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					               Construction Contracts:
               Sales & Use Tax and CAT



                          Annual Ohi T C
                     2010 A    l Ohio Tax Course
                           August 12, 2010




William G. Nolan, Esq.                             John R. Trippier, CPA
Executive Di t
E     ti Director                                  Ad i i t t
                                                   Administrator
State & Local Tax Services                         Audit Division
R.C. 5739.02


….an excise tax is hereby levied on each retail sale made in
     state
this state.




Page 2                                         2010 Annual Ohio Tax Course
R.C. 5739.02(C)


For the purpose of the proper administration of this chapter,
                                  tax,
and to prevent the evasion of the tax it is presumed that all
sales made in this state are subject to the tax until the
contrary is established




Page 3                                          2010 Annual Ohio Tax Course
R.C. 5739.01(B)


"Sale" and "selling" include all of the following transactions
                           manner,
for a consideration in any manner whether absolutely or
conditionally, whether for a price or rental, in money or by
exchange, and by any means whatsoever:




Page 4                                            2010 Annual Ohio Tax Course
R.C. 5739.01(B)(1)


All transactions by which title or possession, or both, of
                                            transferred
tangible personal property, is or is to be transferred, or a
                    property
license to use or consume tangible personal property is or is
to be granted;




Page 5                                         2010 Annual Ohio Tax Course
R.C. 5739.01(B)(2) – (11)


 ►       Only certain enumerated services are subject to tax
 ►       If not enumerated, then the service is not subject to tax




Page 6                                                2010 Annual Ohio Tax Course
R.C. 5739.01(B)(2) – (11)


 ►       Services (3)
         •   Repair                     •   Private investigation
         •   Installation               •   Building maintenance
         •   Washing a motor vehicle    •   Employment service
         •   Laundry and dry cleaning   •   Employment placement
         •   ADP/EIS                    •   Exterminating
         •   Telecom                    •   Towing service
         •   Landscaping                •   Snow removal
                                        •   Electronic publishing




Page 7                                                    2010 Annual Ohio Tax Course
R.C. 5739.01(B)(2) – (11)


 ►       Production or fabrication of TPP (5)
         •   P id exception f TPP incorporated into real property as
             Provides        ti for       i  t di t    l       t
             part of a construction contract
             ►   Contractor deemed consumer of such TPP
             ►   Except, carpeting and landscaping are never a construction contract




Page 8                                                             2010 Annual Ohio Tax Course
Exceptions/Exemptions


►   Approximately 113 exceptions or exemptions
►   Found i 5739 01 and 5739 02 [
    F    d in 5739.01 d 5739.02 [most f         d in 02(B)]
                                          t found i .02(B)]
►   Taxpayer must establish it is entitled to exception or
    exemption
►   Narrowly construed




Page 9                                            2010 Annual Ohio Tax Course
Use Tax


►   What is use tax?
    •                                        (R.C. 5741.02)
          Also an excise tax like sales tax (R C 5741 02)
    •     It is a tax on the storage, use or consumption of tangible personal
          property or benefit of taxable service in Ohio
    •     Enacted in 1936 (sales tax – 1935)




Page 10                                                      2010 Annual Ohio Tax Course
Use Tax


►   What is use tax?
    •         general,
          In general if sales tax has been legally paid then use tax is not
          due
    •     If no sales tax paid, use tax due by purchaser




Page 11                                                      2010 Annual Ohio Tax Course
Use Tax


►   Examples of transactions where tax is not charged:
    •     Catalog purchases
    •     Out-of-state vendors not required to collect tax
    •     In state vendors who do not collect tax
    •     Intercompany transactions
    •     Internet purchases




Page 12                                                      2010 Annual Ohio Tax Course
Use Tax


►   MYTH: The Internet Tax Freedom Act exempts all sales
                                                    tax.
    made on the Internet from state and local sales tax




Page 13                                      2010 Annual Ohio Tax Course
Use Tax


►   Internet Tax Freedom Act does not pertain to purchases
                    Internet,
    made over the Internet but rather prohibits states from
    taxing Internet access (unless Internet access was
    already taxed by the states)




Page 14                                        2010 Annual Ohio Tax Course
Use Tax


►   Department developing education program focused on
    unregistered businesses
    •     Registration
    •     Voluntary disclosure for open years – 4 years
          ►   Audit practice is 7-year look back




Page 15                                                   2010 Annual Ohio Tax Course
Sales and Use Tax Issues for Contractors

►   The contractor’s dilemma
    •     Consumer or vendor?
    •     Smink Electric case

►   Defining a construction contractor

►   The problem – complexity upon complexity
    •     Property classification
    •     Incidence of the tax
    •     Exemptions

►   Importance of addressing the issues
    •     Who bears the burden of figuring all this out?
    •     Who bears the consequences of doing it wrong?
    •     Potential for “under” or “over” compliance



Page 16                                                    2010 Annual Ohio Tax Course
Property Classification

►   Real Property – ORC § 5701.02

►   Personal Property – ORC § 5701.03

►   Court decisions that can be difficult to apply

►   Importance to contractors
    •     Accurately bid the job
    •     Claim resale or pay tax on materials purchases
    •     Collect tax (or exemption certificate) on sales of tangible personal property
    •     Efficiently set up job documentation and billing procedures
    •     Avoid sales tax assessment and 50% penalty
    •     Avoid       tax            t
          A id use t assessment on materials t i l




Page 17                                                                   2010 Annual Ohio Tax Course
Real Property

►   Land

►   Building

►   Structure

►   Improvement

►   Fixture




Page 18           2010 Annual Ohio Tax Course
Tangible Personal Property


                     ►   Everything not attached to real
                         property

                     ►       g              p      y
                         Things attached temporarily

                     ►   Business Fixtures




Page 19                                  2010 Annual Ohio Tax Course
Business Fixtures


►   Permanently affixed

►   Primarily benefits the business, not the real estate

►   Can include parts of buildings

►   Excludes fixtures that are common to buildings no matter
    what business is conducted




Page 20                                           2010 Annual Ohio Tax Course
Rule of Thumb


►   If item does not meet definition of real property in ORC §
    5701 02 item is tangible personal property
    5701.02,
►   If item meets definition of real property in ORC § 5701.02,
                 p p y
    item is real property unless otherwise specified as
                                                p
    tangible personal property




Page 21                                          2010 Annual Ohio Tax Course
Sales Tax Exceptions



►   Carpeting
    C    ti

►   Farm drain tile and grain bins

►          p g
    Landscaping




Page 22                              2010 Annual Ohio Tax Course
Flow-Through Exemptions

►   Government jobs
►   Churches
►   Charitable organizations
►   Non-profit schools

►   Exemption only for materials
►   Exemption certificates




Page 23                            2010 Annual Ohio Tax Course
Construction Contracts


►   Admin Rule 5703-9-14 (H)
    •     Machinery, equipment, tools, supplies,
          Machinery equipment tools supplies and other tangible personal
          property purchased or leased by a construction contractor and
          used or consumed in performing a construction contract, including
                                                        rule,    taxable.
          a contract specified in paragraph (D) of this rule are taxable




Page 24                                                    2010 Annual Ohio Tax Course
Construction Contracts



►   Taxable items:
    •     Lift equipment
    •     Job trailers
    •     Scaffolding
    •     Portable toilets
    •     Safety equipment
    •     Specialized tools
    •     Consumable fuels
    •     Off road (dyed) diesel fuel, oxygen, acetylene




Page 25                                                    2010 Annual Ohio Tax Course
Construction Contracts


►   Tangible personal property that is temporarily affixed
            construction
    during construction, is not incorporated into real property
    for sales and use tax purposes such as:
    •     temporary electricity or water service hook-ups
    •     fencing
    •     construction elevators
    •     shoring lumber co c ete forms
          s o g u be concrete o s


►   This applies even if these items remain affixed after
    construction is completed due to inadvertence,
    convenience, or economic necessity


Page 26                                                     2010 Annual Ohio Tax Course
Construction Contracts



►   Services consumed by the contractor even if for an
    exempt job include:
    •     Security
    •     Building maintenance & janitorial (see Cousino Constr. Co. v.
          Wilkins, 108 Ohio St.3d 90, 2006-Ohio-162
    •     Employment service




Page 27                                                    2010 Annual Ohio Tax Course
Other Considerations


►   Sales/Use tax base and contractors that manufacture

►   Out-of-state jobs

►   Situsing of sales (intrastate/tangible personal property)




Page 28                                           2010 Annual Ohio Tax Course
Sourcing Guidelines

►   Streamlined Sales Tax Origin Option (ORC 5739.033(B))
    •     Origin sourcing applies only to intrastate sales of tangible personal
          property and “digital goods”
          ►   Sourced to the location where the vendor received the order for the
              sale
          ►   If the vendor’s records do not capture where the order is received, sale
              is treated as interstate and destination sourced
          ►   Origin sourcing does not apply to sales of services, leases, or rentals

    •     Interstate sales will continue to be sourced by destination


►   Information Release ST 2009-03-Sales and Use Tax:
    Sourcing – Issued December 2009


Page 29                                                            2010 Annual Ohio Tax Course
Sourcing Guidelines


►   Streamlined Sales Tax Origin Option (cont.)
    •                1/1/2010,
          Effective 1/1/2010 a consumer does not owe additional use tax
          liability on purchases of TPP if they paid the sales tax to a vendor
          using the origin or destination rate even if the item is consumed in
          a higher rate county




Page 30                                                      2010 Annual Ohio Tax Course
Sourcing Issues


►   A “vendor” sells from a location within Ohio and a “seller”
                        out-of-state
    makes sales from out of state but has substantial nexus
    within this state
    •     Does out-of-state “seller’s” use tax also get no additional use tax
          treatment?
►   Identifying appropriate rate when order receipt location is
    d e e t than e do s eta ocat o
    different t a vendor’s retail location
►   What happens if items (i.e., freight) are not taxed but
    should have been?
►   What about direct pay permit holders?



Page 31                                                       2010 Annual Ohio Tax Course
Sourcing Issues

►    Contractor A buys piping to be used on real property job - $100.
     Contractor A receives property in Franklin County (6.75%) and
     installs it in Cuyahoga County (7.75%).
                 In-state vendor   In-state vendor   Out-of-state seller       Out-of-state seller
                    (F kli )
                    (Franklin)       (Clark
                                     (Cl k – 7%)       ( i t d)
                                                       (registered)             (unregistered)
                                                                                (       i t d)

     Tax on          $6.75             $7.00               $6.75                       $0.00
    purchase


     Tax on          $0.00             $0.00               $0.00                       $6.75
      use


     Tax on          $0.00             $0.00               $0.00                       $1.00
    additional
      use



Page 32                                                                    2010 Annual Ohio Tax Course
Sourcing Issues

►    Contractor A buys piping to be used on real property job - $100.
     Contractor A receives and installs property in Cuyahoga County
     (7.75%).
                 In-state vendor   In-state vendor   Out-of-state seller       Out-of-state seller
                    (F kli )
                    (Franklin)       (Clark
                                     (Cl k – 7%)       ( i t d)
                                                       (registered)             (unregistered)
                                                                                (       i t d)

     Tax on          $6.75             $7.00               $7.75                       $0.00
    purchase


     Tax on          $0.00             $0.00               $0.00                       $7.75
      use


     Tax on          $0.00             $0.00               $0.00                       $0.00
    additional
      use



Page 33                                                                    2010 Annual Ohio Tax Course
Contractee Certification


►   ORC § 5733.03(C), OAC 5703-9-14(G)
    •                                                                       for,
          Intent is to give contractor the opportunity to shift the burdens for
          and consequences of, making determinations to the property
          owner
    •     Mechanics
    •     Result is the centralization in the owner of classification and
          taxability determinations
    •     Certification         li bl               ’      i
          C ifi i not applicable to contractor’s equipment, tools, and l     d
          supplies




Page 34                                                        2010 Annual Ohio Tax Course
CAT Issues Faced by Construction Contractors


►   Imposition
    •     All persons having nexus without regard to form of organization or entity
          tax l    ifi ti
          t classification
    •     Economic nexus standard/bright-line presence

►   Incidence of tax
    •     CAT imposes on person generating taxable receipts
    •     May not be separately billed or invoiced to customer
          ►   NOTE – HB1 addition of ORC 5751.06(I) ($500 penalty)
    •     M pass th
          May            h to    t
                   through t customer as cost  t
    •     Pyramiding of CAT on jobs with multiple tiers of subcontractors

►   Exclusions
    •     Agency exclusion – ORC 5751.01(G)(2)(l)
          ►   OAC Rule 5703-29-13
          ►   Tax Commissioner Opinions



Page 35                                                              2010 Annual Ohio Tax Course
          Question and Answers




Page 36                     2010 Annual Ohio Tax Course
Ohio Tax Issues of Interest to Construction Contractors
                             August 12, 2010

                           Sales and Use Tax

On January 19, 2007, the Ohio Board of Tax Appeals issued a decision in
Smink Electric v. Wilkins, BTA Case No. 2005-B-1277. This case was an
appeal of a use tax audit and assessment. Technically, the only issue on
appeal was whether or not the Tax Commissioner should have waived all of
the assessed penalties. The taxpayer did not appeal the actual tax assessed.
Here are the facts as written in the Tax Commissioner’s Final Determination
and quoted in the BTA decision.

             “The Appellant, an Ohio corporation which is primarily a
      construction contractor, did not have a consumer’s use tax account
      during the audit period. The Appellant mistakenly collected and
      remitted sales tax on its construction contracts and has subsequently
      corrected its procedures and registered to file consumer’s use tax
      returns.
             “The Appellant has throughout its existence always fully
      attempted to comply with the law, to establish the correct taxes that
      were necessary, to file all returns, and to pay all taxes that it owed.
      The Appellant retained competent professional (sic) to advise it with
      regard to tax matters. The President of the Appellant contacted the
      Ohio Department of Taxation and attempted to verify that its sales
      tax collection and payment procedures were correct. He discussed
      the nature of the business with a representative of the Department of
      Taxation and was told to collect and remit sales tax as he had been.
      He was not advised to remit consumer’s use tax.
             “During the audit, the Appellant and its representatives were
      extremely cooperative. They corrected their procedures as soon as
      they became aware of the proper methods required. There was never
      any attempt to avoid or delay the payment of any tax….
             “The only issue raised in the petition is a request for remission
      of the penalty. No hearing was requested. Complete remission of the
      penalty is not warranted because the petitioner did not have a
      consumer’s use tax account during the audit period. However, the
      petitioner, which is primarily a construction contractor, mistakenly
      collected and remitted sales tax on its construction contracts and has
      corrected its procedures and registered to file consumer’s use tax
      returns….”

The penalty was reduced by 50%, from $8,101.36 to $4,054.19. The
assessed use tax – $81,083.72 – and the interest – $10,936.00 – were not
contested by Smink Electric.
Sales Tax, Use Tax, and Consumer Liability

Ohio sales tax is a direct tax on the “consumer,” i.e., the person who
purchases tangible personal property or a taxable service in a retail
transaction. The use tax is fully complementary to the sales tax and likewise
is imposed on the consumer, with credit given for sales and use tax paid
previously by the consumer on the same item or taxable service. The sale of
real estate is not subject to Ohio sales and use taxation, so transactions that
involve construction, repair, or remodeling of buildings and other real
property are not “retail sales” and are not taxable. However, there are a few
taxable services, such as landscaping, janitorial, security, and pest control,
that may include work involving real property in some fashion. Under Ohio
Revised Code §5739.01(B)(5), a construction contractor is deemed the
consumer of all tangible personal property purchased for incorporation into
the real estate and that retains its character after incorporation into the real
estate pursuant to a construction contract.

Defining a Construction Contractor

Ohio law defines the term “construction contractor” as a person who
performs a “construction contract.” Ohio Admin. Code rule 5703-9-14(A).

A “construction contract” is any agreement pursuant to which tangible
personal property is or is to be transferred and incorporated into real
property so as to become a part of the real property and retain its character
as real property after the incorporation. A construction contract may be for
new construction or an addition to, or an alteration of, an existing building
or structure.

What this means, for sales and use tax purposes, is that the transaction
between a contractor and the contractee (property owner), or between a
subcontractor and the general contractor, is not subject to sales tax, as long
as the work being performed involves the incorporation of items into the
real estate. The contractor (or subcontractor) must pay sales or use tax on
its cost of the building materials.

The Importance of Proper Classification

In Ohio, the consumer of tangible personal property (or taxable services) is
ultimately liable for sales or use tax. Therefore, the proper classification of
property as “real” or “personal” is a critical issue for the construction
contractor.

Since the construction contractor is the last person to acquire an item while
it is still tangible personal property (e.g., lumber to be incorporated into and
made part of a building), the law provides that the contractor is the final
consumer of the item and is liable for the tax. Ohio Rev. Code §
5739.01(B)(5), Ohio Admin. Code rule 5703-9-14(D).
By knowing the proper classification of property, the construction
contractor:

   •   can accurately bid the job;
   •   knows what materials to purchase exempt “for resale,” and what
       materials to pay sales or use tax on;
   •   can set up the contract and billing to segregate the real property and
       the tangible personal property;
   •   knows if any sales tax must be collected or exemption certificate
       obtained;
   •   avoids sales and use tax assessments and, in Ohio, a possible 50%
       penalty; and
   •   avoids “eating” a use tax assessment, since he or she has no legal
       basis under Ohio tax law to be reimbursed by the contractee, absent
       (in Ohio) the contractee’s certification (the contractor may have a
       right to indemnification depending on the contractual arrangement
       between the parties).

The owner/contractee also needs to know the proper classification of
property for many of the same reasons. For example, if an item transferred
pursuant to the contract is personal property, and if the contractor does not
collect the sales tax on that item, the owner might get assessed during a
purchase audit. At the same time, assuming the contractor paid sales tax on
the item when he purchased it (rather than claiming the resale exemption,
believing that he was going to incorporate it into the real estate), the bid
and contract price was inflated (because the sales tax expense was included)
and the owner paid too much for the work.

A Little Ohio Tax History

Until the early 1980s, the traditional test for classification was well-settled
in Ohio law. An item was real property when:

• It is was affixed to the land or a structure on the land;
• The affixation was permanent; and
• The item “served the real property” and not the particular business
conducted.

See Teaff v. Hewitt, 1 Ohio St. 511 (1853), Zangerle v. Standard Oil Co.,
144 Ohio St. 506 (1945), Zangerle v. Republic Steel Corp., 144 Ohio St.
529 (1945), Roseville Pottery, Inc. v. Muskingum Cty. Bd. of Revision, 149
Ohio St. 89 (1948).

From the early 1980s into the 1990s, the Supreme Court of Ohio moved
away from the traditional test for classification. See Pittsburgh Des Moines
Steel Co. v. Lindley, 1 Ohio St. 3d 15 (1982), Green Circle Growers, Inc. v.
Lorain Cty. Bd. of Revision, 35 Ohio St. 3d 38 (1988), Rotek, Inc. v.
Limbach, 50 Ohio St. 3d 81 (1990). In 1991, the Court expressly
abandoned the traditional test in its decision in Thomas Steel Strip v.
Limbach, 61 Ohio St. 3d 340 (1991). In Thomas Steel Strip, the Court
concluded that the Ohio statute did not require a determination as to
whether an item was primarily devoted to the business conducted on the
real property.

The Thomas Steel Strip decision overturned what had been the law in Ohio
since 1853. The potential for confusion and non-compliance, both for sales
and use taxes and property taxes, was obvious. For example, what would be
the sales and use tax treatment for foundations for exempt manufacturing
machinery. Under the traditional rule, since the foundations primarily
benefited the business being conducted on the land, the foundations would
be personal property and sales tax exempt under the manufacturing
exemption. After Thomas Steel Strip, however, it was clear that the
foundations should be treated as real property, the contractor owed tax on
the materials cost, and the manufacturing exemption did not apply.

On July 20, 1992, the Thomas Steel Strip decision was, in effect,
overturned by the Ohio legislature. Senate Bill 272 (“SB 272”) amended
Ohio Rev. Code §§ 5701.02 and 5701.03. SB 272 retained the traditional
definition of real property and, for the first time, defined “building,”
“structure,” “improvement,” and “fixture.” In addition, SB 272 defined
personal property, specifically adding the definition of a “business fixture.”
SB 272 codified the “benefits the business” portion of the traditional test
that had been rejected in Thomas Steel Strip.

Real Property

Ohio Rev. Code § 5701.02(A) defines “real property,” “realty,” and “land”
to include land itself, all growing crops, including deciduous and evergreen
trees, plants, and shrubs, and (except as provided in Ohio Rev. Code §
5701.03), all buildings, structures, improvements, and fixtures of whatever
kind on the land.

Ohio Rev. Code § 5701.02(B) defines the term “building” as a permanent
fabrication or construction, attached or affixed to land, consisting of
foundations, walls, columns, girders, beams, floors, and a roof, or some
combination of the foregoing, that is intended as a habitation or shelter for
people or animals or a shelter for tangible personal property, and that has
structural integrity independent of the tangible personal property, if any, it
is designed to shelter.

Ohio Rev. Code § 5701.02(C) defines a “fixture” as an item of tangible
personal property that has become permanently attached or affixed to the
land or to a building, structure, or improvement, and that primarily benefits
the realty and not the business, if any, conducted by the occupant on the
premises.
Ohio Rev. Code § 5701.02(D) defines an “improvement” (with respect to a
building or structure) as a permanent addition, enlargement, or alteration
that, had it been constructed at the same time as the building or structure,
would have been considered a part of the building or structure.

Finally, Ohio Rev. Code § 5701.02(E) defines a “structure” as a permanent
fabrication or construction, other than a building, that is attached or affixed
to land, and that increases or enhances utilization or enjoyment of the land.
The term “structure” includes, but is not limited to, bridges, trestles, dams,
storage silos for agricultural products, fences, and walls.

Personal Property

Ohio Rev. Code § 5701.03(A) defines “personal property” to include every
tangible thing that is the subject of ownership, whether animate or
inanimate, including a business fixture, and that does not constitute real
property, as defined in Ohio Rev. Code § 5701.02.

Ohio Rev. Code § 5701.03(A) further provides that “personal property” also
includes every share, portion, right, or interest, either legal or equitable, in
and to every ship, vessel, or boat, used or designed to be used in business
either exclusively or partially in navigating any of the waters within or
bordering on this state, whether such ship, vessel, or boat is within the
jurisdiction of this state or elsewhere.

In addition, Ohio Rev. Code § 5701.03(A) provides that “personal property”
does not include money, motor vehicles registered by the owner thereof, or,
for purposes of any tax levied on personal property, patterns, jigs, dies, or
drawings that are held for use and not for sale in the ordinary course of
business, except to the extent that the value of the patterns, jigs, dies, or
drawings is included in the valuation of inventory produced for sale.

Ohio Rev. Code § 5701.03(B) defines a “business fixture” as an item of
tangible personal property that has become permanently attached or affixed
to the land or to a building, structure, or improvement, and that primarily
benefits the business conducted by the occupant on the premises and not
the realty.

Ohio Rev. Code § 5701.03(B) further provides that a “business fixture”
includes, but is not limited to, machinery, equipment, signs, storage bins
and tanks, whether above or below ground, and broadcasting,
transportation, transmission, and distribution systems, whether above or
below ground. A “business fixture” also includes those portions of buildings,
structures, and improvements that are specially designed, constructed, and
used for the business conducted in the building, structure, or improvement,
including, but not limited to, foundations and supports for machinery and
equipment.
Finally, Ohio Rev. Code § 5701.03(B) provides that a “business fixture”
does not include fixtures that are common to buildings, including, but not
limited to, heating, ventilation, and air conditioning systems primarily used
to control the environment for people or animals, tanks, towers, and lines
for potable water or water for fire control, electrical and communication
lines, and other fixtures that primarily benefit the realty and not the
business conducted by the occupant on the premises.

These definitions are relied on, and somewhat expanded in the Ohio Admin.
Code rule 5703-9-14(B):

       “Tangible personal property that is permanently affixed to real
       property, but which primarily benefits the business conducted on the
       premises by the occupant, is a "business fixture," as defined in
       section 5701.03 of the Revised Code, and retains its status as
       personal property after such affixation is made. An agreement to
       transfer and install a business fixture is a sale and not a construction
       contract.

       “The transfer and affixation of personal property where title to the
       personal property does not transfer to the owner or lessee of the
       premises is a sale and not a construction contract and the item
       affixed remains personal property, since the failure to transfer title
       displays an intention that the affixation is not permanent.

       “Tangible personal property temporarily affixed during construction,
       such as temporary electricity or water service, fencing, elevators,
       shoring lumber, and concrete forms, are not incorporated into real
       property for sales and use tax purposes, even though these items
       may remain affixed after construction is completed due to
       inadvertence, convenience, or economic necessity.”

This sales tax rule highlights another important “test” for determining
classification, i.e., it must be intended that the item will be “permanently”
affixed to the land, building, or structure for it to become real estate. In this
context, “permanent” does not mean “forever,” but it means that the item
will remain affixed for an indefinite period.

As alluded to above, proper classification is important for Ohio
manufacturers. The broad “manufacturing exemption” that exists in the
sales tax law, only applies to a manufacturer’s purchase of personal
property. The exemption has no application to materials that will become
part of the real estate.
Property Tax

The statutory definitions of real property and personal property in Ohio Rev.
Code §§ 5701.02 and 5701.03 apply to the entire state tax law, including
property tax. Therefore, a particular item is supposed to be similarly
classified as real property or personal property for both sales tax and
property tax purposes.

Sales Tax Exceptions To The Construction Contract Rule

The sales tax law provides several exceptions to the general rule. ORC §
5739.01(B)(5) and OAC rule 5703-9-14(C) provide that the sale and
installation of the following items are never construction contracts:

   •   the sale and installation of carpeting, including padding, tack strips,
       adhesives, and similar materials that are integral and necessary
       components of a carpet installation transaction;

   •   the sale and installation of agricultural land tile (tubing);

   •   the sale and erection or installation of portable grain bins; and

   •   the provision of landscaping or lawn care service and the transfer of
       property (e.g., trees, shrubs, sod, or seed) as part of such services.

Such transactions are to be treated as the sale and installation of tangible
personal property for sales and use tax purposes. That is to say, a
contractor performing these kinds of jobs does not pay tax when buying the
materials (carpet, trees, field drain tubing, etc.), but charges and collects
sales tax on the total amount of the job (including labor) when invoicing the
customer (unless, of course, the owner claims a sales tax exemption).

A construction contractor who also makes substantial sales of the same
types of materials that he uses on construction contracts may purchase
such tangible personal property free from tax as a purchase for resale. ORC
§ 5739.01(E)(1), OAC rule 5703-9-14(E). Such a contractor, unless he or
she has direct payment authority, must have a consumer’s use tax account
with the Ohio Department of Taxation and must accrue and remit use tax on
the price of all materials consumed in performing construction contracts.
Flow-Through Exemptions

ORC § 5739.02(B)(13) and OAC rule 5703-9-14(D) provide that a
construction contractor may purchase exempt from sales and use tax
materials that will be incorporated into the following:

   •   real property, pursuant to a contract with the United States
       government or its agencies, the state, or any political subdivision of
       the state;

   •   real property that is owned or will be accepted for ownership at the
       time of completion, by the United States government or its agencies,
       the state, or any political subdivisions of the state;

   •   a house of public worship or religious education or a building used
       exclusively for charitable purposes by a nonprofit organization
       operated exclusively for charitable purposes;

   •   into a building under a construction contract with an organization
       exempt from taxation under section 501(c)(3) of the Internal
       Revenue Code of 1986 when the building is be used exclusively for
       the organization’s exempt purposes;

   •   the original construction of a sports facility (under Ohio Rev. Code
       §307.696); or

   •   a hospital facility entitled to exemption under Ohio Rev. Code §
       140.08.

These “flow through” exemptions apply to building materials only.
Machinery, equipment, tools, supplies, and other tangible personal property,
and any taxable services, purchased or leased by a construction contractor
and used or consumed in performing a construction contract are taxable to
the contractor.

Contractors Who Also Are Manufacturers

Ohio sales tax law provides a broad exemption for raw materials, machinery,
equipment, and supplies that are used in a “manufacturing operation” to
produce tangible personal property for sale. A construction contractor
generally has no exemption for raw materials and manufacturing equipment
because the contractor is not selling the manufactured item, i.e., he is
consuming the item by incorporating it into the real estate.

A person who manufactures or fabricates tangible personal property to be
incorporated into real property, and who also makes sales of such
manufactured items, must “elect” whether to be treated as a manufacturer
or as a construction contractor on purchases of raw materials that are
incorporated into manufactured items. OAC rule 5703-9-14(F).

The manufacturer/contractor does not notify the state of the election but,
rather, “elects” by choosing to pay tax -- or claiming exemption -- when
buying raw materials. Purchases of raw materials for distinct manufactured
items may be handled differently. OAC rule 5703-9-14(F)(2). However,
complete records must be maintained to show how the person elected to
treat each purchase of raw materials.

If a person elects to be treated as a manufacturer, all purchases of raw
materials may be made tax free under ORC § 5739.01(E)(2), i.e., as
materials to be “incorporated into tangible personal property produced for
sale by manufacturing.” The person must accrue and remit use tax on the
price of any such manufactured property subsequently used in performing a
construction contract or in any other taxable manner. OAC rule 5703-9-
14(F)(1). The “price” for calculating the use tax in these cases is the full-
absorption “produced cost” of the finished item, not just the raw materials
cost. ORC § 5741.01(G)(1).

If a person elects to be treated as a construction contractor, sales or use tax
must be paid on the acquisition cost of all raw materials (other than those to
be used in performing an exempt job). No refund of taxes paid will be
permitted, even if the raw materials are subsequently incorporated into an
item manufactured for sale. OAC rule 5703-9-14(F)(2). The person must
also collect sales tax on any manufactured property subsequently sold. This
election does not extend to machinery and equipment. The taxability of
machinery and equipment used in both taxable and exempt manners is
totally taxable or totally exempt based upon its quantified primary use (i.e.,
time devoted to taxable or exempt activities).

County and Transit Authority Use Taxes

The state sales and use tax rate is 5.5%. Counties and regional transit
authorities may impose sales and use taxes in quarter percent increments
up to 1.5% each, so the theoretical maximum Ohio tax rate is 8.5%. If the
purchaser takes possession of the goods at the vendor’s place of business,
the general rule is that the vendor is required to collect the sales tax in
effect there. Effective January 1, 2010, if the vendor receives the order
outside of Ohio and ships the goods to the contractor in Ohio, the vendor
(assuming it has nexus with Ohio) is required to collect based on the rate
where the contractor receives the goods. If the vendor receives the
purchase order in Ohio and ships the goods to the contractor in Ohio, the
vendor is required to collect based on the rate where the purchase order is
received by the vendor. A consumer has no additional liability if it remits the
tax to the vendor based on the foregoing rules. ORC § 5739.033(B)(2).
Protecting the Contractor

Any construction contractor or vendor can request from the contractee a
“certification” of what portion of the property to be transferred under the
contract is to be incorporated into real property and what portion will
remain tangible personal property. ORC § 5739.03(C) and OAC rule 5703-
9-14(G).

The construction contractor may, in good faith, rely on the contractee’s
certification and, if the Tax Commissioner later determines that the
property certified by the contractee has, in fact, been incorporated into real
property, the contractee will be considered the consumer of the property
and become liable for the applicable tax. The contractor will, thus, be
excused from any liability on that tangible personal property. However, the
foregoing does not apply if the Tax Commissioner determines that the
certification of the contractee was made solely on the decision or advice of
the construction contractor.

If the contractee fails (refuses) to provide the requested certification, the
construction contractor is responsible for determining the applicable tax
due. ORC §5739.03(C). If the tax commissioner determines that certain
property treated as tangible personal property by the contractor is, in fact,
real property, the contractee will be liable for the applicable tax, if the
contractor made the tax determinations in good faith.

Direct Payment Authority

If a manufacturer or other purchaser buys tangible personal property or
services under circumstances that normally make it impossible at the time
of purchase to determine the manner in which the property or services will
be used, the tax commissioner may authorize the purchaser to pay the tax
directly, relieving the vendor or seller of responsibility for collecting the tax.
ORC § 5739.031(A). The authorization to pay taxes directly to the state is
signified by the issuance of a direct payment permit.

Holders of direct payment permits need not issue exemption certificates or
pay the sales or use tax when purchasing property or services. ORC §
5739.031(F). Instead, they must notify vendors and sellers of their direct
payment permit number and inform them that the tax is being paid directly
to the state. Upon receipt of this notice, the vendor or seller is absolved
from tax collection duties, but must maintain records of the amount
involved and the identity of the purchaser.

If the direct payment permit is granted, it continues in effect until
surrendered or canceled for cause by the tax commissioner. ORC §
5739.031(E). Upon surrender or cancellation, the former permit holder
must notify vendors and sellers in writing so that they may proceed to
collect taxes on future sales. ORC § 5739.031(F). Failure to notify vendors
is considered a refusal to pay the tax by the person required to issue the
notice.

For purposes of computing the total state and local sales and use tax due, all
purchase transactions made by a direct payment permit holder are
conclusively determined to be consummated at the location where the
permit holder receives the tangible personal property or service. ORC §
5739.031(C).

Taxable Services

Beginning in 1981, Ohio has extended its sales tax to numerous services.
Here is the list, as of the end of 2007:

Ohio Revised Code §5739.01
                                        ***
(B) "Sale" and "selling" include all of the following transactions for a
consideration in any manner, whether absolutely or conditionally, whether
for a price or rental, in money or by exchange, and by any means
whatsoever:
                                        ***
(3) All transactions by which:
        (a) An item of tangible personal property is or is to be repaired,
except property, the purchase of which would not be subject to the tax
imposed by section 5739.02 of the Revised Code;
        (b) An item of tangible personal property is or is to be installed,
except property, the purchase of which would not be subject to the tax
imposed by section 5739.02 of the Revised Code or property that is or is to
be incorporated into and will become a part of a production, transmission,
transportation, or distribution system for the delivery of a public utility
service;
        (c) The service of washing, cleaning, waxing, polishing, or painting a
motor vehicle is or is to be furnished;
        (d) Until August 1, 2003, industrial laundry cleaning services are or
are to be provided and, on and after August 1, 2003, laundry and dry
cleaning services are or are to be provided;
        (e) Automatic data processing, computer services, or electronic
information services are or are to be provided for use in business when the
true object of the transaction is the receipt by the consumer of automatic
data processing, computer services, or electronic information services
rather than the receipt of personal or professional services to which
automatic data processing, computer services, or electronic information
services are incidental or supplemental. Notwithstanding any other
provision of this chapter, such transactions that occur between members of
an affiliated group are not sales. An "affiliated group" means two or more
persons related in such a way that one person owns or controls the business
operation of another member of the group. In the case of corporations with
stock, one corporation owns or controls another if it owns more than fifty
per cent of the other corporation's common stock with voting rights.
       (f) Telecommunications service, including prepaid calling service,
prepaid wireless calling service, or ancillary service, is or is to be provided,
but not including coin-operated telephone service;
       (g) Landscaping and lawn care service is or is to be provided;
       (h) Private investigation and security service is or is to be provided;
       (i) Information services or tangible personal property is provided or
ordered by means of a nine hundred telephone call;
       (j) Building maintenance and janitorial service is or is to be
provided;
       (k) Employment service is or is to be provided;
       (l) Employment placement service is or is to be provided;
       (m) Exterminating service is or is to be provided;
       (n) Physical fitness facility service is or is to be provided;
       (o) Recreation and sports club service is or is to be provided;
       (p) On and after August 1, 2003, satellite broadcasting service is or is
to be provided;
       (q) On and after August 1, 2003, personal care service is or is to be
provided to an individual. As used in this division, "personal care service"
includes skin care, the application of cosmetics, manicuring, pedicuring, hair
removal, tattooing, body piercing, tanning, massage, and other similar
services. "Personal care service" does not include a service provided by or
on the order of a licensed physician or licensed chiropractor, or the cutting,
coloring, or styling of an individual's hair.
       (r) On and after August 1, 2003, the transportation of persons by
motor vehicle or aircraft is or is to be provided, when the transportation is
entirely within this state, except for transportation provided by an
ambulance service, by a transit bus, as defined in section 5735.01 of the
Revised Code, and transportation provided by a citizen of the United States
holding a certificate of public convenience and necessity issued under 49
U.S.C. 41102;
       (s) On and after August 1, 2003, motor vehicle towing service is or is
to be provided. As used in this division, "motor vehicle towing service"
means the towing or conveyance of a wrecked, disabled, or illegally parked
motor vehicle.
       (t) On and after August 1, 2003, snow removal service is or is to be
provided. As used in this division, "snow removal service" means the
removal of snow by any mechanized means, but does not include the
providing of such service by a person that has less than five thousand
dollars in sales of such service during the calendar year.
       (u) Electronic publishing service is or is to be provided to a consumer
for use in business, except that such transactions occurring between
members of an affiliated group, as defined in division (B)(3)(e) of this
section, are not sales.

The bold-faced services ought to be of particular interest to construction
contractors.
Temporary Construction

To be real property, an item must be “permanently” affixed to the real
estate. That is why temporary construction is not a construction contract
but, rather, is the installation of tangible personal property. Therefore, a
contractor who provides temporary construction should purchase the
material sales tax exempt (for resale) and should charge sales tax to the
contractee on the total cost to provide the material and the labor to install
it.

What if the person providing the temporary construction is a subcontractor
who bills the general contractor – who owes the sales tax? According to
Turner Construction Co. v. Limbach, BTA No. 84-G-1068 (5/13/87), the
general contractor is liable for the sales tax, meaning that the subcontractor
providing the temporary construction should collect sales tax from the
general. [A copy of Turner Construction is included in the Appendix.]

Recent Cases

Oregon Ford, Inc. v. Wilkins, BTA Case No. 2005-A-111 (January 27, 2006).
This was a personal property tax assessment where an automobile
dealership’s outside lot lighting was treated as personal property. The
Board held that the lighting did not increase or enhance utilization of the
land on which it was located, but benefited the business conducted on the
land. The lighting would not benefit the land if the particular business
conducted on the land ceased. Although it is not at all clear from the
Board’s decision, car dealership lot lighting differs greatly from regular
parking lot lighting in intensity and color, so treating it as a business fixture
is not illogical. Regular parking lot lighting continues to be classified as
realty.

Polaris Amphitheater Concerts, Inc. v. Board of Revision, BTA Case No.
2004-V-1294 (January 26, 2007), was a real property valuation case. An
outdoor amphitheater and associated buildings and fixtures were
determined to be real property. The property owner had been contending
that these items were personal property and should be excluded from the
real property value. These items included various buildings – containing
dressing rooms, a cafeteria, storage areas, offices, ticket sales, and
restrooms – and fences, loading docks, paved parking lots, and sidewalks.
The Board held that all of these items were buildings or structures because
they are permanent fabrications or constructions affixed to land that are: 1)
intended as habitation for people, animals or shelter for tangible personal
property; and 2) increase the utilization or enjoyment of the land.

 Inverness Club v. Wilkins, BTA Case 2004-R-338 (May 11, 2007). In this
appeal of a use tax assessment, golf course improvements were determined
to be real property and not personal property or taxable landscaping
services. The improvements included moving bunkers, adding drainage and
irrigation, reconstructing tees, and moving a hill. This decision limits the
State’s definition of taxable landscaping service.

Classification Information Release

In September, 2007, the Department of Taxation issued Information
Release “PP 2007-01 and RP 2007-01 - Classification of Certain Business
Assets as Real or Personal Property.” Reportedly, this document primarily
was prepared by personnel of the Property Tax Division, and is intended as a
functional compilation of various “county auditor bulletins” that have been
issued by the Department over the prior decades. This information release
is included in the materials.

Unfortunately, the classification conclusions reached in the information
release do not always agree with long-standing sales tax interpretations.
       Large Construction Projects: Can the Owner Optimize Tax
              Compliance and Control the Tax Expense?


A.      The Problem

Sales and use taxes are a difficult and confusing area of the law. From the foregoing
discussion of the legal issues, you may have already surmised that sales and use taxes
take on an added layer of complexity in the context of large construction contracts,
particularly where industry exemptions may apply. This added complexity has the
potential to result in less than optimal compliance with Ohio’s sales and use tax
provisions.

This added complexity arises from the following issues:

     1. Property classification: Does the contract involve an improvement to real
        property or a taxable “retail sale” of tangible personal property? This
        determination may not be as easy as it may seems considering the application
        of Ohio’s “business fixture” rules.

     2. Incidence of the tax: Who pays the tax? The answer to this question depends
        on the answer to the first question. If the contract involves improvements to
        real property, the contractor is the consumer of the property to be incorporated
        into the realty and must pay the tax on his or her purchases of building
        materials. If the contract involves a transfer of tangible personal property, then
        the contractor is the vendor of the property and must collect the from the
        owner on the taxable “retail sale.”

     3. Exemptions. Some transfers of tangible personal property may nonetheless be
        non-taxable because of the application of a specific industry exemption. Who
        makes the determination as to whether an exemption applies? Who bears the
        exposure from non-compliance if the determination is wrong?

From the contractor’s perspective, knowing the answers to these questions allows him
or her to:

     1. Accurately bid the job.

     2. Properly set up the contract and billing to segregate the real and tangible
        personal property.

     3. Know what building materials to purchase “exempt for resale” and what
        building materials to pay tax on.

     4. Avoid “eating” a use tax assessment since he or she has no legal basis to be
        reimbursed by the owner (absent certification as discussed below) for an
        erroneous determination.

     5. Know that the sales tax must be collected on transfers of tangible personal
        property or an exemption certificate must be obtained.
The owner must likewise know the classification of the property for many of the same
reasons. In addition, owners having direct payment authorization must know the
classification of the property in order to self-assess and remit the correct amount of
use tax.

The practical implications of addressing classification and exemption questions are
illustrated by the following simplified examples.

       Example 1: Contractor needs to purchase an item to be transferred
       pursuant to the construction contract for $100. The contractor
       concludes that the item is going to be tangible personal property, so he
       purchases the item “exempt for resale” and collects tax from the owner
       at the time the contract is performed. The contractor is later subjected
       to a purchase audit by the Ohio Department of Taxation. The Tax
       Commissioner’s Agent determines that the item was properly
       classifiable as real property. Assuming a 5% tax rate, the contractor is
       then assessed $5 in tax on his purchase of the item ($100 x 5%) and is
       not legally permitted to offset the tax collected from the owner against
       the assessment. See Geiler Co. v. Lindley (1981), 66 Ohio St. 2d 514.

       Example 2: Contractor needs to purchase an item to be transferred
       pursuant to the construction contract for $100. The contractor
       concludes the item is going to be real property, so he factors in the
       appropriate tax at the time of the bid. Assuming a 5% tax rate, the item
       is bid at $105. The owner does not pay tax at the time of the contract.
       The owner is later subjected to a purchase audit by the Ohio
       Department of Taxation. The Tax Commissioner’s Agent determines
       that the item was properly classifiable as tangible personal property.
       Accordingly, the owner is assessed $5.25 tax based upon the cost of
       the item ($105 x 5%). As a consequence of the contractor’s erroneous
       classification determination, the owner has paid a total $10.25 in tax
       on the item – an overpayment of $5.25.

       Example 3: Contractor needs to purchase an item to be transferred
       pursuant to the construction contract for $100. The contract concludes
       that the item is going to be tangible personal property, so he purchases
       the item “exempt for resale.” The owner informs the contractor that the
       item will be used in manufacturing and, as such, will be exempt from
       tax under Ohio Rev. Code § 5739.01(E)(9). The contractor fails to
       collect an exemption certificate from the owner as required by Ohio
       Rev. Code § 5739.03(B). The contractor is later subjected to a sales
       audit by the Ohio Department of Taxation. The Tax Commissioner’s
       Agent determines that the item was properly classifiable as tangible
       personal property and that no tax was collected from the owner. Since
       the contractor failed to collect the required exemption certificate, the
       contractor is assessed $5 in tax on the transfer of the item ($100 x 5%).
       Example 4: Contractor needs to purchase an item to be transferred
       pursuant to the construction contract for $100. The contract concludes
       that the item is going to be tangible personal property, so he purchases
       the item “exempt for resale.” The owner informs the contractor that the
       item will be used in manufacturing and, as such, will be exempt from
       tax under Ohio Rev. Code § 5739.01(E)(9). The contractor, in good
       faith, collects an exemption certificate from the owner as required by
       Ohio Rev. Code § 5739.03(B). The owner is later subjected to a
       purchase audit by the Ohio Department of Taxation. The Tax
       Commissioner’s Agent determines that the item was properly
       classifiable as tangible personal property. In addition, the Agent
       determines that the manufacturing exemption is not applicable; hence,
       the item is subject to tax. The owner is assessed $5 in tax on the
       transfer of the item ($100 x 5%).

The foregoing examples suggest that considerable resources may be required to
answer these issues and the consequences of error can be significant. In addition, the
contractor is often required to address these issues even though he or she may not be
in the best position to do so. When you consider that most large construction projects
have multiple subcontractors faced with the same issues, you can see that there is
great potential for either under or over-compliance with Ohio’s sales and use tax
provisions.

Under-compliance may result from a contractor making erroneous classification
determinations and not paying the correct amount of use tax on his or her purchases of
building materials to be incorporated into real property. After “eating” a few use tax
assessments on purchases, a contractor may become conservative in estimating the tax
expense on bids. Such conservatism creates a potential for over-compliance, resulting
in the owner effectively overpaying tax on large construction projects. This could be
especially true where certain industry exemptions apply.

Is it possible to optimize compliance and control the tax expense on large construction
projects? In certain circumstances, it may be possible for a direct payment
authorization holder to use the contractee certification process discussed above to
achieve the foregoing objectives.

B.     Using the Contractee Certification to Optimize Compliance and Control the
       Tax Expense

As discussed above, a construction contractor may request that the owner, or
“contractee,” provide a certification of what portion of property to be transferred
under the contract is to be real property and what portion will be tangible personal
property. Ohio Rev. Code § 5739.03(C); Ohio Admin. Code 5703-9-14(G). The
primary intent behind these provisions was to afford a contractor a means of
protection from assessments based on incorrect taxability determinations by shifting
the burden of making correct determinations to the owner. In other words, the
resolution of the issues discussed above is taken away from the contractor, and
possibly multiple subcontractors, and centralized with the owner.
Using the “normal” certification process, the owner makes the necessary classification
and taxability determinations and communicates them to the contractor using a
certification form such as the one included in the Appendix to these materials. To the
extent property is classified as tangible personal property, the contractor will purchase
the building materials for the tangible personal property tax component exempt from
tax under the resale exception1 (providing the building supplier with the applicable
resale certificate). The contractor then collects the applicable tax (unless an exemption
applies) from the owner on the tangible personal property tax component. In the case
where the owner has direct payment authorization, the owner provides the contractor
with its direct payment information and the contractor does not collect tax on the
personal property component. The owner then makes the taxability determinations
and self-assesses and remits the applicable tax. For building materials that will
become real property, the contractor pays use tax as the consumer of the building
materials for the real property component. Ohio Rev. Code § 5739.01(B)(5), Ohio
Admin. Code Rule 5703-9-14(D).

As discussed above, classification and other taxability determinations may be difficult
to make, especially at the onset of a large construction project. Since the owner is
generally in the best position to make classification and taxability determinations, an
owner having direct payment authorization may consider using the contractee
certification process in Ohio Rev. Code 5739.03(C), Ohio Admin. Code Rule 5703-9-
14(G) as a tool to optimize compliance and control the tax expense associated with
the construction project. Using the certification process, the owner can certify to the
contractor that the entire project is tangible personal property. Accordingly, the
contractor will purchase building materials exempt from tax using a resale certificate.
The contractor collects no tax from the owner since he or she is a direct payment
authorization holder. The owner will then make the necessary classification and
taxability determinations and self-assess and remit tax on the: (1) real property
component; and (2) personal property component where no exemptions apply.

It is clear that this methodology uses the certification process in a manner that may
not have been contemplated by the drafters of Ohio Rev. Code § 5739.03(C) and Ohio
Admin. Code Rule 5703-9-14(G).2 However, the objective underlying this
methodology is to achieve optimal compliance by determining the correct amount of
tax due on a large construction projects. It is not intended as a “tax avoidance”
vehicle. While this procedure may require some “up-front” work at the onset of the
process, it should pay dividends in the form of optimized compliance and controlled
tax expense that makes it well worth the effort.

C.      Process and Implementation Issues

The use of the certification process as discussed above is summarized in the diagrams
attached to the Appendix of these materials. In utilizing this process, there are some
issues that require some attention to assure its success.




1
 Ohio Rev. Code § 5739.01(E)(1).
2
 Using the process in this manner is not a novel concept and there is some history for using this
methodology. At least one large Ohio manufacturer has used this methodology, back in the 1980s.
1.     Communications

Communication is critical in using this process. The owner will be dealing with
contractors, and perhaps subcontractors, during the pre-bid and bid process, the
construction process itself and at the end of the project. The owner will also be
dealing with the contractor at many levels including top management, engineering,
accounting or other clerical personnel. As such, the certification process should be
discussed starting at the pre-bid meeting and continuing throughout the project. A
useful precept is that there is no such thing as over-communication in this process.

2.     Contract Documents

All contract documents need to reflect the certification process. For example, any
sections on taxes may need to be revised to reflect the contractor’s documentation
requirements discussed below. It would also be useful for the owner to provide a
sample certification document and sample exemption certificates with any pre-bid
documents or bid packages so that the contractors will understand the process.

3.     Non-Application to Contractor’s Equipment, Tools and Supplies

The certification process only applies to “building materials” purchased by the
contractor. The certification process does not apply to the contractor’s purchases of
machinery, equipment, tools, consumable supplies, and other tangible personal
property or taxable services purchased or leased by a construction contractor and used
in performing the construction contract. Ohio Rev. Code § 5739.03(C), Ohio Admin.
Code Rule 5703-9-14(G), (H). The contractor pays tax on such purchases as normally
required under a construction contract. This fact must be clearly communicated to the
contractor in order to avoid confusion, ensure that the job is properly priced and
ensure that the contractor is not exposed to assessment on his or her purchases of
tools, supplies, etc. used to perform the contract.

4.     Retention and Collection of Contractor’s Purchase Documentation

In order for the owner to make classification and other taxability determinations, he or
she will need to know what the contractor purchased and how much was paid for it
(including any taxable non-tangible personal property components, such as
installation labor). This will require that the contractor retain and provide information
on building material purchases that he or she may not normally provide to the owner.
It would be preferable to obtain copies of invoices from the building suppliers. Short
of invoices, cost reports maintained by the contractor or any other documentation
showing what the contractor purchased, when it was purchased and how much was
paid for the building materials need to be provided.

5.     Classification and Taxability Determinations and Remittance of Tax

Once the owner collects the purchase documentation discussed above, he or she must
make the appropriate classification determinations to determine what portion of the
project is real property and what portion is the personal property. To the extent the
property is real property, the owner must self-assess and remit use tax on the price of
the building materials. To the extent the property is tangible personal property, the
owner must first determined whether any exemptions apply. The purchase
documentation alone may not provide that information and reference will probably
have to be made to engineering drawings and other documentation to determine the
applicability of any exemptions.

Example 5: A large manufacturer undertakes an expansion. To make room for some a
new manufacturing machine, the roof of a portion of the building must be raised. The
contractor’s costs for the building materials for raising the roof are $100,000 and the
labor costs for that work are $50,000. The cost of the manufacturing machine to be
put into place is $500,000 and there is $150,000 in installation charges associated
with it. Finally, a conveyor is put into place to transport finished product to storage.
The conveyor costs $150,000 and there is $50,000 in installation labor associated with
it. The contractor’s overhead is $200,000 and ratably allocable to the foregoing
components based on each components material and labor costs. Upon completion of
the project the owner must make the applicable classification and taxability
determinations. After receiving the necessary information from the contractor the
owner makes the following determinations:

1. Raised roof: This is real property. The owner must self-assess and remit use tax
   on the cost of the building materials. The tax base is $100,000. Using a 5% tax
   rate, the tax to be remitted is $5,000.

2. Manufacturing machine: This is tangible personal property. Assuming that it is
   primarily used in the production of tangible personal property for sale, it is exempt
   from tax under the manufacturing exemption. As such, the owner pays no tax on
   materials, labor or overhead associated with the machine.

3. Conveyor. This is tangible personal property as it primarily benefits the business
   being conducted on the premises. However, since it is transporting finished
   product to storage, it does not qualify for the manufacturing exemption. As such,
   tax is due on the materials, labor and overhead associated with the conveyor. The
   tax base is $240,000 ($150,000 materials cost + $50,000 installation labor +
   (($200,000 costs associated with conveyor/$1,000,000 total costs) x $200,000) =
   $240,000). Using a 5% tax rate, the tax to be remitted is $12,000.

In this simplified example, the owner must self-assess and remit $17,000 in use tax on
the taxable components of the project.

There may be a potential concern regarding the matching of tax payments with the
purchase of any taxable property or services. Generally, a vendor must collect tax
from the consumer at the time of the transaction. Ohio Rev. Code § 5739.12.
However, under this process, the contractor would not pay tax on any building
materials at the time of purchase, as he or she would purchase them using a resale
certificate because the owner has certified the project as tangible personal property.
Moreover, the contractor would collect no tax from the owner since the owner is a
direct payment authorization holder. The tax would be paid upon completion of the
contract or individual subcontracts, presumably when the owner has obtained the
purchase documentation discussed above. While there may be a mismatch of the dates
of building material purchases and tax remittance, any delay should be minimal.
                        OHIO BOARD OF TAX APPEALS

Smink Electric, Inc.,                       )      CASE NO. 2005-B-1277
                                            )
                   Appellant,               )              (USE TAX)
                                            )
          vs.                               )      DECISION AND ORDER
                                            )
William W. Wilkins,                         )
Tax Commissioner of Ohio,                   )   Vacated/Remanded on Appeal Oct. 5, 2007
                                            )            Ohio Supreme Court
                   Appellee.                )

APPEARANCES:

                        For the Appellant   - John T. Carey
                                              Attorney at Law
                                              1991 Crocker Road
                                              Suite 600
                                              Westlake, Ohio 44145

                        For the Appellee    - Marc Dann
                                              Attorney General of Ohio
                                              Cheryl D. Porkorny
                                              Assistant Attorney General, Taxation Section
                                              State Office Tower – 16th Floor
                                              30 East Broad Street
                                              Columbus, Ohio 43215-3428

                   Entered January 19, 2007

Mr. Eberhart and Mr. Dunlap concur. Ms. Margulies dissents.

                This matter is considered by the Board of Tax Appeals upon a notice

of appeal filed from a final determination of the Tax Commissioner whereby a use

tax assessment was affirmed, while conditionally reducing the penalty by fifty

percent, for the period January 1, 2001 to December 31, 2003. It is considered by

the Board of Tax Appeals based upon the notice of appeal, the statutory transcript
certified to this board by the Tax Commissioner pursuant to R.C. 5717.02, and the

evidence presented at the evidentiary hearing.

             We begin our consideration of this matter by acknowledging the

duties imposed upon the Board of Tax Appeals when reviewing a decision of the

Tax Commissioner.       The Tax Commissioner’s findings are entitled to a

presumption of correctness, and it is incumbent upon a taxpayer challenging a

determination of the Tax Commissioner to rebut that presumption and establish a

right to the relief requested. Alcan Aluminum Corp. v. Limbach (1989), 42 Ohio

St.3d 121. Moreover, the taxpayer is assigned the burden of showing in what

manner and to what extent the Tax Commissioner’s determination is in error.

Inland Refuse Transfer Co. v. Limbach (1990), 53 Ohio St.3d 10.

             Appellant’s notice of appeal reads as follows:

             “The Appellant, an Ohio corporation which is
             primarily a construction contractor, did not have a
             consumer’s use tax account during the audit period.
             The Appellant mistakenly collected and remitted sales
             tax on its construction contracts and has subsequently
             corrected its procedures and registered to file
             consumer’s use tax returns.

             “The Appellant has throughout its existence always
             fully attempted to comply with the law, to establish the
             correct taxes that were necessary, to file all returns,
             and to pay all taxes that it owed. The Appellant
             retained competent professional (sic) to advise it with
             regard to tax matters. The President of the Appellant
             contacted the Ohio Department of Taxation and
             attempted to verify that its sales tax collection and
             payment procedures were correct. He discussed the
             nature of the business with a representative of the
             Department of Taxation and was told to collect and


                                         2
remit sales tax as he had been. He was not advised to
remit consumer’s use tax.

“ During the audit, the Appellant and its representatives
were extremely cooperative. They corrected their
procedures as soon as they became aware of the proper
methods required. There was never any attempt to
avoid or delay the payment of any tax.

“The penalty and preassessment interest constitute an
overwhelming burden on the Appellant, a small
business that employs approximately twenty-five
people. Therefore, the Appellant respectfully requests
that the penalty and preassessment interest be abated.
The Appellant also respectfully requests a hearing on
this matter.”

The Tax Commissioner’s final determination states as follows:

“This is the final determination of the Tax
Commissioner on a petition for reassessment pursuant
to R.C. 5739.13 and R.C. 5741.14 concerning the
following use tax assessment:

                  Amount          Penalty      Total
Use Tax         $81,083.72      $8,108.36   $ 89,192.08
Preassessment
Interest      $10,936.00                    $ 10,936.00
                     Total ---------        $100,128.08

“The only issue raised in the petition is a request for
remission of the penalty. No hearing was requested.
Complete remission of the penalty is not warranted
because the petitioner did not have a consumer’s use
tax account during the audit period. However, the
petitioner, which is primarily a construction contractor,
mistakenly collected and remitted sales tax on its
construction contracts and has corrected its procedures
and registered to file consumer’s use tax returns.

“ Accordingly, the assessment is adjusted as follows:




                            3
                                 Amount         Penalty      Total
              Use Tax          $81,083.72     $4,054.19    $85,137.91
              Preassessment
              Interest      $10,936.00                     $10,936.00
                                   Total ---------         $96,073.91”

              Smink Electric does not dispute the underlying use tax assessed in

this matter. However, it requests that the penalty and interest be abated, stating it

was never advised by its accountant to collect use tax and because it later

attempted to follow the mistaken directions of an Ohio Department of Taxation

employee to collect sales tax. It argues that the use tax requirements are not well

known and that there was no bad faith on Smink Electric’s part. Appellant points

to a current commissioner tax amnesty program which allows for abatement of

penalty and fifty percent reduction in interest charges and contends that it should

be given at least this consideration as it never attempted to cheat the state but

cooperated fully in all aspects of the audit. Smink also notes that it did collect

sales tax from its customers and submitted the taxes to the state.

              Although the appellant requests the remission of penalty and interest

in this matter, the only issue raised in its petition for reassessment was an

abatement of penalty. The Supreme Court observed in CNG Development Co. v.

Limbach (1992), 63 Ohio St.3d 28:

              “We have concluded, in contexts involving appeals,
              that stating error with specificity is a jurisdictional
              prerequisite, and that a reviewing body is ‘*** entitled
              to be advised specifically of the various errors charged
              ***.’ Queen City Valves, Inc. v. Peck (1954), 161
              Ohio St. 579, 583, 53 O.O. 430, 432, 120 N.E.2d 310,


                                          4
              312. As we noted in Akron Standard Div., supra, we
              see no appreciable difference between notices of
              appeal and petitions for reassessment in this procedural
              context. ***

              “[A] taxpayer has not substantially complied with the
              statute, so as to invoke the right to review of a
              particular error, if he has not set forth that error with
              specificity in the petition for reassessment.
              Accordingly, the commissioner, the BTA, and this
              court have no jurisdiction over issues not mentioned in
              CNG’s petition for reassessment.”

See, also, Shugarman Surgical Supply, Inc. v. Zaino (2002), 97 Ohio St.3d 183,

2002-Ohio-5809; Kern v. Tracy (1995), 72 Ohio St.3d 347; Nimon v. Zaino,

Lorain App. No. 01CA007918, 2002-Ohio-822. Thus, only the issue of remission

of penalty is properly before us today.

              In considering the propriety of the penalty imposed by the Tax

Commissioner, we find the Seventh District Court of Appeals’ concurring opinion

in William A. Conti Interiors, Inc. v. Tracy (1996), Mahoning App. No. 94 C.A.

25, unreported, to be helpful. Therein, it was stated:

              “The legislature provided for the imposition of a
              penalty for unpaid taxes. A penalty is a punishment or
              a sanction which is imposed for some kind of
              wrongdoing. The wrongdoing can be deliberate or
              mere negligence, see for example Solteiz v. Tracy
              (1969), 75 Ohio St.3d 477, but the clear intent of the
              legislature is to punish wrongdoing.

              “It seems foolish to have to ask if we should also
              punish people who have not done anything wrong. In
              this case, Conti did not do anything to merit
              punishment. When he found that his employee was
              embezzling not only from him but also stealing the tax
              money, he immediately made good on the back taxes.


                                          5
              It is within the discretion of the Board of Tax Appeals
              to remit penalties, and abuse of discretion is defined as
              an action which is arbitrary, unreasonable and
              unconscionable.”

              Due to the unusual nature of the case before us, and exceptional

good faith demonstrated in the record by appellant herein, we find this matter

warrants a remission of penalty imposed by the Tax Commissioner and we hereby

reverse his final determination in that regard.

              Accordingly, it is the decision and order of the Board of Tax

Appeals that the final determination of the Tax Commissioner must be, and hereby

is, reversed in part and affirmed in part.



Ms. Margulies dissenting.

              Although I sympathize with appellant’s situation, our decision in

Transcon, Inc. v. Limbach (Apr. 26, 1991), BTA No. 1989-F-697, unreported, best

reflects this board’s position with respect to the inaction of appellant’s accountant:

              “Reliance upon an accountant is not uncommon but
              that reliance cannot function to excuse a taxpayer from
              the consequences of his failure to comply with the
              settled principle that tax returns have fixed filing dates
              and returns must be filed (and taxes paid) when due or
              serious problems will surely result. Failure to comply
              with a basic statutory obligation is not excused simply
              by the assignment or delegation of a portion of the
              responsibility therefore.” Id. at 13.




                                             6
See, also, Cogent Internet Inc. v. Wilkins (Nov. 18, 2005), BTA No. 2005-P-191,

unreported; Ryan Investments v. Wilkins (Sept. 9, 2005), BTA No. 2005-A-305,

unreported.

              Even subsequent reliance on instructions of an Ohio Department of

Taxation employee is not a valid excuse in such a situation, as estoppel does not

apply to the state regarding taxing statutes. The Cygnus Group, Inc. v. Wilkins

(Aug. 4, 2006), BTA No. 2005-R-481, unreported. See, also, Italian Delights of

French Market, Inc. v. Tracy (June 19, 1998), BTA Nos. 1996-M-1555, 1996-M-

1556, unreported; Recording Devices, Inc. v. Bowers (1963), 174 Ohio St. 518;

NDM Acquisition Corp. v. Tracy (1996), 76 Ohio St.3d 83; Loveland Park Baptist

Church v. Kinney (May 25, 1983), Warren App. No. 126, unreported; Harper v.

Tracy (Apr. 29, 1994), BTA No. 1992-S-1446, unreported, at 4, fn. 2; Parrish dba

Family Carpet Outlet v. Tracy (June 24, 1994), BTA No. 1992-G-1394,

unreported; Hazelwood v. Tracy (Dec. 13, 1996), BTA Nos. 1996-K-34, et seq.,

unreported, at 9-10; Reynolds Avenue Transfer Station v. Franklin Cty. Bd. of

Revision (Nov. 30, 2001), BTA No. 2001-S-217, unreported.

              Also, previous decisions of this board support the proposition that

ignorance of the law is no excuse for non-compliance. In Bruno v. Tracy (July 16,

1993), BTA No. 1992-R-113, unreported, this board held:

              “The instruction booklet provided by the Department
              of Taxation is only a guideline to aid taxpayers in the
              preparation of their returns; it is not the law.
              Appellant’s reliance on those instructions is not a



                                         7
             sufficient basis for reversing the Tax Commissioner’s
             final determination in this case.”

             Similarly, in Bondurant v. Limbach (Dec. 16, 1988), BTA No. 1987-

E-613, unreported:

             “ Although this alleged oversight by Department of
             Taxation representatives is unfortunate if it occurred,
             ignorance of the law is no excuse.”

             The Tax Commissioner is required to place a penalty upon any use

tax assessment issued by him. The decision to remit this penalty, however, is

entirely within the discretion of the Tax Commissioner. Because this authority is

discretionary, we may not reverse the Tax Commissioner’s determination unless

an abuse of that discretion is specifically demonstrated. Frankelite Co. v. Lindley

(1986), 28 Ohio St.3d 29; Jennings & Churella Constr. Co. v. Lindley (1984), 10

Ohio St.3d 67. See, also, Brown Derby, Inc. v. Tracy (Apr. 2, 1993), BTA No.

1991-A-1235, unreported.

             Relative to what constitutes an abuse of discretion, I note the

Supreme Court’s decision in Huffman v. Hair Surgeon, Inc. (1985), 19 Ohio St.3d

83:

             ““[A]n abuse of discretion involves far more than a
             difference in *** opinion ***. The term discretion
             itself involves the idea of choice, of an exercise of the
             will, of a determination made between competing
             considerations. In order to have an ‘abuse’ in reaching
             such determination, the result must be so palpably and
             grossly violative of fact and logic that it evidences not
             the exercise of will but perversity of will, not the
             exercise of judgment but the defiance thereof, not the
             exercise of reason but rather of passion or bias. ***”


                                         8
                   State v. Jenkins (1984), 15 Ohio St. 3d 164, 222” Id. at
                   87.

                   The record reflects that Smink Electric did not have a consumer’s

use tax account during the audit period. However, the commissioner did reduce

the penalty assessed by fifty percent in his final determination. This board is

charged only with reviewing the Tax Commissioner’s determination with respect

to the abatement of penalties. Under this narrow review, I would not find that the

Tax Commissioner’s actions rise to the level of abuse.

                   Therefore, based upon the existing record and applicable law, I

would find that appellant has failed to demonstrate that the commissioner abused

his discretion in failing to abate these penalties.

                   Accordingly, I would affirm the final order of the Tax

Commissioner.

ohiosearchkeybta




                                              9
[Cite as Funtime, Inc. v. Wilkins, 105 Ohio St.3d 74, 2004-Ohio-6890.]




       FUNTIME, INC., APPELLANT, v. WILKINS, TAX COMMR., APPELLEE.
[Cite as Funtime, Inc. v. Wilkins, 105 Ohio St.3d 74, 2004-Ohio-6890.]
Taxation – Real property and personal property classified under R.C. 5701.02
        and 5701.03 for imposition of sales and use tax — Amusement-park rides
        and their accoutrements are business fixtures, not real property.
(No. 2003-0622 — Submitted October 13, 2004 — Decided December 22, 2004.)
             APPEAL from the Board of Tax Appeals, No. 2001-A-342.
                                  __________________
        FRANCES E. SWEENEY, SR., J.
        {¶ 1} This case concerns whether certain property owned by Funtime,
Inc. should be classified as real or personal property. For the reasons set forth
below, we find that the property should be classified as personal property.
        {¶ 2} During the 1995-1997 audit period, appellant, Funtime, Inc.
(“Funtime”), owned and operated what was then called Geauga Lake Amusement
Park. This appeal involves three rides located in the amusement park: Grizzly
Run, Mind Eraser, and Skyscraper. In addition, the tax status of the station
houses for the Grizzly Run and Mind Eraser rides is in question.
        {¶ 3} Grizzly Run (a.k.a. River Rapids) is a water ride intended to
simulate a white-water rafting experience. Funtime contracted with High-Tech
Pools, Inc. to build the sides and bottom of the concrete flumes. In addition,
Funtime contracted with Strait Bilt Construction Company to add a finish to the
flumes and surrounding areas to simulate rocks and boulders. The Grizzly Run
ride sits directly on the ground, and the ride cannot be disassembled and moved.
        {¶ 4} Mind Eraser is basically a roller coaster. Funtime contracted with
Industrial First, Inc. to erect Mind Eraser. Mind Eraser is affixed to concrete
footings that are embedded in the ground, and the ride cannot be moved.
                                 SUPREME COURT OF OHIO




        {¶ 5} The Grizzly Run and Mind Eraser station houses are places from
which patrons enter and exit Grizzly Run and Mind Eraser.
        {¶ 6} Skyscraper consists of a doughnut-shaped glass enclosure that
holds customers and rotates as it is raised around a tower. Millar Elevator Service
provided repair services for Skyscraper.
        {¶ 7} The Tax Commissioner issued a use-tax assessment against
Funtime, classifying Grizzly Run, Mind Eraser, and Skyscraper as personal
property. The portion of the assessment relating to Grizzly Run and Mind Eraser
and their station houses was based on the amounts billed by the construction
contractors who built or installed the rides. The portion of the assessment relating
to Skyscraper was based on the amounts billed by the contractor who repaired the
ride.
        {¶ 8} The Tax Commissioner’s assessment was affirmed by the Board of
Tax Appeals (“BTA”), which found that the rides were business fixtures and
therefore personal property.
        {¶ 9} This cause is now before the court upon an appeal as of right.
        {¶ 10} The use-tax assessment made against Funtime was made under
R.C. 5741.02, which provides that the use tax is applicable to “the storage, use, or
other consumption in this state of tangible personal property or the benefit
realized in this state of any service provided.” R.C. 5741.02(A)(1). However,
R.C. 5741.02(C)(2) excepts from the use tax the acquisition of “tangible personal
property or services, the acquisition of which, if made in Ohio, would be a sale
not subject” to the sales tax.
        {¶ 11} Funtime contends that it is not liable for the assessment made by
the Tax Commissioner against the construction contracts for Grizzly Run and
Mind Eraser and their associated stations because these rides and stations are real
property, and sales-tax provision R.C. 5739.01(B)(5) excepts the construction
contracts for real property from the definition of “sale” for sales-tax purposes,




                                           2
                                 January Term, 2004




and, therefore, also from use tax: “[A] construction contract pursuant to which
tangible personal property is or is to be incorporated into a structure or
improvement on and becoming a part of real property is not a sale of such
tangible personal property. The construction contractor is the consumer of such
tangible personal property * * *.” Thus, Funtime contends that if there is a tax
liability relating to the construction or installation of Grizzly Run or Mind Eraser
or their stations, it is the contractors’ and not Funtime’s.
        {¶ 12} R.C. 5741.02(A)(1) levies a use tax on the benefit realized in this
state of any service provided. Funtime contends that it is not liable for use tax on
the amounts billed by Millar Elevator Service for repairs to Skyscraper because
Skyscraper is real property. Use-tax provision R.C. 5741.01(M) defines the term
“providing a service” by citing R.C. 5739.01(X), the sales-tax provision. R.C.
5739.01 includes in the definition of “sale” all transactions by which “[a]n item of
tangible personal property is or is to be repaired, except property, the purchase of
which would not be subject to the tax imposed by section 5739.02 of the Revised
Code.” R.C. 5739.01(B)(3)(a). Thus, repairs to nonexempt tangible personal
property are subject to sales tax and, therefore, use tax. However, repairs to real
property are not subject to sales or use tax.
        {¶ 13} The history of this court’s decisions classifying property as real or
personal begins with a nontax case, Teaff v. Hewitt (1853), 1 Ohio St. 511, 1853
WL 54. Teaff involved a dispute between creditors of a manufacturer and a
mortgagee concerning whether machinery in the mortgagor’s possession was
personal or real property.     The court set forth three criteria for determining
whether an item was a fixture (real property) or personalty: (1) actual annexation
to the realty or something appurtenant thereto, (2) appropriation to the use or
purpose of that part of the realty with which it is connected, and (3) the intention
of the party making the annexation to make a permanent accession to the freehold.




                                           3
                            SUPREME COURT OF OHIO




       {¶ 14} After personal property and real property were differentiated for
tax purposes, the court decided a series of cases in which it held, “The decisive
test of appropriation is whether the chattel under consideration in any case is
devoted primarily to the business conducted on the premises, or whether it is
devoted primarily to the use of the land upon which the business is conducted.”
Zangerle v. Std. Oil Co. of Ohio (1945), 144 Ohio St. 506, 30 O.O. 151, 60
N.E.2d 52, paragraph four of the syllabus. The court followed this analysis until
1949, when it dropped consideration of whether the land or the business was
benefited by the item in question and instead considered only the wording of G.C.
5322, the precursor to R.C. 5701.02, which provided: “The terms ‘real property’
and ‘land’ as so used, include not only land itself * * * but also, unless otherwise
specified, all buildings, structures, improvements, and fixtures of whatever kind
thereon * * *.” Am.S.B. No. 63, 115 Ohio Laws, Part II, 272. Current R.C.
5701.02 incorporates this definition.
       {¶ 15} As a result of considering only the wording of G.C. 5322, the court
declared, “Even if a structure or building located on land is personal property,
such structure or building will, for purposes of taxation, be included within the
definition of ‘real property’ as that term is defined in Section 5322, General Code,
unless the General Assembly has otherwise specified.” Reed v. Fairfield Cty. Bd.
of Revision (1949), 152 Ohio St. 207, 40 O.O. 217, 88 N.E.2d 701, paragraph
three of the syllabus. Following this reasoning, in analyzing more recent conflicts
under R.C. 5701.02, the court merely had to determine whether an item was a
building, structure, improvement, or fixture, and if it was any of those, it was
classified as real property. Machinery and equipment were listed separately as
personal property. As a result, photo kiosks in shopping-center parking lots and
storage tanks were declared real property. During this time, the court determined
that amusement-park rides similar to those in question were real property because




                                         4
                               January Term, 2004




they were structures and improvements on the land. See Kings Entertainment Co.
v. Limbach (1992), 63 Ohio St.3d 369, 588 N.E.2d 777.
       {¶ 16} By looking only at R.C. 5701.02 and a description of the item, the
court abandoned any consideration of whether the item was being used to benefit
the business on the land or the land itself. Confirmation of that conclusion is
found in the court’s statement in Thomas Steel Strip Corp. v. Limbach (1991), 61
Ohio St.3d 340, 341, 575 N.E.2d 114, concerning R.C. 5701.02: “We have
recently and consistently interpreted this definition of real property and land to
mean that any property attached to land is real property for tax purposes, unless
otherwise specified. [Citation omitted.] We have drawn away from earlier rulings
that asked whether the improvement primarily benefited the land or the business
on the land.”
       {¶ 17} In 1992, the General Assembly passed Sub.S.B. No. 272, stating in
the preamble that it was “[t]o amend sections 5701.02 and 5701.03 of the Revised
Code to revise the definitions of real and personal property for taxation purposes.”
Sub.S.B. No. 272, 144 Ohio Laws, Part I, 1528.
       {¶ 18} As amended by Sub.S.B. No. 272, R.C. 5701.02 continued to use
the terms “[r]eal property” and “land” to include “all buildings, structures,
improvements, and fixtures of whatever kind on the land.” However, unlike the
previous statute, in amended R.C. 5701.02 the General Assembly defined the
terms “building,” “structure,” “improvement,” and “fixture” thereby heeding the
suggestion of this court in Pittsburgh-Des Moines Steel Co. v. Lindley (1982), 1
Ohio St.3d 15, 17, 1 OBR 39, 437 N.E.2d 302, fn. 3, wherein we declined to
provide a definition for the term “structure,” stating that the definition should
emanate from the General Assembly.
       {¶ 19} In addition, the General Assembly in Sub.S.B. No. 272 amended
the definition of personal property in R.C. 5701.03 by adding a newly defined
term: “business fixture.”




                                         5
                              SUPREME COURT OF OHIO




        {¶ 20} R.C. 5701.02, which is identical in all relevant respects to the
version in effect during the audit period, provides:
        {¶ 21} “(A) ‘Real property,’ ‘realty,’ and ‘land’ include land itself * * *
with all things contained therein, and, unless otherwise specified in this section or
5701.03 of the Revised Code, all buildings, structures, improvements, and fixtures
of whatever kind on the land * * *.
        {¶ 22} “(B)(1) ‘Building’ means a permanent fabrication or construction,
attached or affixed to land, consisting of foundations, walls, columns, girders,
beams, floors, and a roof, or some combination of these elemental parts, that is
intended as a habitation or shelter for people or animals or a shelter for tangible
personal property, and that has structural integrity independent of the tangible
personal property, if any, it is designed to shelter. * * *
        {¶ 23} “* * *
        {¶ 24} “(C) ‘Fixture’ means an item of tangible personal property that has
become permanently attached or affixed to the land or to a building, structure, or
improvement, and that primarily benefits the realty and not the business, if any,
conducted by the occupant on the premises.
        {¶ 25} “(D) ‘Improvement’ means, with respect to a building or structure,
a permanent addition, enlargement, or alteration that, had it been constructed at
the same time as the building or structure, would have been considered a part of
the building or structure.
        {¶ 26} “(E) ‘Structure’ means a permanent fabrication or construction,
other than a building, that is attached or affixed to land, and that increases or
enhances utilization or enjoyment of the land. ‘Structure’ includes, but is not
limited to, bridges, trestles, dams, storage silos for agricultural products, fences,
and walls.” (Emphasis added.)
        {¶ 27} R.C. 5701.03, identical in all relevant respects to the version in
effect at the time of the audit, provides:




                                             6
                                January Term, 2004




       {¶ 28} “(A) ‘Personal property’ includes every tangible thing that is the
subject of ownership, * * * including a business fixture, and that does not
constitute real property as defined in section 5701.02 of the Revised Code. * * *
       {¶ 29} “(B) ‘Business fixture’ means an item of tangible personal
property that has become permanently attached or affixed to the land or to a
building, structure, or improvement, and that primarily benefits the business
conducted by the occupant on the premises and not the realty. ‘Business fixture’
includes, but is not limited to, machinery, equipment, signs, storage bins and
tanks, whether above or below ground, and broadcasting, transportation,
transmission, and distribution systems, whether above or below ground.
‘Business fixture’ also means those portions of buildings, structures, and
improvements that are specially designed, constructed, and used for the business
conducted in the building, structure, or improvement, including, but not limited
to, foundations and supports for machinery and equipment. ‘Business fixture’
does not include fixtures that are common to buildings, including, but not limited
to, heating, ventilation, and air conditioning systems primarily used to control the
environment for people or animals, tanks, towers, and lines for potable water or
water for fire control, electrical and communication lines, and other fixtures that
primarily benefit the realty and not the business conducted by the occupant on the
premises.”
       {¶ 30} One of the first questions we must address is how R.C. 5701.02
and 5701.03 should be applied. The version of R.C. 5701.02 in effect during the
audit period provides that “unless otherwise specified in * * * section 5701.03 of
the Revised Code, all buildings, structures, improvements, and fixtures of
whatever kind on the land” are real property. Funtime contends that, in applying
R.C. 5701.02 and 5701.03, we first “see if property falls within the definition of
real property and if not, then * * * see if it is a business fixture and thus personal
property.”   Funtime also contends that “[p]roperty is tested to see if it is a




                                          7
                             SUPREME COURT OF OHIO




business fixture only after it has been determined that the property is not a
structure, building, or improvement to a building.” (Boldface sic.) Funtime
further states that “only if property does not fall into one of the listed and defined
categories of real property does the definition of a business fixture come into
play.”
         {¶ 31} Under Funtime’s interpretation, if an item meets the definition of
“building” set forth in what is now R.C. 5701.02(B)(1), the analysis goes no
further; the item would be classified as real property. As a result, the words
“unless otherwise specified” in R.C. 5701.02 would be totally ignored if the
property meets one of the definitions in R.C. 5701.02. The consequence of
Funtime’s interpretation would be to return to the analysis the General Assembly
was apparently trying to change by enacting Sub.S.B. No. 272.               Funtime’s
interpretation requires classifying an entity defined as real property under R.C.
5701.02 as real property even if it is “otherwise specified” as being personal
property in R.C. 5701.03.
         {¶ 32} In opposition to Funtime’s interpretation, the Tax Commissioner
contends that the “unless otherwise specified” language in R.C. 5701.02 requires
a review of the definition in R.C. 5701.03 to determine whether the property at
issue is covered by the definition of “business fixture.” In other words, buildings,
structures, improvements, and fixtures on land are not real property if such items
are “otherwise specified” as personal property in R.C. 5701.03.
         {¶ 33} Following Funtime’s proposed procedure for applying R.C.
5701.02 and 5701.03 would not produce the result intended by the General
Assembly when it amended R.C. 5701.02 and 5701.03. Reading the two statutes
in pari materia and harmonizing them to give effect to the language of both
statutes, we find that the correct order of application is as follows: first, determine
whether the item meets the requirements of one of the definitions of real property
set forth in R.C. 5701.02. If the item does not, then it is personal property. If the




                                          8
                                January Term, 2004




item fits a definition of real property in R.C. 5701.02, it is real property unless it
is “otherwise specified” in R.C. 5701.03. If an item is “otherwise specified”
under R.C. 5701.03, it is personal property.
       {¶ 34} Funtime contends that Grizzly Run and Mind Eraser should be
classified as real property because each is a “structure.”        The definition of
“structure” set forth in R.C. 5701.02(E) requires (1) a permanent fabrication or
construction other than a building that is attached or affixed to land and (2)
increased utilization or enjoyment of the land as a result. The question in this
case is whether Grizzly Run and Mind Eraser increase or enhance utilization or
enjoyment of the land.
       {¶ 35} Funtime contends that Grizzly Run and Mind Eraser enhance the
utilization or enjoyment of the land because they attract patrons to the land.
However, attracting more people to the land is not the criterion for classifying
property.
       {¶ 36} Although we previously abandoned any consideration of the
appropriation-to-use test set forth in Teaff, 1 Ohio St. 511, 1853 WL 54, for
classifying property, the General Assembly has reinstated that test for determining
whether a structure is real or personal property. R.C. 5701.02(E) requires a
decision as to whether the item “increases or enhances utilization or enjoyment of
the land.” Language similar to that now found in R.C. 5701.02(E) was used by
this court in Zangerle, 144 Ohio St. at 515, 30 O.O. 151, 60 N.E.2d 52, wherein
we stated:
       {¶ 37} “The second requisite of the test of a fixture [real property] is that
the annexed chattel must have such relationship to the land or improvements
already constructed thereon as to be necessary or beneficial to its enjoyment,
independent of the business presently carried on. To illustrate, a silo constructed
on a farm is a fixture [citation omitted]; a heating furnace installed in a residence
property is a fixture [citation omitted]; and motive-power equipment in a mill is




                                          9
                             SUPREME COURT OF OHIO




likewise a fixture [citation omitted]. Those are fixtures because they would be
beneficial, if not necessary, to the use of the land and the structures already placed
thereon regardless of the nature of the business which might be located on such
land.”
         {¶ 38} This concept was concisely set forth in paragraph four of the
syllabus in Zangerle: “The decisive test of appropriation is whether the chattel
under consideration in any case is devoted primarily to the business conducted on
the premises, or whether it is devoted primarily to the use of the land upon which
the business is conducted.” Zangerle, 144 Ohio St. 506, 30 O.O. 151, 60 N.E.2d
52, paragraph four of the syllabus.
         {¶ 39} The concepts regarding the appropriation-to-use test set forth in
Zangerle v. Std. Oil of Ohio were reiterated by the court in Zangerle v. Republic
Steel Corp. (1945), 144 Ohio St. 529, 30 O.O. 160, 60 N.E.2d 170, paragraph
seven of the syllabus, in which the court held:
         {¶ 40} “The general principle to be kept in view in determining whether
what was once a chattel has become a fixture is the distinction between the
business which is carried on in or upon the premises, and the premises. The
former is personal in its nature, and articles that are merely accessory to the
business, and have been put on the premises for this purpose, and not as
accessions to the real estate, retain the personal character of the principal to which
they belong and are subservient. But articles which have been annexed to the
premises as accessory to it, whatever business may be carried on upon it, and not
peculiarly for the benefit of a present business which may be of a temporary
duration, become subservient to the realty and acquire and retain its legal
character.”
         {¶ 41} The evidence presented to the BTA showed that the rides in
question were installed to attract customers for the amusement-park business.
The fact that the customers enjoy the rides has nothing to do with whether the




                                         10
                                January Term, 2004




rides benefit the land. There was no evidence that the rides would be of any
benefit to a buyer of the land who engaged in a different business. Grizzly Run
and Mind Eraser do not meet the definition of “structure” set forth in R.C.
5701.02(E) but do meet the definition of “business fixture” set forth in R.C.
5701.03(B) because they primarily benefit the business conducted by the
occupant on the premises and not the realty.
        {¶ 42} In its second proposition of law, Funtime contends that Skyscraper
and the station houses located at Grizzly Run and Mind Eraser should be
classified as buildings under the definition of “real property.” Again, the Tax
Commissioner contends that these properties are “business fixtures.”
        {¶ 43} Funtime contends that these properties should be classified as
buildings because they have foundations, floors, roofs, and in some cases walls,
columns, girders, and beams, and they are intended to shelter patrons.
        {¶ 44} As regards the station house for Grizzly Run, Funtime’s own
witness stated that it was not at issue in this case. Therefore, we will not consider
its status further.
        {¶ 45} As regards Mind Eraser’s station house, Funtime’s witness could
identify only $9,500 as being in dispute. The station house at Mind Eraser is a
platform with a canvas cover over it, apparently to shade the patrons and possibly
to provide some protection from rain. There are no sides to the structure. The
station house is used to load and unload patrons onto and from Mind Eraser.
        {¶ 46} Funtime contends that since the Mind Eraser station platform
provides shelter, it is a building pursuant to R.C. 5701.02(B). Assuming for the
purposes of discussion that the Mind Eraser station house can be considered
separate from the ride itself and can be separately classified as a building, we
must still consider whether it is “otherwise specified.”         The definition of
“business fixture” in R.C. 5701.03(B) includes “an item of tangible personal
property that has become permanently attached or affixed to the land * * * and




                                         11
                                    SUPREME COURT OF OHIO




that primarily benefits the business conducted by the occupant on the premises
and not the realty.” The primary use of the Mind Eraser station house is to
provide a way for patrons to enter and exit Mind Eraser. No use independent of
the amusement-park business was shown for the Mind Eraser station house.
Therefore, even if we assume that the Mind Eraser station house is a building as
defined in R.C. 5701.02(B), it is “otherwise specified” in R.C. 5701.03(B) and
must be classified as a business fixture.
           {¶ 47} Finally, we consider the Skyscraper ride. The ride consists of a
doughnut-shaped glass enclosure that revolves around a tower to give the rider a
view of the surrounding area. While Skyscraper may provide some shelter from
the elements, shelter is not its primary purpose. Skyscraper’s function is to
provide rides to the patrons of the amusement park. For the reasons that the
Grizzly Run and Mind Eraser are business fixtures, Skyscraper is a business
fixture.
           {¶ 48} For all the foregoing reasons, we find the decision of the Board of
Tax Appeals to be reasonable and lawful, and we affirm it.
                                                                  Decision affirmed.
           MOYER, C.J., RESNICK and O’CONNOR, JJ., concur.
           PFEIFER, J., dissents.
           LUNDBERG STRATTON and O’DONNELL, JJ., dissent.
                                     __________________
           PFEIFER, J., dissenting.
           {¶ 49} Funtime’s rides constitute structures as set forth in R.C.
5701.02(E). To constitute a structure under the statute, the property must (1) be a
“permanent fabrication or construction, other than a building, that is attached or
affixed to land” and (2) increase “the utilization or enjoyment of the land.” The
first element is undisputed, and I would hold that Funtime’s rides do increase the
utilization or enjoyment of the land.




                                             12
                                January Term, 2004




        {¶ 50} Parks like Geauga Lake and Cedar Point have geographical
features that first attracted people. In the 1800s, the area on the northeast side of
Geauga Lake was referred to as “Picnic Lake” or “Giles Pond.” Early visitors
frequented the area for camping, fishing, and picnicking. Geauga Lake was a
popular resort in the 1880s and 90s. The area around the pond was an all-day
picnic ground. The old Cleveland Nationals played baseball on Sundays when
Cleveland’s blue laws prevented holding city games. The land and the location
were the attraction. Over time, however, other attractions were added to enhance
the appeal of the land.
        {¶ 51} In 1889, the first ride, a steam carousel, opened at the park. In
1925, Geauga Lake built its first roller coaster, the Big Dipper. It was the largest
wooden coaster of its time.      In 1927, Geauga Lake built the Olympic-size
swimming pool in which Johnny Weissmuller broke the world 220-yard free-style
swimming record. All manner of attractions were added through the years, from a
dance hall to a water park, all intended to make the park more attractive to
visitors.
        {¶ 52} The amusement business is about drawing people to the land.
Typically, an amusement park charges an entry fee to enter its grounds. Most
parks do not charge on a per-ride basis, and it is not alleged that Funtime did so
here. Business is created with an increase in the utilization or enjoyment of the
land.
        {¶ 53} Appellee points out that size does not matter to the Tax
Commissioner and gives examples of massive objects that are not considered
fixtures. Tanks and broadcast towers are mentioned in R.C. 5701.03. Cited cases
by appellee addressed oil-refinery property, stone piers to support railroad
bridges, an in-plant rail network, and 340-foot-long tunnel kilns. However, none
of those examples are designed to draw people to a particular place. Most simply
aid a business in manufacturing its product or help a business transport its wares




                                         13
                              SUPREME COURT OF OHIO




to people in other places. It is not the size of Funtime’s rides that makes them
structures, but their purpose.
        {¶ 54} An amusement-park company is not a manufacturer. It does not
manufacture fun. It does everything it can to make a piece of real property as
attractive as it can be. Rides are a part of that effort and should be considered
structures under R.C. 5701.02(E).
        {¶ 55} Geauga Lake has been a recreational area for well over 100 years.
Recreational use has been historically demonstrated to be its purpose. Anything
that improves the recreational use of the property aids what has become that
property’s essential purpose.
                                 __________________
        O’DONNELL, J., dissenting.
        {¶ 56} I respectfully dissent. In my view, the Geauga Lake attractions
known as Grizzly Run, Mind Eraser, and Skyscraper are not items of personal
property; rather, each is a structure and therefore falls within the definition of real
property as specified by R.C. 5701.02.          As provided in R.C. 5701.02(E), a
structure consists of “a permanent fabrication or construction, other than a
building, that is attached or affixed to land, and that increases or enhances
utilization or enjoyment of the land.” This is, in my view, an accurate description
of these three amusements.
        {¶ 57} It is of no consequence that any of them would have no value if a
person subsequently purchased the property for a different purpose because that is
not the test provided by the General Assembly for determining whether property
is to be classified as personalty or realty.
        {¶ 58} As defined in R.C. 5701.03(B), a business fixture is “an item of
tangible personal property that has become permanently attached or affixed to the
land or to a building [or] structure* * * that primarily benefits the business
conducted by the occupant on the premises and not the realty. ‘Business fixture’




                                           14
                                   January Term, 2004




includes, but is not limited to, machinery, equipment, signs, storage bins and
tanks, * * * and broadcasting, transportation, transmission, and distribution
systems * * *.” A business fixture also means “those portions of buildings,
structures, and improvements that are specially designed, constructed, and used
for the business conducted in the building, structure, or improvement, including,
but not limited to, foundations and supports for machinery and equipment.” Id.
       {¶ 59} Literal application of this three-part definition of a business fixture
to the three amusement attractions involved in this appeal reveals that they are not
tangible personal property that have been attached to real estate, nor are they akin
to machinery, equipment, or signs, etc., nor are they structures specially designed,
constructed, and used for business conducted in a structure, such as a foundation
or a machinery support, because the amusement attractions are themselves
structures as defined in R.C. 5701.02(E).
       {¶ 60} For the foregoing reasons, I dissent from the majority’s opinion
and would hold that Funtime’s amusement rides constitute structures included in
the definition of real property.
       LUNDBERG STRATTON, J., concurs in the foregoing dissenting opinion.
                               __________________
       Buckingham, Doolittle & Burroughs, L.L.P., Steven A. Dimengo, and
David W. Hilkert, for appellant.
       Jim Petro, Attorney General of Ohio, and Richard C. Farrin, Assistant
Attorney General, for appellee.
                               __________________




                                           15
                             OHIO BOARD OF TAX APPEALS
Goofy Golf II, Inc.,                       )        CASE NO. 2007-A-199
                                           )
                   Appellant,              )                (USE TAX)
                                           )
          vs.                              )       DECISION AND ORDER
                                           )
Richard A. Levin, Tax Commissioner         )
of Ohio,                                   )
                                           )
                   Appellee.               )


APPEARANCES:

                       For the Appellant   - Weston Hurd LLP
                                             Dana Rose
                                             Samuel J. Lauricia III
                                             The Tower at Erieview
                                             1301 East 9th Street, Suite 1900
                                             Cleveland, Ohio 44114-1862

                       For the Appellee    - Nancy H. Rogers
                                             Attorney General of Ohio
                                             Julie E. Brigner
                                             Assistant Attorney General
                                             30 East Broad Street, 25th Floor
                                             Columbus, Ohio 43215

                Entered November 4, 2008

Ms. Margulies, Mr. Eberhart, and Mr. Dunlap concur.

                This cause and matter came on to be considered by the Board of Tax

Appeals upon a notice of appeal filed herein by the above-named appellant from a

final determination of the Tax Commissioner.           Therein, the Tax Commissioner

allowed in part and denied in part appellant’s objections to the use tax assessment

against it relating to appellant’s purchases for the period from January 1, 2001

through December 31, 2003.
              The matter was submitted to the Board of Tax Appeals upon the notice

of appeal, the statutory transcript certified to this board by the Tax Commissioner, and

the briefs filed by counsel in lieu of appearing at a hearing before this board.

              In reviewing appellant’s appeal, we recognize the presumption that the

findings of the Tax Commissioner are valid. Alcan Aluminum Corp. v. Limbach

(1989), 42 Ohio St.3d 121. It is therefore incumbent upon a taxpayer challenging a

finding of the Tax Commissioner to rebut the presumption and establish a right to the

relief requested. Belgrade Gardens v. Kosydar (1974), 38 Ohio St.2d 135; Midwest

Transfer Co. v. Porterfield (1968), 13 Ohio St.2d 138. Moreover, the taxpayer is

assigned the burden of showing in what manner and to what extent the Tax

Commissioner’s determination is in error. Kern v. Tracy (1995), 72 Ohio St.3d 347;

Federated Dept. Stores, Inc. v. Lindley (1983), 5 Ohio St.3d 213.              Where no

competent and probative evidence is presented to this board by the appellant to show

that the Tax Commissioner’s findings are incorrect, then the Board of Tax Appeals

must affirm the Tax Commissioner’s findings. Kern, supra; Kroger Co. v. Limbach

(1990), 53 Ohio St.3d 245; Alcan, supra.

              Initially, we note appellant’s contentions, as set forth in the notice of

appeal, as follows:

              “The Final Determination is erroneous in that all of the
              purchases against which the use tax was assessed as
              finally determined by the Tax Commissioner were, in fact,
              nontaxable inasmuch as they were materials for
              construction and installation of various pools and other
              fixtures which are in fact structures and real property
              under Section 5701.02(E) of the Ohio Revised Code and



                                             2
              not taxable business fixtures under Revised Code Section
              5701.02(B) [5701.03(B)].”

              During the audit period in question, appellant, Goofy Golf II, Inc.

(“ Goofy Golf”), operated a “water park known as Monsoon Lagoon Water Park &

Resort.” S.T. at 1. The park is described as:

              “*** more than 300,000 square feet [and] features six
              slides, pools and a ‘lazy river’ inner tube ride, a 44-foot
              high cluster of palm trees with a drenching water bucket,
              water jets, water cannons, chutes and bridges. It also
              offers a toddler wading pool and an adult pool with swim-
              up bar and a teen-ready, water-mayhem pool. The
              recreational site also has an 18-hole miniature golf course,
              bumper boats, Gilligan’s Arcade, a Caribbean Grill and a
              Coconut Hut Gift Shop. In addition the newly refurbished
              (for 2004) Montego Bay Raceway go cart track.” [sic]
              S.T. at 42.

Specifically, Goofy Golf objected “to the assessment of use tax on purchases of

material for the construction and installation of various pools, which included a

toddler pool, an adult pool, the pool for Adventure Island, and a lazy river pool,”

claiming the purchases were not subject to tax because they were incorporated into

real property. S.T. at 1. The commissioner agreed that the toddler pool and adult pool

were in-ground pools that became real property, and the materials for such pools were

taxable to the contractor rather than Goofy Golf. Accordingly, the assessment was

adjusted to remove the charges associated with the toddler and adult in-ground pools.

S.T. at 1. The commissioner concluded, however, that the purchases involving the

remaining pools, much like the amusement park rides in Funtime, Inc. v. Wilkins, 105

Ohio St.3d 74, 2004-Ohio-6890, were “special purpose structures,” i.e., business

fixtures, and as such, were not removed from the assessment. S.T. at 1. Goofy Golf


                                            3
had also argued that “sales tax was erroneously remitted to the state by the contractor

on the purchases of materials and supplies” for the pools, and therefore claimed that

“credit [for such tax already paid] should be allowed against any tax liability owed.”

S.T. at 2. The commissioner denied the objection, finding that Goofy Golf was not

the consumer in such transactions and therefore was not entitled to credit for the tax

paid.

             In its brief to this board, appellant argues that all of its pools constitute

real property, not business fixtures, and are therefore exempt from use tax pursuant to

R.C. 5739.01(B)(5) and R.C. 5741.02(C)(2). Appellant argues that Goofy Golf is

distinguishable from the taxpayer in Funtime, supra, and as such, its purchases should

be exempt from use tax. Finally, appellant argues that the subject assessment should

be reduced by any sales tax amounts a contractor previously paid on items for which

appellant is now being assessed use tax.

             Considering the latter argument first, appellant claims that a pool

“contractor, Astro Pool, paid sales tax when acquiring materials for purposes of

constructing Appellant’s Pools.” Brief at 10. Appellant now claims that Astro Pool

then charged Goofy Golf the same sales tax, and, as such, Goofy Golf wants its

assessment reduced by such amounts. This board is unable to consider such argument

because we have no jurisdiction to consider specifications of error that are not raised

in the notice of appeal. In Moraine Hts. Baptist Church v. Kinney (1984), 12 Ohio

St.3d 134, the Supreme Court reviewed its prior decisions regarding the specificity

requirement imposed by R.C. 5717.02:



                                            4
             “This court has consistently held that ‘under R.C.
             5717.02, a notice of appeal does not confer jurisdiction
             upon the Board of Tax Appeals to resolve an issue, unless
             that issue is clearly specified in the notice of appeal.’
             Cleveland Elec. Illum. Co. v. Lindley (1982), 69 Ohio
             St.2d 71, 75; *** Lenart v. Lindley (1980), 61 Ohio St.2d
             110 ***; Abex Corp. v. Kosydar (1973), 35 Ohio St.2d 13
             ***. Moreover, in Gochneaur v. Kosydar (1976), 46 Ohio
             St.2d 59, 66 ***, it was stated that ‘*** this court will not
             reverse a decision of the board where the notice of appeal
             to the board does not enumerate in definite and specific
             terms the precise errors claimed.’ See, also, Queen City
             Valves, Inc. v. Peck (1954), 161 Ohio St. 579.” Id. at 138.
             (Parallel citations omitted.)


Without being hypertechnical, we find that appellant’s contentions regarding any

credit for sales tax amounts paid by a pool contractor were not raised in any manner in

its notice of appeal. See, also, Castle Aviation, Inc. v. Wilkins, 109 Ohio St.3d 290,

2006-Ohio-2420.

             With regard to the classification of the pools under consideration, it is

appellant’s contention that all of its pools should be considered real property, which,

during the period at issue, 2001-2003, was defined by R.C. 5701.02 (A) - (E) as

follows:

             “(A) ‘Real property,’ ‘realty,’ and ‘land’ include land
             itself, *** and, unless otherwise specified in this section
             or section 5701.03 of the Revised Code, all buildings,
             structures, improvements, and fixtures of whatever kind
             on the land, and all rights and privileges belonging or
             appertaining thereto. ***

             “(B)(1) ‘Building’ means a permanent fabrication or
             construction, attached or affixed to land, consisting of
             foundations, walls, columns, girders, beams, floors, and a
             roof, or some combination of these elemental parts, that is
             intended as a habitation or shelter for people or animals or


                                           5
             a shelter for tangible personal property, and that has
             structural integrity independent of the tangible personal
             property, if any, it is designed to shelter.***

             “***

             “(C) ‘Fixture’ means an item of tangible personal property
             that has become permanently attached or affixed to the
             land or to a building, structure, or improvement, and that
             primarily benefits the realty and not the business, if any,
             conducted by the occupant on the premises.

             “(D) ‘Improvement’ means, with respect to a building or
             structure, a permanent addition, enlargement, or alteration
             that, had it been constructed at the same time as the
             building or structure, would have been considered a part
             of the building or structure.

             “(E) ‘Structure’ means a permanent fabrication or
             construction, other than a building, that is attached or
             affixed to land, and that increases or enhances utilization
             or enjoyment of the land. ‘Structure’ includes, but is not
             limited to, bridges, trestles, dams, storage silos for
             agricultural products, fences, and walls.”

             On the other hand, the Tax Commissioner contends that only the toddler

pool and the adult pool constitute real property, and that the remaining pools

constitute personal property and are business fixtures, pursuant to the provisions of

R.C. 5701.03 (A) and (B). Specifically, those sections, during the audit period,

provided:

             “(A) ‘Personal property’ includes every tangible thing that
             is the subject of ownership, whether animate or inanimate,
             including a business fixture, and that does not constitute
             real property as defined in section 5701.02 of the Revised
             Code. ***

             “(B) ‘Business fixture’ means an item of tangible personal
             property that has become permanently attached or affixed
             to the land or to a building, structure, or improvement, and


                                          6
             that primarily benefits the business conducted by the
             occupant on the premises and not the realty. ***
             ‘Business fixture’ also means those portions of buildings,
             structures, and improvements that are specially designed,
             constructed, and used for the business conducted in the
             building, structure, or improvement, including, but not
             limited to, foundations and supports for machinery and
             equipment. *** ”

             The court in Funtime, supra, considered the application of the foregoing

statutory provisions when determining whether an item constitutes real or personal

property:

             “Reading the two statutes in pari materia and harmonizing
             them to give effect to the language of both statutes, we
             find that the correct order of application would be as
             follows: first, determine whether the item meets the
             requirements of one of the statutory definitions of real
             property set forth in R.C. 5701.02. If the item does not,
             then it is personal property. If the item fits a statutory
             definition of real property in R.C. 5701.02, it is real
             property unless it is ‘otherwise specified’ in R.C. 5701.03.
             If an item is ‘otherwise specified’ under R.C. 5701.03, it
             is personal property.” Id. at ¶33.


Prior to the adoption of the current definition of real property, a line of judicial

authority classified property as real or personal predicated upon various

characteristics, including a determination of whether the item was physically attached

and whether it created a permanent benefit to the land. See, e.g., Teaff v. Hewitt

(1851), 1 Ohio St. 511; Zangerle v. Standard Oil Co. (1945), 144 Ohio St. 506;

Zangerle v. Republic Steel Corp. (1945), 144 Ohio St. 529.

             In more recent years, however, the court moved away from these earlier

pronouncements. In Rotek, Inc. v. Limbach (1990), 50 Ohio St.3d 81, the court



                                          7
expressly rejected, as improper, the test found in the Teaff and Zangerle line of cases.

In Thomas Steel Strip Corp. v. Limbach (1991), 61 Ohio St.3d 340, the court

reiterated its move away from the Zangerle cases and determined that “any property

attached to land is real property for tax purposes, unless otherwise specified.” Id. at

341.

              Subsequent to Thomas Steel Strip, however, the General Assembly

amended R.C. 5701.02. See 144 Ohio Laws, S.B. No. 272, eff. 7-20-92.                 The

legislature, by such amendment, codified the position taken by the Supreme Court

earlier in Teaff and Zangerle and it is this amended provision which we must now

consider and apply in this appeal. We have interpreted these changes to require this

board, as fact finder, to inquire into the specific characteristics of the property in

question to determine whether it falls within the scope of the statutory definition of

real property for taxation purposes, that is, whether the property primarily benefits the

realty or the business conducted by any occupant on the premises. See Newcome

Corp. v. Tracy (Dec. 11, 1998), BTA No. 1997-M-320, unreported; F.P.&E. Inc.

Currently Centurion Industries, Inc. v. Tracy (Mar. 18, 1999), BTA No. 1996-M-806,

unreported.

              The definition of structure now contained in R.C. 5701.02(E) has three

requirements: (1) that the property be attached or affixed to the land; (2) that the

attachment be a permanent fabrication or construction, other than a building; and (3)

that the property increase or enhance the utilization or enjoyment of the land. These




                                            8
definitional requirements are clearly similar to those expressed by the court in Teaff

and both Zangerle cases, supra.

              In the instant matter, the appellant argues that the pools in question are

structures, and, as such, they would be classified as real property. In its petition for

reassessment, appellant described the pools in question, as follows:

              “The Lazy River is a water attraction constructed over
              time but completed in 2003. It provides patrons with the
              opportunity to recline on inflated inner tubes and slowly
              drift through in-ground water filled channels. The walls,
              floor and decking of the Lazy River are constructed into
              the land out of solid concrete and other hard construction
              materials. They are supported by the soil and installed
              materials for reinforcement. *** Its surface area is
              approximately 5,000 square feet.

              “***

              “The main activity pool is the largest pool at the park. It
              has a surface area of approximately 9,600 square feet.
              The walls, floor and decking of this pool are constructed
              into the land out of solid concrete and other hard
              construction materials. They are supported by the soil and
              installed materials for reinforcement. ***” S.T. at 17-18.

The toddler pool’s surface area was listed as 1,200 square feet and the adult pool’s

surface area was listed as 1,700 square feet, and the construction of both was

described in the same manner as for the Lazy River pool and the main activity pool.

S.T. 17. Based upon the foregoing description, this board finds that the Lazy River

pool and main activity pool are permanently attached to the land.

              However, the final requirement for an item to be classified as a structure

is that it must increase or enhance the utilization of the land. In F.P.&E., supra, we

determined that gas station canopies, under the statute as amended, qualified as


                                           9
business fixtures, although under the prior version of the statute we had determined

the canopies were real property. In addressing this apparent inconsistency, we stated

that “it appears to this Board that, under the new statute, the definition [of] ‘business

fixture’ includes items which were otherwise considered structures.” Id. at 18, f. n. 4.

We held:

              “*** [n]o longer is property presumed to be realty
              because it meets the definition of structure. Now, inquiry
              must be made into whether the personalty benefits the
              land or the business thereon. Further, the inquiry now
              appears weighted more heavily towards finding property
              to be personalty, regardless of the permanence of
              attachment to realty.        R.C. 5703.03(B) specifically
              requires that an item that qualifies as a business fixture by
              virtue of its primary benefit to the business be taxed as
              personalty even it [sic] is permanently attached or affixed
              to land.”

              In order to determine whether personalty is so devoted to the land that it

must be taxed as realty, in F.P.&E. we returned to the Supreme Court’s

pronouncement in Zangerle v. Standard Oil Co., supra, where the court delineated a

test for such questions. Specifically, to be considered realty, the personalty must

“have such relationship to the land or improvements already constructed thereon as to

be necessary or beneficial to its enjoyments, independent of the business presently

carried on.” Id. at 515. In Funtime, supra, the court discussed the test set forth in

Zangerle, stating:

              “The concerpts regarding the appropriation-to-use-test set
              forth in Zangerle v. Standard Oil of Ohio were reiterated
              by the court in Zangerle v. Republic Steel Corp. (1945),
              144 Ohio St. 529, *** paragraph seven of the syllabus, in
              which the court held:



                                           10
             ‘The general principle to be kept in view in determining
             whether what was once a chattel has become a fixture is
             the distinction between the business which is carried on in
             or upon the premises, and the premises. The former is
             personal in its nature, and articles that are merely
             accessory to the business, and have been put on the
             premises for this purpose, and not as accession to the real
             estate, retain the personal character of the principal to
             which they belong and are subservient. But articles which
             have been annexed to the premises as accessory to it,
             whatever business may be carried on upon it, and not
             peculiarly for the benefit of a present business which may
             be of a temporary duration, become subservient to the
             realty and acquire and retain its legal character.’” Id. at
             ¶40.

             Later, in Funtime, supra, the court, in considering whether the

amusement park rides in question should be considered real or personal property,

stated:

             “The evidence presented to the BTA showed that the rides
             in question were installed to attract customers for the
             amusement-park business. The fact that the customers
             enjoy the rides has nothing to do with whether the rides
             benefit the land. There was no evidence that the rides
             would be of any benefit to a buyer of the land who
             engaged in a different business. Grizzly Run and Mind
             Eraser do not meet the definition of ‘structure’ set forth in
             R.C. 5701.02(E) but do meet the definition of ‘business
             fixture’ set forth in R.C. 5701.03(B) because they
             primarily benefit the business conducted by the occupant
             on the premises and not the realty.” Id. at ¶41.


             Here, the board finds that the limited evidence in the record regarding

the Lazy River pool and the main activity pool supports the commissioner’s finding

that such items do not increase or enhance the utilization of the land. We agree that

these items constitute business fixtures. As we consider the statutory examples of



                                          11
what constitutes a “structure,” i.e., a bridge, trestle, dam, silo, fence, or wall, we note

that all of the examples are items which support or aid in the use of the land on which

they are located. The use of the natural land is improved or assisted by a “structure”

situated thereon. The pools in question do not increase or enhance the utilization of

the land on which they are located; on the contrary, they benefit the business

conducted on the land, not the land itself. Arguably, the pools would be of no benefit

to the land if the water park’s business was terminated. The pools, which constitute

large specialty water attractions, as opposed to standard in-ground pools, are unique to

the conduct of the water park business and would be of no benefit to any other use of

the land.

                   Thus, based upon all of the foregoing, we find that the Lazy River pool

and the main activity pool are business fixtures and constitute personal property, as

defined by R.C. 5701.03, and we therefore concur with the Tax Commissioner’s

determination regarding such items’ taxability. The taxpayer has failed in its burden

to provide this board with competent and probative evidence in support of its position.

Kern, supra; Alcan, supra. Accordingly,             this   board   finds   that   the   Tax

Commissioner’s findings were reasonable and lawful. It is the decision and order of

the Board of Tax Appeals that the decision of the Tax Commissioner must be and

hereby is affirmed.

ohiosearchkeybta




                                               12
                          OHIO BOARD OF TAX APPEALS


Oregon Ford Inc.,                             )
                                              )
                                                            CASE NO. 2005-A-111
                    Appellant,                )
                                              )
                                                          (PERSONAL PROPERTY
   vs.                                        )
                                                                 TAX)
                                              )
William W. Wilkins, Tax Commissioner          )
                                                           DECISION AND ORDER
of Ohio,                                      )
                                              )
                    Appellee.                 )


APPEARANCES:
                    For the Appellant -   Hall & Hall
                                          Kevin R. Hall
                                          355 East Center Street, Suite 101
                                          Marion, Ohio 43302


                    For the Appellee -    Jim Petro
                                          Attorney General of Ohio
                                          Janyce C. Katz
                                          Assistant Attorney General
                                          30 East Broad Street, 16th Floor
                                          Columbus, Ohio 43215



                    Entered January 27, 2006

Ms. Margulies, Mr. Eberhart, and Mr. Dunlap concur.


             This cause and matter came on to be considered by the Board of Tax

Appeals upon a notice of appeal filed herein by the above-named appellant from a

final determination of the Tax Commissioner. Therein, the Tax Commissioner denied

the taxpayer’s objections to the assessments issued as the result of an audit of the

taxpayer’s 2002 and 2003 personal property tax returns.
              The matter was submitted to the Board of Tax Appeals upon the notice

of appeal, the statutory transcript certified to this board by the Tax Commissioner, the

record of the hearing before this board, and the briefs filed by counsel.

              In reviewing appellant’s appeal, we recognize the presumption that the

findings of the Tax Commissioner are valid. Alcan Aluminum Corp. v. Limbach

(1989), 42 Ohio St.3d 121. It is therefore incumbent upon a taxpayer challenging a

finding of the Tax Commissioner to rebut the presumption and establish a right to the

relief requested. Belgrade Gardens v. Kosydar (1974), 38 Ohio St.2d 135; Midwest

Transfer Co. v. Porterfield (1968), 13 Ohio St.2d 138. Moreover, the taxpayer is

assigned the burden of showing in what manner and to what extent the Tax

Commissioner’s determination is in error. Kern v. Tracy (1995), 72 Ohio St.3d 347;

Federated Dept. Stores, Inc. v. Lindley (1983), 5 Ohio St.3d 213.            Where no

competent and probative evidence is presented to this board by the appellant to show

that the Tax Commissioner’s findings are incorrect, then the Board of Tax Appeals

must affirm the Tax Commissioner’s findings. Kern, supra; Kroger Co. v. Limbach

(1990), 53 Ohio St.3d 245; Alcan, supra.

              Specifically, in his final determination, the Tax Commissioner affirmed

the assessment of appellant’s parking lot lighting as personal property. Appellant

contends, as set forth in the notice of appeal, that:

              “ The primary issue in this case is the assessment of the
              dealership’s parking lot lighting as personal property
              rather than as part of the real property. In support of our
              position, we considered R.C. 5701.03, which states that
              when an item is permanently attached or affixed to the
              land or to a building, structure, or improvement, the item


                                              2
             is determined to be real or personal property depending on
             whether the item primarily benefits the realty or the
             business conducted by the occupant on the premises; we
             attempted to describe how the lighting enhanced the value
             of the facility by expanding the available business hours
             and improving security. Through some circular logic, the
             Commissioner’s representative turned this around, stating
             that ‘these arguments actually prove that the parking lot
             lighting has been installed for business purposes, to
             promote late-night business, to meet the customers’
             expectations, and to keep the customers and inventory
             secure…’.

             “ The distinction we are attempting to convey is described
             in R.C. 5701.02; in a real property context, the definition
             of ‘Structure’ requires (1) a permanent fabrication or
             construction other than a building that is attached or
             affixed to land and (2) increased utilization or enjoyment
             of the land as a result. Inasmuch as these parcels are
             commercial property, it is our position that the lights are
             necessary or beneficial to utilization of the realty; that it is
             not just our current business operation that is benefitted
             [sic], but most any activity that could or would be
             conducted thereon.

             “Further, to classify this lighting as personal property
             raises the specter of double taxation. Even if, as the
             Commissioner’s representative notes, there is no
             disclosure of parking lot lighting in the property valuation
             records of the Lucas County Auditor, it is unclear how
             even an experienced appraiser would totally disregard this
             factor in arriving at a valuation for the land itself, given
             the permanent installation of the lighting.”

             During the audit period in question, appellant, Oregon Ford Inc.,

operated as a “new and used car dealership offering full service repair and a body

shop.” S.T. at p. 1. According to the testimony of Paul Becka, Jr., a twenty-year

employee of appellant, after the subject business was purchased by appellant and

operated for some time, appellant undertook to remodel some of the premises,



                                            3
including paving the parking lot and adding the lighting in question as well as some

fencing. H.R. at 9, 11.

              It is the appellant’s position that the subject lighting constitutes real

property, as defined in R.C. 5701.02 (A) - (E) during the audit years, as follows:

              “(A) ‘Real property,’ ‘realty,’ and ‘land’ include land
              itself, *** and, unless otherwise specified in this section
              or section 5701.03 of the Revised Code, all buildings,
              structures, improvements, and fixtures of whatever kind
              on the land, and all rights and privileges belonging or
              appertaining thereto. ***

              “(B)(1) ‘Building’ means a permanent fabrication or
              construction, attached or affixed to land, consisting of
              foundations, walls, columns, girders, beams, floors, and a
              roof, or some combination of these elemental parts, that is
              intended as a habitation or shelter for people or animals or
              a shelter for tangible personal property, and that has
              structural integrity independent of the tangible personal
              property, if any, it is designed to shelter.***

              “(C) ‘Fixture’ means an item of tangible personal property
              that has become permanently attached or affixed to the
              land or to a building, structure, or improvement, and that
              primarily benefits the realty and not the business, if any,
              conducted by the occupant on the premises.

              “(D) ‘Improvement’ means, with respect to a building or
              structure, a permanent addition, enlargement, or alteration
              that, had it been constructed at the same time as the
              building or structure, would have been considered a part
              of the building or structure.

              “(E) ‘Structure’ means a permanent fabrication or
              construction, other than a building, that is attached or
              affixed to land, and that increases or enhances utilization
              or enjoyment of the land. ‘Structure’ includes, but is not
              limited to, bridges, trestles, dams, storage silos for
              agricultural products, fences, and walls.”




                                            4
              The Tax Commissioner believes the subject lighting constitutes personal

property and is a business fixture, pursuant to the provisions of R.C. 5701.03 (A) and

(B). Specifically, those sections provide:

              “(A) ‘Personal property’ includes every tangible thing that
              is the subject of ownership, whether animate or inanimate,
              including a business fixture, and that does not constitute
              real property as defined in section 5701.02 of the Revised
              Code. * * *

              “(B) ‘Business fixture’ means an item of tangible personal
              property that has become permanently attached or affixed
              to the land or to a building, structure, or improvement, and
              that primarily benefits the business conducted by the
              occupant on the premises and not the realty. ‘Business
              fixture’ includes, but is not limited to, machinery,
              equipment, signs, storage bins and tanks, whether above
              or below ground, and broadcasting, transportation,
              transmission, and distribution systems, whether above or
              below ground. ‘Business fixture’ also means those
              portions of buildings, structures, and improvements that
              are specially designed, constructed, and used for the
              business conducted in the building, structure, or
              improvement, including, but not limited to, foundations
              and supports for machinery and equipment. ‘Business
              fixture’ does not include fixtures that are common to
              buildings, including, but not limited to, heating,
              ventilation, and air conditioning systems primarily used to
              control the environment for people or animals, tanks,
              towers, and lines for potable water or water for fire
              control, electrical and communication lines, and other
              fixtures that primarily benefit the realty and not the
              business conducted by the occupant on the premises.”

              Prior to the adoption of the current definition of real property, a line of

judicial authority classified property as real or personal predicated upon various

characteristics, including a determination of whether the item was physically attached

and whether it created a permanent benefit to the land. See, e.g., Teaff v. Hewitt



                                             5
(1851), 1 Ohio St. 511; Zangerle v. Standard Oil Co. (1945), 144 Ohio St. 506;

Zangerle v. Republic Steel Corp. (1945), 144 Ohio St. 529.

              In more recent years, however, the court moved away from these earlier

pronouncements. In Rotek, Inc. v. Limbach (1990), 50 Ohio St.3d 81, the court

expressly rejected, as improper, the test found in the Teaff and Zangerle line of cases.

In Thomas Steel Strip Corp. v. Limbach (1991), 61 Ohio St.3d 340, the court

reiterated its move away from the Zangerle cases and set forth its test for determining

whether property is real for purposes of taxation:

               “We have recently and consistently interpreted this
              definition of real property and land to mean that any
              property attached to land is real property for tax purposes,
              unless otherwise specified. Green Circle Growers, Inc. v.
              Lorain Cty. Bd. of Revision (1988), 35 Ohio St.3d 38, 517
              N.E. 2d 899. We have drawn away from earlier rulings
              that asked whether the improvement primarily benefited
              the land or business on the land. For example, in Rotek,
              Inc. v. Limbach (1990), 50 Ohio St.3d 81, 552 N.E. 2d
              640, we reversed a BTA decision concerning very similar
              items, because the BTA based its decision on whether the
              property was primarily devoted to the business conducted
              on the land. We conclude that R.C. 5701.02 does not
              require the fact-finder to make this distinction.” Id. at 341.

              Subsequent to Thomas Steel Strip, however, the General Assembly

amended R.C. 5701.02. See 144 Ohio Laws, S.B. No. 272, eff. 7-20-92.                The

legislature, by such amendment, codified the position taken by the Supreme Court

earlier in Teaff and Zangerle. It is this amended provision which we must now

consider and apply in this appeal. As part of the amendment, the General Assembly

added statutory definitions for buildings, improvements, structures, and fixtures. Each

term designates specific identifying elements. We interpret these changes as requiring


                                            6
this board, as fact finder, to inquire into the specific characteristics of the property in

question to determine whether it falls within the scope of the statutory definition of

real property for taxation purposes, that is, whether the property primarily benefits the

realty or the business conducted by any occupant on the premises. See Newcome

Corp. v. Tracy (Dec. 11, 1998), BTA No. 1997-M-320, unreported; F.P.&E. Inc.

Currently Centurion Industries, Inc. v. Tracy (Mar. 18, 1999), BTA No. 1996-M-806,

unreported.

              The definition of structure now contained in R.C. 5701.02(E) has three

requirements: (1) that the property be attached or affixed to the land; (2) that the

attachment be a permanent fabrication or construction, other than a building; and (3)

that the property increase or enhance the utilization or enjoyment of the land. These

definitional requirements are clearly similar to those expressed by the court in Teaff

and both Zangerle cases, supra.

               In the instant matter, the parking lot lighting, approximately 30-40 light

poles, was “put on the ground and wired underground and put on concrete faces.”

H.R. at 9. It was further described as poles, affixed to the ground by a concrete

baseboard, to which lights are bolted. H.R. at 16.           Based upon the foregoing

description, it appears that the light poles are permanently attached to the land.

Arguably, the poles cannot be dismantled and moved to another location without

destroying them, a signpost of permanency.

              However, the final requirement for an item to be classified as a structure

is that it must increase or enhance the utilization of the land. In F.P.&E., supra, we



                                             7
determined that gas station canopies, under the statute as amended, qualified as

business fixtures, although under the prior version of the statute we had determined

the canopies were real property. In addressing this apparent inconsistency, we stated

that “it appears to this Board that, under the new statute, the definition [of] ‘business

fixture’ includes items which were otherwise considered structures.” Id. at 18, f.n.4.

We held:

              “*** [n]o longer is property presumed to be realty
              because it meets the definition of structure. Now, inquiry
              must be made into whether the personalty benefits the
              land or the business thereon. Further, the inquiry now
              appears weighted more heavily towards finding property
              to be personalty, regardless of the permanence of
              attachment to realty.        R.C. 5703.03(B) specifically
              requires that an item that qualifies as a business fixture by
              virtue of its primary benefit to the business be taxed as
              personalty even it [sic] is permanently attached or affixed
              to land.” Id. at 16.

              In order to determine whether personalty is so devoted to the land that it

must be taxed as realty, in F.P.&E. we returned to the Supreme Court’s

pronouncement in Zangerle v. Standard Oil Co., supra, where the court delineated a

test for such questions. Specifically, to be considered realty, the personalty must

“have such relationship to the land or improvements already constructed thereon as to

be necessary or beneficial to its enjoyment, independent of the business presently

carried on.” Id. at 515. The court relied upon the “intention upon the part of the

annexer to make the chattel annexed a permanent accession to the freehold.” Id. at

518. The court provided the following indices upon which to determine intent:

              “ The intention of the annexer must be determined from
              the nature of the article affixed; the relation and situation


                                            8
             of the party making the annexation; the structure and
             mode of annexation; the purpose or use for which the
             annexation has been made, taking into consideration
             whether it was made with a view of permanence or with a
             view of serving a special purpose or business; the
             economic advantage, if any, of treating the annexed
             property as real or personal; the relationship between the
             parties interested in the land and chattel and the resulting
             equities arising from such relationship; and contracts or
             agreements between those having ownership of or
             equitable interests in the chattel, tending constructively to
             annex such chattel to or to sever it from real estate.

             “Intention to render a chattel a fixture is not the mere
             determination to annex the chattel to the realty, but the
             determination to devote the chattel to the use and service
             of the land or structure already a part of the land, in such
             manner as to enhance the serviceability of the whole as a
             permanent unit of property to whatsoever use it may be
             devoted.” Id. at 519.

             In applying the Zangerle test to the facts in F.P.&E., we asked “ Would

a canopy exist on the property if a service station were not present? Is there an

economic advantage to treating the canopy as real or personal property? Does the

canopy have intrinsic value separate from the realty? If the owner of the realty is

unrelated to the owner of the business, which party believes it to be the owner of the

canopy?” F.P.&E., supra, at 18. See, also, Funtime, Inc. v. Wilkins, 105 Ohio St.3d

74, 2004-Ohio-6890.

             Here, the board finds that the evidence establishes that the parking lot

lighting does not increase or enhance the utilization of the land. In fact, Mr. Becka

testified that there were lights already in place when the business was purchased and

those “were just torn down and *** scrapped.” H.R. at 23.           Thus, although the

lighting is attached to the property with some degree of permanency, it can be


                                           9
removed, if desired. Accordingly, then, it is not a given that the lighting would or

could be utilized on the property if the car dealership business left. Considering the

foregoing and the very specific changes made to the statutory framework utilized in

making our determination herein, we conclude that the parking lot lighting in question

constitutes a business fixture, which primarily benefits the business conducted on the

land, not the land itself. Further, as we consider the statutory examples of what

constitutes a “structure,” i.e., a bridge, trestle, dam, silo, fence, or wall, we note that

all of the examples are items which support or aid in the use of the land on which they

are located. The use of the natural land is improved or assisted by a “structure”

situated thereon. The lighting does not increase or enhance the utilization of the land

on which it is located; on the contrary, it benefits the business conducted on the land,

not the land itself.   The lighting was not added to the subject property so that

appellant’s customers would enjoy the land on which it sits more; the lighting was

erected so that customers could shop for cars after daylight hours and appellant’s

inventory and business location could be kept secure during the hours the business

was closed. The lighting would not necessarily benefit the land if the particular

business conducted on the land was terminated. Arguably, the decisions made by

appellant when the lighting was added, including the type chosen and its placement on

the property, were made based upon the unique requirements of the automobile sales

business and consequently, the lighting may not benefit any other use of the land.

              Thus, based upon all of the foregoing, we find that the parking lot

lighting is a business fixture and constitutes personal property, as defined by R.C.



                                            10
5701.03, and we therefore concur with the Tax Commissioner’s determination

regarding such item’s taxability.    Accordingly, this board finds that the Tax

Commissioner’s findings were reasonable and lawful. It is the Decision and Order of

the Board of Tax Appeals that the decision of the Tax Commissioner must be and

hereby is affirmed.

ohiosearchkeybta




                                        11
                        OHIO BOARD OF TAX APPEALS


Inverness Club,                           )        CASE NO. 2004-R-338
                                          )
                   Appellant,             )              (USE TAX)
                                          )
          vs.                             )       DECISION AND ORDER
                                          )
William W. Wilkins,                       )
Tax Commissioner of Ohio,                 )
                                          )
                   Appellee.              )


APPEARANCES:

                      For the Appellant   - Shumaker, Loop and Kendrick, LLP
                                            Thomas P. Dillon
                                            North Courthouse Square
                                            1000 Jackson Street
                                            Toledo, OH 43624

                      For the Appellee    - Marc Dann
                                            Attorney General of Ohio
                                            Janyce C. Katz
                                            Assistant Attorney General, Taxation Section
                                            16th Floor – State Office Tower
                                            30 East Broad Street
                                            Columbus, OH 43215



                   Entered May 11, 2007

Ms. Margulies, Mr. Eberhart, and Mr. Dunlap concur.


                This matter is before the Board of Tax Appeals upon a notice of appeal

filed by Inverness Club (“Inverness”). Inverness appeals a final determination of the

Tax Commissioner, in which the commissioner denied the appellant’s petition for

reassessment and affirmed a previously issued use tax assessment, number
8010400348, as modified to eliminate the penalty, for $60,865.02, including tax and

preassessment interest, for the period October 1, 1996 through September 30, 1999.

                    This matter is now submitted to the Board of Tax Appeals upon the

notice of appeal, the statutory transcript (“S.T.”) certified to this board by the Tax

Commissioner, the record of the evidentiary hearing (“H.R.”) before this board,

including exhibits, and the briefs of counsel.                      At the hearing, the parties were

represented by counsel. The appellant called Mr. Thomas F. Walker, golf course

superintendent for Inverness, as a witness. The Tax Commissioner did not present any

additional testimony or documents, relying upon cross-examination.

                    The following facts are uncontroverted. Inverness is a country club

founded in 1903. It is organized as a not-for-profit corporation with approximately

three hundred shareholder members, who are responsible for the financial burden of

the club.         H.R. at 16.         Revenue is generated from initiation fees,1 club dues,

adjustments, and major tournaments. H.R. at 17, 88. The subject property is improved

with a golf course with a clubhouse and accompanying supportive facilities. It has

been the site of four U.S. Opens, two PGA Championships, and one Senior U.S. Open.

H.R. at 14.

                    In the 1990s, Inverness decided to modernize its golf course to improve

playability, to improve drainage, and to change the difficulty level. H.R. at 18. The

U.S. Golf Association (“USGA”) recommended lengthening the course and changing

certain hole locations. H.R. at 19. It also suggested that several bunkers be deepened


1
    There is both a golf membership and a social membership available. S.T. at 88-89.

                                                         2
and a hill moved. H.R. at 25. Inverness then retained Arthur Hills, a noted golf course

architect. H.R. at 19-22.

                    Mr. Hills developed a master plan for the renovation. H.R. at 23-26;

Appellant’s Ex. 1. He started with a topographical map of the area from the air. H.R.

at 24, 92, 94. This map was ordered by the architect from Abrams Aerial Survey

Corp. (“ Abrams Aerial”), but paid for by Inverness. H.R. at 42; Appellant’s Exs. 5

and 6. Mr. Hills then prepared a construction drawing. H.R. at 26-33; Appellant’s Ex.

2. This plan required the excavation and placement of thousands of tons of dirt,

including moving a hill,2 and the installation of over thirty thousand feet of drainage.

H.R. at 26-33. Fifty-seven bunkers were changed; thirty-eight tees were reconstructed.

H.R. at 28-31. Yardage was added to the course to make it “Tiger proof.” H.R. at. 32-

33.

                    Inverness hired Oliphant Golf Construction, Inc. (“Oliphant”) to

implement Mr. Hills’ master plan. H.R. at 35-40. An AIA construction contract was

executed. H.R. at 35; Appellant’s Ex. 3. Oliphant was required to perform extensive

excavation, which was the largest part of the project. H.R. at 38. In addition, Oliphant

was responsible under the contract to align and level thirteen tees, construct thirty-

eight new tees, rebuild the sixth hole, and install fourteen thousand five hundred feet

of tee drainage. H.R. at 54; Appellant’s Ex. 3, section 1. The tees were constructed of

a special mix of sand and soil, custom blended to obtain the correct firmness for

playability. H.R. at 55-56.


2
    The hill had to be moved so players could view the green. H.R. at 59.

                                                         3
              Oliphant did not reseed the tees.     H.R. at 52.     The reseeding and

fertilizing of the tees was done by Inverness’ greens-keeping staff or an outside

service. H.R. at 39, 52.

              Oliphant was also responsible for bunker construction. This included

relocating, reconstructing, and draining thirty-three bunkers, removing four bunkers,

and installing drainage in fifty-seven bunkers. H.R. at 46-49; Appellant’s Ex. 3,

section 2. Oliphant did lay some sod on steep areas and the sides of bunkers to prevent

contamination and destruction of the bunkers. H.R. at 40. The sod was requested by

the USGA and required to be placed at a specific angle to ensure playability. H.R. at

47-48, 78. After Oliphant installed the sod, Inverness’ staff seeded. H.R. at 48.

Oliphant did not sow grass seed, plant bushes, plant trees, or apply fertilizer. H.R. at

52.

              Oliphant contracted to perform fairway construction, which included

moving and aligning eleven fairways, and completely rebuilding the sixth hole.

Appellant’s Ex. 3, section 3. In addition, Oliphant agreed to install new irrigation on

fifteen holes and build any temporary roads that would be necessary for the

construction. Appellant’s Ex. 3, section 4.

              After auditing appellant’s purchases for October 1, 1996 through

September 30, 1999, the Tax Commissioner found that Inverness owed use tax on

items and services for general and renovation purposes and issued an assessment. S.T.

at 37-42, 92. The appellant timely filed a petition for reassessment. S.T. at 8-15.

After consideration, the commissioner issued a final determination denying the


                                              4
appellant’s petition for reassessment. S.T. at 1-4. It is from that final determination

that Inverness appeals.

              First, the board notes that the findings of the Tax Commissioner are

presumptively valid. Alcan Aluminum Corp. v. Limbach (1989), 42 Ohio St.3d 121,

123. Consequently, it is incumbent upon a taxpayer challenging a determination of the

Tax Commissioner to rebut that presumption. Belgrade Gardens v. Kosydar (1974),

38 Ohio St.2d 135, 143; Midwest Transfer Co. v. Porterfield (1968), 13 Ohio St.2d

138, 142. The taxpayer has the duty to come forward and prove the commissioner’s

findings are unreasonable, unlawful, or erroneous. Federated Dept. Stores, Inc. v.

Lindley (1983), 5 Ohio St.3d 213, 215, Manfredi Motor Transit Co. v. Limbach (Aug.

17, 1990), BTA No. 1987-F-279, unreported. When no competent and probative

evidence is presented by the appellant to show that the commissioner’s findings are

incorrect, then the Board of Tax Appeals must affirm the Tax Commissioner’s

findings. Hatchadorian v. Lindley (1986), 21 Ohio St.3d 66; Averill v. Limbach (Aug.

23, 1991), BTA No. 1990-C-1647, unreported.

              The state of Ohio levies an excise tax on the storage, use, or other

consumption of tangible personal property or the benefit realized of any service

provided, unless it is specifically exempted. R.C. 5741.02(A). Furthermore, each

consumer storing, using, or otherwise consuming tangible personal property or

realizing the benefit of any service provided is liable for the tax until such liability is

paid to the state of Ohio. R.C. 5741.02(B).




                                             5
             The seller is required to collect and remit the tax to the state. R.C.

5741.04. However, in the event the seller fails to collect and remit the tax, the

consumer is required to report and pay the tax. R.C. 5741.04(C). Specifically, R.C.

5741.02(C) states as follows:

             “The tax does not apply to the storage, use, or consumption
             in this state of the following described tangible personal
             property or services, nor to the storage, use, or consumption
             or benefit in this state of tangible personal property or
             services purchased under the following described
             circumstances:


             “(1) When the sale of property or service in this state is
             subject to the excise tax imposed by sections 5739.01 to
             5739.31 of the Revised Code, provided said tax has been
             paid ***.”



             The General Assembly determined that the sales tax exemptions be

adopted and applied to use tax. R.C. 5741.02(C)(2). Therefore, the same arguments

that apply to sales tax also apply to use tax. Roxane Laboratories, Inc. v. Tracy

(1996), 74 Ohio St.3d 654; Internatl. Salt Co. v. Tracy (1995), 74 Ohio St.3d 550.

             Under R.C. 5739.01, “sale” and “selling” include:

             “(B) *** all of the following transactions for a
             consideration in any manner, whether absolutely or
             conditionally, whether for a price or rental, in money or by
             exchange, and by any means whatsoever:


             “***


             “(3) All transactions by which:

                                           6
                 “***

                 “(g) Landscaping and lawn care service is or is to be provided; ***.”


Furthermore, R.C. 5739.01(DD) defines “landscaping and lawn care service” as:

                 “*** the services of planting, seeding, sodding, removing,
                 cutting, trimming, pruning, mulching, aerating, applying
                 chemicals, watering, fertilizing, and providing similar
                 services to establish, promote, or control the growth of
                 trees, shrubs, flowers, grass, ground cover, and other flora,
                 or otherwise maintaining a lawn or landscape grown or
                 maintained by the owner for ornamentation or other
                 nonagricultural purpose. ***”


                 In addition, R.C. 5739.01(B)(5) addresses construction contracts and

provides that:

                 “*** a construction contract pursuant to which tangible
                 personal property is or is to be incorporated into a
                 structure or improvement on and becoming a part of real
                 property is not a sale of such tangible personal property.
                 The construction contractor is the consumer of such
                 tangible personal property, provided that *** lawn care
                 service and the transfer of property as part of such service
                 is never a construction contract.”


                 Thus, the pivotal question before this board is whether the reconstruction

of a golf course equates to landscaping and lawn care services.

                 Inverness maintains that a golf course is not the equivalent of a lawn, no

more than is a baseball field, a soccer field, or a football field. The appellant avers that

the General Assembly considers lawns and golf courses to be two different things. 3


3
 In R.C. 905.331, the General Assembly required individuals who custom mix fertilizer for use on “lawns, golf
courses, etc.” to obtain a license.

                                                     7
Further, Inverness views the activities performed and materials used by Oliphant to be

provided under a construction contract. Consequently, Inverness submits that any

tangible personal property transferred pursuant to a construction contract is not

taxable. R.C. 5739.01(B)(5). These items become part of the real estate, and the

contractor is considered the consumer in those circumstances. It is Inverness’ position

that the construction contract was not initiated to make the grass grow greener, as it

was growing very well before Oliphant was engaged,4 but to better challenge the

golfers who play the course. Thus, Inverness avers that the services Oliphant provided

did not “establish, promote, or control the growth” of the lawn or landscape. R.C.

5739.01(DD).

                     The Tax Commissioner argues that a golf course is a land project. As a

land project, the restoration is a landscaping service and therefore taxable.

                     Thomas F. Walker, superintendent of greens for Inverness, provided

extensive testimony, including exhibits such as photographs, regarding the nature and

extent of the project. According to the statute, landscaping involves planting, seeding,

sodding, removing, cutting, trimming, pruning, mulching, aerating, applying

chemicals, watering, fertilizing, and similar services.          R.C. 5739.01(DD).     The

activities involved here go far beyond that. After the work was completed, the course

was longer, its tee boxes were new, and bunkers existed where none were before. The

project resulted in a vastly different golf course than the one that existed before, not

just a prettier or more ornamental golf course.


4
    H.R. at 20-21.

                                                8
              Although Oliphant did perform some sodding, this was directly related

to the construction project and to protect the integrity of the newly constructed

bunkers. This was a very small part of Oliphant’s overall activities. The seeding and

most of the sodding was performed by Inverness’ staff. Therefore, based upon the

foregoing, this board finds that the services supplied to Inverness by Oliphant should

be characterized as construction, and not landscaping.

              Inverness also contends that the services provided by Oliphant were

resold to its members through fees and dues. Thus, these items should be allowed an

exemption as a sale for resale. R.C. 5739.01(E)(1); Bellmar Parts v. Tracy (2000), 88

Ohio St.3d 251; Hyatt Corp. v. Limbach (1994), 69 Ohio St.3d 537. This board,

however, need not reach a finding on this issue, since we have already determined that

Oliphant’s services were construction and not landscaping.

              Furthermore, the commissioner asserts that equipment and property used

for the business of playing golf are business fixtures. It is the Tax Commissioner’s

position that if the item or service primarily benefits the business and not the land, then

it is a business fixture. See Funtime v. Wilkins, 105 Ohio St.3d 74, 2004-Ohio-6890.

See, also, Zangerle v. Standard Oil Co. (1945), 144 Ohio St. 506. Thus, the purchase

of business fixtures classified as personal property would be taxable.           See R.C.

5701.03.   In the present case, the commissioner contends that bunkers and tees

primarily benefit the business and not the land. Therefore, they are business fixtures.

              In many respects, the procedural facts in Funtime are similar to the

procedural facts before us. Just as in Funtime, the present appeal involves a use tax

                                             9
assessment as it applied to a construction contract. The issue before the court in

Funtime was whether construction contracts relating to the repair and installation of

amusement park rides and accessory structures should be excepted from sales tax

liability as real property pursuant to R.C. 5739.01(B)(5).5 The court held that rides and

accessory structures were “business fixtures” under R.C. 5701.03(B), and therefore

constituted personal property not entitled to the sales and use tax exception.

                 The court analyzed the statutory definitions of “real property,”

“building,” “fixture,” “improvement,” and “structure” found in R.C. 5701.02, and the

definitions of “personal property” and “business fixture” found in R.C. 5701.03.

                 R.C. 5701.02 provides in pertinent part:

                 “(A) ‘Real property,’ ‘realty,’ and ‘land’ include land itself,
                 *** with all things contained therein, and, unless otherwise
                 specified in this section or section 5701.03 of the Revised
                 Code, all buildings, structures, improvements, and fixtures
                 of whatever kind on the land, ***.

                 “(B)(1) ‘Building’ means a permanent fabrication or
                 construction, attached or affixed to land, consisting of
                 foundations, walls, columns, girders, beams, floors, and a
                 roof, or some combination of these elemental parts, that is
                 intended as a habitation or shelter for people or animals or a
                 shelter for tangible personal property, and that had
                 structural integrity independent of the tangible personal
                 property, if any, it is designed to shelter. ***

                 “(C) ‘Fixture’ means an item of tangible personal property
                 that has become permanently attached or affixed to the land
                 or to a building, structure, or improvement, and that
                 primarily benefits the realty and not the business, if any,
                 conducted by the occupant on the premises.

5
 R.C. 5739.01(B)(5), as quoted previously, excepts from the sales tax provisions the incorporation of tangible
personal property into a structure or improvement on and becoming a part of real property pursuant to a
construction contract.

                                                     10
“(D) ‘Improvement’ means with respect to a building or
structure, a permanent addition, enlargement, or alteration
that, had it been constructed at the same time as the building
or structure, would have been considered a part of the
building or structure.

“(E) ‘Structure’ means a permanent fabrication or
construction, other than a building, that is attached or
affixed to land, and that increases or enhances utilization or
enjoyment of the land. ‘Structure’ includes, but is not
limited to, bridges, trestles, dams, storage silos or
agricultural products, fences, and walls.”


R.C. 5701.03 provides in pertinent part:

“(A) ‘Personal property’ includes every tangible thing that
is subject to ownership, whether animate or inanimate,
including a business fixture, and that does not constitute
real property as defined in section 5701.02 of the Revised
Code. ***

“(B) ‘Business fixture’ means an item of tangible personal
property that has become permanently attached or affixed to
the land or to a building, structure, or improvement, and that
primarily benefits the business conducted by the occupant
on the premises and not the realty. ‘Business fixture’
includes, but is not limited to, machinery, equipment, signs,
storage bins and tanks, whether above or below ground, and
broadcasting, transportation, transmission, and distribution
systems, whether above or below ground. ‘Business
fixture’ also means those portions of buildings, structures,
and improvements that are specially designed, constructed,
and used for the business conducted in the building,
structure, or improvement, including, but not limited to,
foundations and supports for machinery and equipment.
‘Business fixture’ does not include fixtures that are
common to buildings, including, but not limited to, heating,
ventilation, and air conditioning systems primarily used to
control the environment for people or animals, tanks,
towers, and lines for potable water or water for fire control,
electrical and communication lines, and other fixtures that
primarily benefit the realty and not the business conducted
by the occupant on the premises.”

                             11
              Under these definitions, the construction work provided by Oliphant and

items added to the realty during the construction process are real property pursuant to

R.C. 5701.02(A), being the “land itself, *** with all things contained therein.”

Further, these items do not appear to meet the other statutory definitions of “building,”

“fixture,” “improvement,” or “structure” under R.C. 5701.02.

              As to whether or not these items constitute business fixtures under R.C.

5701.03, we look to the board’s analysis provided in Polaris Amphitheater Concerts,

Inc. v. Delaware Cty. Bd. of Revision (Jan. 26, 2007), BTA No. 2004-V-1294,

unreported, appeal pending, Sup. Ct. No. 2007-0347. As in Polaris, the evidence

before us concerning Oliphant’s renovation of Inverness fails to demonstrate that these

are items of personal property that have become permanently attached to the subject

property. These renovations are more akin to permanent fabrication and construction

to the property rather than personal property that has become permanently attached to

the land. The modifications to the golf course are site improvements to the land and

not on the land. These are not fixtures that can be readily removed and transported and

installed somewhere else, and their removal would cause significant injury to the land

itself. These changes to the land in renovating this golf course have no physical

existence separate and apart from the land itself. Therefore, like in Polaris, it is

unnecessary to consider whether or not the renovations “primarily benefit the business

conducted” on the property because these items fail to constitute an item of personal

property under R.C. 5701.03(B) in the first instance.


                                           12
               As the board pointed out in Polaris, the distinction between real property

and personal property does not hinge upon the singular distinction of whether property

is used in business or a commercial venture. To define these renovations as business

fixtures would necessarily eclipse all the definition of real property found in R.C.

5701.02. Any and all changes to land would be classified as personal property solely

because they are all used for commercial purposes.

               In Maplecrest Golf Club v. Esposito (July 21, 2006), Portage C.P. No.

2005-CV-0917, unreported, the Portage Court of Common Pleas considered the

holding in Funtime, supra, and whether improvements to a golf club were real or

personal property. The court found that the improvements to a golf club are different

from the improvements to an amusement park.            This is because the use of the

amusement rides “was confined exclusively to the business of an amusement park and

were not of any practical use to a different business.” Id. at 4. Whereas, the court

stated that the improvements to the golf course have “substantial uses beyond their

utility in a golf course business.” Id.

               As a final note, Section 2, Article XII of the Ohio Constitution requires

that “[l]and and improvements thereon shall be taxed by uniform rule according to

value.”    Therefore, under the Ohio Constitution, improvements to the land are

considered to be a part of the land and included in the value thereof. See Zangerle v.

Republic Steel Corp. (1945), 144 Ohio St. 529, and Roseville Pottery, Inc. v. Cty. Bd.

of Revision of Muskingum Cty. (1948), 149 Ohio St. 89. Golf course renovations

clearly fit within this rule.


                                           13
              There are several contested items that are not related to Oliphant that we

need to address. See S.T. at 105-106; Notice of Appeal, Ex. B. Three of the items are

tangible personal property that was incorporated into and became part of the real

property. These include: sand used for bunkers, H.R. at 96, PCV pipe incorporated

into the irrigation system, and mason used for cart paths and green dressings, H.R. at

102.

              Under R.C. 5739.01(B)(5), when these materials are provided under a

construction contract, the construction contractor is the consumer of such tangible

personal property. However, because Inverness purchased these items rather than the

contractor, they are taxable. Therefore, the board finds that the sand, PCV pipe, and

mason are all taxable.

              The fourth item is the aerial survey prints and the color enlargement.

Although Inverness paid for the survey, Mr. Hills, the architect, hired Abrams Aerial,

and the prints and enlargement were for his use in developing the master plan and

construction plan. H.R. at 42; Appellant’s Exs. 5 and 6. Under the specific facts of

this appeal and pursuant to 3535 Salem Corp. v. Lindley (1979), 58 Ohio St.2d 210, we

find that the aerial survey prints and enlargement were requested and used by Mr. Hills

in the development of the master plan and construction plan. Therefore, they are not

taxable to the appellant.

              The fifth item is the loader rental from Atlas Paving. This loader was

used to mix sand and soil material together for the tee mix. H.R. at 95. Therefore, the

board finds that this item was used in conjunction with the construction of the tees by
                                           14
Oliphant. However, because Inverness rented the equipment, this board finds that it

cannot now escape taxation. Therefore, the loader rental is taxable.

              The sixth item is the GPS Asbuilt and TMAP image project purchased

from C-Tech Solution. This was an interface for a CAD computer program associated

with the irrigation system. H.R. at 97. The interface appears, from a sparse record, to

be canned application software. Canned application software is taxable. Andrew

Jergens Co. v. Wilkins, 109 Ohio St.3d 396, 2006-Ohio-2708. Therefore, we find that

the GPS Asbuilt and TMAP image project is taxable.

              The seventh item is fumigation services from Hendrix & Dye. The

fumigation was performed to regrass the practice green and the short game green.

H.R. at 100. During this process, gas is injected into the ground to kill unwanted

strains of vegetation as well as any unwanted soil parasites. H.R. at 102. This process

ensures that only the correct grass is growing on these greens. H.R. at 101. This, in

the board’s opinion, fits within the statutory definition of landscaping pursuant to R.C.

5739.01 (DD). Therefore, the cost of fumigation is taxable.

              The eighth item is a truck from Kalida Truck. According to Mr. Walker,

this was the purchase of a dump truck body. H.R. at 102. There was no testimony or

other evidence as to how this item was used. Therefore, the board finds that the

appellant did not demonstrate how the Tax Commissioner erred. Consequently, the

truck body is taxable.




                                           15
              The ninth item is the fabrication, delivery, and installation of the custom

oak veneer cabinetry and countertop from Rivereast. These cabinets were used in the

clubhouse and locker room for food and beverage operations. H.R. at 103. Although

Inverness claims that these were affixed to the real estate, there is nothing in the

existing record to establish how permanently these items were affixed and demonstrate

that these cabinets could not be easily removed. Therefore, since the appellant did not

establish that the Tax Commissioner erred, the board finds that these cabinets are

personal property, and therefore, their purchase is taxable.

              The tenth item is a 3w diesel truckster, purchased from Tri-State Turf.

This item is used for hauling personnel and materials around the golf course in day-to-

day operations. H.R. at 104. It is used entirely by Inverness’ maintenance personnel.

Therefore, it is this board’s finding that this item was not primarily used in the

construction phase. Therefore, its purchase is taxable.

              The eleventh item is a gandy drop, also purchased from Tri-State Turf.

It is used by Inverness’ staff to spread fertilizer or seed. H.R. at 105. As seeding and

fertilizing are part of the definition of landscaping under R.C. 5739.01(DD), this item

then is used for landscaping. Therefore, its purchase is taxable.

              Based upon the foregoing, the board finds that Inverness, in part, met its

burden of proof and demonstrated how the Tax Commissioner erred in making his

assessment. Except for the sand, PCV pipe, mason, loader rental, computer interface,

fumigation, truck body, cabinetry, truckster, and gandy drop, the board finds that the

remaining items in contention became incorporated into the land and a part of the land
                                           16
and thus are real estate and not personal property or business fixtures. Therefore, their

purchases would not be taxable.

                   Accordingly, it is the decision and order of the Board of Tax Appeals

that the decision of the Tax Commissioner must be, and hereby is, affirmed in part and

reversed in part.

ohiosearchkeybta




                                             17
                      OHIO BOARD OF TAX APPEALS

Polaris Amphitheater Concerts, Inc.,         )        CASE NO. 2004-V-1294
                                             )
                    Appellant,               )       (REAL PROPERTY TAX)
                                             )
      vs.                                    )        DECISION AND ORDER
                                             )
Delaware County Board of Revision, the       )
Delaware County Auditor, and the             )
Board of Education of the Olentangy Local    )
Schools,                                     )
                                             ) 2008-Ohio-2454
                    Appellees.               ) Revd/Rem'd 5/29/08 Ohio Supreme Court

APPEARANCES:
                         For Appellant       -   Sleggs, Danzinger & Gill, Co., LPA
                                                 Todd W. Sleggs
                                                 820 West Superior Ave.
                                                 Suite 410
                                                 Cleveland, OH 44113

                         For the County      -   Dave Yost
                         Appellees               Delaware County Prosecuting Attorney
                                                 140 North Sandusky Street
                                                 Delaware, OH 43015

                         For the Appellee    -   Rich, Crites & Dittmer, LLC
                         BOE                     James R. Gorry
                                                 300 East Broad Street
                                                 Suite 300
                                                 Columbus, OH 43215-3452


             Entered January 26, 2007

Ms. Margulies, Mr. Eberhart, and Mr. Dunlap concur.

             This cause and matter came on to be considered by the Board of Tax

Appeals upon a notice of appeal filed herein by Polaris Amphitheater Concerts, Inc.

(“Polaris”) from a decision of the Delaware County Board of Revision (“BOR”). In

said decision, the BOR determined the true and taxable values of the subject property
for tax year 2003 originally established by the Delaware County Auditor (“auditor”)

should remain as follows:

    Parcel 318-442-02-025-001                            TRUE VALUE                     TAXABLE VALUE
              LAND                                         $ 3,666,700                        $1,283,350
              BLDG                                         $ 5,668,400                        $1,983,940
             TOTAL                                         $ 9,335,100                        $3,267,290

    Parcel 318-442-02-025-918                            TRUE VALUE                     TAXABLE VALUE
              LAND                                         $ 3,224,200                        $1,128,470
              BLDG                                         $         0                        $        0
             TOTAL                                         $ 3,224,200                        $1,128,470

    Parcel 318-442-02-025-000                            TRUE VALUE                     TAXABLE VALUE
              LAND                                         $ 1,102,300                        $ 385,810
              BLDG                                         $         0                        $       0
             TOTAL                                         $ 1,102,300                        $ 385,810

    Parcel 318-442-02-025-919                            TRUE VALUE                     TAXABLE VALUE
              LAND                                         $ 5,688,700                        $1,991,050
              BLDG                                         $ 1,258,700                        $ 440,550
             TOTAL                                         $ 6,947,400                        $2,431,600

    Parcel 318-442-02-024-000                            TRUE VALUE                     TAXABLE VALUE
              LAND                                         $ 117,200                          $ 41,020
              BLDG                                         $    8,500                         $   2,980
             TOTAL                                         $ 125,700                          $ 44,000

           Grand Totals                                      $20,734,700                             $7,257,170

                 Polaris requests that the subject property’s improvements be reclassified

as personalty and for the remaining land to be valued at $7,200,000.1 The Olentangy

Local Schools Board of Education (“BOE”) requests that the subject property’s value

remain unchanged as originally determined by the auditor. We now consider this

matter upon the notice of appeal, the statutory transcript (“ S.T.” ) certified by the



1
 In its brief, Polaris notes that it does not contest the value of the fifth parcel, 318-442-02-024-000. Brief of
appellant, at 5, footnote 2.

                                                       2
auditor, and the evidence presented at this board’s evidentiary hearing (“H.R. I” and

“H.R. II”).

                  The subject property is an outdoor amphitheater constructed in 1994 and

is located on 90.685 acres2 of land located in Delaware County, Ohio. S.T., Ex. 3.

                  Before this board, Polaris presented the appraisal and testimony of Mr.

Robin Lorms, an MAI appraiser, who rendered an opinion of value of $7,200,000 for

the land only. Polaris further presented the testimony of Mr. Bryan A. Ross, a civil

engineer employed by Advance Civil Design; Mr. Thomas M. Warner, project

engineer and managing partner of Advance Civil Design; and Ms. Michelle Galaida,

tax consultant employed by Deloitte & Touche. The BOE presented the testimony of

Mr. Sam Koon, an MAI appraiser, who opined a value of $21,000,000 for the subject’s

land and improvements.

                  We begin our review of the evidence by noting that a party who asserts a

right to an increase or decrease in the value of real property has the burden to prove its

right to the value asserted. Cleveland Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision

(1994), 68 Ohio St.3d 336; Crow v. Cuyahoga Cty. Bd. of Revision (1990), 50 Ohio

St.3d 55; Mentor Exempted Village Bd. of Edn. v. Lake Cty. Bd. of Revision (1988), 37

Ohio St.3d 318. Consequently, it is incumbent upon an appellant challenging the

decision of the board of revision to come forward and offer evidence that demonstrates




2
 The appellee BOE’s appraiser describes the property as 90.687 acres. Ex. A at 27. The appellant’s appraiser
describes the subject to be 83.086 acres; however, said description does not include the fifth parcel, 318-442-02-
024-000, containing approximately 8 acres. Ex. 13 at 2.

                                                        3
its right to the value sought. Cleveland Bd. of Edn., supra; Springfield Local Bd. of

Edn. v. Summit Cty. Bd. of Revision (1994), 68 Ohio St.3d 493.

              It is not enough, however, to simply come forward with some evidence

of value. Neither is it sufficient to grant the requested increase or decrease merely

because no evidence is adduced in contradiction to the claim. Western Industries, Inc.

v. Hamilton Cty. Bd. of Revision (1960), 170 Ohio St. 340. In short, there is a burden

of persuasion that rests with the appellant to convince this board that the appellant is

entitled to the value which it seeks. Cincinnati School Bd. of Edn. v. Hamilton Cty.

Bd. of Revision (1997), 78 Ohio St.3d 325. Once the appellant presents competent and

probative evidence of value, other parties asserting a different value then have the

corresponding burden of providing evidence that rebuts appellant’s evidence of value.

Springfield Local Bd. of Edn. v. Summit Cty. Bd. of Revision (1994), 68 Ohio St.3d

493. Accordingly, this board must proceed to examine the available record and to

determine value based upon the evidence before it.           Coventry Towers, Inc. v.

Strongsville (1985), 18 Ohio St.3d 120; Clark v. Glander (1949), 151 Ohio St. 229. In

so doing, we will determine the weight and credibility to be accorded to the evidence

presented. Cardinal Fed. S. & L. Assn. v. Cuyahoga Cty. Bd. of Revision (1975), 44

Ohio St.2d 13. We proceed by examining the evidence of the subject’s true value as

presented by the parties.

              When determining value, the Ohio Supreme Court has long held that

“the best evidence of ‘true value in money’ of real property is an actual, recent sale of

the property in an arm’s-length transaction.” Conalco v. Bd. of Revision (1977), 50


                                           4
Ohio St.2d 129; State ex rel. Park Investment Co. v. Bd. of Tax Appeals (1964), 175

Ohio St. 410. Absent a recent sale, as in the instant matter, true value in money can be

calculated by applying any of three alternative methods provided for in Ohio Adm.

Code 5703-25-07: 1) the market data approach, which compares recent sales of

comparable properties, 2) the income approach, which capitalizes the net income

attributable to the property, and 3) the cost approach, which depreciates the

improvements to the land and then adds them to the land value.

                 Polaris argues that the court’s decision in Funtime v. Wilkins, 105 Ohio

St.3d 74, 2004-Ohio-6890, dictates that all improvements situated upon the subject

property should be classified as “business fixtures” under R.C. 5701.03(B), and hence,

not subject to taxation as real property. Polaris asks this board to value the subject

property, in essence, as land only.

                 The issue before the court in Funtime was whether construction contracts

relating to the repair and installation of amusement park rides and accessory structures

should be excepted from sales tax liability as real property pursuant to R.C.

5739.01(B)(5).3 The court held that the rides and accessory structures were “business

fixtures” under R.C. 5701.03(B), and therefore constituted personal property not

entitled to the sales and use tax exception. The court analyzed the statutory definitions

of real property, building, fixture, improvement, and structure found in R.C. 5701.02,

and the definitions of personal property and business fixture found in R.C. 5701.03.



3
  R.C. 5739.01(B)(5) excepts from the sales tax provisions the incorporation of tangible personal property into a
structure or improvement on and becoming a part of real property.


                                                       5
R.C. 5701.02 provides in pertinent part:

“(A) ‘Real property,’ ‘realty,’ and ‘land’ include land itself, ***
with all things contained therein, and, unless otherwise specified
in this section or section 5701.03 of the Revised Code, all
buildings, structures, improvements, and fixtures of whatever
kind on the land, ***.

“(B)(1) ‘Building’ means a permanent fabrication or
construction, attached or affixed to land, consisting of
foundations, walls, columns, girders, beams, floors, and a roof, or
some combination of these elemental parts, that is intended as a
habitation or shelter for people or animals or a shelter for
tangible personal property, and that had structural integrity
independent of the tangible personal property, if any, it is
designed to shelter. ***

“(C) ‘Fixture’ means an item of tangible personal property that
has become permanently attached or affixed to the land or to a
building, structure, or improvement, and that primarily benefits
the realty and not the business, if any, conducted by the occupant
on the premises.

“(D) ‘Improvement’ means with respect to a building or
structure, a permanent addition, enlargement, or alteration that,
had it been constructed at the same time as the building or
structure, would have been considered a part of the building or
structure.

“(E) ‘Structure’ means a permanent fabrication or construction,
other than a building, that is attached or affixed to land, and that
increases or enhances utilization or enjoyment of the land.
‘Structure’ includes, but is not limited to, bridges, trestles, dams,
storage silos or agricultural products, fences, and walls.”

R.C. 5701.03 provides in pertinent part:

“(A) ‘Personal property includes every tangible thing that is
subject to ownership, whether animate or inanimate, including a
business fixture, and that does not constitute real property as
defined in section 5701.02 of the Revised Code. ***

“(B) ‘Business fixture’ means an item of tangible personal
property that has become permanently attached or affixed to the

                              6
                 land or to a building, structure, or improvement, and that
                 primarily benefits the business conducted by the occupant on the
                 premises and not the realty. ‘Business fixture’ includes, but is
                 not limited to, machinery, equipment, signs, storage bins and
                 tanks, whether above or below ground, and broadcasting,
                 transportation, transmission, and distribution systems, whether
                 above or below ground. ‘Business fixture’ also means those
                 portions of buildings, structures, and improvements that are
                 specially designed, constructed, and used for the business
                 conducted in the building, structure, or improvement, including,
                 but not limited to, foundations and supports for machinery and
                 equipment. ‘Business fixture’ does not include fixtures that are
                 common to buildings, including, but not limited to, heating,
                 ventilation, and air conditioning systems primarily used to
                 control the environment for people or animals, tanks, towers, and
                 lines for potable water or water for fire control, electrical and
                 communication lines, and other fixtures that primarily benefit the
                 realty and not the business conducted by the occupant on the
                 premises.”

                 Counsel for the BOE has filed an expansive brief chronicling the history

of case law and legislative enactments relating to the classification of real and personal

property. The BOE argues that classification of property is necessarily governed by

Section 2, Article XII of the Ohio Constitution, which provides that “[l]and and

improvements thereon shall be taxed by uniform rule according to value.”

                 The statutory transcript certified by the auditor includes “property record

cards” for the subject parcels; however, none of the exhibits describe the

improvements upon the land. 4             S.T. at 3.      The BOE’s appraiser, Mr. Koon, has

included a foundation sketch of the 46 structures on the subject property. Ex. A, page

facing 30. Mr. Koon further describes the improvements as follows:



4
 Entitled “Parcel Maintenance,” the information on the property record cards is minimal. Ohio Adm. Code
Section 5703-25-09 requires the auditor to maintain property record cards that describe, among other things,
building details and construction features, dimensions, and the like.

                                                     7
“The subject improvements have been designed for use as a
regional, outdoor amphitheater and entertainment complex. The
semi-circular amphitheater represents the core structure, around
which all other surrounding improvements have been
constructed. *** There are two wings which attach to either side
of the stage. The west wing consists of a cafeteria and six fully
finished dressing rooms, each with its own full bath. A patio and
deck area extends from the west wing, and attaches to a
hospitality building, which is essentially a large, open room
which is used for small meetings and events. The hospitality
building is approximately 900 square feet in area. The east wing
consists of administrative offices and the video control room.

“***

“In addition to the above-described improvements, that facility
features several maintenance buildings which service the
property. These include a pole building and a steel framed
maintenance building to the rear of the amphitheater, as well as a
metal Quonset-style storage building both to the rear of the
amphitheater and on the south side of the parking lot.

“***

“The amphitheater structure exhibits a nearly semi-circular shape
and consists primarily of masonry construction. It has a sloping,
poured concrete floor, tilt-up concrete panel walls, and poured
concrete support columns. The roof consists of a pre-engineered
metal truss system under metal decking with a rubber membrane
cover. There is a metal panel parapet around the perimeter of the
roof which houses several large video projection screens which
service the amphitheater’s uncovered, rear lawn seating.
Additionally, two large video projection screens are mounted on
the inside wall of the amphitheater and service the seated area.
The amphitheater’s lawn area is contained with a wood fence.
To the rear of the amphitheater there are eight, (sic) dock-height
loading bays which service the stage area from the rear.

“There are two main food concession buildings which are located
on either side of the amphitheater. These structures are nearly
identical in design and construction quality. They consist of
single story, concrete block structures on concrete slab
foundations. Each has a gable-style, asphalt shingle roof. These
buildings are designed with food sales areas to the front, with

                             8
              food preparation and cool/dry storage rooms to the rear. There is
              additional office space to the rear of the west concession
              building. These facilities are heated and cooled via gas-fired
              heat/electrically-fired HVAC units.

              “There are men’s/women’s restroom facilities located adjacent to
              each of the main concession buildings. These facilities are
              contained within one story, concrete block buildings. Additional
              building improvements include medical/first aid, police, and
              equipment storage buildings. There is a VIP/covered outdoor
              bar/lounge area to the east of the amphitheater with separate
              restroom facilities. The facility’s main ticket sales building
              consists of a one story structure located at the amphitheater’s
              main entrance. There is also an ATM machine and several
              vending machines adjacent to the front ticket sales building.
              There are multiple kiosk-type, open, wood frame concession
              booths and memorabilia sales buildings which line the main
              entrances to the amphitheater areas.

              “The interior finish of the facility’s office, administrative, and
              back-stage video, sound, dining, and dressing rooms primarily
              consists of a combination of carpeted and/or vinyl flooring with
              vinyl basing, painted drywall walls, drywall or acoustical panel
              ceilings with a combination of recessed incandescent and
              recessed fluorescent lighting.

              “ Site improvements include two main asphalt-paved parking
              areas, as well as asphalt paved walkways providing pedestrians
              with access to both sides of the amphitheater. There is a
              substantial amount of asphalt paved parking and truck-
              turnaround areas to the rear of the amphitheater’s stage. It is
              significant to note that a substantial amount of required parking
              for the amphitheater is not paved and consists of driveways
              through grassy parking areas.” Id. at 30-32.

              The threshold issue before us is whether the amphitheater’s facilities

should be valued as real property by the auditor.

              Setting aside the issue of whether the facilities are business fixtures

under R.C. 5701.03(B) for the moment, we find the facilities described above are real

property under R.C. 5701.02. The amphitheater stage, loading docks, attached wings,

                                           9
concession facilities, merchandising facilities, restroom facilities, storage facilities,

video production facilities, administrative offices, VIP lounges, outdoor lounges,

storage facilities, maintenance facilities, cafeteria, hospitality facility, first aid and

public safety facilities, paved parking lots and walkways, and the like all constitute

buildings, improvements, and/or structures as defined by R.C. 5701.02, as they all are

of “permanent fabrication or construction,” affixed to the land, intended as “habitation

for people, animals or a shelter for tangible personal property” and furthermore

“increase the utilization or enjoyment of the land.”

              R.C. 5701.02(A) defines realty, with the caveat: “unless otherwise

specified in this section or section 5701.03 of the Revised Code.” We next turn to the

issue of whether the buildings, improvements, and/or structures on the subject property

should be classified as business fixtures. We find that they should not.

              R.C. 5701.03(B) provides “‘[b]usiness fixture’ means an item of tangible

personal property that has become permanently attached or affixed to the land, ***.”

The evidence before us concerning the nature of the buildings, improvements, and

structures fails to demonstrate that any of them are items of personal property that

have become permanently attached to the subject property.                  The buildings,

improvements, and structures before us are borne from permanent fabrication and

construction upon the property (e.g., brick and mortar construction “consisting of

foundations, walls, columns, girders, beams, floors, and a roof”), rather than item(s) of

personal property (e.g., “machinery, equipment, signs, storage bins and tanks, ***,




                                           10
broadcasting, transportation, transmission, and distribution systems”) that have been

otherwise delivered and permanently attached to the land.

             It is unnecessary to consider whether or not the buildings, improvements

and structures before us “primarily benefit the business conducted” on the property

because the brick and mortar buildings, improvements and structures fail to constitute

“[an] item of personal property” under R.C. 5701.03(B) in the first instance.

             Furthermore, there is no evidence before us that would enable us to

conclude that there are any portions of buildings, structures or improvements on the

subject property specifically constructed for use in business, such as foundations and

supports for machinery and equipment. Within the definition of business fixture, R.C.

5701.03(B) provides: “‘Business fixture’ also means those portions of buildings,

structures, and improvements that are specially designed, constructed, and used for the

business conducted in the building, structure, or improvement.” Polaris mis-interprets

said portion of the definition and argues that because the subject property is put to a

commercial use, any and all buildings, any and all structures and any and all

improvements “are specially designed, constructed and used in business” and are

therefore business fixtures. We disagree.

             As the Ohio Supreme Court held in Funtime, supra, R.C. 5701.02 and

5701.03 must be interpreted in pari materia. The distinction between real property and

personal property does not hinge upon the singular distinction of whether property is

used in business or a commercial venture. Rather, only the distinction of whether an

item of personal property constitutes a “fixture” under R.C. 5701.02(C) and is


                                            11
therefore defined as real property, or whether an item of personal property constitutes

a “business fixture” under R.C. 5701.03(B) and is therefore defined as personal

property does hinge upon the determination of whether the item of personal property is

used in business.

                The limited inclusion of language by the legislature in the definition of

business fixture permits foundations and supports specifically designed for machinery,

equipment, and the like to be classified as business fixtures.5 If we were to accept

Polaris’ argument, the definition of business fixture would necessarily eclipse all the

definitions of real property found in R.C. 5701.02 and require that all buildings,

structures and improvements (e.g., car washes, office buildings, retail stores, banks,

gas stations, indoor and outdoor arenas) be classified as personal property solely

because they are all used for a commercial purpose. We fail to read the statutory

enactments and the court’s holdings to produce this result.

                Based upon the evidence before us, we find that the buildings, structures

and improvements situated upon the subject property are properly classified and

valued as realty pursuant to Ohio law.

                In support of its contention of value, Polaris offered at this board’s

evidentiary hearing the testimony and written appraisal report of Mr. Robin Lorms.

Mr. Lorms has limited his analysis to the valuation of the subject’s land only. We are


5
  All of the examples cited within the definition of business fixture found in R.C. 5701.03(B) support the
conclusion that business fixtures are items of personal property that have been brought upon the land and
otherwise affixed (i.e., machinery, equipment, signs, storage bins and tanks; broadcasting, transportation,
transmission, and distribution systems).



                                                   12
unable to assign any more than limited weight to the report and opinion of Mr. Lorms

because he has failed to value the buildings, improvements and structures on the

subject property.

              Even if we were to rely upon Mr. Lorms’ opinion of value for the

subject, we are concerned about his failure to consider the subject’s current use in

determining the highest and best use for the subject property. Mr. Lorms’ highest and

best use analysis concludes that “no use of the site would be as profitable as office

use.” Ex. 13 at 33.

              The Appraisal of Real Estate (12th Ed.) defines “highest and best use” as:

              “[T]he reasonably probable and legal use of vacant land or an
              improved property, which is physically possible, appropriately
              supported, financially feasible, and results in the highest
              value.” Id. at 297.

              The text further describes:

              “ Appraisal theory holds that as long as the value of a property
              as improved is greater than the value of the site unimproved,
              the highest and best use is use of the property as improved.
              Once the value of the vacant land exceeds the value of the
              improved property, the highest and best use becomes use of the
              land as though vacant.” Id. at 298.

              The subject property is improved with a regional outdoor amphitheater.

Any analysis of the subject’s highest and best use must necessarily include a

determination that the value of the vacant land would exceed the value of the property

as improved. Before this board, Mr. Lorms acknowledged that he did not endeavor to

value the subject property as improved. H.R. I at 170-181. Furthermore, Mr. Lorms




                                            13
testified that he had not formed an opinion that the subject property’s value, if vacant,

would exceed its valuation as improved. Id.

              Based on the evidence before us presented by Polaris, we fail to see any

discussion or consideration of the subject’s valuation as improved.   Furthermore, we

are unable to conclude that the value of the subject property as vacant necessarily

exceeds the value of the property with its current improvements. Therefore, we find

Mr. Lorms’ analysis premised upon the highest and best use of the subject as vacant

land for redevelopment as office space fails to constitute competent and probative

evidence of value.

              Polaris additionally provided the testimony of two civil engineers who

provided their opinions and documentary evidence concerning how the subject

property might be redeveloped and reconfigured as office-space development.

Because Polaris has failed to demonstrate that the subject’s highest and best use of the

property, if vacant, would exceed its value as improved, we must necessarily conclude

that evidence concerning possible redevelopment for an alternative use fails to

constitute competent and probative evidence of the subject’s value on January 1, 2003.

              Polaris additionally provided testimony and evidence concerning

proposed changes to its personal property tax returns, assuming the buildings,

structures and improvements on the subject property were reclassified as business

fixtures. As the instant appeal comes to this board through a complaint filed before the

BOR pursuant to R.C. 5715.19, our jurisdiction is limited to determining the value of

the subject real property as it appears on the 2003 tax list and duplicate. See R.C.


                                           14
5715.19(A)(1)(d). Furthermore, there is nothing in the record to suggest that Polaris

has sought any reassessment for its previously filed personal property tax returns with

the Tax Commissioner, and hence, there is no final determination of the Tax

Commissioner from which Polaris may appeal.6                         Therefore, we are without the

requisite jurisdiction to assess or otherwise determine the accuracy of Polaris’

proposed personal property returns, and further find that the testimony and evidence

regarding Polaris’ proposed returns fail to constitute competent and probative evidence

of value for the subject parcels before us.

                 The BOE presented the written appraisal report and testimony of Mr.

Sam Koon.        Mr. Koon’s appraisal report was prepared with an “as of” date of January

1, 2003.      Ex. A at 62.         Mr. Koon ultimately arrived at an opinion of value of

$21,000,000 for the subject property. Ex. B at 62, H.R. II at 15.7

                 Given the special use and nature of the subject’s improvements as a

regional outdoor amphitheater, Mr. Koon testified that he was unable to identify any

comparable sales data or comparable economic rental data from the sale or lease of

other amphitheaters. H.R. II at 16, Ex. A at 59-60. Therefore, Mr. Koon’s opinion of

value is limited to his conclusions derived from his cost approach valuation of the

subject.



6
  R.C. 5717.02 sets forth certain prerequisites necessary to invoke the jurisdiction of this board from a final
determination of the Tax Commissioner, providing in pertinent part:
         “Such appeals shall be taken by the filing of a notice of appeal with the board, and with the
         tax commissioner *** within sixty days after notice of the *** determination *** by the
         commissioner *** has been given or otherwise evidenced as required by law.”
7
  At hearing before this board, Mr. Koon identified various corrected pages to his appraisal report, marked as
Exhibit B.


                                                     15
              In his cost approach, Mr. Koon began by arriving at a raw land value by

considering five comparable land sales that occurred between August 2000 and July

2005. All of the comparable sales were in close proximity to the subject property,

utilizing the Polaris Parkway/I-71 freeway interchange. The price per acre paid for the

comparables ranged between $85,237 and $151,146 per acre.                    After making

adjustments to the comparable sales, Mr. Koon developed a range of $95,000 to

$110,000 per acre. Utilizing the lower end of the range of value, Mr. Koon opined to a

land value of $95,000 per acre for the subject, or $8,600,000 for the subject’s 90.687

acres. Ex. A at 39-53.

              In estimating the subject’s replacement cost (as new), Mr. Koon used the

actual construction costs as supplied by the subject’s developer. Ex. A at 54. Mr.

Koon testified that the subject’s special use necessitates reliance upon the actual costs

to construct, given information pertaining to the reproduction costs of an outdoor

amphitheater is not included in the majority of national cost indexes. Id.

              Mr. Koon analyzed the subject’s 1994 construction costs, which totaled

$9,629,200 for both the costs of site and building improvements. Relying upon his

analysis of trend multipliers for the subject’s regional location, Mr. Koon increased the

1994 site and improvement costs by 27%, to arrive at a cost to construct value of

$12,229,084 for January 1, 2003. Id. at 54. Mr. Koon then included the cost to

construct additional special use improvements (i.e., outdoor grill and a patio/deck area)

made upon the subject property after 1994, again utilizing trend multipliers to

determine the costs relevant to 2003. The additional cost of the new special use


                                           16
improvements was estimated to be $68,296.          Id. at 55.   Additionally, Mr. Koon

included the costs to construct additional improvements (i.e., maintenance building

and concession kiosk buildings) made upon the subject property after 1994, utilizing

Marshal Valuation Service reproduction cost estimates relevant to 2003.              The

additional costs of the new improvements were estimated to be $267,446. Combining

the updated cost to construct the original facility, together with additional

improvements, Mr. Koon arrived at a value of $12,600,000 for the hard costs

associated with the subject for January 1, 2003. Id. at 55, H.R. II at 14.

              Mr. Koon next estimated the soft costs (i.e., architectural, engineering

fees, financing costs, various legal and administrative fees, and the like), by utilizing

10% of the total hard cost of the development, or $1,260,000.            Mr. Koon fixed

entrepreneurial profit at $1,100,000. In sum, Mr. Koon’s total reproduction cost of the

subject property was $14,960,000. Id. at 56, H.R. II at 14.

              To estimate accrued depreciation of the improvements, Mr. Koon

assigned an economic life of 40 years to the buildings that consist of masonry

construction, assigned an economic life of 35 years for the steel frame and wood pole

buildings, and assigned an economic life of 15 years to the remaining smaller wood

frame buildings pursuant to the indexes provided by the Marshall Valuation Service.

Ex. B at 57. The subject’s original improvements were approximately eight years old

on tax lien date. Mr. Koon assigned depreciation percentages to the various grades of

buildings, based upon their economic life and their age as of January 1, 2003. The

sum total of depreciation was estimated at $2,588,079. Id., H.R. II at 14.


                                           17
              In conclusion, Mr. Koon arrived at a depreciated value for all

improvements of $12,371,921.       After adding his valuation of the subject’s land

($8,600,000), Mr. Koon arrived at a final value of $21,000,000 for the subject property

as of January 1, 2003. Ex. B at 58, H.R. II at 15.

              As described above, the county auditor’s and BOR’s valuation of the

subject property for January 1, 2003 is $20,734,700.         Mr. Koon’s opinion of

$21,000,000 for the subject is nearly the same, and it provides support for such value.

In addition, in its brief, the BOE urges this board to leave the auditor’s and BOR’s

value unchanged. BOE brief at 86.

              Based upon the record and the evidence before us, we hold that Polaris

has not met its burden of demonstrating the subject property’s fair market value as of

tax lien date. We further find that the evidence of value provided by the BOE is

supportive of the original values assigned to the subject property by the auditor and

affirmed by the Delaware County Board of Revision. Therefore, we find the value of

the subject as of January 1, 2003 to be:

 Parcel 318-442-02-025-001                   TRUE VALUE             TAXABLE VALUE
           LAND                                $ 3,666,700                $1,283,350
           BLDG                                $ 5,668,400                $1,983,940
          TOTAL                                $ 9,335,100                $3,267,290

 Parcel 318-442-02-025-918                   TRUE VALUE             TAXABLE VALUE
           LAND                                $ 3,224,200                $1,128,470
           BLDG                                $         0                $        0
          TOTAL                                $ 3,224,200                $1,128,470

 Parcel 318-442-02-025-000                   TRUE VALUE             TAXABLE VALUE
           LAND                                $ 1,102,300                $ 385,810
           BLDG                                $         0                $       0
          TOTAL                                $ 1,102,300                $ 385,810

                                           18
 Parcel 318-442-02-025-919                   TRUE VALUE              TAXABLE VALUE
           LAND                                $ 5,688,700                 $1,991,050
           BLDG                                $ 1,258,700                 $ 440,550
          TOTAL                                $ 6,947,400                 $2,431,600

 Parcel 318-442-02-024-000                   TRUE VALUE              TAXABLE VALUE
           LAND                                $ 117,200                   $ 41,020
           BLDG                                $    8,500                  $   2,980
          TOTAL                                $ 125,700                   $ 44,000

           Grand Totals                          $20,734,700                  $7,257,170


                   It is the decision and order of the Board of Tax Appeals that the

Delaware County Auditor shall list and assess the subject property in conformity with

this decision. It is further ordered that this value be carried forward in accordance to

law.

ohiosearchkeybta




                                            19
Ohio Department of Taxation                                                            Page 1 of 5




   PP 2007-01 and RP 2007-01 - Classification of Certain
   Business Assets as Real or Personal Property - Issued
   September 2007; Revised January 2008
   This information release is a replacement for release PP 2007-01 and RP 2007-01
   issued September 2007. It is being issued to correct the classification of certain
   types of property used for storage. The corrections are found in items 24 and 30,
   below.

   The purpose of this information release is to provide guidance regarding the proper
   classification of certain business assets. With the phase-out of the personal property
   tax in Ohio, the classification of what constitutes personal property or real property
   has been heightened in importance. While this release is being issued to address
   some types of property, this information release is not meant to, and it should not be
   construed to, encompass all types of property potentially subject to personal or real
   property taxation in Ohio. This information can also be found in Amended County
   Auditor Bulletin No. 290, issued December 18, 2007.

   The Department of Taxation recently has reviewed the county auditor bulletins that
   classify assets as either real property or personal property. In light of recent case
   law and statutory amendments, many of these bulletins were found to be obsolete or
   unnecessary. In order to align the property classifications reflected in these
   bulletins with current law, the Tax Commissioner has rescinded them pursuant to
   Amended Bulletin No. 288 (Bulletins 33, 70, 74, 77, 80, 85, 110, 135, 154, 166,
   247, and 284) issued September 7, 2007 and is replacing them with this bulletin.

   The classifications set forth below are not intended to alter the sales/use tax
   consequences of the purchase or installation of real or personal property. In the
   case of purchases of personal property, Ohio sales/use tax will apply unless the
   taxpayer has some statutory claim of exemption. While transfers of real property
   are not normally subject to Ohio sales/use tax, construction contractors continue to
   have sales/use tax responsibilities for any personal property or taxable services used
   in performing a construction contract.

   Further, Ohio’s sales/use taxes apply to certain enumerated services. For example,
   R.C. 5739.01(B)(3)(g) includes landscaping and lawn care services within the
   definition of a “sale” for sales/use tax purposes. In transactions where such services




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Ohio Department of Taxation                                                            Page 2 of 5




   are being provided, the service may be taxable regardless of the fact that the service
   results in an improvement to real property. Other services that are subject to
   sales/use tax (not inclusive) include the repair of personal property, installation of
   personal property, exterminating services, and private investigation and security
   services. This bulletin does not address the existence of any services that may be
   subject to sales/use tax at the issuance or after the issuance of this bulletin.

   The following classifications of certain business property are intended to
   supplement, expound upon, and comport with the definitions set forth in R.C.
   5701.02 and 5701.03, and the classifications set forth in Ohio Adm. Code 5703-3-
   01. This bulletin does not address the classification of assets on residential
   property. In addition, property classified in this bulletin as “real property” still may
   be deemed to be personal property if it meets the definition of a “business fixture”
   and/or the property does not meet the definition of a “fixture” (e.g., certain property
   subject to an operating lease).

   The following business property is properly classified as personal property:

   1. Air conditioning systems that utilize specialized cooling equipment to maintain
   specific environmental conditions in computer rooms, manufacturing areas,
   research areas, storage areas, or other areas that require specific environmental
   conditions for the business that is conducted on the premises. But, see 26 below.

   2. Amusement park rides.

   3. Bank vault doors unless an integral part of the building and the removal of which
   would damage the structural integrity of the building. Also, see 13 below.

   4. Boilers and ancillary equipment such as, but not limited to, feed water heaters,
   pumps, steam traps, steam lines, and return water storage tanks, that are used for
   any purpose other than environmental control for buildings or structures housing
   people or animals. But, see 26 below.

   5. Chemical lines used for fire protection of business equipment.

   6. Concrete fire walls and earthen structures surrounding oil and gasoline storage
   tanks.

   7. Drive-in windows, but only that portion that constitutes the window itself and not
   the framing.

   8. Electrical lines and ancillary equipment that are specialized and used in




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Ohio Department of Taxation                                                            Page 3 of 5




   manufacturing processes.

   9. Fuel storage tanks, whether above ground or below ground.

   10. Generators when used as a power source for manufacturing equipment or when
   used exclusively to maintain specific environmental conditions, e.g., in computer
   rooms. But, see 32 below.

   11. Internal communication systems, including public address systems.

   12. Kilns used in the drying, burning, firing, baking or similar processes of brick,
   grain, pottery, ceramics, lumber, and similar products.

   13. Modular bank vault rooms. Also, see 3 above.

   14. Pneumatic tube systems.

   15. Portable grain storage bins regardless of size. But, see 30 below.

   16. Process water transportation equipment used to transport water from a well to a
   processing operation of a business establishment, including equipment, lines, and
   pipes whether above ground or below ground used to transport manufacturing
   process water. This classification does not include equipment used to transport
   water for the general use of the building, such as for drinking, bathing, cooking, or
   fire suppression.

   17. Pumps, motors, or pipes used in connection with cooling towers, manufacturing
   equipment, spray ponds, storage tanks, or irrigation related to the business, e.g., golf
   courses.

   18. Refrigerated cold areas, including equipment such as panels and insulation and
   the enclosure around or incident to the equipment, excluding supporting structures.

   19. Service station canopies, all electrical wiring for the canopies, any
   appurtenances to the canopies, and any concrete pads or islands used as foundations
   for the canopies.

   20. Signage, including neon signs and billboards.

   21. Skip hoists and tipples. But, see 37 and 38 below.

   22. Sliding boards, diving boards, diving platforms, lifeguard stands, lighting, rails,
   ladders, and filtration and chlorination systems associated with swimming pools.




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Ohio Department of Taxation                                                            Page 4 of 5




   But, see 39 below.

   23. Special purpose lighting and associated electrical wiring, whether inside or
   outside, including lighting for miniature golf courses and lighting for illuminating
   or displaying inventory, e.g., on automobile dealer lots. But, see 31 below.

   24. Storage silos, bins, or tanks, whether above or below ground, and regardless of
   the type of facility where used. But, see 30 below.

   25. Water softening equipment when used for industrial clothes cleaning or in a
   manufacturing process. But, see 40 below.

   The following property is properly classified as real property:

   26. Air conditioners, boilers and ancillary equipment such as, but not limited to,
   feed water heaters, pumps, steam traps, steam lines, and return water storage tanks
   primarily used for environmental control for buildings or structures housing people
   or animals. But, see 1 and 4 above.

   27. Carpet installed and attached to a finished or unfinished interior surface so as to
   indicate permanent affixation for the useful life of the carpet. For sales tax
   purposes, note that the installation of carpet is taxable. See R.C. 5739.01(B)(5).

   28. Cement parking pads, driveways, and walkways in use at trailer courts.

   29. Chemical and water lines used for fire protection installed within and an integral
   part of a building or structure. But, see 5 above.

   30. Elevators, storage bins, and storage silos used in agricultural operations. But,
   see 15 and 24 above.

   31. General parking lot lighting. But, see 23 above.

   32. Generators that have been installed as an integral part of a building or structure
   and that supply power for general usage to the building or structure. But, see 10
   above.

   33. Greenhouses attached to permanent foundations.

   34. Powder magazines and any other buildings or structures constructed in
   compliance with R.C. Chapter 3743 for the storage of fireworks or other types of
   explosives.




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Ohio Department of Taxation                                                            Page 5 of 5




   35. Pump houses.

   36. Pyrometer houses.

   37. Skip hoist houses. But, see 21 above.

   38. Supports for cranes, skip hoists, tipples, or similar property that are an integral
   part of the building or structures. But, see 21 above.

   39. Swimming pools. But, see 22 above.

   40. Water softening systems when used in relation to potable water. But, see 25
   above.




http://www.tax.ohio.gov/divisions/communications/information_releases/property/pp20070... 8/1/2009
                                                                                  P.O. Box 530
                                                                     Columbus, Ohio 43216-0530



                      Opinion of the Tax Commissioner
                                                     Date Issued: March 29, 2007

Opinion No: 07-0001                                  Tax: Personal Property

XXXX                                                 Subject: Real or Personal
XXXX
XXXX

This request for an opinion of the Tax Commissioner was received on January 23, 2007. It
concerns the proper classification of assets at a golf course owned by XXX as either real
property or personal property.

STATEMENT OF FACTS

XXX presented the following factual information in its opinion request and in subsequent
clarifying information that included the submission of photographs:

XXX owns a golf course in northeastern Ohio. The amount of county real property and personal
property taxes it pays is determined in part by the classification of various assets on the golf
course as real property or personal property.

QUESTION FOR WHICH AN OPINION IS REQUESTED

What is the proper classification as real property or personal property of the following assets
located on a golf course: paved cart paths; underground irrigation system, above-ground attached
fixtures, and control boxes; practice greens; driving range; driving range mats and practice pins;
restrooms; water coolers and associated wooden posts; waste disposal cans; yardage markers,
out-of-bounds markers, and tee signs; greens; sand traps; man-made lakes, streams, other water
hazards, and an irrigation pond; pole barns; a pole-constructed shelter; storage sheds;
maintenance facility; machinery shed; canopies on barns and sheds; golf cart storage area; golf
course clubhouse; scoreboard; gazebo; ball washers; clubhouse patio; and parking lots.

OPINION

The significance of the proper classification of property as either real or personal emanates from
its impact on real property tax, personal property tax, and sales and use tax. Before addressing
the substantive question, it is important to clarify that this Opinion addresses only the
classification of the property listed in the opinion request as real property or personal property.
This Opinion does not address the sales and use tax consequences of either classification. In the
case of purchases of tangible personal property, Ohio sales or use tax will apply unless the
taxpayer has some statutory claim of exemption. Transfers of real property are not subject to
Ohio sales or use tax, but construction contractors will have sales and use tax responsibility for
any personal property or taxable services used in performing the construction contract.

Further, the Ohio sales and use taxes apply to certain specified services. For example, R.C.
5739.01(B)(3)(g) includes within the definition of a “sale” for sales and use tax purposes,
landscaping and lawn care services. In transactions where such services are being provided, the
service will be taxable regardless of the fact that the service results in an improvement to real
property. Other services that are subject to sales and use tax include repair of tangible personal
property, installation of tangible personal property, exterminating services, and private
investigation and security services. This Opinion does not address the existence of any services
that may be subject to sales and use tax.

With regard to the submitted question, Ohio case law and statutory law classifying assets as
either real property or personal property begins with Teaff v. Hewitt (1853), 1 Ohio St. 511. The
Ohio Supreme Court’s three-part test in that case to determine if an asset is properly classified as
a fixture eventually served in 1992 as the basis for the definition of “business fixture” in R.C.
5701.03(B). That definition states in its entirety:

       "Business fixture" means an item of tangible personal property that has become
       permanently attached or affixed to the land or to a building, structure, or improvement,
       and that primarily benefits the business conducted by the occupant on the premises and
       not the realty. "Business fixture" includes, but is not limited to, machinery, equipment,
       signs, storage bins and tanks, whether above or below ground, and broadcasting,
       transportation, transmission, and distribution systems, whether above or below ground.
       "Business fixture" also means those portions of buildings, structures, and improvements
       that are specially designed, constructed, and used for the business conducted in the
       building, structure, or improvement, including, but not limited to, foundations and
       supports for machinery and equipment. "Business fixture" does not include fixtures that
       are common to buildings, including, but not limited to, heating, ventilation, and air
       conditioning systems primarily used to control the environment for people or animals,
       tanks, towers, and lines for potable water or water for fire control, electrical and
       communication lines, and other fixtures that primarily benefit the realty and not the
       business conducted by the occupant on the premises.

In order to apply the “business fixture” definition to any set of facts, the court explained in
Funtime, Inc. v. Wilkins, 105 Ohio St.3d 74, 2004-Ohio-6890, that the appropriate analysis
includes consideration of the definitions of “building,” “fixture,” “improvement,” and “structure”
in R.C. 5701.02. The court elaborated:

       Reading the two statutes in pari material and harmonizing them to give effect to the
       language of both statutes, we find that the correct order of application is as follows: first,
       determine whether the item meets the requirements of one of the statutory definitions of



                                                                                     Page 2 of 7
       real property set forth in R.C. 5701.02. If the item does not, then it is personal property. If
       the item fits a statutory definition of real property in R.C. 5701.02, it is real property
       unless it is "otherwise specified" in R.C. 5701.03. If an item is "otherwise specified"
       under R.C. 5701.03, it is personal property. Id. at ¶33.

R.C. 5701.02 provides the following pertinent definitions:

       (A) "Real property," "realty," and "land" include land itself, whether laid out in town lots
       or otherwise, all growing crops, including deciduous and evergreen trees, plants, and
       shrubs, with all things contained therein, and, unless otherwise specified in this section or
       section 5701.03 of the Revised Code, all buildings, structures, improvements, and
       fixtures of whatever kind on the land, and all rights and privileges belonging or
       appertaining thereto. "Real property" does not include a manufactured home as defined in
       division (C)(4) of section 3781.06 of the Revised Code or a mobile home, travel trailer,
       or park trailer, each as defined in section 4501.01 of the Revised Code, that is not a
       manufactured or mobile home building as defined in division (B)(2) of this section.

       (B)(1) “Building” means a permanent fabrication or construction, attached or affixed to
       land, consisting of foundations, walls, columns, girders, beams, floors, and a roof, or
       some combination of these elemental parts, that is intended as a habitation or shelter for
       people or animals or a shelter for tangible personal property, and that has structural
       integrity independent of the tangible personal property, if any, it is designed to shelter.
       "Building" includes a manufactured or mobile home building as defined in division
       (B)(2) of this section; . . .

       (C) "Fixture" means an item of tangible personal property that has become permanently
       attached or affixed to the land or to a building, structure, or improvement, and that
       primarily benefits the realty and not the business, if any, conducted by the occupant on
       the premises.

       (D) "Improvement" means, with respect to a building or structure, a permanent addition,
       enlargement, or alteration that, had it been constructed at the same time as the building or
       structure, would have been considered a part of the building or structure.

       (E) "Structure" means a permanent fabrication or construction, other than a building, that
       is attached or affixed to land, and that increases or enhances utilization or enjoyment of
       the land. "Structure" includes, but is not limited to, bridges, trestles, dams, storage silos
       for agricultural products, fences, and walls.

Applying the Funtime analysis to the property at issue, the subject property is properly classified
as follows:




                                                                                      Page 3 of 7
1. Paved cart paths are fixtures and, therefore, are properly classified as real property. Though
currently used by golf carts and maintenance vehicles, it is clear the paths would be of benefit to
a buyer of the land who engaged in another business, e.g., running paths in a park; connecting
roads between buildings in an industrial park. The paths are not “otherwise specified” in R.C.
5701.03 because they do not have a use exclusive to a golf course and because they primarily
benefit the realty and not the business.

2. Underground irrigation system, above-ground attached fixtures, and control boxes are
business fixtures and, therefore, properly classified as personal property. Though meeting the
definition of a fixture, these assets are “otherwise specified” in R.C. 5701.03 because keeping the
golf course grounds properly watered and aesthetically pleasing is essential to the business of
maintaining a golf course, thereby primarily benefiting the business conducted on the premises.

3. Practice greens are land itself and, therefore, properly classified as real property. As such,
practice greens are not “otherwise specified” in R.C. 5701.03.

4. Driving ranges are land itself and, therefore, properly classified as real property. As such,
driving ranges are not “otherwise specified” in R.C. 5701.03.

5. Driving range mats and practice pins are business fixtures and, therefore, properly classified
as personal property. Though meeting the definition of a fixture if permanently attached to the
underlying land, these assets are “otherwise specified” in R.C. 5701.03 because they serve a
purpose exclusive to a golf course and primarily benefit the business conducted on the premises.
If not permanently attached to the underlying land, they are tangible personal property.

6. Restrooms located throughout the golf course consisting of frame construction, metal siding,
shingled roofs, a cement floor, ventilation, a commode, and a sink are buildings properly
classified as real property. The restrooms are not “otherwise specified” in R.C. 5701.03 because
they do not have a use exclusive to a golf course and because the restrooms could be used as
such by a buyer of the land who engaged in another business, thereby benefiting the realty and
not the business.

7. Water coolers and associated wooden posts are located throughout the golf course and, if
permanently attached to the underlying land, are fixtures, but are “otherwise specified” in R.C.
5701.03 because they primarily benefit the business conducted on the premises and, therefore,
are properly classified as personal property. If not permanently attached to the underlying land,
they are tangible personal property.

8. Waste disposal cans do not meet any of the definitions in R.C. 5701.02 and are properly
classified as tangible personal property.




                                                                                   Page 4 of 7
9. Yardage markers, out-of-bounds markers, and tee signs are business fixtures and, therefore,
properly classified as personal property. Though meeting the definition of a fixture, these assets
are “otherwise specified” in R.C. 5701.03 because they primarily benefit the business conducted
on the premises as signage peculiar to a golf course.

10. Greens are land itself and, therefore, properly classified as real property. As such, greens are
not “otherwise specified” in R.C. 5701.03.

11. Sand traps come within that part of the definition of “real property,” “realty,” and “land” in
R.C. 5701.02(A) that refers to “all things contained therein” and, therefore, are properly
classified as real property. As such, sand traps are not “otherwise specified” in R.C. 5701.03.
The sand itself, prior to incorporation into the sand trap, is properly classified as tangible
personal property.

12. Man-made lakes, streams, other water hazards, and an irrigation pond come within that part
of the definition of “real property,” “realty,” and “land” in R.C. 5701.02(A) that refers to “all
things contained therein” and, therefore, are properly classified as real property. As such, they
are not “otherwise specified” in R.C. 5701.03.

13. Pole barns used for storage and cookouts, consisting of shingled roofs with cement pad
floors, are structures and, therefore, properly classified as real property. The pole barns are not
“otherwise specified” in R.C. 5701.03 because they do not have a use exclusive to a golf course
and could be used for innumerable purposes by a buyer of the land who is engaged in another
business, thereby benefiting the realty and not the business.

14. Pole-constructed shelter used for weather protection, open-sided on three sides with a
shingled roof and gravel floor, is a structure and, therefore, properly classified as real property.
The pole-constructed shelter is not “otherwise specified” in R.C. 5701.03 because it does not
have a use exclusive to a golf course and could be used for similar or other purposes by a buyer
of the land who is engaged in another business, thereby benefiting the realty and not the
business.

15. Storage sheds consisting of frame construction, metal siding, shingle roofs, and a cement
floor are buildings and, therefore, properly classified as real property. The storage sheds are not
“otherwise specified” in R.C. 5701.03 because they do not have a use exclusive to a golf course
and could be used for similar or other purposes by a buyer of the land who is engaged in another
business, thereby benefiting the realty and not the business.

16. Maintenance facility used for storage and repair work consisting of pole construction, frame
siding, shingle roof, and a cement floor is a building and, therefore, properly classified as real
property. The maintenance facility is not “otherwise specified” in R.C. 5701.03 because it does
not have a use exclusive to a golf course and could be used for similar or other purposes by a
buyer of the land who is engaged in another business, thereby benefiting the realty and not the
business.

                                                                                    Page 5 of 7
17. Machinery shed that houses the water pumps consisting of wood frame construction, metal
siding, shingled roof, and a cement floor is a building and, therefore, properly classified as real
property. The machinery shed is not “otherwise specified” in R.C. 5701.03 because it does not
have a use exclusive to a golf course and could be used for similar or other purposes by a buyer
of the land who is engaged in another business, thereby benefiting the realty and not the
business.

18. Canopies on barns and sheds constitute the shingled roofs on items of property that are either
buildings or structures and, therefore, are properly classified as real property.

19. Golf cart storage area, which is connected to the rear basement of the clubhouse and consists
of brick or cement block construction, shingled roof, and a cement floor, is a building and,
therefore, properly classified as real property. The golf cart storage area is not “otherwise
specified” in R.C. 5701.03 because it does not have a use exclusive to a golf course and could be
used for storage or other purposes by a buyer of the land who is engaged in another business,
thereby benefiting the realty and not the business.

20. Golf course clubhouse consisting of what appears in the submitted photograph to be wood
frame construction, shingled roof, and wood siding is a building and, therefore, properly
classified as real property. The golf course clubhouse is not “otherwise specified” in R.C.
5701.03 because it does not have a use exclusive to a golf course and could be used as a personal
residence, banquet facility, or for other purposes by a buyer of the land who is engaged in
another business, thereby benefiting the realty and not the business.

21. Scoreboard consisting of wood construction, a shingled roof, and resting on what appears in
the submitted photograph to be a raised platform is a business fixture and, therefore, properly
classified as personal property. Though meeting the definition of a fixture if permanently
attached to the underlying land, the scoreboard is “otherwise specified” in R.C. 5701.03 because
posting the scores of golfers using the golf course is primarily benefiting the business conducted
on the premises.

22. Gazebo consisting of wood construction, shingled roof, and a railing is a structure and,
therefore, is properly classified as real property. The gazebo is not “otherwise specified” in R.C.
5701.03 because it does not have a use exclusive to a golf course and could be used for similar or
other purposes by a buyer of the land who is engaged in another business, thereby benefiting the
realty and not the business.

23. Ball washers do not meet any of the definitions in R.C. 5701.02 and are properly classified as
tangible personal property.




                                                                                   Page 6 of 7
24. Clubhouse patio consisting of concrete construction is a structure and, therefore, properly
classified as real property. The clubhouse patio is not “otherwise specified” in R.C. 5701.03
because it does not have a use exclusive to a golf course and could be used for similar or other
purposes by a buyer of the land who is engaged in another business, thereby benefiting the realty
and not the business.

25. Parking lots consisting of asphalt construction are structures and, therefore, are properly
classified as real property. Parking lots are not “otherwise specified” in R.C. 5701.03 because
they do not have a use exclusive to a golf course and could be used for similar or other purposes
by a buyer of the land who is engaged in another business, thereby benefiting the realty and not
the business.

This Opinion applies to the taxpayer only. It may not be transferred or assigned.

In addition, the tax consequences stated in this Opinion may be subject to change for any of the
reasons stated in R.C. 5703.53(C). It is the duty of the taxpayer to be aware of such changes.
R.C. 5703.53(E).




                                                    Richard A. Levin
                                                    Tax Commissioner




                                                                                    Page 7 of 7
Ohio Department of Taxation                                                        Page 1 of 6




   Tax Rules: Final: 5703-9
   5703-9-14 Sales and use tax; construction contracts; exemption certificates

   (A) A "construction contract" is any agreement, written or oral, pursuant to which
   tangible personal property is or is to be transferred and incorporated into real
   property, as defined in section 5701.02 of the Revised Code, so as to become a part
   thereof without regard to whether it is new construction or an addition to or
   alteration of an existing building or structure. A "construction contractor" is any
   person who performs such an agreement, whether as prime contractor or
   subcontractor.

   (B) Tangible personal property that is permanently affixed to real property, but that
   primarily benefits the business conducted on the premises by the occupant, is a
   "business fixture," as defined in section 5701.03 of the Revised Code, and retains
   its status as personal property after such affixation is made. An agreement to
   transfer and install a business fixture is a sale and not a construction contract.

   The transfer and affixation of personal property where title to the personal property
   does not transfer to the owner or lessee of the premises is a sale and not a
   construction contract. The item affixed remains personal property since the failure
   to transfer title displays an intention not to make the affixation permanent.

   Tangible personal property that is temporarily affixed during construction, such as
   temporary electricity or water service hook-ups, fencing, construction elevators,
   shoring lumber, and concrete forms, is not incorporated into real property for sales
   and use tax purposes. This applies even if these items remain affixed after
   construction is completed due to inadvertence, convenience, or economic necessity.

   (C) The sale and installation of the following items is never a construction contract
   and such transactions are to be treated as the sale and installation of tangible
   personal property for sales tax purposes:

   (1) Carpeting, including carpet padding, tack strips, adhesive, and similar materials
   that are integral and necessary components of a carpet installation transaction;

   (2) Agricultural land tile as defined in division (B)(5)(a) of section 5739.01 of the
   Revised Code;




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Ohio Department of Taxation                                                          Page 2 of 6




   (3) Portable grain bins as defined in division (B)(5)(b) of section 5739.01 of the
   Revised Code; and

   (4) Trees, shrubs, sod, seed, fertilizer, mulch, and other tangible personal property
   transferred as part of a landscaping and lawn care service as defined in division
   (DD) of section 5739.01 of the Revised Code.

   This provision shall not be construed to alter or affect the classification of such
   items after installation is completed.

   (D)(1) A construction contractor who purchases materials or taxable services for
   incorporation into real property is the consumer of those materials or services and
   shall pay sales or use tax on their purchase price, except as provided by paragraph
   (F) of this rule. The construction contractor is the consumer, even if a subcontractor
   provides the actual labor to incorporate those materials into the real property.
   Nevertheless, a construction contractor may purchase exempt from tax those
   materials or services that will be incorporated:

   (a) Into real property under a construction contract with the United States
   government or its agencies, the state of Ohio, or an Ohio political subdivision;

   (b) Into real property that is owned, or will be accepted for ownership at the time of
   completion, by the United States government or its agencies, the state of Ohio, or an
   Ohio political subdivision;

   (c) Into a house of public worship or religious education or a building used
   exclusively for charitable purposes by a nonprofit organization operated exclusively
   for charitable purposes as defined in division (B)(12) of section 5739.02 of the
   Revised Code;

   (d) Into the original construction of a sports facility under section 307.696 of the
   Revised Code;

   (e) Into real property in another state, if the materials or services, when sold to a
   construction contractor in that state for incorporation into real property in that state,
   would be exempt from a tax on sales levied in that state;

   (f) Into a horticulture structure or livestock structure as defined in section 5739.01
   of the Revised Code for a person engaged in the business of horticulture or
   producing livestock; or

   (g) Into a hospital facility entitled to exemption under section 140.08 of the Revised




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Ohio Department of Taxation                                                        Page 3 of 6




   Code.

   (2) When claiming exemption under paragraph (D)(1) of this rule, the contractee
   and contractor must issue exemption certificates in accordance with paragraphs (I)
   and (J) of this rule. The contractee shall be deemed to be the consumer of all
   materials and services purchased under the claim of exemption and liable for the tax
   on the incorporated materials or services in the event the tax commissioner
   ascertains that the contractee was not entitled to exemption.

   (E) A construction contractor who also makes substantial sales of the same types of
   tangible personal property that the contractor incorporates into real property in
   performing construction contracts may purchase those types of tangible personal
   property excepted from sales and use tax on the basis of resale under division (E) of
   section 5739.01 of the Revised Code. The contractor, unless granted direct payment
   authority, must have a consumer's use tax account with the department of taxation
   and accrue and pay use tax on the price of all materials consumed in performing
   construction contracts, in accordance with rule 5703-9-04 of the Administrative
   Code.

   Similarly, a construction contractor who purchases materials without payment of
   the tax because the contractee has claimed an exemption under division (D) of this
   rule, must pay use tax on any materials not used on the exempt job and consumed
   by the contractor in a taxable manner.

   (F)(1) A person who manufactures or fabricates items of tangible personal
   property , and then sells some of the items and incorporates some into real property,
   must elect whether to be treated as a manufacturer or as a construction contractor on
   the purchase of raw materials incorporated into the manufactured items. The
   manufacturer/construction contractor need not notify the tax commissioner of such
   election and may elect to treat purchases of raw materials for distinct manufactured
   items differently. However, complete records must be maintained to show how the
   person elected to treat each purchase of raw materials.

   (a) If the person elects to be treated as a manufacturer, the purchase of all raw
   materials may be exempted from the tax on the basis that they will be incorporated
   as a material or part into an item manufactured for sale under division (B)(43)(a) of
   section 5739.02 of the Revised Code. The manufacturer must accrue and pay use
   tax on the price of any self-manufactured item subsequently consumed in
   performing a taxable construction contract, or in any other taxable manner, in
   accordance with paragraph (A) of rule 5703-9-21 of the Administrative Code.

   (b) If the person elects to be treated as a construction contractor, the person must




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Ohio Department of Taxation                                                       Page 4 of 6




   pay sales or use tax on the acquisition cost of all raw materials, unless such
   materials are ultimately consumed in performing a nontaxable construction contract
   under paragraph (D) of this rule. The construction contractor must pay sales or use
   tax on all raw materials, and no refund of such tax will be allowed, even though the
   raw materials are incorporated into an item manufactured for sale. If such sale is a
   retail sale, the construction contractor is acting as vendor and must appropriately
   collect sales tax on such transaction.

   (2) The election required by paragraph (F)(1) of this rule applies only to the
   purchase of raw materials that will become parts or components of a manufactured
   items. Machinery and equipment used by the person in manufacturing shall be taxed
   based upon its quantified primary use without regard to how the
   manufacturer/construction contractor elects to treat the raw materials for sales and
   use tax purposes.

   (G) The contractee may, or upon request of the contractor pursuant to the procedure
   specified in division (C) of section 5739.03 of the Revised Code shall, certify to the
   contractor what portions of a contract will be, at the completion of the contract,
   classified as personal property and what portions will be classified as real property.
   The fact that a certification has been made by the contractee must be noted in every
   written construction contract, and the contractor, subcontractors, and contractee
   shall each maintain a copy of the certification with the job documentation. If the tax
   commissioner subsequently determines that property certified by the contractee as
   personal property is, in fact, real property, the contractee shall be deemed the
   consumer of all materials incorporated into such real property and may be assessed
   sales or use tax thereon along with applicable interest and penalty.

   The certification of the contractee has application only to the tangible personal
   property installed or incorporated pursuant to the contract. Equipment, tools, and
   supplies used by the contractor in performing the contract shall be taxed based upon
   their primary use without regard to the contractee's certification.

   (H) Machinery, equipment, tools, supplies, and other tangible personal property
   purchased or leased by a construction contractor and used or consumed in
   performing a construction contract, including a contract specified in paragraph (D)
   of this rule, are taxable. The repair or installation of these items is also taxable.

   (I)(1) A contractee claiming an exemption specified in division (D) of this rule must
   complete and deliver to the contractor a construction contract exemption certificate.
   If the contractee is a governmental entity, a government official must sign under the
   "political subdivision" section of the certificate. All other contractees claiming
   exemption must sign under the "owner/contractee" section. If there is one prime




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Ohio Department of Taxation                                                       Page 5 of 6




   contractor on the job, the contractee need only supply one exemption certificate to
   the prime contractor.

   The contractor should make copies of the construction contract exemption
   certificate signed by the contractee and use those copies when making purchases of
   materials that will be incorporated into real property pursuant to the construction
   contract. A prime contractor must provide copies to all subcontractors for their use
   in purchasing materials for the job. The contractor or subcontractor must sign each
   certificate copy used when purchasing materials.

   The original exemption certificate must be retained in the records of the contractor.
   A copy of the certificate also must be retained in the records of each subcontractor.

   (2) Rather than using copies of the construction contract exemption certificate when
   making purchases of materials, the contractor or subcontractor may use a
   contractor's exemption certificate when purchasing materials for incorporation into
   real property pursuant to a contract where the contractee claims exemption under
   paragraph (D) of this rule.

   (J) Forms required to be prescribed by rule are hereby prescribed for use as a
   construction contract exemption certificate and as a contractor's exemption
   certificate. The forms may be obtained from the department of taxation and are
   available on the department’s web site. They may be reproduced as needed. To be
   valid, a construction contract exemption certificate must be signed by the contractee
   claiming exemption. Each certificate, or copy of a certificate, submitted to a vendor
   must be signed by the contractor or subcontractor making the purchase. A
   certificate covers all sales of materials made by the vendor to a contractor or
   subcontractor for incorporation into real property under that construction contract.
   The vendor must maintain the certificate to document the reason tax was not
   charged.

   To be valid, all necessary signatures must be dated and all certificates must specify
   the reason for exemption and must clearly identify the contract and specify the job
   site.

   (K) The following forms are incorporated in this rule by reference:

   (1) The construction contract exemption certificate, revised March 15, 2004;

   (2) The contractor’s exemption certificate, revised March 15, 2004.

   Effective: 12-16-04




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Ohio Department of Taxation                                                 Page 6 of 6




   Promulgated under: 5703.14

   Authorized by: 5703.05

   Amplifies: 5701.02, 5739.01, 5739.02, 5739.03, 5741.01, 5741.02

   Prior effective dates: 5-31-68, 7-2-81, 10-18-82, 7-20-92




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                             CUSTOMER/CONTRACTEE CERTIFICATION
                             Classification of Real and Personal Property
                                 Involved in a Construction Contract

The undersigned Customer/Contractee hereby certifies that the project identified below consists of
real and/or personal property as set forth hereon alone, or with the attached (#) ________ pages of
additional support. Customer/Contractee further declares that this certification is made in good faith,
and that it is not made solely on the decision of the Contractor/Vendor.

         Customer/Contractee Name:

         Customer Address:
                                  Street                       City            State   Zip

         Project Name:

         Project Location:
                                  Street                       City            State   Zip

         Contract Number:                         Total Contract Price $

                                  CONTRACT PRICE ALLOCATION
                                  REAL vs. PERSONAL PROPERTY

                                                        Contract Price Allocation
         Property/Project Phase Description       Real Property         Personal Property

                                                  $                        $

                                                  $                        $

                                                  $                        $

                                                  $                        $

                                                  $                        $

                                                  $                        $


Certified by Customer/Contractee                      Receipt Acknowledged by Contractor/Vendor

Contractee:                                           Contractor:

Signed by:                                            Signed by:

Print Name:                                           Print Name:

Title:                                                Title:

Date:                                                 Date:


                 A copy of this Certification is to be kept with the Job Documentation
                                 of each party involved in this Project.
Ohio Department of Taxation                                                       Page 1 of 6




   Tax Rules: Final: 5703-29
   5703-29-13 Commercial activity tax definition of "agent".

   (A) An “agent” is defined in division (P) of section 5751.01 of the Revised Code to
   include a person authorized by another to act on its behalf to undertake a transaction
   for the other. In certain circumstances, portions of the amounts received by a person
   defined as an “agent” are excluded from the definition of “gross receipts” under
   division (F) of section 5751.01 of the Revised Code. The agent is only required to
   report as a “gross receipt” the portion of the amount received that it retains as a
   commission or fee rather than the entire amount.

   (B)(1) The supreme court of Ohio has held that an agency relationship “exists only
   when one party exercises the right of control over the actions of another, and those
   actions are directed toward the attainment of an objective which the former seeks.”
   See Hanson v. Kynast (1986), 24 Ohio St.3d 171, 173, citing Baird v. Sickler
   (1982), 69 Ohio St.2d 652, 654, Councell v. Douglas (1955), 163 Ohio St. 292, and
   Bobik v. Indus. Comm. (1946), 146 Ohio St. 187, 191-192. Also see Memorial Park
   Golf Club, Inc. v. Lawrence, 2000 Ohio Tax LEXIS 471 (BTA No. 99-K-633). An
   agency relationship is defined as a “consensual fiduciary relationship between two
   persons where the agent has the power to bind the principal by his actions, and the
   principal has the right to control the actions of the agent.” See Evans v. Ohio State
   Univ. (1996), 112 Ohio App.3d 724, 744, citing Funk v. Hancock (1985), 26 Ohio
   App. 3d 107, 110, in turn citing Haluka v. Baker (1941), 66 Ohio App. 308, 312. In
   a principal-agent relationship, the agent has the legal authority to act on behalf of
   the principal, and generally the principal is bound by and is liable for those actions.
   See N&G Construction, Inc. v. Lindley (1978), 56 Ohio St.2d 415, 418, citing Gulf
   Oil Corp. v. Kosydar (1975), 44 Ohio St.2d 208 (paragraph two of the syllabus) and
   Canton v. Imperial Bowling Lanes, Inc. (1968), 16 Ohio St.2d 47 (paragraph four of
   the syllabus). The party asserting the existence of an agency relationship bears the
   burden of proof in that regard. See Gardner Plumbing, Inc. v. Cottrill (1975), 44
   Ohio St.2d 111, 115, citing Union Mutual Life Ins. Co. v. McMillen (1873), 24
   Ohio St. 67. Also see Memorial Park Golf Club, Inc, supra. In determining whether
   an agency relationship exists, the rules of statutory construction applicable to
   exemptions from taxation must be followed. Ohio law in this regard is well-
   established; exemptions from taxation are strictly construed against the claim of
   exemption and in favor of the taxing authorities. See Natl. Tube Co. v. Glander
   (1952), 157 Ohio St. 407, 409; Beckwith & Assoc. v. Kosydar (1977), 49 Ohio




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Ohio Department of Taxation                                                          Page 2 of 6




   St.2d 277, 279, and Canton Malleable Iron Co. v. Porterfield (1972), 30 Ohio St. 2d
   163, 166. Also see Memorial Park Golf Club, Inc., supra. Thus, in determining
   whether an agency relationship exists, the facts must be determined under a strict,
   narrow reading of the definition. Absent proof of an agency relationship, the entire
   gross receipt must be reported by the person receiving the gross receipt for purposes
   of the commercial activity tax.

   (2) The commissioner will look beyond the wording of the contract to the actual
   facts and circumstances of the situation to determine whether an agency relationship
   actually exists. See H.R. Options, Inc. v. Zaino (2004), 100 Ohio St.3d 373.

   (C) Division (P) of section 5751.01 of the Revised Code defines “agent” to include
   certain individuals acting on behalf of another. Each of the following individuals is
   included in the list in that division and qualifies as an “agent” for purposes of this
   rule:

   (1)(a) In the case of a person enumerated in division (P)(1) of section 5751.01 of
   the Revised Code who receives a fee to sell financial instruments, only the fee
   received to perform this service shall be a gross receipt of the agent pursuant to
   division (F)(2)(l) of section 5751.01 of the Revised Code.

   (b) For example, an out-of-state dealer (i.e., a person without an office or other
   place of business in Ohio) orchestrates the sale of a bond on behalf of Franklin
   county, Ohio. The dealer contracts with the county to purchase bonds at a discount
   to sell them on the county’s behalf. The cost of the bond is one thousand dollars; the
   dealer sells the bond to her client for one thousand fifty dollars. The dealer remits
   the full purchase price of one thousand dollars to Franklin county, Ohio and retains
   fifty dollars as an administrative fee. Even though the dealer actually received one
   thousand fifty dollars from the client, the dealer would be required to include only
   the client’s fifty dollar fee in calculating the dealer’s total taxable gross receipts for
   purposes of the commercial activity tax.

   (2)(a) In the case of a person enumerated in division (P)(2) of section 5751.01 of
   the Revised Code who retains a commission or fee from a transaction performed on
   behalf of another person, only the fee retained by the agent shall be a gross receipt
   of the agent pursuant to division (F)(2)(l) of section 5751.01 of the Revised Code.
   For purposes of this paragraph and paragraph (B) of this rule, the agency
   relationship should be explicitly stated in a contract that is available to the tax
   commissioner to inspect. Absent such proof, it will be presumed that no agency
   relationship exists and the person claiming the agency relationship will include the
   total amount received in its gross receipts.




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Ohio Department of Taxation                                                        Page 3 of 6




   (b) For example, a general contractor enters into a lump sum contract with a
   property owner for the general contractor to construct an office building. The
   general contractor agrees to provide specified services for a fixed price of five
   hundred thousand dollars, and the general contractor bears all risk involved in
   completing the project in a cost-effective manner. The general contractor may
   perform the necessary services itself, or it may bid out some or all of the work to
   subcontractors. Because the general contractor is not required to act in the owner’s
   best interests with respect to cost issues, and because the general contractor does
   not have to disclose cost details with the owner, the general contractor does not
   qualify as an agent for purposes of the agency exclusion. For this reason, the entire
   contract price is includable in the general contractor’s gross receipts.

   (c) Alternatively, for example, a general contractor enters into a costs-plus contract
   with a property owner for the general contractor to construct an office building.
   Under the terms of the contract, the owner agrees to pay the general contractor for
   work completed by the subcontractors at cost plus a five per cent fee. The general
   contractor not required to act in the owner’s best interests with respect to cost
   issues. The general contractor, when bidding out the work to subcontractors, has an
   agreement in writing with the subcontractors that states that the general contractor
   is acting as the owner’s agent and not as an agent of the subcontractor. The general
   contractor acts as a conduit with regard to any payments made to the
   subcontractors, in that the general contractor remits monies received from the
   owner to the subcontractors, provided that certain conditions are met. Accordingly,
   the general contractor may exclude the money that the general contractor receives
   from the owner to pay the subcontractors from its gross receipts. However, the five
   percent fee retained by the general contractor would be included in its calculation of
   gross receipts for purposes of the commercial activity tax.

   (3)(a) In the case of a person enumerated in division (P)(3) of section 5751.01 of
   the Revised Code who issues licenses and permits under section 1533.13 of the
   Revised Code, only the portion of a fee retained by the issuer shall be included in
   the gross receipts of the agent pursuant to division (F)(2)(l) of section 5751.01 of
   the Revised Code.

   (b) For example, an independent agent at a bait and tackle shop is authorized under
   section 1533.13 of the Revised Code to issue hunting and fishing licenses to
   Hocking County residents. The agent collects a fee of twenty-five dollars for
   issuing a license and later remits this amount to the chief of the wildlife division of
   the Ohio department of natural resources. The independent agent will not be subject
   to the commercial activity tax. If, however, the agent retained a five dollar fee for
   administering the license, this amount would be included in the agent's calculation
   of its gross receipts for purposes of the commercial activity tax.




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Ohio Department of Taxation                                                        Page 4 of 6




   (4)(a) In the case of a lottery sales agent enumerated in division (P)(4) of section
   5751.01 of the Revised Code who holds a valid license issued under section
   3770.05 of the Revised Code, only the portion of the fee retained by the lottery
   sales agent shall be included in the gross receipts of the agent pursuant to division
   (F)(2)(l) of section 5751.01 of the Revised Code.

   (b) For example, a convenience store clerk is licensed under section 3770.05 of the
   Revised Code to sell lottery tickets as part of its store operations. As part of an
   agreement with the director of the state lottery commission, the convenience store
   may retain one per cent of the gross receipts received from the sale of lottery tickets
   as an administrative fee. The convenience store clerk sells a ticket to a customer for
   two dollars and remits one dollar and ninety-eight cents (or ninety-nine percent) to
   the director of the state lottery commission. The convenience store will include the
   two cent (or one per cent) administrative fee it retains in its gross receipts, in
   addition to its other receipts from store operations to the extent required by Chapter
   5751. of the Revised Code.

   (5)(a) In the case of a person enumerated in division (P)(5) of section 5751.01 of
   the Revised Code who acts as an agent of the division of liquor control under
   section 4301.17 of the Revised Code, only the portion of the fee retained by the
   agent shall be included in the gross receipts of the agent pursuant to division (F)(2)
   (l) of section 5751.01 of the Revised Code.

   (b) For example, the owner of a state liquor agency in Sandusky, Ohio is a statutory
   agent of the division of liquor control and is granted the authority to sell spirituous
   liquor to its customers. In the contract and as compensation for this relationship, the
   division agrees that the agent may keep five per cent of its annual sales of these
   beverages as its commission. The state liquor agency sells five hundred thousand
   dollars worth of spirituous liquor in one year and remits a payment of four hundred
   seventy-five thousand dollars to the division of liquor control. The market owner is
   only required to include the remaining twenty-five thousand dollars (or five per cent
   of the market owner’s total sales of spirituous liquor) in calculating its gross
   receipts with regard to the agent relationship. The provisions of division (P)(5) of
   section 5751.01 of the Revised Code only apply to state liquor stores or agencies
   and do not apply to local markets selling beer, wine, or other types of alcoholic
   beverages.

   (D)(1) In the case of a restaurant or other establishment that collects gratuity on
   behalf of another, the portion of the amount received that is considered "tips" or
   "gratuity" is not included in the establishment’s gross receipts pursuant to division
   (F)(2)(l) of section 5751.01 of the Revised Code. This portion of the gross receipts
   may be a gross receipt of the person ultimately receiving the tip if the other




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Ohio Department of Taxation                                                        Page 5 of 6




   requisite requirements under section 5751.01 of the Revised Code are met.

   (2) For example, a restaurant in Columbus, Ohio employs a server to assist in
   serving its customers. The restaurant collects a total of one thousand two hundred
   dollars, including a twenty per cent gratuity of two hundred dollars. The restaurant
   only passes one hundred eighty dollars of the gratuity on to the server and retains
   the remaining twenty dollars. The restaurant is considered an agent for the one
   hundred eighty dollar portion of the gratuity that it passes on to the server. The
   twenty dollar portion retained is a gross receipt of the restaurant. (The server does
   not have any gross receipts for the one hundred eighty dollar portion of the gratuity
   it receives from the restaurant, as such amount is considered compensation and is
   specifically excluded under division (F)(2)(g) of section 5751.01 of the Revised
   Code.)

   (E)(1) In the case of a person who advances fees on behalf of a client, the person
   may exclude the reimbursement of these fees from the person’s gross receipts when
   the reimbursement is received from the client.

   (2) For example, an individual retains an attorney to represent the individual in a
   personal injury suit against a company. The attorney advances a filing fee to the
   court in order to allow the client to file a complaint against the company. In
   addition to the attorney’s hourly rate, the attorney charges the client the filing fee,
   as well as copying charges for copies made and telephone charges for calls made all
   on the client’s behalf. When calculating the attorney’s commercial activity tax
   liability, the attorney may exclude the court fees that were advanced on the client’s
   behalf from the attorney’s gross receipts pursuant to division (F)(2)(l) of section
   5751.01 of the Revised Code but may not exclude the copying fees or the telephone
   charges for calls made on the client’s case.

   (F)(1) In the case of a property owner who charges common area maintenance fees
   to its tenants or another third party or bases the fees on the square footage contained
   within a particular portion of the building, an agency relationship does not typically
   exist. Therefore, when the property owner collects these fees, they are considered
   gross receipts for purposes of the commercial activity tax. These fees reimburse the
   property owner for expenses to the property owner and expenses may not be
   deducted from the taxpayer’s gross receipts.

   (2) For example, a property owner leases a commercial building to a tenant for one
   thousand dollars and charges the lessee an additional one hundred dollars per month
   for common area maintenance, including snow plowing, landscaping, trash
   removal, and heating and cooling services. The property owner collects one
   thousand dollars in rent and one hundred dollars for the tenant’s common area




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Ohio Department of Taxation                                                      Page 6 of 6




   maintenance fee. The property owner is required to report the entire one thousand
   one hundred dollars as a gross receipt for purposes of the commercial activity tax.

   Effective: 4-24-08

   Promulgated under: 5703.14

   Authorized by: 5703.05

   Amplifies: 5751.01

   Prior affective dates: 10-5-06




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                                                                                                   P.O. Box 530
                                                                                      Columbus, Ohio 43216-0530




                              Opinion of the Tax Commissioner
                                                       Date Issued: November 21, 2008

Opinion No: 08-0012                                    Tax: Commercial Activity

XXXX                                                   Subject: Agent
XXXX
XXXX
XXXX
XXXX


        This request for an Opinion of the Tax Commissioner was received on August 20, 2008.
The request concerns whether the construction management agreement (“Agreement”) and general
conditions of the contract for construction (“General Conditions”) between XXXX (“Construction
Manager”) 1 , and its client, XXXX (“Property Owner”), establishes an “agent” relationship under
the commercial activity tax (“CAT”) as defined in R.C. 5751.01(P) and Ohio Adm. Code 5703-29-
13 for purposes of R.C. 5751.01(F)(2)(l) and Ohio Adm. Code 5703-29-13.

                                            STATEMENT OF FACTS

       Construction Manager entered into Agreement and General Conditions with Property Owner
to construct the XXXX Campus.

        Construction Manger is required to act in the best interest of Property Owner. Pursuant to
Agreement, Construction Manager is responsible for overseeing all aspects of the construction of
the facility. The relationship of parties is described in Article 1 of Agreement and Article 3 of
General Conditions, where it states that Construction Manager accepts the relationship of trust and
confidence established with Property Owner by Agreement, and covenants with Property Owner to
furnish Construction Manager’s reasonable skill and judgment and to cooperate with the architect in
furthering the interests of Property Owner. Construction Manager shall furnish efficient
construction administration and management services and use Construction Manager’s best efforts
to perform in an expeditious and economical manner consistent with the interests of Property
Owner.




1
    For purposes of this Opinion, the term “construction manager” has the same meaning as “general contractor.”
                                                  2




Article 2 of General Conditions establishes the extent of control of the Property Owner over all
aspects of the work to be performed. Construction Manager will be reimbursed for the “Contract
Sum” as defined in Section 5.1.1 of Agreement to include “the Cost of Work as defined in Article 6
of Agreement plus the Construction Manager’s Fee” set forth in Section 5.1.1 of Agreement, all of
which are included in the required guaranteed maximum price (“GMP”) defined in Section 5.2 of
Agreement and 1.1.12 of General Conditions.

        There is no provision requiring that all subcontracts between Construction Manager and any
subcontractors shall contain language that Construction Manager is acting as an agent of the
Property Owner, and not as an agent of the subcontractors. Such language has not been included in
any of the subcontracts executed pursuant to Agreement.

         As specified in Section 9.6.2 of General Conditions, Construction Manager acts as a conduit
for all payments by Property Owner to subcontractors as provided in Agreement.

                                   QUESTIONS PRESENTED

   1. Whether Construction Manager, with respect to the payments received from Property Owner
      to be passed on to subcontractors, is acting as an “agent” as defined in R.C. 5751.01(P) for
      purposes of R.C. 5751.01(F)(2)(l) and Ohio Adm. Code 5703-29-13?

   2. Whether Construction Manager may exclude from its gross receipts under R.C.
      5751.01(F)(2)(l), payments from Property Owner in excess of the fee that Construction
      Manager is required to pay over to subcontractors pursuant to Agreement?

                                            ANALYSIS

        The CAT is levied every “person” as defined in R.C. 5751.01 with gross receipts that are
sitused to Ohio (i.e., “taxable gross receipts”) during a tax period. R.C. 5751.02. The term “gross
receipts” is broadly defined in R.C. 5751.01(F) as “the total amount realized by a person, without
deduction for the cost of goods sold or other expenses incurred, that contributes to the production of
gross income of the person, including the fair market value of any property and any services
received, and any debt transferred or forgiven as consideration.” “Gross receipts” excludes money
and other amounts received or acquired by an agent on behalf of another in excess of that agent’s
commission, fee, or other remuneration. R.C. 5751.01(F)(2)(l). An “agent” is a person authorized
by another person to act on its behalf to undertake a transaction for the other. R.C. 5751.01(P).

        The Tax Commissioner issued Information Release CAT 2006-03, Commercial Activity Tax
Definition of “Agent” - Issued April 2006; Revised July 2006; Revised October 2006; Revised
November 2007; Revised April 2008, and adopted a rule, Ohio Adm. Code 5703-29-13, to address
that provision. Paragraphs (C)(2)(b) and (C)(2)(c) of the rule specifically address the
                                                  3




provision in the context of a construction contract. In paragraph (C)(2)(b), the rule explains that an
agency relationship does not exist in a lump sum contract with a property owner because the general
contractor is not required to act in the best interests of the owner. Additionally, the general
contractor bears all the risk involved in completing the project in a cost-effective manner and does
not have to disclose any cost details with the property owner. However, paragraph (C)(2)(c)
provides that an agency relationship will be found where the following factors are present:

   (i)     The general contractor is required to act in the owner’s best interest;

   (ii)    The general contractor, when bidding out the work, has an agreement in writing with the
           subcontractors that states that the general contractor is acting as the owner’s agent and
           not as an agent of the subcontractors; and

   (iii)   The general contractor acts as a conduit with respect to payments made to the
           subcontractors under the agreement.

Where those conditions are met, the rule provides that the payments the general contractor receives
and pays over to the subcontractors may be excluded from the general contractor’s gross receipts.
However, the fee that the general contractor retains is included in its calculation of gross receipts.

                                  Best Interests of Property Owner

        In this case, Section 1.1 of Agreement provides that Construction Manager has an obligation
to act in the best interests of Property Owner. In addition, Property Owner retains extensive
authority over cost and related issues. For example, under Article 2 of Agreement, Construction
Manager must disclose to Property Owner all information regarding timing and costs, including
preliminary budgets and possible economies (Section 2.1.2 of Agreement) and recommend bid
alternatives to reduce costs (Section 5.2.1 of General Conditions). In addition, Property Owner
retains final approval of all bids or proposals relating to the project (Section 2.2.4 of Agreement).

        During construction, Construction Manager must develop and monitor a system of cost
controls, apprise Property Owner when budgets are exceeded, report variances between actual and
estimated costs, and maintain cost accounting records accessible to Property Owner (Section 2.3.2.7
and Section 6.4.1 of Agreement). Property Owner may examine Construction Manager’s records to
evaluate all such records (Section 6.4.1 of Agreement). Moreover, Property Owner must approve
all change orders (Section 7.1.2 of General Conditions) and all payments to subcontractors (Article
9 of General Conditions).

                      Construction Manager is Acting as the Owner’s Agent

       No provision in Agreement or General Conditions provides that all subcontracts between
Construction Manager and any subcontractors contain language that Construction Manager is acting
                                                 4




as the agent of Property Owner, and not as an agent of the subcontractors. However, the Tax
Commissioner will look beyond the wording of the contract to the actual facts and circumstances of
the situation to determine whether an agency relationship actually exists. Ohio Adm. Code 5703-29-
13(B)(2). Taking into consideration all the aspects of Agreement and General Conditions, the Tax
Commissioner can infer that Construction Manager is acting as the agent of Property Owner, and
not as an agent of the subcontractors. Specifically, Construction Manager shall not obtain for its
own benefit any discounts, rebates or refunds in connection with the work prior to notification of
Property Owner so that Property Owner may take advantage of such discount, rebate or refund
(Section 6.3.1 of Agreement). Moreover, the parties’ relationship established in Article 1 of
Agreement and Article 3 of General Conditions provides that Construction Manager has an
obligation to act in the best interests of Property Owner. Thus, the second prong of the test appears
to be satisfied.

                                       Conduit for Payments

        Finally, Section 9.6.2 of General Conditions provides that Construction Manager shall act as
a conduit for all payments to the subcontractors. Construction Manager shall make all such
payments promptly under such terms as are provided in Agreement, even if such payments exceed
the guaranteed maximum price – as the guaranteed maximum price may be adjusted. Section 5.2
and 5.3 of Agreement provides that the parties may change the cost of work and that doing so may
result in an increase or decrease in the guaranteed maximum price. Savings in the cost of work
must be passed on to Property Owner. In addition, Property Owner still retains significant control
over cost issues. Finally, Construction Manager still acts as a conduit with respect to payments
passed through to the subcontractors. The payments Construction Manager receives on behalf of
the subcontractors are not its own; rather, Construction Manager is required to pass those payments
on promptly to the subcontractors on behalf of the Property Owner.

        If the parties conduct their affairs in a manner that is consistent with Agreement,
Construction Manager appears to qualify as an agent under R.C. 5751.01(P) and Ohio Adm. Code
5703-29-13, and the payments it receives to be passed on to subcontractors are excluded from its
gross receipts under 5751.01(F)(2)(l).

                                            ANSWER

       With respect to the payments received from Property Owner to be passed on to
subcontractors, Construction Manager appears to be acting as an “agent” as defined in R.C.
5751.01(P) for purposes of R.C. 5751.01(F)(2)(l) and Ohio Adm. Code 5703-27-13. Construction
Manager may exclude from Construction Manager’s gross receipts, payments from Property Owner
that Construction Manager is required to pass on to subcontractors pursuant to Agreement.
However, pursuant to R.C. 5751.01(F)(2)(l), Construction Manager must include in Construction
Manager’s gross receipts any fee Construction Manager is entitled to retain.
                                                5




                                           CLOSING

       This Opinion applies only to Construction Manager with regard to Agreement with Property
Owner. It may not be transferred or assigned. In addition, the tax consequences stated in this
Opinion are subject to change for any of the reasons provided in R.C. 5703.53(C). It is the duty of
Construction Manager to be aware of such changes pursuant to R.C. 5703.53(E).




                                                    Richard A. Levin
                                                    Tax Commissioner
                                                                                               P.O. Box 530
                                                                                  Columbus, Ohio 43216-0530



                            Opinion of the Tax Commissioner
                                                       Date Issued: November 11,2008

Opinion No: 08-0011                                    Tax: Commercial Activity

XXXX                                                   Subject: Agent
XXXX
XXXX
XXXX
XXXX

        This request for an Opinion of the Tax Commissioner was received on August 19, 2008.
The request concerns whether the construction management agreement (“Agreement”) and
general conditions of the contract for construction (“General Conditions”) between XXXX
(“Construction Manager”) 1 , and its client (“Property Owner”), establishes an “agent”
relationship under the commercial activity tax (“CAT”) as defined in R.C. 5751.01(P) and Ohio
Adm. Code 5703-29-13 for purposes of R.C. 5751.01(F)(2)(l) and Ohio Adm. Code 5703-29-13.

                                          STATEMENT OF FACTS

       Construction Manager provides construction management and related services for clients
throughout Ohio. In each instance, Construction Manager enters into Agreement with Property
Owner. Also, Construction Manager enters into an agreement and general conditions of the
contract between Construction Manager and its trade contractors 2 (“Trade Contractor
Agreements”).

       Pursuant to Agreement and Trade Contractor Agreements, Construction Manager is
responsible for overseeing all aspects of the construction of the facility for Property Owner.

       Construction Manager’s relationship with Property Owner is established in Agreement.
Agreement establishes a close working relationship between Construction Manager and Property
Owner. Agreement also establishes the extent of control that is retained and exercised by
Property Owner over all aspects of the work performed.

      Section 5.2 of Agreement provides that Construction Manager must complete all work
contemplated by the Agreement for the lesser of: (1) the cost of such work plus the Construction




1
    For purposes of this Opinion, the term “construction manager” has the same meaning as “general contractor.”
2
    For purposes of this Opinion, the term “trade contractor” has the same meaning as “subcontractor.”
                                                2


Manager’s fee; or (2) the guaranteed maximum price – as each may be adjusted. Additionally,
section 5.2 of Agreement provides that if the total cost of such work exceeds the guaranteed
maximum price, Construction Manager is responsible for such excess and cannot charge any
portion of such excess to Property Owner.

       Section 6.1 of Agreement defines “costs of work.” Section 5.1 of Agreement establishes
Construction Manager’s fee for services to Property Owner.

        Section 1.1 of Agreement provides that Construction Manager is to oversee all aspects of
the construction project for Property Owner. Section 1.1 further provides that with respect to the
financial aspects of Agreement, Construction Manager is required to act in the best interests of
Property Owner. Section 9.6.2 of General Conditions provides that Construction Manager acts
as a mere conduit with respect to payments received from Property Owner, which are due to the
trade contractors, all of which are to be paid over promptly to the trade contractors.

                                  QUESTIONS PRESENTED

   1. Whether Construction Manager, with respect to the payments received from Property
      Owner to be passed on to trade contractors, is acting as an “agent” as defined in R.C.
      5751.01(P) for purposes of R.C. 5751.01(F)(2)(l) and Ohio Adm. Code 5703-29-13?

   2. Whether Construction Manager may exclude from its gross receipts under R.C.
      5751.01(F)(2)(l), payments from Property Owner in excess of the fee that Construction
      Manager is required to pay over to trade contractors pursuant to Agreement?

                                           ANALYSIS

        The CAT is levied on every “person” as defined in R.C. 5751.01 with gross receipts that
are sitused to Ohio (i.e., “taxable gross receipts”) during a tax period. R.C. 5751.02. The term
“gross receipts” is broadly defined in R.C. 5751.01(F) as “the total amount realized by a person,
without deduction for the cost of goods sold or other expenses incurred, that contributes to the
production of gross income of the person, including the fair market value of any property and
any services received, and any debt transferred or forgiven as consideration.” “Gross receipts”
excludes money and other amounts received or acquired by an agent on behalf of another in
excess of that agent’s commission, fee, or other remuneration. R.C. 5751.01(F)(2)(l). An
“agent” is a person authorized by another person to act on its behalf to undertake a transaction
for the other. R.C. 5751.01(P).

       The Tax Commissioner issued Information Release CAT 2006-03, Commercial Activity
Tax Definition of “Agent” - Issued April 2006; Revised July 2006; Revised October 2006;
Revised November 2007; Revised April 2008, and adopted a rule, Ohio Adm. Code 5703-29-13,
to address that provision. Paragraphs (C)(2)(b) and (C)(2)(c) of the rule specifically address the
provision in the context of a construction contract. In paragraph (C)(2)(b), the rule explains that
an agency relationship does not exist in a lump sum contract with a property owner because the
general contractor is not required to act in the best interests of the owner. Additionally, the
                                                 3


general contractor bears all the risk involved in completing the project in a cost-effective manner
and does not have to disclose any cost details with the property owner. However, paragraph
(C)(2)(c) provides that an agency relationship will be found where the following factors are
present:

   (i)     The general contractor is required to act in the owner’s best interest;

   (ii)    The general contractor, when bidding out the work, has an agreement in writing with
           the subcontractors that states that the general contractor is acting as the owner’s agent
           and not as an agent of the subcontractors; and

   (iii)   The general contractor acts as a conduit with respect to payments made to the
           subcontractors under the agreement.

Where those conditions are met, the rule provides that the payments the general contractor
receives and pays over to the subcontractors may be excluded from the general contractor’s gross
receipts. However, the fee that the general contractor retains is included in its calculation of
gross receipts.

                                Best Interest of Property Owner

        In this case, Section 1.1 of Agreement provides that Construction Manager has an
obligation to act in the best interests of Property Owner. In addition, Property Owner retains
extensive authority over cost and related issues. For example, under Article 2 of Agreement,
Construction Manager must disclose to Property Owner all information regarding timing and
costs, including preliminary budgets and possible economies (Section 2.1.5.1 of Agreement);
coordinate with Property Owner with respect to the preparation of all documents and drawings
(Section 2.2.1 of Agreement); develop, subject to approval of Property Owner, a construction
cost estimate sufficiently detailed to permit a full evaluation and understanding by Property
Owner; and recommend bid alternatives to reduce costs (Sections 2.1.5.3 and 2.3.2.1 of
Agreement). In addition, Property Owner retains final approval of all bids or proposals relating
to the project (Section 2.3.2.1 of Agreement).

       During construction, Construction Manager must develop and monitor a system of cost
controls, apprise Property Owner when budgets are exceeded, and maintain cost accounting
records accessible to Property Owner in such form and detail as the parties may agree (Section
2.3.2.7 of Agreement). Property Owner may examine Construction Manager’s records to
evaluate all such records (Section 6.4.1 of Agreement). Moreover, Property Owner must
approve all change orders (Section 7.2.1 of General Conditions) and all payments to
subcontractors (Section 9.3.1 of General Conditions).

                     Construction Manager is Acting as the Owner’s Agent

       For the reasons stated above, Construction Manager is required to use its best efforts on
behalf of Property Owner and the Trade Contractor Agreements provide that Construction
Manager is the agent of Property Owner, rather than of the trade contractor (Section 6.2.3 of
Trade Contractor Agreements).
                                                4


                                     Conduit for Payments

         Finally, Section 9.6.2 of General Conditions provides that Construction Manager shall act
as a conduit for all payments to the subcontractors. Construction Manager shall make all such
payments promptly, under such terms as are provided in Agreement, even if such payments
exceed the guaranteed maximum price – as the guaranteed maximum price may be adjusted.
Section 5.2 of Agreement provides that the parties may change the cost of work and that doing so
may result in an increase or decrease in the guaranteed maximum price. Savings in the cost of
work must be passed on to Property Owner. In addition, Property Owner still retains significant
control over cost issues. Subcontract Agreements still must provide that Construction Manager
is the agent of Property Owner, rather than the subcontractors. Finally, Construction Manager
still acts as a conduit with respect to payments passed through to the subcontractors. The
payments Construction Manager receives on behalf of the subcontractors are not its own; rather,
Construction Manager is required to pass those payments on promptly to the subcontractors on
behalf of the Property Owner.

        If the parties conduct their affairs in a manner that is consistent with Agreement,
Construction Manager appears to qualify as an agent under R.C. 5751.01(P) and Ohio Adm.
Code 5703-29-13, and the payments it receives to be passed on to trade contractors are excluded
from its gross receipts under 5751.01(F)(2)(l).

                                           ANSWER

       With respect to the payments received from Property Owner to be passed on to trade
contractors, Construction Manager appears to be acting as an “agent” as defined in R.C.
5751.01(P) for purposes of R.C. 5751.01(F)(2)(l) and Ohio Adm. Code 5703-27-13.
Construction Manager may exclude from Construction Manager’s gross receipts, payments from
Property Owner that Construction Manager is required to pass on to trade contractors pursuant to
Agreement. However, pursuant to R.C. 5751.01(F)(2)(l), Construction Manager must include in
Construction Manager’s gross receipts any fee Construction Manager is entitled to retain.

                                           CLOSING

        This Opinion applies only to Construction Manager with regard to Agreement with
Property Owner. It may not be transferred or assigned. In addition, the tax consequences stated in
this Opinion are subject to change for any of the reasons provided in R.C. 5703.53(C). It is the
duty of Construction Manager to be aware of such changes pursuant to R.C. 5703.53(E).




                                                    Richard A. Levin
                                                    Tax Commissioner
                                                                                P.O. Box 530
                                                                   Columbus, Ohio 43216-0530



                      Opinion of the Tax Commissioner
                                            Date Issued: July 11, 2008

Opinion No: 08-0007                         Tax: Commercial Activity

XXXX                                        Subject: Agent
XXXX
XXXX
XXXX
XXXX

        This request for an Opinion of the Tax Commissioner was received on April 10, 2008.
The request concerns whether the construction management agreement (“Agreement”) between
XXXX (“General Contractor”) and XXXX (“Property Owner”) establishes an “agent”
relationship as defined in R.C. 5751.01(P) and O.A.C. 5703-29-13 for purposes of the
commercial activity tax ( “CAT”).

                        TAXPAYER STATEMENT OF THE FACTS

       Property Owner proposes to construct a new health & technology campus for XXXX. In
addition to the main building, several other buildings will be constructed and will be built and
coordinated by a developer.

        Property Owner proposes to enter into Agreement with General Contractor. Pursuant to
Agreement, General Contractor will be responsible for overseeing all aspects of the construction
of the facility.

        General Contractor’s relationship with Property Owner under Agreement is provided in
Article 3 of Agreement and in the general conditions of the contract for construction (“General
Conditions”) attached to Agreement. Article 3 of Agreement and General Conditions establishes
an anticipated relationship of trust and confidence between General Contactor and Property
Owner. Also, Article 2 of General Conditions establishes the extent of control that is retained
and exercised by Property Owner in all aspects of the work to be performed. General Contractor
will be reimbursed for all “contract sums” as defined in Section 5.1.1 of Agreement and will be
entitled to a fee as set forth in section 5.1.2 of Agreement. Under Article 5 of Agreement,
Property Owner requires that General Contractor provide a guaranteed maximum price (“GMP”)
that includes all costs of work and the agreed fee.

        With respect to the financial aspects of Agreement, General Contractor is required to act
in the best interests of Property Owner. Under Article 3 of Agreement and General Conditions,
General Contractor agrees to use its best efforts “in the most expeditious and economical manner
consistent with the best interests” of Property Owner.
                                                  2




       There is no provision in Agreement or General Conditions that provides that all
subcontracts between General Contractor and any subcontractors contain language that General
Contractor is acting as the agent of Property Owner, and not as an agent of the subcontractors.
Such language has not been included in any of the subcontracts executed pursuant to Agreement.
However, under Section 9.6.2 of General Conditions, with respect to payment of subcontractors,
General Contractor acts as a conduit for all payments by Property Owner to the subcontractors as
provided within Agreement.

                         QUESTIONS PRESENTED BY TAXPAYER

   1. Whether General Contractor, with respect to the payments received from Property Owner
      to be passed on to subcontractors, is acting as an “agent” as defined in R.C. 5751.01(P)
      for purposes of R.C. 5751.01(F)(2)(l) and O.A.C. 5703-29-13?

   2. Whether General Contractor may exclude from its gross receipts under R.C.
      5751.01(F)(2)(l), payments from Property Owner in excess of the fee that General
      Contractor is required to pay over to subcontractors pursuant to Agreement?

                                            ANALYSIS

        The CAT is levied on gross receipts that are sitused to Ohio (i.e., “taxable gross
receipts”). R.C. 5751.02. The term “gross receipts” is broadly defined in R.C. 5751.01(F) as
“the total amount realized by a person, without deduction for the cost of goods sold or other
expenses incurred, that contributes to the production of gross income of the person, including the
fair market value of any property and any services received, and any debt transferred or forgiven
as consideration.” “Gross receipts” excludes money and other amounts received or acquired by
an agent on behalf of another in excess of that agent’s commission, fee, or other remuneration.
R.C. 5751.01(F)(2)(l). An “agent” is a person authorized by another person to act on its behalf
to undertake a transaction for the other. R.C. 5751.01(P).

        The Tax Commissioner issued Information Release CAT 2006-03, Commercial Activity
Tax Definition of “Agent” - Issued April 2006; Revised July 2006; Revised October 2006;
Revised November 2007; Revised April 2008, and adopted a rule, O.A.C. 5703-29-13, to address
that provision. Divisions (C)(2)(b) and (C)(2)(c) of the rule specifically addresses the provision
in the context of a construction contract. In division (C)(2)(b), the rule explains that no agency
relationship exists because the general contractor is not required to act in the best interests of the
owner. However, division (C)(2)(c) provides that an agency relationship will be found where the
following factors are present:

   (i)     The general contractor is required to act in the owner’s best interest;
                                                 3



   (ii)    The general contractor, when bidding out the work, has an agreement in writing with
           the subcontractors that states that the general contractor is acting as the owner’s agent
           and not as an agent of the subcontractors; and

   (iii)   The general contractor acts as a conduit with respect to payments made to the
           subcontractors under the agreement.

        Where those conditions are met, the rule provides that the payments the general
contractor receives and pays over to the subcontractors may be excluded from the general
contractor’s gross receipts. However, the fee that the general contractor retains is included in its
calculation of gross receipts.

                                 Best Interest of Property Owner

         In this case, Article 3 of Agreement and General Conditions provides that General
Contractor has an obligation to act in the best interests of Property Owner. In addition, Property
Owner retains authority over cost and related issues. For example, under Article 10 of
Agreement, General Contractor must obtain bids from subcontractors and from suppliers of
materials or equipment fabricated especially for the project and the Property Owner shall then
determine which bids are accepted (Section 10.1 of Agreement). Under Article 7 of Agreement,
Property Owner determines the acceptance of bids for the rental charges for temporary facilities,
machinery, equipment or hand tools not customarily owned by construction workers that are
provided (Section 7.5.2 of Agreement). Also, Property Owner determines if it is appropriate
under the circumstances to rent or purchase such machinery or equipment (Section 7.5.2 of
Agreement) and, if purchased, such machinery or equipment is Property Owner’s property
(Section 7.5.1 of Agreement). General Contractor must maintain cost accounting records
accessible to Property Owner in such form and detail acceptable to Property Owner (Section 11.1
of Agreement). Moreover, Property Owner must approve all change orders (Section 6.2 of
Agreement). Finally, under Section 5.2.1.3 of Agreement, savings in the cost of work must be
passed on to Property Owner. Based on the facts provided, it appears that Agreement satisfies
the first prong of the test.

                     Agreement Reflecting Property Owner’s Best Interests

        No provision in Agreement or General Conditions provides that all subcontracts between
General Contractor and any subcontractors contain language that General Contractor is acting as
the agent of Property Owner, and not as an agent of the subcontractors. However, the Tax
Commissioner will look beyond the wording of the contract to the actual facts and circumstances
of the situation to determine whether an agency relationship actually exists. O.A.C. 5703-29-
13(B)(2). Taking into consideration the all aspects of Agreement and General Conditions, an
inference can be made that General Contractor is acting as the agent of Property Owner, and not
as an agent of the subcontractors. Specifically, General Contractor shall not obtain for its own
benefit any discounts, rebates or refunds in connection with the work prior to notification of
Property Owner so that Property Owner may take advantage of such discount, rebate or refund
(Section 9.1 of Agreement). Moreover, the parties’ relationship established in Article 3 of
                                               4



Agreement and General Conditions provides that General Contractor has an obligation to act in
the best interests of Property Owner. Thus, the second prong of the test appears to be satisfied.

                                     Conduit for Payments

       Finally, Section 9.6.2 of General Conditions provides that General Contractor shall act as
a conduit for all payments to the subcontractors. General Contractor shall make all such
payments promptly to the subcontractor, upon receipt of payment from the Property Owner. The
payments General Contractor receives on behalf of the subcontractors are not paid to General
Contractor. Instead, General Contractor is required to pass those payments on promptly to the
subcontractors on behalf of Property Owner. The payments are excluded from General
Contractor’s gross receipts for CAT purposes pursuant to R.C. 5751.01(F)(2)(l).

       If the parties conduct their affairs in a manner that is consistent with Agreement and
General Conditions, General Contractor appears to qualify as an agent under R.C. 5751.01(P)
and O.A.C. 5703-29-13, and the payments it receives to be passed on to subcontractors are
excluded from its gross receipts under R.C. 5751.01(F)(2)(l).

                                           ANSWER

        With respect to the payments received from Property Owner to be passed on to
subcontractors, General Contractor appears to be acting as an “agent” as defined in R.C.
5751.01(P) for purposes of R.C. 5751.01(F)(2)(l) and O.A.C. 5703-27-13. General Contractor
may exclude from General Contractor’s gross receipts payments from Property Owner that
General Contractor is required to pass on to subcontractors pursuant to Agreement. However,
pursuant to R.C. 5751.01(F)(2)(l), General Contractor must include in General Contractor’s
gross receipts any fee General Contractor is entitled to retain.

                                          CLOSING

        This Opinion applies only to General Contractor and Property Owner. It may not be
transferred or assigned. In addition, the tax consequences stated in this Opinion are subject to
change for any of the reasons provided in R.C. 5703.53(C). It is the duty of General Contractor
and Property Owner to be aware of such changes pursuant to R.C. 5703.53(E).




                                                    Richard A. Levin
                                                    Tax Commissioner
                                                                                   P.O. Box 530
                                                                      Columbus, Ohio 43216-0530



                      Opinion of the Tax Commissioner
                                                     Date Issued: February 6, 2008

Opinion No: 08-0001                                  Tax: Commercial Activity

XXXX                                                 Subject: Agent
c/o XXXX
XXXX
XXXX
XXXX
XXXX


        This request for an Opinion of the Tax Commissioner was received on January 8, 2008.
The request concerns whether the construction management agreement (“Agreement”) between
XXXX (“General Contractor”) and XXXX (“Property Owner”) establishes an “agent”
relationship as defined in R.C. 5751.01(P) for purposes of the commercial activity tax ( “CAT”).

                        TAXPAYER STATEMENT OF THE FACTS

      Property Owner proposes a major expansion to its existing main campus in XXXX, Ohio.
The cornerstone of the expansion is a new main XXXX building involving XXXX floors and
encompassing more than XXXX square feet. Construction is slated to begin in YYYY with the
new XXXX opening in YYYY.

        Property Owner proposes to enter into Agreement with General Contractor. Pursuant to
Agreement, General Contractor will be responsible for overseeing all aspects of the construction
of the facility. The only portion of Agreement not yet finalized relates to environmental issues
associated with the site. Property Owner and General Contractor do not anticipate any
substantive changes to the provisions provided.

        General Contractor’s obligations under Agreement are provided in Article 2 of
Agreement. Article 2 of Agreement establishes an anticipated close working relationship
between General Contactor and Property Owner. Also, Article 2 of Agreement establishes the
extent of control that is retained and exercised by Property Owner in all aspects of the work to be
performed. General Contractor will be reimbursed for all “costs of work” as defined in Article 8
of Agreement and will be entitled to a fee as set forth in Article 7 of Agreement. Under Article 6
of Agreement, at its option, Property Owner may require General Contractor to provide a
guaranteed maximum price (“GMP”) that includes all costs of work and the agreed fee.

       With respect to the financial aspects of Agreement, General Contractor is required to act
in the best interests of Property Owner. Under the first unnumbered paragraph of Article 1,
General Contractor agrees to use its best efforts “in the most expeditious and economical manner
consistent with the best interest” of Property Owner.

        Under Section 4.4, Agreement provides that all subcontracts between General Contractor
and any subcontractors, as defined in Agreement, shall contain language that General Contractor
is acting as the agent of Property Owner, and not as an agent of the subcontractors. In addition,
under Section 11.4, with respect to payment of subcontractors, General Contractor is acting as a
conduit for all payments by Property Owner to the subcontractors as provided within Agreement.

                                QUESTIONS PRESENTED BY TAXPAYER

       1. Whether General Contractor, with respect to the payments received from Property Owner
          to be passed on to subcontractors, is acting as an “agent” as defined in R.C. 5751.01(P)
          for purposes of R.C. 5751.01(F)(2)(l) and O.A.C. 5703-29-13?

       2. Whether General Contractor may exclude from its gross receipts under R.C.
          5751.01(F)(2)(l), payments from Property Owner in excess of its fee that General
          Contractor is required to pay over to subcontractors pursuant to Agreement?

                                                     ANALYSIS

        The CAT is levied on gross receipts that are sitused to Ohio (i.e., “taxable gross
receipts”). R.C. 5751.02. The term “gross receipts” is broadly defined in R.C. 5751.01(F) as
“the total amount realized by a person, without deduction for the cost of goods sold or other
expenses incurred, that contributes to the production of gross income of the person, including the
fair market value of any property and any services received, and any debt transferred or forgiven
as consideration.” “Gross receipts” excludes money and other amounts received or acquired by
an agent on behalf of another in excess of agent’s commission, fee, or other remuneration. R.C.
5751.01(F)(2)(l). An “agent” is a person authorized by another person to act on its behalf to
undertake a transaction for the other. R.C. 5751.01(P).

        The Tax Commissioner issued Information Release CAT 2006-03, Commercial Activity
Tax Definition of “Agent” - Issued April 2006; Revised July 2006; Revised October 2006;
Revised November 2007, and adopted a rule, O.A.C. 5703-29-13, effective October 5, 2006, to
address that provision. 1 Divisions (C)(2)(b) and (c) of the rule specifically address the provision
in the context of a construction contract. In division (C)(2)(b), the rule explains that no agency
relationship exists because the general contractor is not required to act in the best interests of the
owner. However, division (C)(2)(c) provides that an agency relationship will be found where the
following factors are present:

       (i)      The general contractor is required to act in the owner’s best interest;


1
    An amendment to the rule has been filed to correct an error therein.


                                                                                          Page 2 of 4
   (ii)    The general contractor, when bidding out the work, has an agreement in writing with
           the subcontractors that states that the general contractor is acting as the owner’s agent
           and not as an agent of the subcontractors; and

   (iii)   The general contractor acts as a conduit with respect to payments made to the
           subcontractors under the agreement.

        Where those conditions are met, the rule provides that the payments the general
contractor receives and pays over to the subcontractors may be excluded from the general
contractor’s gross receipts. However, the fee that the general contractor retains is included in its
calculation of gross receipts.

       In this case, the first paragraph of Article 1 of Agreement provides that General
Contractor has an obligation to act in the best interests of Property Owner.

        In addition, Property Owner retains extensive authority over cost and related issues. For
example, under Article 2 of Agreement, during the Preconstruction Phase of the project, General
Contractor must disclose to Property Owner all information regarding timing and costs,
including preliminary budgets and possible economies (Section 2.2.1 of Agreement); coordinate
with Property Owner with respect to the preparation of all documents and drawings (Section
2.2.1 of Agreement); develop, subject to the approval of Property Owner, a construction cost
estimate sufficiently detailed to permit a full evaluation and understanding by Property Owner;
and recommend bid alternatives to reduce costs (Section 2.2.3 of Agreement). In addition,
Property Owner retains final approval of all bids or proposals relating to the project (Section
2.2.5.3 of Agreement).

       During construction, General Contractor must develop and monitor a system of cost
controls, apprise Property Owner when budgets are exceeded, and maintain cost accounting
records accessible to the Property Owner in such form and detail as the parties may agree
(Section 2.3.3 of Agreement). Moreover, Property Owner must approve all change orders
(Section 2.3.4 of Agreement) and all payments to subcontractors (Section 2.3.5 of Agreement).

       Section 4.4 of Agreement provides that all agreements between General Contractor and
the subcontractors must contain language that General Contractor is acting as the agent of the
Property Owner, and not as an agent of the subcontractors.

        Finally, Section 11.4 of Agreement provides that General Contractor shall act as a
conduit for all payments to the subcontractors. General Contractor shall make all such payments
promptly, under such terms as are provided in Agreement, regardless of the fact that Property
Owner may require a GMP, as the GMP may be adjusted. Section 6.6 of Agreement provides
that the parties may establish allowances for costs of work that may result in an increase in the
GMP. Similarly, under Section 6.5 of Agreement, savings in the cost of work must be passed on
to Property Owner. In addition, Property Owner still retains significant control over cost issues.
General Contractor is still required to use its best efforts on behalf of Property Owner and the
agreements with subcontractors still must provide that General Contractor is the agent of
Property Owner, rather than the subcontractors. Finally, General Contractor still acts as a
                                                                                   Page 3 of 4
conduit with respect to payments passed through to the subcontractors. The payments General
Contractor receives on behalf of the subcontractors are not its own; rather, General Contractor is
required to pass those payments on promptly to the subcontractors on behalf of Property Owner.
The payments do not contribute to General Contractor’s gross income, and are excluded from
General Contractor’s gross receipts for CAT purposes pursuant to R.C. 5751.01(F)(2)(l).

       If the parties conduct their affairs in a manner that is consistent with Agreement, General
Contractor qualifies as an agent under R.C. 5751.01(P) and O.A.C. 5703-29-13, and the
payments it receives to be passed on to subcontractors are excluded from its gross receipts under
5751.01(F)(2)(l).

                                           ANSWER

       With respect to the payments received from Property Owner to be passed on to
subcontractors, General Contractor is acting as an “agent” as defined in R.C. 5751.01(P) for
purposes of R.C. 5751.01(F)(2)(l) and O.A.C. 5703-27-13. General Contractor may exclude
from General Contractor’s gross receipts payments from Property Owner that General Contractor
is required to pass on to subcontractors pursuant to Agreement. However, pursuant to R.C.
5751.01(F)(2)(l), General Contractor must include in General Contractor’s gross receipts any fee
General Contractor is entitled to retain.

                                           CLOSING

       This Opinion applies only to General Contractor with regard to Agreement with Property
Owner. It may not be transferred or assigned. In addition, the tax consequences stated in this
Opinion are subject to change for any of the reasons provided in R.C. 5703.53(C). It is the duty
of General Contractor to be aware of such changes pursuant to R.C. 5703.53(E).




                                                    Richard A. Levin
                                                    Tax Commissioner




                                                                                  Page 4 of 4

				
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