Opinion
No. 80-1803
Decided July 22, 1981.
Taxation — Use tax — Patterns acquired from non-Ohio suppliers — Not excepted under R.C. 5701.03.
APPEAL from the Board of Tax Appeals.
Appellant-taxpayer, General Motors Corporation, is a Delaware corporation with its principal place of business in Detroit, Michigan. Among appellant's operating divisions is the Central Foundry Division. This division, in turn, operates a foundry in Defiance, Ohio. The Defiance foundry produces castings for use in the manufacture of certain automobile components.
In order to produce the required castings, the Defiance foundry must use certain patterns. These patterns are made of steel and are used to form sand molds, which molds are then used to produce the actual castings. The Defiance foundry, on behalf of appellant, executes the purchase orders necessary to acquire the patterns. Patterns were purchased from suppliers both within and without Ohio, there being no difference between patterns obtained from out-of-state and in-state suppliers. The dispute in this case revolves around appellant's applications for use tax refunds for taxes paid on those patterns purchased from non-Ohio suppliers.
On August 24, 1976, appellant filed two applications for use tax refunds. On May 9, 1978, appellant filed an application for use tax refund covering an additional period. The Tax Commissioner, appellee herein, denied the claims for refund, from which determinations appellant prosecuted appeals to the Board of Tax Appeals. The claims for refund were consolidated for purposes of the hearing before the Board of Tax Appeals and are similarly consolidated for the purposes of this appeal. The Board of Tax Appeals affirmed the orders of the Tax Commissioner.
Claim No. 09221, covering the period from January 1, 1973, through June 30, 1974, involved a claimed refund of $164,715.65 (later reduced to $154,653.37 by agreement of the parties); Claim No. 09222, covering the period from July 1, 1974, through June 30, 1976, involved a claimed refund of $266,145.49 (later reduced to $241,111.92 by agreement of the parties).
Claim No. 09223, originally covered the period from June 1, 1976, through March 31, 1978, and involved a claimed refund of $416,297.55. Later, pursuant to agreement by the parties, the period covered was amended to include from September 1, 1975, through March 31, 1978, and the claimed refund was reduced to $409,437.36.
The cause is now before this court upon an appeal as a matter of right.
Messrs. Shumaker, Loop Kendrick, Mr. G. Charles Scharfy and Mr. Robert B. Gosline, for appellant.
Mr. William J. Brown, attorney general, and Mr. John C. Duffy, Jr., for appellee.
The sole issue presented in this cause is whether the patterns in question are exempt from taxation by virtue of the provisions of R.C. 5701.03. In pertinent part, R.C. 5701.03 states: "As used in Title LVII of the Revised Code, `personal property' includes every tangible thing which is the subject of ownership, whether animate or inanimate, other than patterns, jigs, dies, or drawings, which are held for use and not for sale in the ordinary course of business***and not forming part of a parcel of real property***. The exclusion of patterns, jigs, dies, and drawings from the definition of `personal property' by this section shall not be deemed an exclusion of the value of same from taxation when such value may enter into the valuation of inventory produced for sale." Appellant argues that the foregoing language exempts the patterns in question from the use tax levied by R.C. 5741.02.
Appellant also argues, in its first proposition of law, that "[a]n Ohio excise tax***which burdens or discriminates against interstate commerce is in violation of the Commerce Clause of the United States Constitution (§ 8, Clause 3, of Article I), and is invalid." While in the abstract this proposition is correct, it has no application to the instant cause. The record reflects that the patterns in question were brought to rest, permanently, within the confines of the state of Ohio. "State use tax statutes have been consistently upheld by the United States Supreme Court in their application to tangible personal property where the property was carried into the taxing state, and there brought permanently to rest***." (Citations omitted.) Federal Paper Board Co. v. Kosydar (1974), 37 Ohio St.2d 28, 32. Moreover, the property here clearly left the flow of interstate commerce. "When the property sought to be reached under the use tax is no longer integrated in the flow of interstate commerce, a tax upon the privilege of exercising ownership rights in respect thereof does not run afoul of the prohibition against state taxation of the operation of interstate commerce." Louisville Title Agency for N.W. Ohio v. Kosydar (1975), 43 Ohio St.2d 109, 111. Because appellant retained and exercised rights of ownership over the property within Ohio, imposition of the use tax does not contravene the strictures of the Commerce Clause.
"For the use of the general revenue fund of the state, an excise tax is hereby levied on the storage, use, or other consumption in this state of tangible personal property***." R.C. 5741.02(A).
Appellee, on the other hand, argues that the exclusion from taxation contained in R.C. 5701.03 pertains only to ad valorem taxes. In its order, the Board of Tax Appeals stated, in part, that "[t]he use tax is an excise tax on an activity and not an ad valorem levy on the property itself which is prohibited by Revised Code section 5701.03 ***." For the reasons set forth below, we agree.
In National Tube Co. v. Glander (1952), 157 Ohio St. 407, paragraphs one and two of the syllabus, we stated:
"1. Under Sections 5546-2 [R.C. 5739.02] and 5546-26 [R.C. 5741.02] *** the presumption obtains that every sale or use of tangible personal property in this state is taxable.
"2. Statutes relating to exemption or exception from taxation are to be strictly construed and one claiming such exemption or exception must affirmatively establish his right thereto." See Celina Mutual Ins. Co. v. Bowers (1965), 5 Ohio St.2d 12.
Therefore, in order to prevail on this issue, it is incumbent upon appellant to affirmatively establish its right to such exemption. This, we believe, it has failed to do.
The use tax levied under R.C. Chapter 5741 is an excise tax, not an ad valorem tax. As such, it is imposed "neither on the ownership of property, nor is it with respect to such ownership. It is not a tax `laid directly on persons or property.'*** It is a tax assessed for some special privilege or immunity.***" (Citations omitted.) Howell Air, Inc., v. Porterfield (1970), 22 Ohio St.2d 32, 34. The use tax, therefore, is not a tax laid upon the property, itself, but, rather, "is a tax upon the privilege of use of property***." Federal Paper Board Co. v. Kosydar (1974), 37 Ohio St.2d 28, at 32. Under the statutes in question, "`Use' means and includes the exercise of any right or power incidental to the ownership of the thing used." R.C. 5741.01(C).
It is clear that had all of the patterns in question been purchased from Ohio vendors, appellant would have been required to pay a sales tax thereon. Babcock Wilcox v. Kosydar (1976), 48 Ohio St.2d 251. Appellant did, in fact, exclude from its applications for refunds all taxes paid on those purchases made from Ohio suppliers. Since "the `use tax' is complementary or supplemental to the `sales tax,'" Celina Mutual Ins. Co. v. Bowers, supra, at 15, we find no valid reason for levying a use tax for those purchases made in Ohio but excluding from taxation the same property when it is acquired outside Ohio. "The General Assembly has enacted R.C. Chapter 5741, which imposes a tax on the storage, use or other consumption in this state of tangible personal property not taxed under the general sales tax provisions of R.C. Chapter 5739. The purpose behind the imposition of this `use tax' is two-fold. First, it serves to protect the revenues of the state by taking away the advantages of making purchases outside the reach of the state's sales tax. Second, it serves to protect local merchants against the competition of out-of-state stores not required to charge in-state sales taxes." Cooey-Bentz Co. v. Lindley (1981), 66 Ohio St.2d 54, 55. Imposition of the "use tax" in this case serves to fulfill both of the aforementioned legislative purposes.
Were this an attempt by the Tax Commissioner to levy an ad valorem tax upon the patterns in question, it is clear that such action would be unlawful. See Colonial Foundry Company v. Peck (1952), 158 Ohio St. 296. However, in this cause, the Tax Commissioner is levying the tax, not upon the property itself, but on transactions with respect to the property. Appellant's exercise of dominion and control over the patterns, at the time they arrived at appellant's foundry, was the exercise of a right incidental to the ownership of such patterns.
Accordingly, the decision of the Board of Tax Appeals, being neither unreasonable nor unlawful, is hereby affirmed.
Decision affirmed.
CELEBREZZE, C.J., W. BROWN, P. BROWN, SWEENEY, LOCHER and HOLMES, JJ., concur.
C. BROWN, J., dissents.