Summary
In Beatrice Foods, supra, the taxpayer improperly essayed to invoke collateral estoppel where the subject issue had not been previously resolved in an adversary proceeding and where the principle argued for had not, through unchallenged operation over a period of time, gained acceptance as law.
Summary of this case from Hooven Allison Co. v. LindleyOpinion
No. 81-1143
Decided April 28, 1982.
Taxation — Use taxes — Lease of motor vehicle equipment — "Taxable moment" evidenced, when — Tax Commissioner — Opinion letter — Not estoppel, when — Contesting of assessment — Procedure, not violative of due process, when.
APPEAL from the Board of Tax Appeals.
Appellant, Beatrice Foods Co., Inc., manufactures and distributes food products. Its main office is in Chicago, Illinois, and it has 380 plants in the United States, one of which is located in New Bremen, Ohio. It uses several fleets of motor vehicle equipment to transport its products. One of those fleets, the subject of this action, is leased by appellant from Rental Transport, Inc. (Rental).
Rental is a Delaware corporation and its only business activity is to acquire legal title to motor vehicle equipment and to lease that equipment to appellant. The relationship between appellant and Rental is governed by a written agreement. The Master Lease Agreement was executed June 1, 1970 and was extended on June 1, 1973, for an additional three years. The agreement and extension were executed by both parties outside the state of Ohio. Appellant pays to Rental a fixed monthly rate for each item of equipment. No charges are based upon mileage. The fleet is used by appellant for the private carriage of its merchandise, serving 80 plants in 42 states.
All the equipment owned by Rental and leased to appellant must initially be licensed, or "base-plated," in Delaware. Tractors intended for use in interstate shipments must also be licensed in accordance with the requirements of the various states through which they will travel. After the tractors are base-plated in Delaware, and while the applications for the remaining licenses are being processed, they are driven by one of appellant's drivers to a service garage in New Bremen, Ohio, owned by Tranco Sales and Service, Inc. (Tranco). While there, the tractors are serviced and inspected for compliance with state and federal regulations. After the necessary permits are obtained and inspection completed, appellant takes formal delivery at New Bremen by executing an individual lease receipt.
Trailers need only be base-plated in Delaware before being placed into service. Once that is accomplished, appellant dispatches a tractor to pick up the trailer, and it is placed into service in the delivery of appellant's goods before being returned to the garage in New Bremen.
Tractors intended for intrastate use in Ohio must be "force-plated" in Ohio. All equipment not force-plated in Ohio is used only on interstate trips.
Except for occasional emergencies involving other carrier's equipment Tranco's only business is to inspect, repair, maintain and service the equipment leased by appellant from Rental. Under the terms of the lease agreement appellant is responsible for the repair and maintenance of the equipment. All the repair and maintenance of these vehicles, except for emergencies while away from New Bremen, is performed by Tranco. Tranco bills appellant for its services. At one time there was a written agreement between appellant and Tranco for the servicing of this equipment, but in recent years it has been an oral one. All equipment is returned on a regular basis to New Bremen for service at Tranco. Between trips, the equipment is sometimes stored at appellant's New Bremen plant.
These arrangements between appellant. Rental and Tranco, have remained substantially the same since at least 1959. In 1959, an audit was conducted resulting in a use tax assessment on all rentals paid by appellant to Rental. Appellant filed a petition for reassessment at that time. The Tax Commissioner, in his order dated May 22, 1963, found the equipment was not purchased for use in Ohio and deleted the use tax on the rentals.
At about the same time, the Department of Taxation issued an opinion letter regarding appellant's sales and use tax liability which stated, in part:
"3. all rentals of truck units by Rental Transport Co. (Delaware) to Beatrice Foods (Ohio) would be subject to use tax;
"4. all rentals of truck units by Rental Transport Co. (Delaware) to Beatrice Foods (Delaware) for use in Ohio would be subject to the use tax.
"Interstate use of a truck leased by Beatrice Foods (Delaware) from Rental Transport (Delaware) is not a taxable use for purposes of the Ohio use tax."
In 1971, appellant was audited again, and an assessment issued upon the rentals paid for the force-plated vehicles. Appellant paid the assessment and filed an application for refund which was denied in 1972. No further appeal was taken. Thereafter, appellant continued to pay use tax on the rentals paid for the force-plated equipment.
A use tax assessment was issued to appellant on April 1, 1976 covering audit period January 1, 1972 to December 31, 1974, for the equipment not force-plated in Ohio. Initially, both appellant and Rental were assessed sales and use taxes with penalties for this equipment. Their petitions for reassessment were denied by the Tax Commissioner, but the penalties were cancelled, conditioned upon payment of the assessments. Both filed notices of appeal to the Board of Tax Appeals which consolidated the appeal for review. The Board of Tax Appeals reversed the order of assessment against Rental and affirmed the order of assessment against appellant.
The cause is now before this court upon an appeal as of right.
Messrs. Glander, Brant, Ledman Newman and Mr. James H. Ledman, for appellant.
Mr. William J. Brown, attorney general, and Mr. Mark A. Engel, for appellee.
Appellant argues that the equipment it leases from Rental is used in an integrated system of interstate commerce and is not subject to Ohio use tax pursuant to R.C. 5741.02(C)(3) and Section 8, Article I of the United States Constitution.
R.C. 5741.02(C) provides, in part:
"The tax does not apply to the storage, use, or consumption in this state of the following described tangible personal property, nor to the storage, use, or consumption in this state of tangible personal property purchased under the following described circumstances:
"* * *
"(3) Property, the storage, use, or other consumption of which this state is prohibited from taxing by the constitution of the United States, laws of the United States, or the constitution of this state. This exemption shall not exempt from the application of the tax imposed by this section the storage, use, or consumption of tangible personal property which was purchased in interstate commerce, but which has come to rest in this state, provided that fuel to be used or transported in carrying on interstate commerce which is stopped within this state pending transfer from one conveyance to another is exempt from the excise tax imposed by this section and section 5739.02 of the Revised Code;"
Section 8, Article I of the United States Constitution grants to Congress the exclusive power "[t]o regulate commerce with foreign nations and among the several states * * *," and thereby prohibits a state from imposing a direct burden on foreign or interstate commerce.
As this court stated in Federal Paper Board Co. v. Kosydar (1974), 37 Ohio St.2d 28, 32:
"However, Section 8, Article I, is not an absolute bar to state taxation which may have some incidental effect upon interstate commerce. * * *
"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, or halted temporarily before resuming its interstate course or usage. Scripto v. Carson (1960), 362 U.S. 207; General Trading Co. v. State Tax Comm. (1944), 322 U.S. 335; Nelson v. Sears, Roebuck Co. (1941), 312 U.S. 359; McGoldrick v. BerwindWhite Mining Co. (1940), 309 U.S. 33; Felt Tarrant Mfg. Co. v. Gallagher (1939), 306 U.S. 62; Pacific Telephone Telegraph Co. v. Gallagher (1939), 306 U.S. 182; Southern Pacific Co. v. Gallagher (1939), 306 U.S. 167; Henneford v. Silas Mason Co. (1937), 300 U.S. 577."
A state use tax is valid under the Commerce Clause where the interstate transit has ended at least temporarily and the taxpayer has exercised rights of ownership over the property in question. Federal Paper Board Co., supra, at 34; Southern Pacific Co. v. Gallagher (1939), 306 U.S. 167; Henneford v. Silas Mason Co. (1936), 300 U.S. 577. In Tri-City Broadcasting Co. v. Bowers (1959), 169 Ohio St.2d 126, the court upheld a use tax on equipment delivered to Ohio for use in a broadcast transmitter where it was stored in Ohio no longer than three days prior to installation. Similarly, in Southern Pacific Co. v. Gallagher, supra, the United States Supreme Court upheld the imposition of a state use tax on equipment stored temporarily in the state before it was made a part of an interstate railway system. See, also, Pacific Telephone Telegraph Co. v. Gallagher (1939), 306 U.S. 182. In Federal Paper Board Co., supra, at 36, invalidating a use tax assessment, this court found it persuasive that "[t]he units were garaged and serviced in Steubenville at the lessor's own garage, and not by appellant."
We find that the storage of the units in Ohio as well as the servicing of the units in Ohio at appellant's direction, constitute sufficient evidence of a "taxable moment" in Ohio to authorize the use tax assessment.
Alternatively, appellant challenges the constitutionality of the tax because it was based upon the gross rentals paid. Appellant argues that the Commerce Clause requires apportionment of the tax to actual miles driven by the units in Ohio. In support, appellant relies on Complete Auto Transit, Inc. v. Brady (1977), 430 U.S. 274; and Dept. of Revenue v. Assn. of Washington Stevedoring Cos. (1978), 435 U.S. 734. Those cases, however, involved taxes on the privilege of conducting business in the state which were measured by the taxpayer's income. The taxpayers in those cases received income from both intrastate and interstate activities, and apportionment was required. They did not involve use taxes. As stated in Henneford v. Silas Mason Co., supra, at 582, a use tax "* * * is not upon the operations of interstate commerce, but upon the privilege of use after commerce is at an end." Since no part of the tax is attributable to interstate use, no apportionment is required. Moreover R.C. 5741.02(C)(5) allows a credit for any sales or use tax paid to other jurisdictions on the same property. Because of similar protections afforded by the Washington statute at issue in Henneford, the court found, at 583, that "[t]he tax upon the use after the property is at rest is not so measured or conditioned as to hamper the transactions of interstate commerce or discriminate against them."
Appellant also argues that the prior determinations of the Tax Commissioner and the opinion letter from the department should operate to estop the commissioner from assessing use taxes against appellant, prior to a formal notification that the commissioner's position had changed with respect to appellant's equipment.
Appellant asserts that it was not advised of the commissioner's change of position until April 1, 1976, when the subject assessment was issued, and by virtue of this court's decision in Recording Devices, Inc. v. Bowers (1963), 174 Ohio St. 518, it cannot be assessed for the audit period 1972-1974. In Recording Devices, the taxpayer had received an opinion letter from the Department of Taxation with respect to its sales tax liability for time lock devices which it rented or sold to customers. The letter advised the taxpayer that when devices were rented to customers "* * * your company is the consumer of all equipment used and must pay the sales tax upon the purchase of the same.
"The time recording locks which are sold outright to your customers involves a taxable transaction and the tax must be collected on the full amount charged for the lock." Id. at 519. For 25 years, the taxpayer relied on this ruling and it was unchallenged by the Tax Commissioner. Id., at 520. Under these facts, the court held that the commissioner was bound by the ruling until he notified the taxpayer that it had been rescinded.
The opinion letter herein is distinguishable from that in Recording Devices. Here, the opinion letter advised appellant that trucks used in Ohio were subject to use tax and that interstate use of the trucks was not subject to the use tax. It did not specifically advise appellant of its tax liability with respect to this equipment. Moreover, the opinion letter did not remain unchallenged for any amount of time. It was apparently issued during the pendency of proceedings before the Tax Commissioner; and two assessments were levied against appellant between the time of its issuance and the assessment involved herein.
Appellant's argument that the determinations of the Tax Commissioner in 1963 and 1972 should have the same effect as the opinion letter in Recording Devices is without merit. The determinations of the Tax Commissioner are limited to the subject of the appeals before it — in this case, the assessments of 1959 and 1971. They did not purport to advise appellant of its future tax liability.
Appellant also argues that because of these prior determinations, the doctrines of res judicata or collateral estoppel apply to bar the commissioner from issuing this assessment. In order for either doctrine to apply, there must be an identity of parties and issues in the proceedings. State, ex rel. Westchester, v. Bacon (1980), 61 Ohio St.2d 42; Superior's Brand v. Lindley (1980), 62 Ohio St.2d 133. At issue in the case at bar is a separate assessment based on an entirely different audit period, and we find that the requisite identity of issues is not present.
Lastly, appellant argues that the procedures available to contest tax assessments in Ohio violate the Due Process Clause of the Ohio Constitution and permit the taking of property without due process of law in violation of the Fourteenth Amendment to the United States Constitution. We find these arguments to be without merit. The fact that R.C. 5739.13 provides a remedy to contest a sales or use tax assessment only after it is made does not violate Section 16, Article I, Ohio Constitution, which provides "* * * every person, for an injury done him in his land, goods, person, or reputation, shall have remedy by due course of law * * *." (Emphasis added.) A taxpayer suffers no threat of injury until after an assessment is made and Section 16, Article I does not require that a taxpayer be afforded a remedy in advance of a claimed injury. Since no mandatory penalty was ultimately assessed against appellant, we need not address appellant's argument that the provision of R.C. 5739.13 requiring the imposition of a penalty with a sales or use tax assessment violate the Due Process Clause of the Fourteenth Amendment to the United States Constitution.
Accordingly, the decision of the Board of Tax Appeals as to the appellant herein is affirmed.
Decision affirmed.
SWEENEY, ACTING C.J., STEPHENSON, VICTOR, LOCHER, HOLMES, C. BROWN and KRUPANSKY, JJ., concur.
STEPHENSON, J., of the Fourth Appellate District, sitting for CELEBREZZE, C.J.
VICTOR, J., of the Ninth Appellate District, sitting for W. BROWN, J.