court Case, the tanks and gas pump equipment have been deemed to be real property when installed, and covered by a construction contract. Since The Lyden Company installed these items themselves, they are the consumer and these items are therefore taxable to them when purchased.”
{¶ 8} Approximately two weeks later the commissioner rescinded this version of
{¶ 9} On October 24, 1991 Lyden was assessed sales taxes in accordance with the tax agent‘s report. Lyden remitted payment of sales taxes based on its purchase of fuel dispensing materials during the audit period. In January 1992 Lyden filed a sales and use tax refund claim, which was denied by the commissioner. The Board of Tax Appeals (“BTA“) affirmed the commissioner‘s denial of Lyden‘s refund application.
{¶ 10} The cause is now before this court upon an appeal as of right.
Betty D. Montgomery, Attorney General, and Thelma Thomas Price, Assistant Attorney General, for appellee.
Kristen E. Manos; Vorys, Sater, Seymour & Pease and Gary J. Saalman, urging reversal for amicus curiae Ohio Petroleum Marketers Association.
Hak K. Dickenson and Richard Molina, Jr., urging reversal for amicus curiae Emro Marketing Company.
MOYER, C.J.
{¶ 11} Pursuant to the Tax Commissioner‘s rules, bulletins, and actual practice in effect during the 1987-1990 audit period, the commissioner did not consider property installed and used as Lyden‘s pumps and tanks were to be property incorporated into real property. Purchase of those materials was therefore eligible for the exemption for personal property purchased to be used directly in making retail sales, pursuant to former
“No assessment shall be made or issued against a vendor or consumer for any tax imposed by or pursuant to section 5739.02, 5739.021, 5739.023, 5739.026, or 5739.10 of the Revised Code for any period during which there was in full force and effect a rule of the tax commissioner under or by virtue of which the collection or payment of any such tax was not required. ***”
{¶ 12} The commissioner claims that
{¶ 13} In Youngstown Sheet & Tube Co. v. Lindley (1988), 38 Ohio St.3d 232, 527 N.E.2d 828, this court, for the first time, reviewed
“R.C. 5739.16(B) is clear: The commissioner may not issue an assessment under R.C. 5739.02 against a vendor or consumer for any period during which a rule of the commissioner did not require the payment of the tax. R.C. 5739.16(B) effectively validates a rule that, contrary to statute, exempted an item from the tax. If Youngstown may claim exemption for this equipment under the rule, it is exempted by virtue of this rule and R.C. 5739.16(B).” Youngstown, 38 Ohio St.3d at 234, 527 N.E.2d at 830.
{¶ 14} In the case at bar, the record supports the conclusion that, consistent with the rules recognized by the commissioner during the audit period, and but for our decision in E. Ohio Gas Co. and Thomas Strip Steel, the commissioner would have deemed at least some of Lyden‘s purchases of fuel dispensing equipment to have been exempt purchases of personal property. The commissioner, however, claims that Youngstown applies only to rules which conflict with statutes, and not to rules which conflict with decisions of this court. The commissioner further argues that he must apply E. Ohio Gas Co. retroactively. We disagree.
{¶ 15} In answer to the first contention, we have previously acknowledged that “[a]dministrative regulations issued pursuant to statutory authority have the force and effect of law; consequently, administrative agencies are bound by their own rules until those rules are duly changed.” State ex rel. Cuyahoga Cty. Hosp. v. Bur. of Workers’ Comp. (1986), 27 Ohio St.3d 25, 28, 27 OBR 442, 444, 500 N.E.2d 1370, 1372. See, also, Parfitt v. Columbus Correctional Facility (1980), 62 Ohio St.2d 434, 436, 16 O.O.3d 455, 456, 406 N.E.2d 528, 530. Thus, for purposes of
{¶ 16}
{¶ 17} We note that
{¶ 18} We find to be misplaced the commissioner‘s argument that Youngstown applies only where rules conflict with statute, as opposed to judicial decisions. In Youngstown, the court indeed found a rule of the commissioner purporting to grant a tax exemption to conflict with a statute. Nevertheless, we reject the commissioner‘s implicit contention that statutory enactments possess a force of law of different degree than do decisions of a court. Close examination of Youngstown and the case at bar does not justify the distinction argued by the commissioner.
{¶ 19} We similarly reject the commissioner‘s argument that the court must apply E. Ohio Gas Co. retroactively. Although we did not expressly provide that our holding in that case be applied prospectively only, in this case,
{¶ 20} We find our precedent in Youngstown applicable to this case. The decision of the BTA is reversed.
{¶ 21}
Decision reversed and cause remanded.
DOUGLAS, RESNICK, F.E. SWEENEY, PFEIFER, COOK and STRATTON, JJ., concur.