Opinion
No. 81-316
Decided December 2, 1981.
Taxation — Sales tax assessment — Appeal to Board of Tax Appeals — Board lacks jurisdiction, when — Notice of appeal defective.
APPEAL from the Board of Tax Appeals.
Appellant, Mid American Machine Tools, Inc. (Mid American), is an Ohio corporation, founded in 1972, by Charles S. Walker, its president. Mid American's business consists of buying and selling new and used metal working machinery to manufacturers. The company, located in Kent, Ohio, primarily deals with Ohio customers although it does conduct some interstate business.
In 1975, one of appellant's customers remitted the Ohio sales tax due on a purchase. At that time appellant contacted the Akron office of the Department of Taxation (department) for advice regarding the proper handling of the remitted tax money. In November 1975, an agent of the department visited appellant's office and informed Walker that Mid American needed to obtain certificates of exemption from its customers to qualify for the tax exemption allowed pursuant to R.C. 5739.03. Appellant thereupon sought and received from his customers the requisite certificates of exemption. Prior to November 1975, however, appellant had neither acquired a vendor's license nor, with but one exception, any certificates of exemption. Appellant's failure in these regards stemmed from its corporate officers' lack of knowledge of Ohio tax laws.
R.C. 5739.03 states in pertinent part:
"If any sale is claimed to be exempt * * * the consumer must furnish to the vendor, and the vendor must obtain from the consumer, a certificate specifying the reason that the sale is not legally subject to the tax. * * * The certificate shall be in such form as the tax commissioner by regulation prescribes. If no certificate is furnished or obtained within the period for filing the return for the period in which such sale is consumated, it shall be presumed that the tax applies. The failure to have so furnished, or to have so obtained, a certificate shall not prevent a vendor or consumer from establishing that the sale is not subject to the tax within sixty days of the giving of notice by the commissioner of intention to levy an assessment, in which event the tax shall not apply."
In January 1976, two agents of the department came to appellant's place of business to conduct a sales audit for the period of January 1, 1973 to December 31, 1975. The agents also reviewed the certificates of exemption appellant had received since November 1975.
In June 1976, the same two agents returned to appellant's office. During this visit the agents again reviewed the exemption certificates, stamping most of them "Allowed Ohio Sales Tax." The agents noticed, however, that some of the certificates had been pre-dated and corrected these certificates by noting thereon "certificate predated, should be 11/75."
Appellant was then presented with a notice of intent to levy an assessment, commonly known as a "60 day letter." Appellant's president and its secretary, Mrs. Welsh, were apprised by the agents that "letters of usage" had to be obtained respecting all transactions not covered by valid exemption certificates. Walker and Welsh interpreted this discussion to mean that appellant needed to secure "letters of usage" only for transactions for which it did not have "allowed" certificates. Accordingly, appellant proceeded within the 60-day period to obtain "letters of usage" for transactions relating to the certificates that had been disallowed. Appellant did not seek "letters of usage" for transactions covered by "allowed certificates."
The "60-day letter" received by appellant stated in pertinent part:
"* * * you have sixty days in which to establish that any sales not already covered by valid exemption certificates are not subject to the tax. This cannot be done by obtaining an exemption certificate at this time. A written statement from the purchaser furnishing information concerning exactly how each item involved is used [`letter of usage'] will be given consideration. It is your responsibility to secure this information within the sixty day period. Information received after that time cannot be considered or allowed to establish proof of exemption."
This court has previously held that such 60-day letters are unambiguous. American Handling Equipment Co. v. Kosydar (1975), 42 Ohio St.2d 150.
Appellant was apparently unaware, its officers claiming that they were given misinformation by the tax agents in this regard, that exemption certificates only operate prospectively and that as a consequence the certificates obtained in late 1975 were invalid as to transactions that had occurred during the audit period but prior to the receipt of the certificates. See Ohio Adm. Code 5703-9-03. When the agents returned upon the expiration of the 60-day grace period, it became obvious that appellant's officers, whether by misinterpretation or misinformation, had not acquired all the necessary "letters of usage." Appellant then contacted those customers whose certificates had been stamped "allowed" and obtained "letters of usage" from them. However, these letters of usage were rejected by the department as untimely.
The department completed the audit on the basis of the valid "letters of usage" and assessed a tax on those sales for which there were no valid exemption certificates or timely "letters of usage." The assessment, including the 15 percent statutory penalty, amounted to $21,010.11 plus interest.
Through counsel, appellant filed a Petition for Reassessment with the Tax Commissioner, which specified appellant's objections to the assessment. This petition was denied. Shortly thereafter, appellant's president, a non-lawyer, submitted a notice of appeal, in letter form, to the Board of Tax Appeals, attaching thereto a copy of the commissioner's order. The letter stated in pertinent part:
"* * * we are in complete disagreement with the sales tax assessment for the following items inasmuch as we feel that they have, in the most part, been completed as requested: [the letter then lists 88 items by assessment page-line number, name of customer and amount of sale.]"
The board affirmed the commissioner, on the question complained of herein, finding first that it lacked jurisdiction "[i]nasmuch as the appellant's notice of appeal in the instant case failed to particularly represent and distinguish the predominant error pursuant to which the reversal of appellee's final order is sought, * * *."
Notwithstanding this jurisdictional defect, the board proceeded to discuss the merits of appellant's appeal and rejected appellant's argument for the following reasons:
"Whereas the Board believes that appellee's agent may have misinformed appellant's president with some misleading comments, it must be pointed out that appellant's initial failure to fulfill its essential statutory obligations was causitive [sic] of its predicament as well. Regardless of appellant's basic confusion over the requirements of Revised Code Chapter 5739, compliance with its provisions remain mandatory and cannot be transcended by the modest actions of a tax agent."
Although the board affirmed the commissioner on the "predominant error," it modified the commissioner's assessment downward with respect to certain interstate transactions and three 1973 transactions.
This cause is now before this court on an appeal as of right.
Mr. Fred J. Milligan, Jr., for appellant.
Mr. William J. Brown, attorney general, and Ms. Barbara E. Vest, for appellee.
The threshold issue in this appeal is whether the Board of Tax Appeals lacked jurisdiction to rule on the merits of appellant's appeal because appellant had not, pursuant to R.C. 5717.02, sufficiently specified the grounds for relief in its notice of appeal.
R.C. 5717.02 provides, in pertinent part, that appeals from final determinations by the Tax Commissioner "* * * shall be taken by the filing of a notice of appeal with the board [of tax appeals] * * *. The notice of appeal * * * shall also specify the errors therein complained of." (Emphasis added.)
In the recent case of Lenart v. Lindley (1980), 61 Ohio St.2d 110, at page 114, we noted that "[i]n considering this question of specificity in the past, this court has held that R.C. 5717.02 is a jurisdictional enactment and that adherence to the conditions and procedure set forth in the statute is essential. E.g., American Restaurant Lunch Co. v. Glander (1946), 147 Ohio St. 147, 70 N.E.2d 93; Kent Provision Co. v. Peck (1953), 159 Ohio St. 84, 110 N.E.2d 776; Queen City Valves v. Peck, supra, ( 161 Ohio St. 579); Ladas v. Peck (1954), 162 Ohio St. 159, 122 N.E.2d 12; Painesville v. Lake County Budget Comm. (1978), 56 Ohio St.2d 282, 383 N.E.2d 896; Hafner Sons v. Lindley (1979), 58 Ohio St.2d 130, 388 N.E.2d 1240."
In Lenart this court reiterated the position taken in Gochneaur v. Kosydar (1976), 46 Ohio St.2d 59, at pages 66-67, that "[w]e do not choose to retreat from the specificity requirements for notices of appeal enunciated by R.C. 5717.02 and the decisions of this court * * *." Thus, in an unbroken line of cases this court has required taxpayers to specify their objections to the commissioner's rulings in accordance with R.C. 5717.02. The position of this court today is the same as it was in 1954, when we stated that "[t]his court has no disposition to be hypertechnical and to deny the right of appeal on captious grounds but it cannot ignore statutory language which demands that certain conditions be met to confer jurisdiction upon an appellate tribunal." Queen City Valves v. Peck, supra, at pages 583-584. Against this background we now assess appellant's claim that it complied with the specificity requirement imposed by R.C. 5717.02.
Appellant contends that its notice of appeal stating, "[w]e are in complete disagreement with the sales tax assessment for the following items inasmuch as we feel that they have, in the most part, been completed as requested," coupled with an itemized list of the transactions at issue, apprised the Board of Tax Appeals with sufficient specificity of the alleged errors in the commissioner's assessment. Appellant's counsel concedes that "the phrase used by the Taxpayer in this case, `they have, in the most part, been completed as requested' [is] * * * not aptly phrased." Nevertheless, appellant would rely on Abex Corp. v. Kosydar (1973), 35 Ohio St.2d 13, which considered whether a notice of appeal respecting a depreciation error met the specificity standard of R.C. 5717.02. In Abex the court found, at page 17, that "the notice of appeal clearly specifie[d] the actions and findings of the Tax Commissioner the appellant questions * * *." The alleged error regarding the depreciation rate in Abex was clearly stated in the notice of appeal. In the case at bar, however, the notice of appeal was vague as to the supposed error — the alleged misinformation given by appellee's agents upon which appellant's officers relied — even though the affected transactions were itemized with particularity.
The statute, of course, speaks to errors and not to items or transactions. "Under the wording of the statute the board was entitled to be advised specifically of the various errors charged to the Tax Commissioner. The statute requires in plain language that the errors complained of be specified." Queen City Valves, supra, at page 583.
"This court has often stated that statutory exemptions from a tax must be strictly construed, and one claiming an exemption must affirmatively establish his right thereto." American Handling Equipment Co. v. Kosydar (1975), 42 Ohio St.2d 150, 152; see also, National Tube Co. v. Glander (1952), 157 Ohio St. 407; Goldman v. Robert E. Bentley Post No. 50 (1952), 158 Ohio St. 205; Canton Malleable Iron Co. v. Porterfield (1972), 30 Ohio St.2d 163. We are constrained to hold, therefore, that the Board of Tax Appeals lacked jurisdiction to consider the merits of appellant's appeal with respect to the "predominant error" because appellant failed to specify the errors complained of in its notice of appeal as required by R.C. 5717.02.
Appeal dismissed.
CELEBREZZE, C.J., SWEENEY, LOCHER and KRUPANSKY, JJ., concur.
W. BROWN, HOLMES and C. BROWN, JJ., dissent.
I must dissent in that it is my view that the appellant taxpayer has reasonably advised the Board of Tax Appeals of the claimed errors of the Tax Commissioner in substantial compliance with R.C. 5717.02. The specificity of the material set forth in the taxpayer's letter was not that of a trained legal counsel; however, such information set forth the specific sale transactions which were disallowed as being tax exempt, and assessed, by the commissioner due to the improper original filing of the certificates, or later submission of the letters of usage. The wording "they have, in the most part, been completed as requested" is concededly not artfully drawn; however, to hold that such wording would not reasonably apprise the Board of Tax Appeals that the taxpayer was claiming substantial compliance with necessary forms or other materials for exemption, is being hypertechnical, something that this court has stated previously — and even herein — it has no disposition to be.
W. BROWN and C. BROWN, JJ., concur in the foregoing dissenting opinion.