Summary
In American District Telegraph, supra, the taxpayer provided an electronic detection system, and, in Machinery Moving, supra, engaged in the business of removing rubbish and refuse from industrial and commercial locations.
Summary of this case from Spray Wax Car Wash, Inc. v. CollinsOpinion
Nos. 41402 and 41403
Decided June 26, 1968.
Taxation — Sales and use tax — "Sale," "selling" and "possession" — Personal service exception — Section 5739.01 (B), Revised Code — Electronic detection business — Contract to provide burglar alarm systems — Monthly rate charged — Personal property of contractor installed on subscriber's premises — Rental and lease of personal property — Evidence — Hearsay rule.
APPEALS from the Board of Tax Appeals.
American District Telegraph Companies, hereinafter referred to as ADT, and Morse Signal Devices, Inc., hereinafter referred to as Morse, are both engaged in the electronic detection business. They contract to provide fire and burglar alarm systems, as well as systems which monitor industrial matters such as water pressure and water flow.
ADT offers three basic types of detection systems to its subscribers. One type is the local alarm, in which certain property, such as bells, foil tape, wires, switches and batteries, is installed on the premises of the subscriber, and an alarm bell on the premises signals an intrusion or abnormal situation. A second type is the direct connect alarm, in which the alarm bell or signal device is located in a police or fire station. The other aspects of this system are similar to the local alarm system. The third type is the central station alarm, in which the signal device is located in an ADT station. ADT continually checks the signal system. When an emergency signal is received, ADT either contacts the local police or fire department, or sends out its own armed guards to the scene. ADT personnel are on duty at all times in the ADT central station.
For any of these systems, ADT charges a flat monthly rate. It installs, maintains, and owns all the tangible property it places on the premises of the subscriber as part of the detection system. The value of this property averages less than ten percent of the total amount ADT charges subscribers over the average duration of their contracts, if renewals are included. If only the original five-year contract term is used as a basis, then the tangible property installed on the premises represents 8 to 26 percent of the charges.
Morse offers local and central station detection systems which are similar to the local and central station systems of ADT, described above.
The Tax Commissioner determined that, with respect to all their systems, ADT and Morse are engaged in the rental and lease of tangible personal property, and, under Section 5739.01(B), Revised Code, are therefore subject to the sales tax. The Tax Commissioner assessed them for a total of over $650,000 of such taxes, plus penalties. On the taxpayers' petitions for reassessment, the commissioner conditionally cancelled the penalties and affirmed and made final his other determinations.
ADT and Morse appealed to the Board of Tax Appeals which, in each case, affirmed the orders of the Tax Commissioner with respect to the assessment of the tax as to local alarm and direct connect systems, and reversed the orders of the commissioner with respect to assessment of the tax as to central station systems, holding that the latter are personal service transactions and therefore are exempt under Section 5739.01(B), Revised Code.
In each case, the Tax Commissioner appealed to this court from that part of the decision of the board reversing the commissioner's assessment orders, and the taxpayers filed cross-appeals from that part of the board's decision affirming such orders.
Messrs. Burke, Haber Berick, Mr. Marvin S. Zelman, Mr. Bruce J. Bettigole, Messrs. Weston, Hurd, Fallon, Sullivan Paisley, Mr. G. David Bluhm, Mr. Thomas F. Sexton, Messrs. Kahn, Kleinman, Yanowitz Annan, Mr. Bennet Kleinman and Mr. Robert G. Markey, for appellees and cross-appellants.
Mr. William B. Saxbe, attorney general, and Mr. Jon A. Ziegler, for appellant and cross-appellee.
The pertinent part of Section 5739.01(B), Revised Code, provides:
"`Sale' and `selling' include all transactions by which * * * possession * * * of tangible personal property, is or is to be transferred * * * `sale' and `selling' do not include * * * personal service transactions which involve the transfer of tangible personal property as an inconsequential element, for which no separate charges are made."
The Tax Commissioner contends that the central station contracts of the taxpayers do not fall within the personal service exception to "sales" because they are not personal service transactions, and because the tangible personal property is not an inconsequential element of such transactions.
We do not think the finding by the Board of Tax Appeals that the central station contracts are personal service transactions, and therefore excepted from sales taxes under Section 5739.01(B), Revised Code, is either unlawful or unreasonable.
These cases are unlike Pla Mor, Inc., v. Glander, 149 Ohio St. 295, or Randall Park Jockey Club, Inc., v. Peck, 162 Ohio St. 245, where the tangible items transferred actually performed the desired service. Here, the tangible equipment is useless by itself. The subscribers of ADT and Morse seek protection of their property, and that comes only, under the central station contracts, when those companies contact the local authorities and send out their own guards. The equipment installed upon the premises of subscribers may reasonably be viewed as only an aid in the rendering of protection service.
Further, the tangible property installed by ADT and Morse may well be considered inconsequential, both economically and functionally, with respect to central station contracts. Economically, the charge for the service is considerably larger than the value of the property. Functionally, the way in which ADT and Morse receive information of an abnormal situation at subscribers' premises is inconsequential to the service they perform. What matters is that they get the information, not how the information is acquired.
Both ADT and Morse have brought cross-appeals. They contend that their local and direct connect alarm transactions do not involve a transfer of possession of property, and therefore do not come within the definition of "sale" in Section 5739.01(B), Revised Code. We find this contention to be without merit. Both ADT and Morse give each subscriber custody of property for the subscriber's use in guarding its premises, and this type of custody falls within the general definition of possession. Black's Law Dictionary (4 Ed.), 1325.
The cross-appellants argue that Federal Sign Signal Corp. v. Bowers, 172 Ohio St. 161, supports their position. We think that case did not turn upon the inherent limits of the word, "possession," as used in Section 5739.01(B), Revised Code, but rather upon the applicability or nonapplicability of a then existing rule excluding taxability in a case involving outdoor advertising signs. In view of the appellant's position, taken upon brief and argument, that taxability or nontaxability in this situation turns only upon the word, "possession" as that term is used in the statute, and in view of appellants' failure to point to an existing rule which has applicability to this fact situation, the case cited is not useful.
ADT raises an additional question in its appeal. It contends that the board erred in refusing to admit evidence which was directed to showing that certain transactions fell within a tax exemption. All this excluded evidence was in the form of affidavits, and the board stated that it was excluded because there was no opportunity for cross-examination. We find nothing unreasonable or unlawful in the board's application of the hearsay rule. 2 American Jurisprudence 2d 185, Administrative Law, Section 379.
In conformity with the foregoing opinion, this court is of the view that the decisions of the Board of Tax Appeals are neither unreasonable nor unlawful.
Decisions affirmed.
ZIMMERMAN, MATTHIAS, O'NEILL, HERBERT, SCHNEIDER and BROWN, JJ., concur.
I concur in what is said in the majority opinion with respect to the Central Station contracts being excepted from sales tax.
However, I dissent from that portion of the judgment holding taxable local alarm and direct connect systems. In my opinion, Federal Sign Signal Corp. v. Bowers, Tax Commr., 172 Ohio St. 161, requires the conclusion that there was no transfer of possession within the meaning of Section 5739.01(B).