Opinion
Nos. 88-206 and 88-207
Submitted May 3, 1989 —
Decided August 23, 1989.
Taxation — Liquor stored in Ohio warehouses for sale to Ohio Department of Liquor Control subject to tangible personal property tax prior to effective date of R.C. 5709.01(C)(2).
O.Jur 3d Taxation § 680.
Prior to March 6, 1986, the effective date of R.C. 5709.01(C)(2), spirituous liquor inventory stored in Ohio warehouses for potential future sale to the Ohio Department of Liquor Control under the department's bailment stock plan agreement was the property of the vendor and was therefore subject to the tangible personal property tax.
APPEALS from the Board of Tax Appeals, Nos. 85-B-870, 85-B-871, 85-B-872, 85-C-867, 85-C-868 and 85-C-869.
Prior to 1983, the Ohio Department of Liquor Control ("ODLC") purchased spirituous liquors from vendors under three different plans. Under one plan, the "state stock plan," the ODLC would order liquor from a vendor, and the liquor would be delivered by a carrier engaged by the ODLC to one of its designated warehouses. The ODLC would then pay for the liquor upon matching the receiving report with the invoices. Under a second plan known as the "special order stock plan," liquor would be purchased by the ODLC only to fill special orders by its retail or wholesale customers, and the liquor would be shipped to ODLC by the vendor and sold by the ODLC to the retail or wholesale customer on a per-case basis. The third plan, which is the subject of the instant appeals, is the "bailment stock plan." Under this plan, the vendor determines the quantity of liquor to be shipped into Ohio, as well as the frequency of shipments. The vendor, at its own expense, ships the liquor to one of the ODLC's designated warehouses, consigned to itself. The vendor pays the warehouse for warehouse charges. The warehouseman is given a power of attorney by the vendor to ship liquor by the ODLC's contract carrier to various state liquor stores. Also under the bailment stock plan, freight and warehouse storage charges are figured into the price the ODLC pays the vendor for the liquor, since the vendor pays such charges when incurred. If the vendor wishes to move its liquor inventory under the bailment stock plan out of state, it must obtain written consent from the ODLC to do so. For shipment from one warehouse to another within the state, the vendor must ask the ODLC to ship the liquor by the ODLC's contract carrier. Under the bailment stock plan once the liquor is pulled from the warehouse stock, for shipment to ODLC, title to the liquor passes from the vendor to ODLC.
At all relevant times, R.C. 4301.01(B)(5) defined "spirituous liquor" as "* * * includ[ing] all intoxicating liquors containing more than twenty-one per cent of alcohol by volume."
Appellant Glenmore Distilleries Company has furnished liquor to the ODLC under the bailment stock plan since 1959. Between 1979 and 1983, appellant Schenley Affiliated Brands Corporation operated under both the bailment stock plan and the state stock plan.
In 1983, the ODLC made the bailment stock plan mandatory for all vendors of spirituous liquors.
On September 13, 1985, the Tax Commissioner, appellee, assessed personal property taxes against both appellants on the inventories maintained in the designated ODLC warehouses, for the tax years 1980 through 1984.
Upon appeals to the Board of Tax Appeals ("BTA"), the Tax Commissioner's assessments were affirmed in separate decisions. In their appeals, appellants relied on Bluebell Importing Corp. v. Davis (App. 1938), 27 Ohio Law Abs. 376, 13 O.O. 127, 31 N.E.2d 233, and Bluebell Importing Corp. v. Myers (App. 1938), 27 Ohio Law Abs. 377, 13 O.O. 124, 31 N.E.2d 227 ( "Bluebell cases"), for the proposition that liquor stock held in Ohio under the bailment stock plan was not taxable to the vendor for personal property tax purposes, and did not subject the vendor to the Ohio franchise tax. However, the BTA found those cases to be factually distinguishable, and inapplicable. In relying on its prior decision in House of Seagram, Inc. v. Porterfield (Nov. 6, 1970), BTA No. 70-02-0405, reversed on other grounds (1971), 27 Ohio St.2d 97, 56 O.O. 2d 55, 271 N.E.2d 827, wherein it rejected the reasoning in the Bluebell cases, the BTA determined that liquor stored in warehouses under the bailment stock plan was owned by the vendor and therefore taxable to the vendor. Accordingly, the BTA held that the appellants were properly assessed by the Tax Commissioner as owners of the liquor inventories under the bailment stock plan.
The causes are now before this court upon appeals as of right.
Benesch, Friedlander, Coplan Aronoff, James F. DeLeone and N. Victor Goodman, for appellants.
Anthony J. Celebrezze, Jr., attorney general, Richard C. Farrin and Barton A. Hubbard, for appellee.
Upon ratification of the Twenty-Forst Amendment to the United States Constitution and the consequent enactment of the Ohio Liquor Control Act of 1933, the ODLC has exercised exclusive control over the manufacture, distribution and sale of liquor within the state of Ohio.
In State, ex rel. Fisher, v. Ferguson (1943), 142 Ohio St. 179, 27 O.O. 25, 50 N.E.2d 992, this court held in paragraph one of the syllabus:
"Broad powers are conferred upon the Department of Liquor Control of the State of Ohio by the Liquor Control Act, * * * for the expressed purpose of enabling such department to establish and maintain a state monopoly of the distribution of spirituous liquor and the sale thereof in packages or containers. * * *"
The central issue posed in the instant appeal is whether the spirituous liquor inventory stored in the ODLC designated warehouses under the bailment stock plan is subject to the personal property tax of this state. Taxable personal property includes all non-exempt personal property located and used in business in the state of Ohio. R.C. 5709.01(B)(1).
The appellants contend that the transactions are sales, not bailments, and that the sales are complete when the liquor is delivered to a carrier for shipment to an ODLC designated warehouse. Appellants submit that they then have no control over the liquor and that it can be moved only by the ODLC. Appellants argue that under the Uniform Commercial Code ("UCC"), the bailment stock plan is really a contract to sell goods at a future time and/or a sale and return, which becomes a sale, and thus vests title to the liquor with the ODLC. In support of their arguments, appellants rely on the decisions handed down by the Franklin County Court of Appeals in the Bluebell cases.
The portion of the UCC to which appellants refer is found in R.C. 1302.39, which provides in pertinent part:
"(A) Unless otherwise agreed, if delivered goods may be returned by the buyer even though they conform to the contract, the transaction is:
"* * *
"(2) a `sale or return' if the goods are delivered primarily for resale.
"* * *
"(D) Any `or return' term of a contract for sale is to be treated as a separate contract for sale within section 1302.04 of the Revised Code and as contradicting the sale aspect of the contract within the provisions of section 1302.05 of the Revised Code."
While appellants' arguments are facially logical, the terms of the bailment stock agreement compel a different conclusion.
R.C. 1302.42, which embodies the UCC section governing the passing of title, provides in pertinent part:
"(B) Unless otherwise explicitly agreed, title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods * * *." (Emphasis added.)
Here, the parties have in fact explicitly agreed otherwise. In order to do business in this state, the appellants-vendors must agree to the rules established by the ODLC. Under the terms of the bailment stock plan, the appellants have explicitly agreed to when title to the liquor will pass to the ODLC. The opening paragraph of the bailment stock plan provides as follows:
"The vendor will send a Price Quotation (Form #184) to the Department of Liquor Control for approval. If approval is granted, it will be the vendor's responsibility to maintain an inventory at each of our warehouses so that the merchandise can be pulled for shipment to our sales outlets, as demand requires. The Department will take title to the merchandise when it is pulled from warehouse stock." (Emphasis added.)
Part II of the bailment stock plan further provides in relevant part:
"The merchandise is to be consigned to the vendor in care of the warehouse to which the consent is issued. It remains the property of the vendor until withdrawn by the Department of Liquor Control. The Department pays no storage or warehouse charges on any merchandise in bailment stock other than the charge which is included in the quoted price." (Emphasis added.)
In addition, the section of the bailment stock plan entitled "Insurance on Warehouse Stock" provides:
"Insurance charges on merchandise in bailment is [ sic] the responsibility of the vendor, inasmuch as such merchandise remains the property of the vendor until withdrawn from bailment stock."
Obviously, the foregoing provisions of the bailment stock plan contemplate ownership of the inventory by the vendor until the warehouse operator "pulls" such inventory from the warehouse for shipment to the ODLC. The terms of this agreement between the ODLC and the appellants could not be clearer on these particular points. As mentioned before, appellants complain that, since they have virtually no control over the liquor once it is shipped into Ohio, they cannot be held to be owners of the inventory in any respect because their role under the bailment stock plan exhibits few, if any, indicia of ownership. However, as the appellee-Tax Commissioner points out, appellants, in this vein, confuse regulation with ownership. While under the bailment stock plan appellants may not move any inventory without the approval of the ODLC, two points of elaboration are in order. First, spirituous liquors in Ohio are controlled substances and the ODLC, in the exercise of its role of controller, must be apprised of all movement of spirituous liquor within this state. Second, the testimony of both parties' expert witnesses below indicated that, to their knowledge, consent to move liquor had never been refused by the ODLC.
We also find the decisions rendered in the two Bluebell cases to be inapplicable to the cause sub judice. A review of those decisions reveals that little analysis was employed by the court in arriving at the holdings. Moreover, it is apparent that applying the decisions in the Bluebell cases would make little sense at this juncture, since appellants and the ODLC have expressly agreed to which party holds title to the liquor under the bailment stock plan.
Last, we would be remiss if we did not point out that effective March 6, 1986, the General Assembly excepted from tax the spirituous liquor stored in warehouses under agreement with the ODLC. This new statutory enactment embodied in R.C. 5709.01 provides in relevant part:
"(C) The following property of the kinds mentioned in division (B) of this section shall be exempt from taxation:
"* * *
"(2) Spirituous liquor, as defined in division (B)(5) of section 4301.01 of the Revised Code, that is stored in warehouses in this state pursuant to an agreement with the department of liquor control."
In Section 4 of the Act which amended the foregoing statutory section, i.e., Am. Sub. H.B. No. 274, 141 Ohio Laws, Part II, 3085, 3089-3090, the legislature stated as follows:
"By the amendment of section 5709.01 of the Revised Code, and in particular the amendment of division (C)(2) of such section, it is the sense of the General Assembly that the law applicable to tax years prior to 1986 and the prior court interpretations of that law concerning the tax on tangible personal property, to wit: spirituous liquors maintained in inventory in this state under an agreement with the Department of Liquor Control, where such spirituous liquors are placed in warehouses or warehouse space leased by the Department, shall speak for themselves and that this amendment of section 5709.01(C)(2) is not intended to repeal or affirm such law or court decisions.
"By this enactment, the General Assembly does not create a claim for refund for a taxpayer who paid tangible personal property taxes prior to the effective date of this act on spirituous liquor held under the Department of Liquor Control bailment plan in warehouses leased by the Department and located in this state." (Emphasis added.)
Since we have found the Bluebell cases not to be the applicable law with respect to inventory stored in warehouses under the bailment stock plan, it necessarily follows that the tax years in issue are governed by standard contract and commercial law, which subjects such inventories to the tangible personal property tax of this state.
Therefore, we hold that prior to March 6, 1986, the effective date of R.C. 5709.01(C)(2), spirituous liquor inventory stored in Ohio warehouses for potential future sale to the Ohio Department of Liquor Control under the department's bailment stock plan agreement was the property of the vendor and was therefore subject to the tangible personal property tax.
Based on the foregoing, the decisions of the BTA are hereby affirmed.
Decisions affirmed.
MOYER, C.J., H. BROWN and RESNICK, JJ., concur.
HOLMES, DOUGLAS and WRIGHT, JJ., dissent.
I respectfully suggest that the so-called Bailment Stock Plan initiated by the Ohio Department of Liquor Control ("ODLC") is nothing more or less than a contract to sell goods at a future time, and in certain circumstances a sale and return. The undisputed facts in this case militate for such a finding.
It is beyond dispute that the sales involved in this case are commercial transactions and that the law as codified in R.C. Title 13 is controlling. Among the provisions of the Uniform Commercial Code relevant to this controversy are R.C. 1302.01(A)(1) and (A)(4), which respectively define the terms "buyer" and "seller" as "a person who buys or contracts to buy goods" or "sells or contracts to sell goods." (Emphasis added.) R.C. 1302.01(A)(11) states:
"`Contract' and `agreement' are limited to those relating to the present or future sale of goods. `Contract for sale' includes both a present sale of goods and a contract to sell goods at a future time. A `sale' consists in the passing of title from the seller to the buyer for a price. A `present sale' means a sale which is accomplished by the making of the contract."
R.C. 1302.39 provides:
"(A) Unless otherwise agreed, if delivered goods may be returned by the buyer even though they conform to the contract, the transaction is:
"* * *
"(2) a `sale or return' if the goods are delivered primarily for resale.
"* * *
"(D) Any `or return' term of a contract for sale is to be treated as a separate contract for sale within section 1302.04 of the Revised Code and as contradicting the sale aspect of the contract within the provisions of section 1302.05 of the Revised Code."
The Tax Commissioner has suggested that the aforementioned stock plan imposed by the ODLC is not a contract to sell goods at a future time. The commissioner fails, however, to explain why she has adopted such a posture. Regardless of the label affixed to a certain fact situation by the commissioner or indeed the taxpayer, it is the duty of this court to scrutinize the nature of the particular relationship and reach a conclusion about that relationship's legal implications. I agree with the appellants that it is obvious that, by the arrangement which led to the transshipment of spirituous liquor to warehouses located in Ohio and designated by the ODLC, it was contemplated by both the taxpayers and by the ODLC that stocks placed in such warehouses under the plan would be ultimately sold by the department and by the department only, either through its wholesaler or its retail stores. It was clearly contemplated that these alcoholic beverages would be exchanged for money, and were not shipped into Ohio for storage only and for ultimate return to the vendor. The appellant is quite correct that a bailment, by definition, requires the return of the bailed goods to the bailor in the form in which they were delivered to the bailee. These transactions clearly constituted a contract for a future sale coupled with delayed payment of the price at the will of the ODLC. See Bluebell Importing Corp. v. Myers (App. 1938), 27 Ohio Law Abs. 377, 13 O.O. 124, 31 N.E.2d 227.
The plan adopted by the ODLC is the primary method by which the vendor may sell its products in Ohio. The ODLC negotiates and executes the contracts with the various warehousemen throughout the state and the vendor has no contractual relations with any of the warehousemen. Further, the vendor must use the warehouses designated by the department as a designated termination and storage point for the stocks brought into Ohio for sale to the ODLC. Further, the record indicates that the vendor ships the goods to the warehouses with the ODLC in effect paying for the freight. Under the plan the department continually adjusts the price to the vendors keyed to the end of paying said freight. On arrival at the warehouses, a vendor's products are stored in a location convenient to the state and held for the exclusive purpose of being applied to withdrawal orders issued by the ODLC. The warehousemen may not honor any order of removal except those which come from the liquor department, with sole custody of the stock resting in the warehousemen and sole right of disposal resting in the ODLC.
Finally, it should be noted that the vendor surrenders all rights to control or dispose of any part of the stock while it remains in the warehouse and may not withdraw such stock for shipment out of state or transfer the stock from one warehouse to another without the authorization of the department. I respectfully suggest that this court should apply the provisions of the Uniform Commercial Code to this transaction and, if it does so, the court will have no other alternative but to reverse the posture adopted by the Tax Commissioner.
For all the reasons noted above, the decisions of the Board of Tax Appeals should be reversed.
HOLMES and DOUGLAS, JJ., concur in the foregoing dissenting opinion.