Opinion
No. 33902
Decided November 24, 1954.
Taxation — Sales and use taxes — Sections 5546-1 and 5546-25, General Code — Pari-mutuel betting machines installed near race track — Furnished by manufacturer to operator of track — Serviced by manufacturer — Operated by race-track operator — Compensation based on percentage of wagers — Transaction a lease of equipment and taxable.
Where the operator of a race track installs near its track and accessable to its spectators a pari-mutuel machine consisting of approximately 80 wager-ticket-issuing machines operated by its own employees, which operation causes the automatic transmission of the transactions to and the operation of a recording and computing machine from which other of its employees take off totals and compute pay-offs and betting odds, which equipment is furnished by an independent owner and manufacturer and is serviced and kept in repair by employees of the latter for which equipment and service the track operator pays to such independent owner a compensation based upon a percentage of daily wagers, such arrangement constitutes a lease of such equipment and a taxable sale or use within the meaning of Section 5546-1, General Code (Section 5739.01, Revised Code), and Section 5546-25, General Code (Section 5741.01, Revised Code), and not a mere service to such track operator.
APPEAL from the Board of Tax Appeals.
This is an appeal from a decision of the Board of Tax Appeals affirming an assessment by the Tax Commissioner of unpaid sales and use taxes claimed to have accrued during the period from May 1, 1950, to December 31, 1951, inclusive, because of the rental of certain pari-mutuel machines in connection with the appellant's business.
The appellant, Randall Park Jockey Club, Inc., is an Ohio corporation duly authorized to conduct and conducting horse racing and pari-mutuel betting at Randall Park, Cleveland, Ohio, in accordance with the Ohio law and rules of the State Racing Commission. In connection with the pari-mutuel betting, the appellant installed on its premises automatic computing machines denominated "Tote or Tote equipment," which were furnished by Automatic Totalizators, Ltd., a New South Wales, Australia, corporation authorized to do business in this state and hereinafter called Automatic.
Evidence was presented by the appellant detailing the business relationship between it and Automatic, which it is claimed made the assessment erroneous, because ownership of the equipment remained at all times in Automatic and because such equipment was used solely to furnish the appellant with a service.
The pari-mutuel equipment in question consisted of approximately 80 ticket-issuing machines which printed and issued tickets on the various horses in the respective races, a recording and computing device automatically operated from electric impulses originating in the ticket-issuing machines, and a totalizator board on which were shown the approximate odds during the course of the betting and the winners and the odds.
The contract which runs for a period of five years is not in evidence, but testimony was introduced to show that Automobileretained title to the machines at all times and had authority to install or remove particular machines. It furnished dies, paper and ink for the ticket-issuing machines and furnished for maintenance purposes from two to ten employees who were under the direction of and paid by Automatic.
The appellant had some 60 employees who operated the ticket-issuing machines and whom it directed and paid. The ticket machines issued betting tickets in denominations of $2, $5, $6, $10 and $50. With the exception of the $6 denomination, all tickets were issued upon wagers that a given horse would finish the race first, second, or third. If a horse finished in the position selected or better, the holder of the pari-mutuel ticket was entitled to payment on the basis of the position selected. The $6 ticket was a combination wager of $2 on each position.
When the appellant's ticket-issuing agents accepted a wager, a ticket responsive to the bet came from the machine and was handed to the bettor. The transaction involving this ticket was separately and automatically transmitted to the recording and computing machine which recorded it with all other ticket sales, so that at any given time the total amount in each of the three classifications of bets could be ascertained. When betting on a race ceased, employees of Automatic locked the recording machine.
The totals disclosed by the recording device were determined by employees of the appellant, who manually computed the amounts to be paid on the winning tickets, less commissions and so-called "breakage" as provided in the statutes governing horse racing. When the employees of the appellant completed this computation, the information was given to the employees of Automatic, who placed this information on the automatic board displayed to the patrons in the park.
The charge made by Automatic for its service or rental of its equipment and paid to it by appellant was on a percentage basis — one-half of one per cent of the first $200,000 of wagers each day, one-third of one per cent of the next $200,000, one-fourth of one per cent of the third $200,000, and one-eighth of one per cent of everything over $600,000.
The Tax Commissioner found that the tax was properly assessed as to the pari-mutuel equipment, "since rentals of items of tangible personalty and retail sales of such items are synonymous within the meaning of the act," and that the tax had been properly levied as to the aggregate money value of the consideration paid for the rental of this equipment.
Appeal was prosecuted to the Board of Tax Appeals by the appellant, which board affirmed the Tax Commissioner's holding that the furnishing by Automatic of its equipment to the appellant was not the rendition of a service, but a delivery of possession of its property to and for the use of the appellant for a consideration constituting a rental transaction and a taxable sale or use under the Ohio sales and use tax law.
The Board of Tax Appeals found further that the Tax Commissioner properly levied the assessment as to the aggregate amount of the rentals and overruled the claim of the appellant that each of these transactions was less than the sum of 41 cents on which no tax is levied by law.
The case is now before this court upon appeal from the Board of Tax Appeals.
Mr. Morton M. Stotter, for appellant.
Mr. C. William O'Neill, attorney general, Mr. W.E. Herron and Mr. Ralph N. Mahaffey, for appellee.
The single issue here involved is whether there was leased or sold to appellant certain pari-mutuel equipment or whether, in relation to such equipment, a service was rendered by the owner thereof.
Section 5546-1, General Code (Section 5739.01, Revised Code), provides that a "sale" includes "all transactions whereby title or possession, or both, of tangible personal property, is or is to be transferred, or a license to use or consume tangible personal property is granted, for a consideration in any manner, whether absolutely or conditionally, whether for a price or rental * * *."
The Board of Tax Appeals found as to facts:
"The evidence is clear that the taxpayer's sixty agents operated these eighty ticket issuing machines and, as a result of their use of them, they caused the automatic transmission to and the operation of the recording and computing device from which other Randall Park employees took off totals, and from which Randall Park employees computed pay-offs and odds. The only part played in this operation by Tote employees was the locking of the recording and computing machine when wagering on a race closed. It (Tote) thereafter simply relayed information furnished by Randall Park employees to the Tote board. Why were Tote employees present? Several reasons are apparent. They schooled Randall Park employees in the use of the ticket-issuing devices. They * * * were there to service their own property and afford a constant and continuing operation of their equipment, and to protect Tote from any loss due to mechanical failure on their guaranty of complete accuracy. * * * Tote employees fed no data or information into these machines. They simply stood by to see that the equipment operated as it was said to be able to do."
The evidence is clear that the equipment was installed on the premises of the appellant, and that it was in its possession and was operated in the main by its employees. The compensation was made for the use of the machines and constituted a rental payment therefor.
In the case of Pla Mor, Inc., v. Glander, Tax Commr., 149 Ohio St. 295, 78 N.E.2d 725, the taxpayer operated a skating rink and in connection with such operation furnished to its patrons for a consideration shoe skates and socks which it serviced and kept in repair for that purpose. The taxpayer claimed, as here, that it rendered a service to its patrons and did not lease tangible personal property to them. This court held that such a transaction was one "whereby possession of tangible personal property is transferred under `license to use or consume * * * for a consideration' and not within any exception prescribed by the Sales Tax Act."
The same principles have application to the facts in the instant case.
The appellant claims further that the compensation paid by it to Automatic for the use of the equipment must be considered on the price of each wager ticket sold, and, since such compensation in each case was less than 41 cents, the transactions were exempt from tax under the provisions of the Sales and Use Tax Acts.
We find no merit in this contention. The evidence shows that the rental charge is based, not upon each individual wagering transaction, but on a day's racing operation.
We conclude that the furnishing of pari-mutuel equipment to appellant was not the rendition of a service but a delivery of possession of tangible personal property for a consideration constituting a rental. This constituted a taxable sale or use under the Sales and Use Tax Acts.
Decision affirmed.
WEYGANDT, C.J., MIDDLETON, TAFT, ZIMMERMAN, STEWART and LAMNECK, JJ., concur.