Opinion
No. 95-423
Submitted April 16, 1996 —
Decided July 17, 1996.
APPEAL from the Board of Tax Appeals, No. 92-R-1531.
Appellant, ARGA Company, d.b.a. Vesta Construction Company, performed concrete work for a new printing plant being constructed in Columbus for the Dispatch Printing Company. Under one contract, ARGA prepared and poured the concrete floors, sidewalks, and driveways. ARGA paid sales tax on its purchase of materials for this contract, and those purchases are not at issue in this case. In the disputed transaction, undertaken pursuant to a second contract, ARGA prepared pits and poured concrete foundations for the Dispatch's new presses. These presses, six stories in height, required a three-foot-thick foundation, which is five times the thickness of a normal floor.
ARGA did not pay sales tax on the materials it purchased for incorporation into the pits and foundations. Although R.C. 5739.01(B)(5) renders a construction contractor liable for the tax on purchases of items it incorporates into realty, ARGA considered the pits and foundation materials to be materials benefiting the Dispatch's business and, thus, personal property it was reselling to the Dispatch. It thus claimed that its purchase was excepted from the sales tax by R.C. 5739.01(E)(2). ARGA's position was supported by Ohio Adm. Code 5703-9-14, which provided during the audit period:
"A `construction contract' is any agreement, written or oral, whether on a time and material basis or a lump sum basis, pursuant to which tangible personal property is or is to be transferred and incorporated, for a consideration, into a structure or improvement to real property so as to become a part thereof without regard to whether it is new construction, maintenance, or repair. A `construction contractor' is any person who performs such an agreement, whether as a prime or subcontractor.
" (A) In determining when the improvement into which tangible personal property is incorporated constitutes real property it shall be considered that improvements devoted to the general use of the land or buildings thereon are real property and improvements devoted principally to a business function or use shall be considered as personal property. * * *" (Emphasis supplied.) 1982-1983 Ohio Monthly Record 498, eff. Oct. 18, 1982.
The Tax Commissioner's agent conducted a sales tax audit of ARGA for the period October 1987 through September 1990. The agent originally accepted ARGA's contention that the materials purchased for the pits and foundations were exempt.
Thereafter, this court issued its decision in Thomas Steel Strip Corp. v. Limbach (1991), 61 Ohio St.3d 340, 575 N.E.2d 114, in which we ruled that machine foundations were real property. The commissioner then changed his position and deemed ARGA to have been a construction contractor which had purchased the materials for incorporation into a real property installation. He therefore considered ARGA to be a consumer and assessed ARGA sales tax pursuant to R.C. 5739.01(B)(5).
On appeal, the Board of Tax Appeals ("BTA") agreed and affirmed the commissioner's order. The BTA rejected ARGA's argument that R.C. 5739.16(B), which bars assessments if a rule of the commissioner would not require the collection or payment of the tax, barred this assessment.
The cause is now before this court upon an appeal as of right.
Taft, Stettinius Hollister, Stephen M. Nechemias and Rebecca L. Simpson, for appellant.
Betty D. Montgomery, Attorney General, and James C. Sauer, Assistant Attorney General, for appellee.
In Lyden Co. v. Tracy (1996), 76 Ohio St.3d 66, 666 N.E.2d 556, decided this date, we held: "For purposes of R.C. 5739.16(B), an administrative rule adopted by the Tax Commissioner remains `in full force and effect' until the commissioner rescinds it or a court specifically declares it invalid as being contrary to statute or unreasonable." Id. at syllabus.
In the case at bar, the commissioner's rule, codified as Ohio Adm. Code 5703-9-14, justified the conclusion during the audit period that construction of the pits and foundations constituted the installation of personal property. Under that rule, the specified materials benefited the newspaper publishing business and not the land, and, thus, remained personal property. Under the rule, ARGA was not a consumer required to pay the tax, as originally acknowledged by the commissioner's own tax agent.
Our decision in Thomas Steel Strip Corp. v. Limbach arguably invalidated Ohio Adm. Code 5703-9-14. However, the construction of the pits and foundations at issue in this case occurred prior to the decision in Thomas Steel Strip Corp., and this court did not specifically declare Ohio Adm. Code 5703-9-14 to be invalid in that case. Thus, pursuant to R.C. 5739.16(B), as construed in Lyden, supra, the commissioner is precluded from denying that the materials at issue remained personal property after the construction.
The decision of the BTA is reversed.
Decision reversed.
MOYER, C.J., DOUGLAS, RESNICK, F.E. SWEENEY, PFEIFER, COOK and STRATTON, JJ., concur.