Summary
In Credit Bureau v. Collins (1977), 50 Ohio St.2d 270, this court considered a similar service as that provided by Dun Bradstreet and found the service to be within the personal service exception of R.C. 5739.01(B).
Summary of this case from Dun & Bradstreet, Inc. v. LindleyOpinion
No. 76-902
Decided June 22, 1977.
Taxation — Sales taxes — Exceptions — Written credit reports — R.C. 5739.01(B), construed.
Where the employees of a consumer credit agency secure, assemble and record credit information from public records and other credit sources, and where a monetary fee is charged to those legally entitled to receive a written communication containing such information, the true object of the transactions is the receipt of the information collected by the employees of the agency; therefore, such written report is an inconsequential element, and such transactions do not constitute sales of tangible personal property under the provisions of R.C. 5739.01(B).
APPEAL from the Board of Tax Appeals.
This is an appeal by the Credit Bureau of Miami County, Inc., from a decision of the Board of Tax Appeals, which affirmed a sales tax assessment made by the Tax Commissioner upon "written credit reports" containing consumer credit information, which reports are provided to third parties who are entitled to them.
Appellant credit bureau is engaged in the business of consumer credit reporting in Troy, Miami County, Ohio. It maintains approximately 50,000 files on Miami County persons. Each file consists of an open-top envelope which contains various documents. These documents consist of a primary card and other paper writings reflecting various transactions and activities of the subject of the file. The information in the files comes from records in the Miami County Courthouse reflecting suits, judgments, tax liens, mechanic's liens, real estate deeds and mortgages, automobile liens and repossessions, and from the Federal Courthouse at Dayton where bankruptcy records are located. Appellant's employees regularly gather information from the public records at the courthouse, and much information is received from credit applications made by the consumers and forwarded to the appellant by its member credit grantors. The files contain adverse information, as well as favorable information, voluntarily submitted to appellant by its members.
Most requests for credit information are received by the appellant's employees by telephone inquiry, and in 80 percent of the inquiries, an oral report is given to the customer. These oral reports were not held subject to the sales tax in the finding of the Tax Commissioner.
Where a written report is requested, an employee, who has just given an oral report, prepares a written report using various forms which provide the same information as if given orally except that the report is written and sent to the customer.
It is necessary that appellant's employees take the information maintained in a subject's file, organize the information, screen it for obsolete information and transmit the current pertinent information to the requesting client. In addition, appellant's employees are required in some cases to update the information by making an independent verification of information contained in a subject's file, including checking references.
The requesting customer who subscribes to appellant's service, then determines, on the basis of the credit information received from appellant's employees, as well as other information, whether to grant credit to the subject applicant.
The price of each written report is higher than each oral report, and no matter how many written reports are made, the price per report remains constant, with no reduction to the customer for more written reports.
The cause is before this court upon an appeal as of right.
Messrs. Vorys, Sater, Seymour Pease, Mr. Robert E. Leach and Mr. Kenneth D. Beck, for appellant.
Mr. William J. Brown, attorney general, and Mr. Ronald Noga, for appellee.
The decision of the Board of Tax Appeals is reversed.
The issue which this court must determine is whether the transfer of a written credit report is excepted from the Ohio sales tax pursuant to the provisions of R.C. 5739.01(B).
During the period of the commissioner's assessment, R.C. 5739.01(B) provided, in pertinent part, as follows:
"* * * Other than as provided in this section, `sale' and `selling' do not include professional, insurance, or personal service transactions which involve the transfer of tangible personal property as an inconsequential element, for which no separate charges are made." (Emphasis added.)
In deciding this issue, this court must determine whether the transaction involves an inconsequential transfer of personal property; otherwise, the exception is not available and the entire transaction is taxable. Accountant's Computer Services v. Kosydar (1973), 35 Ohio St.2d 120, 298 N.E.2d 519; Spray Wax Car Wash v. Collins (1976), 46 Ohio St.2d 164, 346 N.E.2d 696; Federated Department Stores v. Kosydar (1976), 45 Ohio St.2d 1, 340 N.E.2d 840; Citizens Financial Corp. v. Kosydar (1975), 43 Ohio St.2d 148, 331 N.E.2d 435. In the light of those cases, this court must examine the real object sought by the buyer, i.e., the service per se or the property produced by the service, and determine if it was the buyer's object to obtain an act done personally by an individual as an economic service involving either the intellectual or manual personal effort of an individual, or if it was the buyer's object to obtain the salable end product of some individual's skill.
In the instant case the board held that when a written credit report was transferred to a customer, the true object of the transaction was not the acquisition of the appellant's personal services, but the receipt of the appellant's credit report. The board was influenced by the apparent similarities of the appellant's activities with those of the taxpayer (ACS) in Accountant's Computer Services, supra, case No. 72-263. As with ACS, the taxpayer, in the opinion of the board, collected, classified, and rearranged raw data that proved useful to a particular group of clients. In addition, the board stated that, since appellant's activities failed to include any "analysis" of the information collected or any "thinking" as applied to its customers' business problems, appellant's services were similar to the data processing transactions that this court found taxable in Accountant's Computer Services, supra, and Citizens Financial Corp. v. Kosydar, supra. (See, also, Lindner Bros. v. Kosydar, 46 Ohio St.2d 162, 346 N.E.2d 690.)
Challenging the board's conclusions, appellant contends that where the entire operation of a consumer reporting agency, including both the assembling and recording of credit information with respect to consumers and the preparation of both oral and written credit reports communicating credit information for a monetary fee to those legally entitled to receive such, is personally performed by employees of the agency, the communication of such information constitutes "personal service transactions" within the purview of R.C. 5739.01(B). The delivery, by mail or otherwise, appellant continues, of pieces of paper on which such written consumer reports are prepared, even if considered as involving a transfer of "tangible personal property" under the provisions of R.C. 5739.01(B), constitutes merely a transfer of "tangible personal property as an inconsequential element [of such personal service transactions], for which no separate charges are made." (Bracketed material sic.)
From an examination of the record in the instant cause, it is our conclusion that the true object sought by appellant's customers is the credit information communicated by the report. Although, as a matter of convenience or preference, a written report may be requested, it is the receipt of information which necessarily constitutes the sine qua non of the transaction between the consumer reporting agency and the person to whom such information is communicated. Moreover, unlike the taxpayer in Accountant's Computer Services, supra (case No. 72-263), appellant prepares and transmits both oral and written credit reports which involve the intellectual and manual skills of the appellant's employees. Records are checked for suits, judgments, liens, bankruptcies and other legal actions. Credit histories are summarized and coded. Pursuant to the Fair Credit Reporting Act, Section 1681 et seq., Title 15, U.S. Code, obsolete information must be excluded, reasonable procedures must be designed to avoid factual inaccuracies, and the credit files must be periodically updated and independently verified. Moreover, in distributing credit reports, the appellant's employees must ascertain the identity of those seeking credit information and their right to receive such reports pursuant to Section 1681(b), Title 15, U.S. Code. Failure to perform any of the aforementioned duties exposes the offender to either criminal or civil penalties. Section 1681(r) and (o), Title 15, U.S. Code.
Although the commissioner argues Citizens Financial Corp. v. Kosydar, supra, and Federated Department Stores v. Kosydar, supra, controlling in this case, this court disagrees. The principles as set forth in the syllabus of Accountant's Computer Services, supra, remain the definitive statement of the law.
The decision of the Board of Tax Appeals is reversed.
Decision reversed.
HERBERT, W. BROWN, SWEENEY and LOCHER, JJ., concur.
CELEBREZZE and P. BROWN, JJ., concur in the judgment.