Opinion
No. 84-400
Decided December 31, 1984.
Taxation — Personal property tax — Average monthly value of all raw material inventory taxable, when.
O.Jur 2d Taxation §§ 164, 354.
Pursuant to R.C. 5709.01, 5701.08(A) and (B), and 5711.16, the average monthly value of all raw material inventory of a manufacturer is subject to personal property tax, regardless of whether the final product is sold or leased.
APPEAL from the Court of Appeals for Trumbull County.
This appeal arises from an assessment of personal property tax upon certain inventory property of appellee and cross-appellant, General American Transportation Corporation ("GATC"). GATC is a manufacturer of railroad tank cars and has a manufacturing facility located in Masury, Ohio. Approximately twenty-five percent of the tank cars are built for purposes of sale, while the remaining seventy-five percent are built for lease.
In July 1980, the Tax Commissioner of Ohio, appellant and cross-appellee, assessed GATC for deficiencies determined in GATC's personal property tax returns for the years 1975-1978, inclusive. Specifically, GATC had included as personal property only twenty-five percent of its average monthly raw material inventory ("RMI"), reflecting the ratio of tank cars sold to tank cars manufactured. The Tax Commissioner recomputed GATC's tax obligation to reflect the full value of average monthly RMI levels, thus including the percentage of RMI to be used in the manufacture of leased cars as well.
GATC appealed the assessment to the Board of Tax Appeals ("BTA"), which affirmed the Tax Commissioner on all questions pertinent to this appeal.
On appeal, the court of appeals reversed the ruling of the BTA, holding that only twenty-five percent of GATC's average monthly RMI was subject to personal property taxation. The court of appeals rejected GATC's contention that its RMI was not subject to personal property taxation by virtue of GATC's status as a public utility; however, the court did agree with GATC's argument that seventy-five percent of its average monthly RMI was exempt due to the leasing of seventy-five percent of the total cars manufactured.
The cause is now before this court pursuant to the allowance of a motion and cross-motion to certify the record.
Messrs. Vorys, Sater, Seymour Pease, Mr. Robert E. Leach and Mr. Raymond D. Anderson, for appellee and cross-appellant.
Mr. Anthony J. Celebrezze, Jr., attorney general, and Mr. James C. Sauer, for appellant and cross-appellee.
The issue presented in this appeal is whether all of GATC's RMI is subject to personal property tax, or only that portion which corresponds to the percentage of final product sold to final product manufactured. On cross-appeal, GATC also argues that none of its RMI should be subject to the personal property tax. This court holds that all of taxpayer's RMI is subject to the tax, and therefore reverses the decision of the court of appeals.
A review of the applicable statutes is necessary for resolution of this issue.
R.C. 5709.01 is the basis for any taxable property analysis, and at the time relevant herein read in pertinent part as follows:
"* * * All personal property located and used in business in the state * * * [is] subject to taxation * * *." (Emphasis added.)
R.C. 5701.08 defines "used in business":
"(A) Personal property is `used' within the meaning of `used in business' * * * when stored or kept on hand as material, parts, products, or merchandise. * * *
"(B) `Business' includes all enterprises * * * conducted for gain, profit, or income." (Emphasis added.)
Therefore, all raw materials which are held in inventory for eventual use in producing "gain, profit, or income" are subject to personal property tax.
R.C. 5711.16 defines a "manufacturer" to be:
"A person who purchases, receives, or holds personal property for the purpose of adding to its value by manufacturing * * * different materials with a view of making a gain or profit by so doing * * *." (Emphasis added.)
R.C. 5711.16 further states that the average monthly value of all taxable property of the manufacturer is then taxed.
Concerning average monthly value, R.C. 5711.16 reads, in pertinent part:
"* * * When such person is required to return a statement of the amount of his personal property used in business, he shall include the average value * * * of all articles purchased, received, or otherwise held for the purpose of being used, in whole or in part, in manufacturing * * *.
"The average value of such property shall be ascertained by taking the value of all property subject to be listed on the average basis, owned by such manufacturer on the last business day of each month the manufacturer was engaged in business during the year, adding the monthly values together, and dividing the result by the number of months the manufacturer was engaged in such business during the year. * * *"
Applying these statutes to the case at bar, we find first that GATC is a "manufacturer." We find further that the entire RMI of GATC is held "with a view of making a gain or profit," within the meaning of R.C. 5711.16.
GATC urges, and the court of appeals so held, that only that portion of its RMI which corresponds to the percentage of tank cars sold to total cars manufactured is taxable. Such a proposition excludes from taxation the percentage of RMI that is eventually used in the manufacture of leased cars. Ex-Cell-O Corp. v. Kosydar (1976), 49 Ohio App.2d 131 [3 O.O.3d 188], is cited by GATC and the court of appeals as direct authority.
The syllabus in Ex-Cello-O reads as follows:
"The personal property owned by a manufacturer which is in the business of leasing equipment to others for use in their plants and consisting of parts, unfinished machines and completed machines which the manufacturer assembles from such parts designed to meet the specific requirements of prospective lessees, where the manufacturer has no view of making a gain or profit by the manufacturing of such equipment but manufactures same with a view of making a gain or profit from the leasing thereof, is not subject to and does not become subject to personal property tax until the completed machine is delivered to the possession of the lessee for whom the machine is manufactured and rental thereon begins to accrue, the tax then being applicable only to the completed machine under lease."
The proposition urged by GATC ignores the clear reading of the applicable statutes. R.C. 5711.16 and 5701.08(B) do not draw a distinction between selling and leasing. To be subject to taxation, the property need only have been held for eventual production of gain, profit, or income. Gain, profit, or income is produced whether the final product is sold or leased. We may not inject new words into a statute.
Therefore, we reject the holding in Ex-Cell-O, supra. Contrary to the court's language in Ex-Cell-O, Equilease Corp. v. Donahue (1967), 10 Ohio St.2d 81 [39 O.O.2d 88], and Southland Stores No. 3, Inc. v. Bowers (1960), 171 Ohio St. 271 [13 O.O.2d 207], do not support the Ex-Cell-O result. Equilease and Southland did not involve RMI held for manufacturing purposes, which is the situation in this case.
It follows, then, that the RMI of a manufacturer such as GATC is "used in business" within the meaning of R.C. 5701.08(A) and (B). Therefore, pursuant to R.C. 5709.01, 5701.08(A) and (B), and 5711.16, the average monthly value of all raw material inventory of a manufacturer is subject to personal property tax, regardless of whether the final product is sold or leased.
On cross-appeal, GATC argues that by virtue of its status as a public utility, it is therefore exempt from personal property tax, pursuant to R.C. 5727.03. It argues further that to impose personal property tax on its RMI would constitute an impermissible double tax in view of the tax imposed on GATC under R.C. 5727.24 et seq. We find neither of these claims to be persuasive.
GATC qualifies for public utility status under R.C. 5727.01(A) by virtue of its falling within the definition of an "equipment company" under R.C. 5727.01(E)(5). R.C. 5727.03 exempts public utilities from, inter alia, the personal property tax. However, GATC's RMI is not exempt, for the reason that GATC is a "dual capacity" enterprise: its manufacturing operations are distinct from its equipment leasing operations. GATC is an equipment company only to the extent that it is "* * * engaged in the business of furnishing or leasing cars * * *." (R.C. 5727.01[E][5].)
R.C. 5727.01(A) defines "public utility" as follows, in pertinent part:
"`Public utility' includes each corporation, firm, individual, and association, its lessees, trustees, or receivers elected or appointed by any authority, and referred to as an * * * equipment company * * *."
R.C. 5727.01(E)(5) reads as follows:
"Any person, firm, partnership, voluntary association, joint-stock association, company, or corporation, wherever organized or incorporated:
"* * *
"(5) Is an equipment company when engaged in the business of furnishing or leasing cars, of any kind, to be used in the operation of any railway line wholly or partially within this state, such line not being owned, leased, or operated, by such company."
R.C. 5727.03 reads, in pertinent part:
"Public utilities are not * * * governed by sections 5711.01 to 5711.36, inclusive, of the Revised Code. * * *"
Therefore, the RMI is subject to the personal property tax since only the manufacturing operations are involved herein.
Further, GATC is not subjected to an unconstitutional double taxation of its RMI. The tax imposed under R.C. 5727.24 et seq. is expressly termed an excise tax in R.C. 5727.27. An excise tax is one levied on a privilege and not one levied directly against the property. Howell Air, Inc. v. Porterfield (1970), 22 Ohio St.2d 32, 34 [51 O.O.2d 62]. The personal property tax, on the other hand, is obviously a property tax.
R.C. 5727.27 reads, in pertinent part:
"On the first Monday in November, annually, the tax commissioner shall certify the amount required by section 5727.26 of the Revised Code to the auditor of state, who shall charge a sum in the nature of an excise tax to be collected from each freight line and equipment company doing business or owning cars which are operated in this state * * *."
For the reasons stated herein, this court rules that all of GATC's RMI is subject to the personal property tax. Accordingly, the decision of the court of appeals is reversed.
Judgment reversed.
CELEBREZZE, C.J., SWEENEY, HOLMES, C. BROWN and J.P. CELEBREZZE, JJ., concur.
W. BROWN, J., dissents.