Summary
In Hoffman-LaRoche, Inc. v. Porterfield, Tax Commr., supra, 16 Ohio St.2d 158, 243 N.E.2d 72, the case which applied a completed gift analysis, the taxpayer, a manufacturer of pharmaceutical products, promoted the sale of its products in Ohio in two ways: (1) its field representatives carried and gave away samples of its products with other promotional materials, and (2) it periodically mailed, from outside Ohio, such samples and promotional materials to doctors and hospitals inside Ohio. Ohio's Tax Commissioner levied a use tax on all such samples and promotional materials, and Hoffman-LaRoche appealed.
Summary of this case from Yamaha Corp. of America v. State Bd. of EqualizationOpinion
No. 68-265
Decided December 31, 1968.
Taxation — Use tax — Pharmaceutical manufacturer's promotion of Ohio sales — Field representatives' distribution of samples and promotional material in Ohio taxable — Samples and promotional material distributed by out-of-state mailing not taxable.
APPEAL from the Board of Tax Appeals.
This matter is here upon appeal by the Tax Commissioner from a decision of the Board of Tax Appeals wherein the use-tax assessment against appellee, Hoffmann-LaRoche, Inc., for the audit period January 1, 1963, to December 31, 1966, was reduced from $29,499.32 to $9,515.32.
Appellee is a foreign corporation licensed to do business in Ohio, and is engaged in the manufacture and sale of chemical and pharmaceutical products. It maintains its principal offices and plant in Nutley, New Jersey, and has warehouses in several states other than Ohio.
Appellee is comprised of a chemical division and a pharmaceutical division (Roche Laboratories), both of which have field representatives who operate in Ohio to promote the sale of appellee's products. To aid them in promoting the sale of appellee's products in this state appellee's field representatives carry samples of appellee's products, together with other promotional materials. These items are dispensed, through direct personal contact, in such a manner as to demonstrate the uses that can be made of appellee's products, thereby directly or indirectly promoting the sale of appellee's products to purchasers in this state.
Roche Laboratories division products also are promoted by appellee by periodic mailings from outside Ohio of samples and other promotional materials to various doctors and hospitals in Ohio.
The Tax Commissioner levied a use-tax assessment based upon the value of all the samples and promotional materials disseminated in Ohio by appellee during the audit period, whether dispensed by field representatives or sent through the mail.
From this assessment, an appeal was taken by appellee to the Board of Tax Appeals, where that proportion of the assessment based upon the value of the samples and promotional materials distributed by field representatives was conceded to be taxable, but that proportion of the assessment based upon the value of the samples and promotional materials distributed by out-of-state mailing was not.
The Board of Tax Appeals found in favor of appellee and reduced the basic amount of the use-tax assessment accordingly. From that decision the Tax Commissioner has taken this appeal.
Messrs. Knepper, White, Richards Miller, Mr. Milton S. Bartholomew, Mr. Donald A. Davies and Mr. Eli Lawrence, for appellee.
Mr. William B. Saxbe, attorney general, and Mr. Jon A. Ziegler, for appellant.
Section 5741.02, Revised Code, provides in part that:
"(A) 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 * * *.
"* * *
"(B) Each consumer, storing, using, or otherwise consuming in this state tangible personal property purchased for such purpose, shall be liable for the tax * * *."
Section 5741.01, Revised Code, provides, in part:
"As used in Sections 5741.01 to 5741.22, inclusive, of the Revised Code:
"* * *
"(C) `Use' means and includes the exercise of any right or power incidental to the ownership of the thing used * * *.
"* * *
"(D) * * * Purchase includes production, even though the article produced was used, stored, or consumed by the producer. * * *
"* * *
"(F) `Consumer' means any person who has purchased tangible personal property for storage, use, or other consumption in this state."
In its entry, reducing the use-tax assessment levied by the Tax Commissioner, the Board of Tax Appeals specifically determined that the promotional materials "placed in the United States mail in a state other than Ohio for mailing as a gift to physicians in Ohio * * * was not stored, used, or otherwise consumed by the appellant in the state of Ohio."
Our review is limited to the determination whether the decision of the Board of Tax Appeals is unreasonable or unlawful. Midwest Haulers, Inc., v. Glander, 150 Ohio St. 402; Union Carbide Carbon Corp. v. Bowers, 166 Ohio St. 419.
In reaching its decision in the instant case the Board of Tax Appeals relied upon its former determination in Miller Brewing Co. v. Schneider, Board of Tax Appeals No. 52020, 3 Ohio Tax Cases, par. 200-521. The principle formulated in the Miller Brewing Co. case is that an out-of-state supplier of advertising materials which promote the sale of its products cannot be subjected to a use-tax assessment on the materials supplied where it relinquishes ownership, possession and control of the materials outside Ohio. In the Miller Brewing Co. case the materials purchased outside Ohio were delivered to a common carrier at a point outside Ohio for consignment to various independent distributors of Miller Brewing Company products in Ohio. Miller Brewing Company prepaid the freight charges and exercised no control over the use of the materials once they came into Ohio.
Appellant does not challenge the validity of the principle enunciated in the Miller Brewing Co. case, but relies upon the factual distinction that the advertising materials in the instant case were sent through the mail rather than sent by common carrier with freight charges prepaid. It is appellant's contention that appellee's choice to effectuate delivery by way of the mail precludes the appellee from divesting itself of possession and control of the promotional materials outside Ohio because federal postal regulations provide the right to recall mail at any time prior to delivery. 39 Code of Federal Regulations, Section 153.5 (a). Appellant argues that this right of recall, standing alone, makes the post office the agent of appellee rather than trustee or agent for the intended recipients.
We disagree, and note that there is authority in other jurisdictions that delivery of a gift is completed at the time that the item is deposited in the mail for delivery to the intended recipient. See Taylor v. Sanford, 108 Tex. 340, 193 S.W. 661; Waller v. Capper, 143 Kan. 164, 53 P.2d 836; Ray v. Leader Federal Savings Loan Assn., 40 Tenn. App. 625, 292 S.W.2d 458; and 38 American Jurisprudence 2d 824, Gifts, Section 21.
A review of the testimony in the record in this case and an examination of the exhibits in evidence supports the conclusion that all the materials placed in the mail by appellee for distribution to doctors and hospitals in Ohio was mailed as third-class matter.
Although it appears that even third-class matter may be recalled by the sender, under 39 Code of Federal Regulations, Section 153.5 (a), recall would be impractical and expensive, since there must be formal application under 39 C.F.R. 153.5 (b), and the expenses of recall are chargeable to the mailer under 39 C.F.R. 153.5 (c). There is no evidence in the record to show that appellee has ever attempted or would attempt under any circumstances to recall any of its promotional materials sent through the mail. In the absence of recall, undeliverable third-class mail of no obvious value will be destroyed pursuant to 39 C.F.R. 158.5 (d), and undeliverable drug samples will be returned to the sender or destroyed pursuant to 39 C.F.R. 158.2 (h) (2).
We conclude, as did the Board of Tax Appeals, that, as much as is reasonably possible under existing postal regulations, the appellee divested itself of ownership, possession and control of its mailed promotional materials outside Ohio. Accordingly, it is reasonable to conclude that the gift of these samples and advertising materials took place outside Ohio and such material was not stored, used or otherwise consumed by the appellee in the state of Ohio within the meaning of those words as used in Section 5741.02, Revised Code.
Therefore, the decision of the Board of Tax Appeals is affirmed.
Decision affirmed.
TAFT, C.J., ZIMMERMAN, MATTHIAS, O'NEILL, HERBERT and SCHNEIDER, JJ., concur.
BROWN, J., dissents.