In Youngstown Club v. Porterfield (1970), 21 Ohio St.2d 83, 50 O.O. 2d 198, 255 N.E.2d 262, this court observed that, in construing statutes, it is customary to give words their plain, ordinary meaning unless the General Assembly has clearly expressed a contrary intent.Summary of this case from Albright v. Limbach
Decided February 4, 1970.
Taxation — Sales tax — Food served by private club — Service charge added to food and drink checks — Paid by club as compensation to person serving food — Subject to sales tax — Section 5739.02, Revised Code — Person serving food not "installing" or "applying" property sold — Section 5739.01(H), Revised Code.
1. Where a private luncheon and dinner club adopts a policy of adding to all food and drink checks a 15 per cent service charge, which is paid to the club and later is paid to the person serving the food or drinks as compensation, such charge must be included in the total amount of the sale and is subject to the sales tax levied in Section 5739.02, Revised Code.
2. Persons serving food or drinks to consumers are not "installing or applying the property sold" within the terms of Section 5739.01(H), Revised Code, and the compensation paid for such labor may not be excluded from the determination of the price of the sale.
APPEAL from the Board of Tax Appeals.
Appellant, The Youngstown Club (hereinafter referred to as the Club), is a private luncheon and dinner club. Prior to June 1, 1965, any tips to persons serving patrons were voluntarily given. After that date, a mandatory 15 per cent service charge was added to all food and drink checks. The new policy was instituted by the Club in order to increase the amount of compensation for the employees serving food and drinks, without increasing either the dues of the members or the price of food and beverages.
The Club's policy provided that any employee who accepted any form of gratuity other than the 15 per cent sum would be subject to disciplinary action. However, the manager of the Club was advised by its board of trustees not to enforce the policy regarding disciplinary action. In practice, members occasionally increased or decreased the 15 per cent sum, depending upon the quality of service rendered by particular employees. The evidence shows that on most checks no notation was made to vary this charge.
Notice of the 15 per cent charge was printed on a line of each check, but the amount of the charge was not computed or entered on the check when a member signed the check. This charge was added to the check by a clerk after the food and drink charges and the sales tax thereon had been computed. Consequently, the 15 per cent charge was not included in the taxable base upon which the Ohio sales tax was assessed.
The evidence reveals further that the service charge on each check was credited by the Club to the separate account of each waiver involved. At the end of a pay period each waiter was given two pay checks. One pay check was for his salary; the other was for his accumulated earned service charge, less federal and city withholding items. A waiter cannot collect service charges daily or receive an advance against his service charge account.
A sales tax audit was conducted by the Tax Commissioner covering the period from July 1, 1964, to February 29, 1968, and a finding was made that the sales tax base on each check should have included the service charge. Pursuant to this finding, an assessment was made. The Tax Commissioner ruled that the Club's objection to the assessment was without merit. Upon appeal, the Board of Tax Appeals upheld the Tax Commissioner's decision.
The cause is before this court upon appeal as a matter of right.
Messrs. Mitchell, Mitchell Reed, Mr. George B. Woodman, Messrs. Manchester, Bennett, Powers Ullman and Mr. Robert N. Dineen, for appellant.
Mr. Paul W. Brown, attorney general, and Mr. George M. Hauswirth, for appellee.
Appellant here contends that the charges are gratuities not constituting sales as defined in Section 5739.01, Revised Code, and, alternatively, that the service charges are in payment for installing or applying property purchased and are therefore excluded from the term "price," or the base upon which the tax is calculated, under Section 5739.01(H), Revised Code. Our inquiry is to determine whether the board's decision was unreasonable or unlawful. Section 5717.04, Revised Code; Smith v. Board of Revision, 138 Ohio St. 564; Board of Edn. v. Evatt, 136 Ohio St. 283; Hercules Galion Products, Inc., v. Bowers, 171 Ohio St. 176.
Section 5739.01(H), Revised Code, provides, in part, as follows:
"`Price' means the aggregate value in money of anything paid or delivered, or promised to be paid or delivered, in the complete performance of a retail sale, without any deduction on account of the cost of the property sold, cost of the materials used, labor or service cost, interest or discount paid or allowed after the sale is consummated, or any other expense. Price does not include the consideration received for labor or services used in installing or applying the property sold if the consideration for such services is separately stated from the consideration received or to be received for the tangible personal property transferred in the retail sale."
Section 5739.02, Revised Code, levies a sales tax based upon the price of a retail sale. In defining "sale," Section 5739.01(B), Revised Code, states, in part:
"`Sale' and `selling' include * * * the furnishing, preparing, or serving for consideration of any tangible personal property consumed on the premises of the person furnishing, preparing, or serving such tangible personal property. * * *"
The Club's new policy of a mandatory service charge replaced the custom of voluntary gratuities or tips, the amounts of which were not included and reported in tax returns viewed as taxable portion of sales. Since the new policy was implemented, admittedly to increase the income of waiters and thereby produce better service to members, it is reasonable to find that the charge, categorized as mandatory, is consistent with the purpose of achieving better club service for the members.
Appellant's contention that the so-called gratuity is excludable in the computation of a sale is directly contrary to the statutory definition in Section 5739.01(B), Revised Code, quoted above. The Club is furnishing and serving food and drinks, and its billing to members includes the service charge. The fact that the service charge is somewhat segregated from the charge for food and drinks, and will eventually pass to the waiters, does not make that labor cost any different from the amount for fixed labor costs which are included in the price for food and drinks. In finding that these service charges should be included in the price of a sale, the board's action was neither unreasonable nor unlawful.
The Club, in arguing its right to an exception, also contends that the 15 per cent charge should be excluded from the tax base because Section 5739.01(H), Revised Code, excepts from the price "consideration received for labor or services used in installing or applying the property sold if the consideration for such services is separately stated from the consideration received or to be received for the tangible personal property transferred in the retail sale." The "separately stated" requirement is discussed in Cogen v. Glander, 156 Ohio St. 263, and Wilson v. Glander, 151 Ohio St. 479, and is not here in issue. The controversy in the instant case focuses upon the meaning of the words "installing" and "applying." Appellant contends that payment to a person serving food or drink comes within this exception.
In construing statutes, it is customary to give words their plain ordinary meaning unless the legislative body has clearly expressed a contrary intention. Western Southern Life Ins. Co. v. Huwe, 116 F.2d 1008; Baker v. Powhattan Mining Co., 146 Ohio St. 600; Carter v. Division of Water, Youngstown, 146 Ohio St. 203; Schario v. State, 105 Ohio St. 535. The words "installing" or "applying," as applied to personal property, are not ordinarily or customarily associated with the serving of food or drinks. Words ordinarily associated with food are preparing, serving, cooking, furnishing, or words of similar tenor. Moreover, the General Assembly has revealed that it was cognizant of the words which are ordinarily associated with food, by its definition of the word "sale" as including the "furnishing, preparing, or serving for consideration any tangible personal property consumed on the premises of the person furnishing, preparing, or serving such tangible personal property. * * *" Section 5739.01(B), Revised Code. The Club having failed to meet the requirement of affirmatively illustrating its rights to an exception, the board's determination must stand. See National Tube Co. v. Glander, 157 Ohio St. 407; Merchants Cold Storage Co. v. Glander, 150 Ohio St. 524.
TAFT, C.J., MATTHIAS, SCHNEIDER, HERBERT and CORRIGAN, JJ., concur.
O'NEILL, J., dissents.