Opinion
Nos. 31211 and 31212
Decided February 11, 1948.
Taxation — Sales and use taxes — Rentals on business machines taxable — Section 5546-1 et seq., General Code — Machines delivered after effective date of tax — And substituted for machines delivered under continuing contract antedating tax.
Under the provisions of Section 5546-1 et seq., General Code, rentals on business machines are subject to use and sales taxes if such machines are delivered after the effective date of such taxes, even though such machines are substituted for nontaxable machines previously delivered under a continuing contract.
APPEALS from the Board of Tax Appeals.
These cases were presented together and involve similar questions of law.
The facts are not in dispute.
In the first case the Dayton Rubber Manufacturing Company filed an application with the Tax Commissioner of Ohio for the refund of use tax in the sum of $657.10 assessed and paid for the period beginning January 1, 1940, and ending December 31, 1944, under the provisions of Section 5546-26, General Code, on monthly rentals for certain substitute business machines leased from the International Business Machines Corporation.
The application was denied by the commissioner.
On an appeal to the Board of Tax Appeals the order of the commissioner was affirmed.
The history of the second case is similar except that it involves an application for the refund of sales tax in the sum of $668.14 which the Remington Rand, Inc., claims was paid erroneously for the period beginning May 1, 1942, and ending August 31, 1945, under the provisions of Sections 5546-1 and 5546-2, General Code, on monthly rentals for machines leased by it to the Fisher Brothers Company. The commissioner allowed a refund of $217.74, representing the tax paid on rentals for original machines delivered before January 1, 1935, the date the sales tax first became effective; but the remainder of the claim for a refund — $450.40 — was denied, on the ground that it represents the tax paid on rentals for substitute machines subsequently delivered. The order of the commissioner was affirmed by the Board of Tax Appeals.
The two cases are in this court for review on the claim that the assessments are unreasonable and unlawful.
Messrs. Pickrel, Schaeffer Ebeling and Mr. Charles W. Slicer, for appellant in cause No. 31211.
Mr. Thomas J. Summers and Mr. Robert W. Newlon, for appellant in cause No. 31212.
Mr. Hugh S. Jenkins, attorney general, and Mr. Joseph S. Gill, for appellee.
In the first of the two cases the Dayton Rubber Manufacturing Company entered into a contract with the International Business Machines Corporation in the year 1926 for the rental of certain machines. Two paragraphs of the contract read as follows:
"This agreement for the aforementioned equipment shall remain in force for One Year from the date that the machines are installed ready for your use, and Quarterly thereafter unless terminated by us in accordance with the stipulations of this contract, with the exception that the use of the Standard Tabulating and Verticle Sorting Machines may be terminated by you at the close of any calendar month.
"Tabulating Machines, Sorting Machines or Electric Key or Electric Duplicating Key Punches, in addition to the above, or to replace any you may have in use, will be furnished you in accordance with the conditions of this contract at the rates prevailing at the time your order for the same is received."
Under the provisions of Section 5546-26, General Code, an excise is "levied on the storage, use, or other consumption in this state of tangible personal property purchased on and after the first day of January, 1936, for storage, use or other consumption in this state * * *."
Were the subsequently substituted machines "purchased on and after the first day of January, 1936?"
That they were "purchased" within the meaning of these provisions is answered in the affirmative by the following language of Section 5546-25, General Code:
" 'Purchase' means acquired for a consideration, whether the transaction by which such acquisition was effected by a transfer of title, or of possession, or of both, or a license to use or consume * * *."
But the decisive question is when were the subsequently substituted machines "acquired" by the company. The company contends that this occurred at the time the contract was signed in 1926. But the commissioner insists that the subsequently substituted machines were acquired by the company at the time they were delivered to it, which was after the use tax became effective. The company's theory is that the original machines were delivered under the original contract before the effective date of the tax and that the status of the substituted machines was exactly the same as that of the originals, inasmuch as the former merely replaced the latter. However, the fallacy of this view is demonstrated clearly by the following reasoning in the opinion in the case of Kelly-Springfield Tire Co. v. United States, 81 F.2d 533:
"Were the buildings, machinery, and other equipment here in question acquired by the appellant after April 6, 1917? That they were contracted for before then is immaterial. The contract was purely executory until it was performed. It was the performance and not the execution of the contract which constituted the acquirement of the facilities.
"The facilities were 'acquired' when the contract was performed and not until then. Many a contract for the purchase of property is executed, but never performed, and the property is never acquired."
This court is of the view that the substituted machines were acquired when the company obtained possession of them with the right to use them.
But the company contends further that the substituted machines are not taxable under the provisions of Rule 26 of the Department of Taxation. However, this matter is controlled by statute, and the department is without authority to promulgate a rule inconsistent therewith.
The decision of the Board of Tax Appeals affirming the order of the Tax Commissioner is neither unreasonable nor unlawful.
In the second case the sales tax was paid by the Remington Rand, Inc., on rentals under a contract similar to that in the first case.
The question presented is whether the tax should have been paid under the provisions of Sections 5546-1 and 5546-2, General Code, which read in part as follows:
" 'Sale' and 'selling' include all transactions whereby title or possession, or both, of tangible personal property, is or is to be transferred, or a license to use or consume tangible personal property is granted, for a consideration in any manner, whether absolutely or conditionally, whether for a price or rental, in money or by exchange or barter, and by any means whatsoever * * *."
As in the first case, the only machines involved are those delivered after the effective date of the tax, and the same reasoning is applicable.
However, the company makes the additional contention that if the statute applies to these transactions, it is unconstitutional for the reason that it is retroactive and impairs the obligation of a contract. But this court does not reach this question, since these transactions are held to have taken place at the time of the delivery of the substituted machines, and this occurred after the effective date of the sales tax.
The decision of the Board of Tax Appeals affirming the order of the Tax Commissioner is neither unreasonable nor unlawful.
Decisions affirmed.
In cause No. 31211, TURNER, MATTHIAS, HART and STEWART, JJ., concur.
ZIMMERMAN and SOHNGEN, JJ., not participating.
In cause No. 31212, TURNER, MATTHIAS, HART, SOHNGEN and STEWART, JJ., concur.
ZIMMERMAN, J., not participating.