Opinion
No. 90-1649
Submitted June 13, 1991 —
Decided September 25, 1991.
APPEAL from the Board of Tax Appeals, No. 88-D-115.
On tax listing day, January 1, 1984, appellant, Custom Leasing Company of Ohio ("Custom Leasing"), was engaged in the business of leasing refrigeration and restaurant equipment through the use of a standard contract form referred to as a "lease." Custom Leasing did not list this equipment in its 1984 personal property tax return, maintaining that the leases were conditional sales contracts.
Representative lease forms provided in part as follows:
"1. Lessee hereby leases from the Lessor, the personal property * * * hereinafter called equipment * * *.
"* * *
"3. * * * Lessee agrees to pay during the term of this lease total rent equal to the number of rent payments multiplied by the amount of each payment indicated * * *.
"4. * * * Lessor covenants it is the owner of Equipment * * *. Title to the Equipment shall at all times remain in the Lessor. * * *
"* * *
"6. * * * At the termination of this lease, Lessee will surrender the equipment to the Lessor in good condition * * *. Lessee shall not change or alter the Equipment except on the written consent of the Lessor. * * *
"* * *
"10. * * * Lessee shall not lease, sublease, transfer, assign or otherwise encumber or remove the Equipment * * * unless approved by the Lessor in writing.
"11. * * * Equipment returned to Lessor shall be properly prepared for shipment by common carrier by Lessee at Lessee's expense * * *.
"* * *
"16. * * * Lessee agrees to keep the * * * [Equipment] insured in the name of the Lessor, at Lessee's expense * * *.
"17. * * * [In the event of default or bankruptcy, Lessor can accelerate all payments and repossess the equipment.]"
Appellee, Tax Commissioner, concluding that the transactions were leases rather than conditional sales of equipment, determined that Custom Leasing was the owner of the leased equipment and assessed personal property tax against Custom Leasing.
Upon appeal to the Board of Tax Appeals ("BTA"), Custom Leasing contended that the Tax Commissioner erred in failing to find the transactions were conditional sales of equipment and that some of the transactions entered into by Custom Leasing had been terminated prior to tax listing day. The BTA rejected Custom Leasing's contentions and affirmed the assessment.
The cause is now before this court upon an appeal as of right.
Cooper, Straub, Walinski Cramer, Stephen M. Dane and John N. Scott, for appellant.
Lee I. Fisher, Attorney General, James C. Sauer and Janyce C. Katz, for appellee.
Are the transactions covered by the leases involved here conditional sales, as alleged by Custom Leasing, or are they leases, as determined by the Tax Commissioner and as found by the BTA? For the reasons which follow, we conclude that the transactions are leases, and that Custom Leasing is the "owner" of the leased equipment for personal property tax return purposes.
R.C. 5711.05 provides in pertinent part: "Each person shall return all the taxable property of which he is the owner * * *"; "taxpayer" in R.C. 5711.01(B) "means any owner of taxable property * * *."
When the "lease/conditional sale" issue was before us in Equilease Corp. v. Donahue (1967), 10 Ohio St.2d 81, 39 O.O.2d 88, 226 N.E.2d 721, we identified the applicable rules and the appropriate test:
"The rules * * * were set forth in Alzfan v. Bowers, Tax Commr., 175 Ohio St. 349, 352 [25 O.O.2d 250, 252, 194 N.E.2d 852, 854], as follows:
"`Where * * * a so-called lessee is obligated to accept and pay for personal property at some future time and has no option to return it, the transaction is held to be a conditional sale even though terms commonly used in leases have been used. * * *
"`"The test most frequently applied is whether the so-called `lessee' is obligated to accept and pay for the property at some future time, or, on the other hand, whether his primary obligation is to return or account for the property to the so-called `lessor' according to the terms of the `lease.'"`" Id., 10 Ohio St.2d at 82, 39 O.O.2d at 88-89, 226 N.E.2d at 722, 723.
Under the terms of the contract here, the lessee "leases" and "agrees to pay * * * rent"; will keep the equipment insured in lessor's name; and, at termination, will surrender possession to lessor. The lessor "is the owner" and retains title, and can accelerate payment and repossess the equipment in the event of lessee's default or bankruptcy.
Our conclusion in Equilease, supra, 10 Ohio St.2d at 82, 39 O.O.2d at 89, 226 N.E.2d at 722, is equally appropriate here: "[U]nder the terms of the contracts involved here the lessees were not obligated to complete the transactions to the point of acquiring ownership."
In CC Leasing Corp. v. Limbach (1986), 23 Ohio St.3d 204, 207, 23 OBR 364, 366, 492 N.E.2d 421, 424, we characterized the holding in Equilease, supra, simply: "That case merely stands for the proposition that a lessor of leased property is the proper entity to be taxed on such property." Nothing presented here prompts us to depart from that holding.
Custom Leasing attempted to establish that despite the use of a written lease, the transactions were really financing arrangements and constituted conditional sales. Some evidence was presented in support, but it falls far short of meeting the standard required by Hatchadorian v. Lindley (1986), 21 Ohio St.3d 66, 21 OBR 365, 488 N.E.2d 145, paragraph two of the syllabus:
"When no competent and probative evidence is developed before the Board of Tax Appeals to show that the Tax Commissioner's determination of the value of the property is factually incorrect, it is error for the board to reverse that determination."
The decision of the BTA, being neither unreasonable nor unlawful, is affirmed.
Decision affirmed.
MOYER, C.J., SWEENEY, HOLMES, DOUGLAS, WRIGHT, H. BROWN and RESNICK, JJ., concur.