Opinion
No. 35667
Decided March 18, 1959.
Taxation — Sales and use tax — Purchase of property to consume in public utility service — Excepted though consumer not public utility — Sections 5739.01 and 5741.01, Revised Code.
Under Sections 5739.01 and 5741.01, Revised Code, the purchase of property by a "consumer" as defined in such sections, which consumer has the purpose to use and consume the property purchased directly in the rendition of a public utility service, is excepted from the sales or use tax, even though such consumer is not himself a public utility.
APPEAL from the Court of Appeals for Summit County.
An action in mandamus by Paul Stutler, Incorporated, hereinafter designated Stutler, was instituted in the Court of Appeals for Summit County against Frank Yacobucci, Clerk of the Court of Common Pleas of Summit County, hereinafter designated the clerk, and Stanley J. Bowers, Tax Commissioner, hereinafter designated the commissioner.
The facts are so succinctly and accurately stated in the opinion of the Court of Appeals that we quote from it as follows:
"The plaintiff pleads:
"1. The official position of the defendants, as Clerk of the Common Pleas Court of Summit County and as Tax Commissioner of the state of Ohio.
"2. That the relator, on February 5, 1958, presented to the clerk of courts (Yacobucci), an application for certificate of title to the following described motor vehicle: year, 1958; number of cylinders, 6; motor No., XL 450-102883; make, Diamond T; manufacturer's serial No., 662 F 1071; body type, tractor; model, 662 f; h.p., 45.9. [To this application were attached various exhibits, to which reference will be made later.]
"3. That the defendant clerk of courts refused to issue a certificate of title for the vehicle, unless the relator presented prepaid tax receipts by virtue of the provisions of Sec. 5739.03, R.C., or unless the relator submitted, with the application, payment of the tax to the said clerk of courts.
"4. That it is the duty of the defendant clerk to issue the certificate requested without requiring payment, or evidence of the payment, of the sales tax or use tax when the transaction is not a retail sale, as defined in Sec. 5739.01, R.C., or the purpose of the purchase is not to use, store or consume personal property within the meaning of Sec. 5741.01, R.C.
"5. That the transaction, as disclosed to the defendant clerk by relator's application and the exhibits appended thereto, is not subject to either the sales or use tax, by reason of the exemptions set forth in Sec. 5739.01 and Sec. 5741.01, R.C.
"6. That the relator is informed and therefore avers that the defendant Stanley J. Bowers, as Tax Commissioner of the state of Ohio, has directed the defendant Frank Yacobucci, Clerk of the Common Pleas Court, to refuse to issue a certificate of title `in transactions as above set forth.'
"7. That it has no adequate remedy at law.
"Wherefore, plaintiff prays for a writ of mandamus, commanding and directing the defendant Frank Yacobucci, Clerk of the Court of Common Pleas of Summit County, Ohio, to issue to it a certificate of title to the motor vehicle described in its petition.
"Facts gained from the exhibits attached to the petition and from the petition are:
"(a) That the relator is an Ohio corporation with its principal place of business in Akron, Ohio.
"(b) That the A.C.E. Transportation Co. is a public utility — a certified motor common carrier of personal property holding state and national certificates of public convenience and necessity.
"(c) That the relator, contemporaneously with its application for a certificate of title, presented to the clerk of courts a manufacturer's statement of origin showing that the truck was sold to the relator, and `was the first transfer of such new motor vehicle in ordinary trade and commerce.'
"(d) That there was presented to the defendant clerk a `unit certificate of exemption' signed by the relator, showing the vehicle `leased to A.C.E. Transportation Co., 395 Baird Street, Akron, Ohio, P.U.C.O. No. 7856R1.'
"(e) An affidavit of an officer of the relator company (the statements in which are admitted to be true) that an attached equipment lease agreement between the relator and the A.C.E. Transportation Co., Inc., existed for the motor vehicle in question, and that `it is the intent of the consumer to use the motor vehicle * * * solely and directly in the rendition of a public utility service.'
"(f) Receipt of the A.C.E. Transportation Co., Inc., for the equipment in question given to relator.
"(g) A certification executed by A.C.E. Transportation Co., Inc., that `the articles of tangible personal property (the motor vehicle in question) * * * were leased under equipment agreement for public utility service. P.U.C.O. Number 3556RX.'"
The clerk and the commissioner demurred to Stutler's petition, and, since it was stipulated that, in the event the demurrer should be sustained, judgment should be entered against Stutler, and that, in the event the demurrer should be overruled, the clerk and the commissioner would not file a formal answer, the case was submitted to the court for decision upon the petition and demurrer.
The Court of Appeals allowed the writ of mandamus prayed for, and an appeal from the judgment of the Court of Appeals is before this court as a matter of right.
Messrs. Hershey, Hatch, Browne Wilson, for appellee.
Mr. William Saxbe and Mr. Mark McElroy, attorneys general, Mr. John M. Tobin and Mr. John S. Ballard, prosecuting attorney, for appellants.
The General Assembly has enacted the Ohio Sales Tax Act, Chapter 5739, Revised Code, and the Ohio Use Tax Act, Chapter 5741, Revised Code.
There was some disagreement in the present cause as to whether it is concerned with the sales tax or the use tax, since the truck involved was purchased outside Ohio, but the record does not disclose whether the contract for its purchase was consummated in Ohio. However, so far as the questions in this case are concerned, the provisions of both the Sales Tax Act and the Use Tax Act are practically identical.
Section 4505.06, Revised Code, provides in part as follows:
"In the following cases the clerk shall accept for filing such application and shall issue certificate of title without requiring payment or evidence of payment of either tax:
"* * *
"(C) When the purchase is outside this state or in interstate commerce and the purpose of the purchaser is not to use, store, or consume within the meaning of Section 5741.01 of the Revised Code."
Section 5741.01 defines "use" as follows:
"(C) `Use' means and includes the exercise of any right or power incidental to the ownership of the thing used, except as provided in this division of this section.
"When the purpose of the consumer is any of the following: (1) To resell the thing purchased in the form in which the same has been received by him; (2) * * * to use or consume the thing transferred * * * directly in the rendition of a public utility service * * *."
Section 5741.01 (D) defines "purchase" as follows:
"(D) `Purchase' means acquired for a consideration, whether such acquisition was effected by a transfer of title, or of possession, or of both, or a license to use or consume; whether such transfer was absolute or conditional, and by whatever means the same was effected; and whether the consideration was a price, rental in money, or exchange."
The Sales Tax Act contains similar provisions.
It is the contention of Stutler, and that contention was upheld by the Court of Appeals, that there had been a purchase of the truck with which we are concerned by the A.C.E. Transportation Company, Inc., hereinafter designated A.C.E., as "purchase" is defined in the statute.
There is a motor freight transportation agreement, dated January 14, 1958, between Stutler and A.C.E., and a further equipment lease agreement between the two, dated January 15, 1958, by which Stutler is to furnish the truck to A.C.E., by lease, and to provide transportation service for A.C.E. between points designated by it.
Stutler and A.C.E. treated the leasing of the equipment as a statutory sale, and, therefore, A.C.E. executed and delivered an exemption certificate to Stutler showing that the truck is to be used directly in the rendition of a public utility service, A.C.E. being a holder of the permits issued by the Public Utilities Commission.
The possession of the truck was turned over to A.C.E., and, since the transfer was made, and the receipt for the truck was given by A.C.E. to Stutler, in Ohio, the Sales Tax Act must control in determining whether such transfer constituted a sale.
Section 5739.01, Revised Code, reads in part as follows:
"(B) `Sale' and `selling' include all transactions by which 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 by any means whatsoever * * *."
The Court of Appeals held that, since the truck had been transferred and A.C.E. had possession of it, and the contract between Stutler and A.C.E. provides for payment for the transfer and use, there had been a reselling of the truck by Stutler to A.C.E., and, therefore, Stutler is entitled to a certificate of title from the clerk without the payment of a sales or use tax.
The clerk contends that, since the contract between Stutler and A.C.E. provides that the truck shall be maintained in first class repair at the expense of Stutler, that it will be operated at Stutler's expense, and that it will provide workmen's compensation coverage for its drivers and employees and pay all state and federal taxes for unemployment insurance, old age pensions and other benefits, Stutler has not actually parted with possession of the truck but that it has simply contracted to furnish a service to A.C.E., even though it agreed to operate the truck over only the certified roads of A.C.E. and to comply with all the rules and regulations of the Interstate Commerce Commission, Bureau of Motor Carriers, and any public utilities commission.
As a result of the conclusion at which we have arrived, it is unnecessary for us to decide whether a statutory sale has been made by Stutler to A.C.E.
The statutes provide that a sales or use tax need not be paid, where it is the purpose of the consumer of the article purchased to use or consume the thing transferred directly in the rendition of a public utility service.
Stutler is the consumer and, in the affidavit attached to the petition for a writ of mandamus, it says "that it is the intent of the consumer to use the motor vehicle described in the aforesaid application for certificate of title and the receipt from the A.C.E. Transportation Company, Inc., and said lease agreement solely and directly in the rendition of a public utility service."
It is undisputed that Stutler itself is not a public utility, and it is likewise undisputed that A.C.E., in whose service the truck is to be used by contract, is a public utility.
The contention is made that, in order to be exempt from the payment of a sales or use tax in a situation like the present one, the consumer must be a public utility and not simply one who uses the thing transferred in the rendition of a public utility service of another.
It is true that Stutler operates the truck, but it is operated in the public utility service of A.C.E., over the routes designated by it in exclusively rendering its public utility service.
The statute does not say that the consumer must be a public utility. It simply says that it must be his purpose to use or consume the thing transferred directly in the rendition of a public utility service.
There is no question that the truck will be used exclusively by the consumer in a public utility service, even though the consumer is not itself a public utility.
This court has said that it is the use of the thing rather than the character of the consumer or user that is determinative of the question of tax exception.
In the case of Apex Powder Corp. v. Peck, Tax Commr., 162 Ohio St. 189, 122 N.E.2d 693, the syllabus reads:
"Within the meaning of the exception of the definition of retail sale and sales at retail in Section 5546-1, General Code [Section 5739.01, Revised Code], a `consumer' may have a `purpose * * * to use' a `thing transferred directly in the production of tangible personal property for sale by * * * mining,' even though such tangible personal property will not be owned or sold by such consumer."
In the Apex Powder case, Apex entered into a contract with certain property owners to do drilling and blasting in connection with mining upon their premises. Apex contended that its purchase of drilling and blasting equipment was excepted from the sales or use tax because its purpose was to incorporate or consume such property directly in the production of tangible personal property for sale by mining, which was a basis for exception.
The Tax Commissioner contended that there could be no exception for the reason that Apex did not own or sell the minerals, was only performing a service, and, therefore, was not engaged in the production of tangible personal property for sale by mining. However, this court rejected that contention and held that it made no difference whether Apex owned the mines or sold the minerals, as long as it was using its property directly in the production of the minerals. By the same logic, it seems to us that it makes no difference that Stutler is not a public utility, as long as it is using its property directly in the rendition of a public utility service, as it has contracted to do in the public utility service of A.C.E.
It likewise seems to us that the same logic controlled our decision in the case of Zinc Engravers v. Bowers, Tax Commr., 168 Ohio St. 43, 151 N.E.2d 226, where, in the second paragraph of the syllabus, it is stated:
"Mats, engravings and etchings purchased by a retail business concern and then delivered by it without charge to newspaper publishers for use in newspaper advertisements concerning its merchandise are used directly in making retail sales within the meaning of Section 5739.01, Revised Code, and sales of such materials for such purpose are excepted from the tax."
In the Zinc Engravers case, it was contended that the retail business concern did not use the mats, engravings and etchings which it owned directly in making retail sales, but that the newspaper made such use thereof. However, we again held that it was the use of the property and not the status of the one using it that was the controlling factor.
Since it is undisputed that A.C.E. is a public utility and that the truck is to be used directly in the rendition of a public utility service, the consumer, or Stutler, is entitled to its certificate of title, without the payment of a sales or use tax.
The judgment of the Court of Appeals is affirmed.
Judgment affirmed.
WEYGANDT, C.J., TAFT and MATTHIAS, JJ., concur.
ZIMMERMAN, BELL and HERBERT, JJ., dissent.
It is apparent from the syllabus that the majority of this court is of the opinion that the "consumer," Stutler, has established its "purpose to use and consume the property purchased directly in the rendition of a public utility service." With that interpretation of the facts, the writer cannot agree, especially in the light of the two cases relied upon, namely, Apex Powder Corp. v. Peck, Tax Commr., supra, and Zinc Engravers v. Bowers, Tax Commr., supra.
What the court is really confronted with in this case is the meaning of the phrase, "the purpose of the consumer is * * * to use or consume the thing transferred * * * directly in the rendition of a public utility service," as contained in Sections 5739.01 and 5741.01, Revised Code. (Emphasis added.)
It should be noted that this phrase does not require merely that it be the purpose of the consumer that the property be used directly in the rendition of a public utility service, but requires that it be the purpose of the consumer to so use it. As I construe the phrase, the consumer must therefore be able to render the service.
Unlike many business activities, to qualify as a public utility, particularly in the motor transportation field, one must be prepared to serve any and all of the public desiring the service and to submit to strict regulation in the event of securing a certificate of public convenience and necessity.
In this case it is conceded that Stutler itself is not legally qualified to render a public utility service but operates this truck over A.C.E. routes under a lease arrangement with A.C.E., the truck carrying A.C.E. public utility permits. Stutler's contract is solely with A.C.E. and not with any of the shippers whose goods it hauls. It is of no concern to the court whether A.C.E.'s operational plan with Stutler is more or less economical than if A.C.E. owned and operated its own truck. The point is that Stutler is not rendering and cannot render any public utility service to the public. It is merely rendering a stipulated service to A.C.E. as it appears in its contract with A.C.E. A.C.E. has the obligation to furnish public utility service over certain routes under its permits, and the only public utility service being rendered through the use of Stutler's truck is being rendered by A.C.E.
The two cases cited in the majority opinion as supporting the decision here do not do so, in the opinion of the writer. In the Apex case, Apex entered into a contract with a strip-mine property owner to perform certain drilling and blasting operations in connection with such strip mine so that the owner could remove the mineable mineral from its property for sale. Apex was paid for its blasting operation by the mine owner. There is no question in that case that the acts performed by Apex constituted the use of the things sought to be taxed "directly in the production of tangible personal property * * * by mining," within the meaning of the statutory language.
The distinction sought by the Tax Commissioner was that, because Apex did not own or sell the mineable minerals, Apex was not within the exception of the statute. This court merely held that a corporation may be engaged directly in the production of tangible personal property by mining without being the owner of the minerals produced. Factually, there can be no doubt that Apex was actually engaged in mining and produced tangible personal property for sale by mining, but on the agreed facts in this case most of the aspects of public utility service are not rendered by Stutler.
The second case relied upon by the majority is Zinc Engravers v. Bowers, Tax Commr., supra. That case involved the purchase of mats, engravings and etchings by a retail merchant called A. Polsky Company, which items were then delivered by Polsky to a newspaper without charge to be used in newspaper advertisements concerning Polsky's merchandise. That case turned entirely on the use made of the mats by Polsky and not by the newspaper. The second paragraph of the syllabus in that case excepted the sale of the mats and engravings from the tax and did so on the specific proposition that there it was the purpose of the consumer, namely Polsky, to use and consume the materials "directly in making retail sales." Particular attention is called to page 52 in the opinion in the Zinc Engravers case where the effort of the claimant in that case to extend the rule of the Apex case was denied because, as stated, the test of the transaction was "the purpose of the consumer to use or consume" and not whether the purpose of the consumer "was that the thing transferred be used or consumed."
According to my view of the decision in the Zinc Engravers case, Polsky, the consumer there, is comparable to A.C.E., who is not the consumer here, and the newspaper using the mats and engravings in the production of the advertisements for Polsky there is in a comparable position to Stutler here with respect to actual use of the truck.
Each of the cited cases hinged on a factual determination.
In the Apex case, it was determined that "the purpose of" the appellant was "to use or consume" the blasting equipment "directly in the production of tangible personal property for sale by * * * mining," which final fact is clearly supported in the record in that case.
In the Zinc Engravers case, it was held that the mats, engravings and etchings purchased there by the retail merchant and delivered to the newspaper publishers were used by that retail merchant "directly in making retail sales," another factual finding clearly supportable on the record in that case.
Here, the majority finds as a fact that the consumer Stutler has the purpose to use and consume the truck purchased by it "directly in the rendition of a public utility service" and that such use is therefore excepted from the sales or use tax even though Stutler is not itself a public utility. The majority fails to recognize one fact, in the opinion of the writer. The majority opinion states that "the statute does not say that the consumer must be a public utility. It simply says that it must be his purpose to use or consume the thing transferred directly in the rendition of a public utility service." That statement so far as it goes cannot be disputed, but it certainly raises the question as to whether it goes far enough.
The consumers in both the Apex and Zinc Engravers cases were lawfully able to and did perform the operations in which they were using and consuming the materials the sale or use of which was sought to be excepted from tax. Here, however, such is not the case. Although it may be true that the truck is being used in the rendition of a public utility service, it is not being so used by Stutler, the consumer here. The public utility service being rendered in the instant case is that being rendered by A.C.E., and Stutler, the consumer, can at best be considered as merely rendering a special contract service to A.C.E. The writer fails to see how, if Stutler is unable legally to render a public utility service itself, it can be held to have purchased the truck involved here with the purpose "to use and consume" it "directly in the rendition of a public utility service."
BELL, J., concurs in the foregoing dissenting opinion.