Opinion
No. 69-448
Decided February 11, 1970.
Taxation — Sales and use tax — Exceptions from taxation — Sections 5739.01 and 5741.02, Revised Code — Items used "directly in making retail sales" — Primary use determinative of taxability — Motor trucks used by route salesmen — Delivering merchandise ordered and soliciting orders to be delivered.
1. Section 5739.01(E), Revised Code, excepts from the sales tax, and thus, under Section 5741.02(C)(2), from the use tax, items used "directly in making retail sales."
2. It is the primary use of an item which is determinative of taxability. Incidental uses are not controlling. ( Mead Corp. v. Glander, 153 Ohio St. 539, approved and followed.)
APPEAL from the Board of Tax Appeals.
This is an appeal by Jewel Companies, Inc., from a decision of the Board of Tax Appeals affirming an order of the Tax Commissioner denying appellant the refund of a use tax paid on one of its trucks. The truck was purchased in Illinois for use in Ohio.
Appellant operates what it calls its Home Shopping Service. The truck is used by its route salesmen. Each salesman calls on his customers every other week. When the salesman calls, he delivers any merchandise which was ordered at his previous visit and solicits orders to be delivered at his next call on the customer. The record shows that the company carries some 400 grocery items and about 3,000 catalogue items and it is admitted that few of these items are carried in the truck for immediate sale. The method of operation as described by appellant's witness is as follows:
There are three types of sales. The first type is an "impulse" sale. These sales are of items such as cookies or candy which the salesman has for immediate delivery. The second type is a "tentative order" sale. These sales are of grocery items. The company has a card showing its grocery items and prices, from which the customer selects the items he wishes to purchase. These items are not carried in the truck. The customer orders the merchandise which he wants the salesman to deliver two weeks later. The salesman, at the end of each week, orders such merchandise from the company warehouse and delivers it when he makes his next stop. The witness testified that these were tentative orders because the customer could refuse the merchandise when it was delivered, although between 80 to 85 per cent of the goods ordered are accepted as ordered. The third type of sale is a "catalogue" sale. In these sales the customer selects some item from a catalogue and gives the order to the salesman. Sometimes the item is sent directly to the customer; at other times, it is sent to the salesman for delivery to the customer. According to the witness, catalogue sales are never completed until the route man has visited the customer, at which time the customer can decline the item by refusing it or returning it to the route salesman.
The cause is before this court upon direct appeal from the Board of Tax Appeals.
Messrs. Wright, Harlor, Morris, Arnold Glander, Mr. C. Emory Glander and Mr. John C. Hartranft, for appellant.
Mr. Paul W. Brown, attorney general, and Mr. Jon A. Ziegler, for appellee.
At the outset, we should note that appellee has contended that appellant failed to sustain the burden of proof of exempt use before the Board of Tax Appeals.
Appellee argues, and the record shows, that appellant's only witness to testify before the board had no first hand knowledge of the use of this particular truck. However, the record also shows that the witness testified that all trucks of this type owned by appellant are used exclusively in the operation of its Home Shopping Service in the manner described by the witness.
The Board of Tax Appeals might have chosen to base its decision upon appellant's failure to sustain its burden of proof of exemption, but the board did not, choosing instead to base its decision solely upon the merits.
Our review in this type of case is limited to a determination as to whether the decision of the Board of Tax Appeals is unreasonable or unlawful. Hoffmann-LaRoche, Inc., v. Porterfield (1968), 16 Ohio St.2d 158; Section 5717.04, Revised Code.
It does not matter whether we might have weighed the evidence differently from the Board of Tax Appeals if we had been making the original determination. As long as there is evidence which reasonably supports the conclusion reached by the board, its decision must stand.
We reach then the primary question raised in this appeal: Whether the use of appellant's motor vehicle is such that it can be considered to be used "directly in making retail sales" so as to entitle it to exception from the use tax.
Section 5739.01(E), Revised Code, excepts from the sales tax, and thus, under Section 5741.02(C)(2), from the use tax, items used "directly in making retail sales."
Section 5739.01(E), reads, in part as follows:
"` Retail sale' and `sales at retail' include all sales except those in which the purpose of the consumer is * * * to use or consume the thing transferred * * * directly in making retail sales." (Emphasis added.)
The term "making retail sales" is defined in Section 5739.01(P), Revised Code, as follows:
"(P) ` Making retail sales' means the effecting of transactions wherein one party is obligated to pay the price and the other party is obligated to transfer title to or possession of the item sold, but does not include the delivery of items thereafter nor the preliminary acts of promoting or soliciting the retail sales." (Emphasis added.)
The Tax Commissioner's rule in relation to the use of motor vehicles in making retail sales is TX-15-12, which reads, in part, as follows:
"Motor vehicles * * * sold to a vendor whose purpose and primary use thereof is to carry a stock of merchandise from which `retail sales' are made are deemed to be used or consumed directly in making retail sales and not subject to sales tax." (Emphasis added.)
From the record in this case, it appears evident that appellant's truck is used in several ways. It is the primary use which is determinative of taxability. Incidental uses are not controlling. Mead Corp. v. Glander (1950), 153 Ohio St. 539.
Appellant's truck is used in the following three ways:
1. As transportation for a route salesman to solicit orders for future sales (non-exempt use).
2. As a sales and stock area from which a route salesman may make present sales of "impulse" items (exempt use).
3. As a delivery vehicle for route salesmen to deliver previously ordered merchandise (non-exempt use).
An examination of the record clearly shows that the primary uses of appellant's vehicle are for the solicitation of future sales and the delivery of previously ordered merchandise. It is true that some sales made directly from the vehicle are of merchandise stocked therein. However, it is evident from the record that the direct sales are actually only a small part of the salesman's business.
The appellant contends that the orders herein are really only tentative orders, because the customer is not obligated to take the merchandise when the salesman delivers it. Appellant claims that because of this the sale does not take place until the merchandise is delivered, is accepted and is added to the customer's account. Thus, appellant argues that the vehicle is used primarily "to carry a stock of merchandise from which `retail sales' are made."
To accept this argument at its face value would be to ignore the realities of appellant's operation. According to appellant's own witness, 80 to 85 per cent of the orders are accepted as made. That means that in 80 to 85 per cent of its "sales" calls the truck is used primarily as a delivery vehicle.
The decision of the Board of Tax Appeals reveals that the board determined that most of the transactions of the route salesmen took place at the door of or inside of his customers' homes. There is some indication that the board might have ruled in favor of appellant were the customers to come to the truck rather than the route salesman to them. As we interpret the board's reasoning, more customers coming to the truck might have made the "sales and stock area" use of the truck the primary use, and thereby gained appellant an exemption. This is an interesting suggestion by the board but does not affect the determination made in the instant case.
We agree with the board that:
"Upon the above set of facts it is clear that the appellant has not established that the truck here in question was entitled to tax exception under the statute or under the Tax Commissioner's rule. In other words the evidence could not support a conclusion that the primary use of the truck was for an excepted use."
Decision affirmed.
TAFT, C.J., HERBERT, DUNCAN and CORRIGAN, JJ., concur.
O'NEILL and SCHNEIDER, JJ., dissent.