Summary
In Xyovest, Inc. v. Limbach (1992), 62 Ohio St.3d 469, 471, 584 N.E.2d 675, 677, we stated: "By analogy, the lessees' reimbursement payments of personal property taxes here were not part of the price, but were separate items agreed to by contract."
Summary of this case from Leasing Dynamics, Inc. v. LimbachOpinion
No. 91-146
Submitted October 31, 1991 —
Decided February 5, 1992.
APPEAL from the Board of Tax Appeals, No. 88-D-156.
This appeal involves a sales and use tax assessment by the Tax Commissioner against appellee, Xyovest, Inc. At all times pertinent, appellee engaged in the business in Ohio of leasing equipment which it owned. The critical provisions of Xyovest's master lease were:
"12. Encumbrances and Taxes.
"Lessee shall keep Equipment free and clear of all levies, liens and encumbrances and shall pay all license fees, registration fees, assessments, charges and taxes (municipal, state and federal) which may now or hereafter be imposed upon the ownership, leasing, renting, sale, possession or use of Equipment, excluding, however, all taxes on or measured by Lessor's net income.
"13. Lessor's Payment.
"In case of failure of Lessee * * * to pay * * * taxes * * *, Lessor shall have the right * * * to * * * pay such * * * taxes * * *. In that event, the cost thereof shall be repayable by Lessee to Lessor with the next installment of rent * * *."
As owner of the equipment, Xyovest filed its intercounty personal property tax returns for tax years 1983 through 1986 and paid the tax. In June or July of each year, upon computing the amount of such tax attributable to equipment under a lease, Xyovest would prepare a billing for each lessee for the amount due for reimbursement of personal property taxes paid. This was in addition to the monthly rental installment due on the lease. The Tax Commissioner assessed sales and use taxes of $30,256.32 based upon the determination that the additional reimbursement paid by each lessee was a part of the price paid for the lease.
The Board of Tax Appeals ("BTA"), upon review of the statutory transcript and evidence presented at a hearing before it, reversed the assessment upon finding that, as asserted by Xyovest: "* * * [T]he payment of the tax is not part of the sales price of (or lease payment for) the property. The undertaking of the parties respecting the remission [ sic] of personal property tax is a separate contractual undertaking, severable from the underlying lease of tangible personal property in accordance with the rule of Material Contractors, Inc. v. Donahue, 14 Ohio St.2d 19 [43 O.O.2d 10, 235 N.E.2d 525] (1968)."
The cause is now before this court upon an appeal as of right.
Frost Jacobs, Dennis L. Barron and Larry H. McMillin, for appellee.
Lee I. Fisher, Attorney General, and James C. Sauer, for appellant.
The Tax Commissioner argues that the additional payments (reimbursements or pass-through payments of personal property tax) are like any other expense of doing business. It was, she argues, the obligation of Xyovest as owner of the equipment to pay personal property taxes due and the fact that Xyovest contractually shifted this responsibility to its lessees does not change that fact. Under Xyovest's master lease, it is argued, a lessee undertook an additional condition of its lease: as a part of the consideration paid or promised to be paid in return for the continued possession and use of the equipment, it would pay the pass-through personal property tax.
Xyovest responds that, "[a] statute must be read in its entirety," that the commissioner quotes out of context, and that she ignores a critical part of the applicable definition of "price." We agree with Xyovest.
R.C. 5739.01(H)(1) defines "price" as: "* * * [T]he aggregate value in money of anything paid or delivered, or promised to be paid or delivered, in the complete performance of a retail sale, without any deduction on account of the cost of the property sold, cost of materials used, labor or service cost, * * * or any other expense. * * *"
Under R.C. 5739.01(B)(1) a "sale" is a transaction "by which title or possession, or both, of tangible personal property, is or is to be transferred, or a license to use or consume tangible personal property is or is to be granted * * *." The commissioner has failed to establish that at the time of the reimbursement of the additional tax amount there was a concomitant transfer of title or possession of tangible personal property.
The quoted sections of the master lease provide for divisible contracts. In addition to the right to use equipment there is a separate undertaking for the reimbursement of applicable personal property taxes. See Material Contractors, Inc. v. Donahue (1968), 14 Ohio St.2d 19, 43 O.O.2d 10, 235 N.E.2d 525, paragraph one of the syllabus.
In Columbus Equipment Co. v. Limbach (1988), 38 Ohio St.3d 62, 63, 526 N.E.2d 294, 295-296, we stated:
"R.C. 5739.02 levies a tax on retail sales and this tax is measured by the `price' of the sale. * * *
"* * * [However,] * * * not all sums paid in a transaction are part of the `price'. * * *
"* * *
"Interest is * * * the cost of borrowing money so that a person will have the money to purchase the item. Interest is not a part of the item's price because it is not related to the cost of the property sold or material used. R.C. 5739.01(H).
"In the instant case, taxpayer and its customers agreed that the lease payments would include interest. * * * When taxpayer did this, it was not adding compensation to the purchase price, but was retaining the interest that the parties had agreed was due on and paid with the lease payments."
By analogy, the lessees' reimbursement payments of personal property taxes here were not part of the price, but were separate items agreed to by contract.
The decision of the BTA was reasonable and lawful and is affirmed.
Decision affirmed.
MOYER, C.J., SWEENEY, HOLMES, DOUGLAS, WRIGHT, H. BROWN and RESNICK, JJ., concur.