Workshop SS Construction Contractors Beware! Common Pitfalls with - PDF document

Real Property vs. Tangible Personal Property Test Your Knowledge : A: No. A handicap ramp is never a business fixture. The handicap ramp is not specialized to the particular business and is not for the primary benefit of the business itself and is therefore not a business fixture. 13

Case Law • Funtime, Inc. v. Wilkins , 105 Ohio St.3d 74 – Must analyze whether an item that meets the definition of real property in R.C. 5701.02 is “otherwise specified” as tangible personal property under R.C. 5701.03. • Metamora Elevator Co. v. Fulton Cty. Bd. of Revision , 143 Ohio St.3d 359 (2015) – Affirming Funtime analysis and holding that grain storage bins are business fixtures under the plain language of R.C. 5701.03 14

Case Law • F.P. & E., Inc. v. Tracy , BTA No. 96‐M‐806 – BTA found gas station canopies were business fixtures • Oregon Ford, Inc. v. Wilkins , BTA No. 2005‐A‐111 – BTA found parking lot lighting used to illuminate inventory at car dealership was a business fixture • Nationwide Mutual Insurance v. McClain , BTA No. 2018‐313, 315‐318 (Oct. 22, 2019); ODT Information Release 1999‐01 (Rev. Dec. 2019) – Computer cabling common to buildings is real property, not a business fixture • Karvo Paving Co. v. Testa , BTA Case No. 2016‐782 (Jan. 4, 2018); aff’d in part and rev’d in part, 2019‐Ohio‐3974 (9th Dist.); certified conflict pending before Ohio Supreme Court, Case No. 2019‐1786 15

Exemptions • R.C. 5739.02(B)(13) – Provides exemption for building and construction materials and services incorporated into certain exempt construction contracts • R.C. 5739.03(B)(6) – Contractor claiming exemption under R.C. 5739.02(B)(13) must obtain certification (construction contract exemption certificate) from contractee stating the contract is exempt • R.C. 5739.03(C) – Contractor may obtain from a contractee a certification stating what portion of the contract is for real property and what portion is for personal property. The contractor may rely on this certification and the contractee will be liable for tax on anything erroneously certified as personal property 16

Exemptions • O.A.C. 5703‐9‐14(D) ‐ a contractor may purchase materials and services exempt from tax if they are incorporated into: – realty on a government contract – realty to be accepted for ownership by a government agency on completion of the contract – a house of public worship or buildings used exclusively for charitable purposes as defined in R.C. 5739.02(B)(12) – the original construction of a sports facility per R.C. 307.696 – a hospital facility entitled to exemption under R.C. 140.08 17

Exemptions • O.A.C. 5703‐9‐14(D) ‐ a contractor may purchase materials and services exempt from tax if they are incorporated into ( continued ) : – horticulture structure or livestock structure as defined in R.C. 5739.01 for a person engaged in the business of horticulture or producing livestock – 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 • Computer Data Center Equipment – R.C. 122.175(A)(4) – Exemption includes but is not limited to building and construction materials incorporated into computer data center 18

Exemptions • O.A.C. 5703‐9‐14(H) – Machinery, tools, equipment and supplies used by a construction contractor to perform a contract are taxable to the contractor. Repairs are also taxable. • O.A.C. 5703‐9‐14 (I) and (J) – Exemption certificate requirements: – Construction contract exemption certificates must be signed on an official form by both the contractee and contractor – Contractor must make copies of the construction contract exemption certificate and, if the prime contractor, supply a copy to each subcontractor who is then required to sign – Contractors and subcontractors may also make exempt purchase using a properly executed contractor’s exemption certificate 19

Exemptions Test Your Knowledge : Q: A professional soccer team in Columbus enters into a construction contract with a construction company to build a new stadium downtown. Which party will be considered the consumer required to pay tax? 20

Exemptions Test Your Knowledge : A: Neither party. The new stadium is an exempt contract under O.A.C. 5703‐9‐14(D) and therefore the contract to build the stadium is exempt from taxation under R.C. 5739.02(B)(13). 21

Sales Tax in Construction Generally, a contractor does not collect sales tax from their customer on the performance of a real property construction contract. For real property jobs, the contractor is considered the consumer of the materials installed and must pay sales or use tax at the time the materials are purchased. 22

Sales Tax in Construction • If installing a “business fixture,” the item becomes a taxable sale and the contractor is required to collect sales tax. • A business fixture is any item of tangible personal property that is permanently affixed to the realty and primarily benefits the business conducted on the premises, not the realty. 23

Sales Tax in Construction Examples of Business Fixtures Examples of Real Property Business signage Restrooms Office cubicles Doors, windows, walls, flooring* in a building Gas station canopies Driveways Walk‐in coolers Garage doors Data server rooms Residential swimming pools Fuel storage tanks Building roof, gutters See, ODT Information Release 2007‐01 24

Sales Tax in Construction • Before starting a job, the contractor must determine if they are selling a business fixture or selling real property. • This determination is imperative in order to determine proper sales tax treatment. 25

Sales Tax in Construction Selling a Business Fixture Selling Real Property The sale and installation of a The incorporation of business fixture is a retail sale , materials (TPP) into realty, not a construction contract. such as; building walls, Even though permanently painting a room, paving a attached, a business fixture is parking lot, etc, that benefits not deemed real property. the realty is a construction The transaction is defined as contract. The contractor is the the sale and installation of “consumer” of the TPP tangible personal property installed into real property. Contractor charges sales tax Contractor pays tax on on total contract amount. materials, does not collect tax from customer. 26

Sales Tax in Construction Selling a Business Fixture Selling Real Property All costs including the cost of As there is no retail sale, no material, labor, and mark‐up tax needs to be collected from must be included in the the customer. taxable price. Sales tax is calculated on the The construction contractor total cost (taxable base) of the must pay sales tax on the business fixture sold. The material purchased and construction contractor needs incorporated into real to maintain a regular county property. If the material vendor’s license; or if located vendor does not collect sales out‐of‐ state, a seller’s use tax, the contractor must account. accrue the use tax and remit to the state on a consumer’s use tax or direct pay permit account. 27

Sales Tax in Construction • Difference Between Selling a Business Fixture or Selling Real Property Contract for… a Business Fixture Real Property Material Cost* $10,000 Material Cost* $10,750 *(Materials purchased tax exempt under the resale exception) *(Includes sales tax paid to vendor or use tax accrued) ($10,000 x 7.5%) Labor Cost $5,000 Labor Cost $5,000 Permit Fees $500 Permit Fees $500 Subtotal $15,500 Subtotal $16,250 Sales Tax (15,500 * 7.5%) $1,162.50 Sales Tax $0 Total $16,662.50 Total $16,250 28

Direct Pay Permits • Upon application, the Tax Department may issue a consumer a direct pay permit that authorizes the consumer to pay the tax directly to the State and waive collection of the tax by the vendor or seller. – See, R.C. 5739.031(A); ODT Information Release 2003‐01 • The permit holder must provide notice of its status and its permit number to the vender to avoid the payment of the tax. • Permit holders must file monthly returns to pay the tax. 29

Sales Tax in Construction What about contractors who enter into mixed contracts? 30

Mixed Contracts - Certification Process • Contractor requests certification from contractee • Contractee may issue a certification to contractor as to which portion of contract is real vs. personal property • O.R.C. 5739.03 (C) allows for this certification process • The determination will indicate if contractor is a consumer of materials (real property) or a vendor of personal property 31

Mixed Contracts - Certification Process • Establishes the consumer of materials for the job • Protects the contractor from sales or use tax liability if incorrect classification of real or personal property occurs • There is no prescribed form issued by the Department of Taxation 32

Mixed Contracts • The contractee certification process makes a distinction between the portion of the contract that is realty versus the portion that is personal property and/or a business fixture. • Certification will determine if the contractor is either a consumer of materials purchased for a job, or the reseller of materials purchased for a job. 33

Sales Tax in Construction For the business fixture portion, contractors should issue Certificates of Exemption to suppliers claiming “resale” as the basis for exemption Contractors with Direct Pay Permits should not accrue tax on business fixture portion Contractor should charge sales tax on the total price of business fixture portion including the cost of materials, labor, and mark‐up unless contractee provides an exemption certificate or direct pay number. 34

Contractor What is being sold? 1 Real Property Tangible Personal Property (Business Fixture) Use Sales Sales Use No sales tax is due Contractor is to charge sales tax on on the sale of real Contractor can Is the the total price as of the date the property purchase all materials contractee contract is signed unless the exempt from taxation exempt? contractee claims exemption 2, 3 Yes No Contractor should use a No tax is due on Blanket/Unit Exemption material purchases Certificate when claiming exemption Contractor owes tax on all Contractor needs to obtain the material purchased or Construction Contractor Exemption produced cost If the contract is a mixed contract (contains Certificate from the contractee. (sales or use tax) business fixture and real property work), the contractor still must follow the rules for the real Regardless of contractee’s tax status, contractor owes sales/use property portion of the contract tax on other purchases, including: rentals, consumables, tools, (left side of the flowchart). equipment, and general & administrative purchases 1 – Contractor may request the contractee to complete the Contractee Certification Form if tangible personal property is being sold. 2 – Contractor is to remit this sales tax on a regular county vendor’s license. 3 – No matter if the contractor is an in‐state or out‐of‐state contractor, sales tax is to be charged when the contract is signed; not when draws are made. 35

Direct Materials • A construction contractor normally must pay sales tax on all materials for incorporation into real property • Only if the customer is tax exempt may a contractor purchase materials tax exempt when working on real property. Exemption only applies to materials incorporated into the job. 36

Items Used or Consumed • Items used or consumed by a contractor are taxable per Ohio Administrative Code 5703‐9‐ 14(H). i.e. consumable supplies. • Items used or consumed are always taxable to the contractor. Even on exempt jobs. 37

Items Used or Consumed • Tools • Heavy Equipment • Rentals • Job Trailers • Portable Toilets • Air Compressors • Scaffolding • Dyed Diesel Fuel 38

Items Used or Consumed • Sand Paper • Cleaning Supplies • Masking Tape • Tarps 39

Items Used or Consumed • Hard Hats, Safety Glasses • Generators • Welding Gases • Propane • Temporary Items • Private Security • Temporary Employment • Landscaping & Snow Removal 40

Items Used or Consumed Test Your Knowledge : Q: You are renting scaffolding that will only be used on an exempt job. Is the rental charge exempt from sales tax? 41

Items Used or Consumed Test Your Knowledge : A: No. Any purchase or rental of tools, equipment or other supplies that are not incorporated into the real property are taxable to the contractor regardless of whether the construction contract is taxable or exempt. 42

Commercial Activity Tax • Ohio Commercial Activity Tax – 0.026% Rate On All “Taxable Gross Receipts” (TGR) Plus Annual Minimum Tax Depending On TGR Level • Crutchfield v. Testa , 151 Ohio St.3d 278 (2016) – Ohio Supreme Court Upholds The CAT Against Internet Retailers Asserting No “Nexus” With Ohio 43

CAT Agency Exclusion • Agency Exclusion ‐ R.C. 5751.01(F)(2)(l) – The definition of “gross receipts” excludes property, money, and other amounts received or acquired by an agent on behalf of another in excess of the agent’s commission, fee, or other enumeration. • “Agent” Defined – R.C. 5751.01(P) – An “agent” means a person authorized by another to act on its behalf to undertake a transaction for the other, including [specific examples]” • See, Willoughby Hills Dev. & Dist. v. Testa , 155 Ohio St.3d 276 (2018) (denying agency exclusion to gas distributor) 44

CAT Agency Exclusion • Contract Language – Presumption that there is no agency relationship if it is not expressly stated in the contract ‐ O.A.C. 5703‐29‐13(C)(2)(a) • Document Everything! – Tax Dept may look beyond contract even if there is express language. O.A.C. 5703‐29‐13(B)(2). • TC Opinions 08‐0001, ‐0007, ‐0011, ‐0012: Exclude if: – Contract expressly states that the General Contractor is Owner’s agent, and not Subcontractor’s agent; AND – GC is acting in the Owner’s best interests; AND – GC is acting as a conduit for payments to the Subcontractor • Other Factors – Party controlling manner and means of doing work – May agent bind and/or cause the principal liability? 45

Agency Example – O.A.C. 5709-23-13 • 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 5% fee. The general contractor is 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 5% fee retained by the general contractor would be included in its calculation of gross receipts for purposes of the commercial activity tax. 46

Municipal Net Profits Tax Collection • For taxable years beginning on or after Jan. 1, 2018, entity taxpayers may elect to file all their municipal net profits tax returns on a centralized basis through the Ohio Business Gateway (OBG) or the Modernized e‐File portal (MeF). – If electing, must register and make payments through OBG; Use Form MNP R to make election – See, HB 49 (2017) & R.C. 718.80 to 718.95 • Taxpayers must notify each municipality in which they conducted business during the prior year • Deadline to elect is the first day of the third month of the taxable year (March 1 if calendar year taxpayers) • Election effective until terminated • Tax Commissioner retains fee = ½% of tax collected • Challenge to centralized process pending in Ohio Sup. Ct. 47

Questions? • David Ebersole, Esq., Baker Hostetler LLP • DEbersole@bakerlaw.com • (614) 462‐2652 • Laura Stanley, Supervising Legal Counsel, Sales & Use Taxes, Ohio Department of Taxation • Laura.Stanley@tax.state.oh.us • (614) 644‐5764 • Vicki Kessler, Tax Examiner Manager, Ohio Department of Taxation • Vicki.Kessler@tax.state.oh.us • (614) 995‐0888 • Ed Straub, Chief Financial Officer, Elford, Inc. • estraub@Elford.com • (614) 488‐4000 48

Construction Contract Exemption Certificate • Form STEC-CC • The exemption only applies to job materials incorporated into the job • Must be signed by the contractee to be valid 1

Construction Contract Exemption Certificate Must have: • Contractee (owner’s) name • Location of project • Name of project • Reason for exemption indicated • Name, signature, address and date signed by contractor and contractee 2

Contractor’s Exemption Certificate • Form STEC-CO • May be provided to vendors when purchasing materials for tax exempt jobs 3

Items Used or Consumed Test Your Knowledge : Q: You are working on constructing a new building and your customer is tax exempt. What is the proper form you should obtain and keep on file? A. STEC-B B. Contractee Certification C. STEC-CO D. STEC-CC 4

Items Used or Consumed Test Your Knowledge : Answer: D. STEC-CC 5

Licensing • What types license(s) does a contractor need to be compliant with sales and use tax? 6

Licensing • Regular Vendor’s License – Contactors located in Ohio should use this license to remit and report tax collected on retail sales (business fixtures) • Seller’s Use Tax Account – Contractors located out-of-state should use this license to remit and report tax collected on retail sales (business fixtures) • Consumer’s Use Tax Account – Used to self-report tax if not collected by the vendor • Direct Payment Permit – Special authority granted to businesses that allows them to self remit the tax directly to the state in lieu of paying it to their suppliers 7

Items Used or Consumed Test Your Knowledge : Q: Does a contractor that only performs work on real property need to have a vendor’s license? 8

Items Used or Consumed Test Your Knowledge : A: No. A vendor’s license is only required if you are making taxable sales. 9

STEC CC Rev. 11/14 tax.ohio.gov Sales and Use Tax Construction Contract Exemption Certi fi cate Identi fi cation of Contract: Contractee’s (owner’s) name Exact location of job/project Name of job/project as it appears on contract documentation The undersigned hereby certi fi es that the tangible personal property purchased under this exemption certi fi cate was pur- chased for incorporation into: A building used exclusively for charitable purposes Real property that is owned, or will be accepted for � � by a nonpro fi t organization operated exclusively for ownership at the time of completion, by the United charitable purposes as de fi ned in Ohio Revised Code States government, its agencies, the state of Ohio or (R.C.) section 5739.02(B)(12); an Ohio political subdivision; � Real property under a construction contract with the A computer data center entitled to exemption under � United States government, its agencies, the state of R.C. 122.175; Ohio or an Ohio political subdivision; A building under a construction contract with an organi- � A horticulture structure or livestock structure for a per- � zation exempt from taxation under section 501(c)(3) of son engaged in the business of horticulture or produc- the Internal Revenue Code of 1986 when the building ing livestock; is to be used exclusively for the organization’s exempt � A house of public worship or religious education; purposes; The original construction of a sports facility under R.C. � A hospital facility entitled to exemption under R.C. � section 307.696; section 140.08; � � Real property outside this state if such materials and Building and construction materials and services sold services, when sold to a construction contractor in the for incorporation into real property comprising a con- state in which the real property is located for incorpora- vention center that quali fi es for property tax exemption tion into real property in that state, would be exempt under R.C. 5709.084 (until one calendar year after the from a tax on sales levied by that state; construction is completed). The original of this certi fi cate must be signed by the owner/contractee and/or government of fi cial and must be retained by the prime contractor. Copies must be maintained by the owner/contractee and all subcontractors. When copies are issued to suppliers when purchasing materials, each copy must be signed by the contractor or subcontractor making the purchase. Prime Contractor Owner/Contractee Name Name Signed by Signed by Title Title Street address Street address City, state, ZIP code City, state, ZIP code Date Date Subcontractor Political Subdivision Name Name Signed by Signed by Title Title Street address Street address City, state, ZIP code City, state, ZIP code Date Date

STEC CO Rev. 11/10 tax.ohio.gov Sales and Use Tax Contractor’s Exemption Certifi cate Identifi cation of Contract: Contractee’s (owner’s) name Exact location of job/project Name of job/project as it appears on contract documentation The undersigned hereby certifi es that the tangible personal property purchased under this exemption from: Vendor’s name was purchased for incorporation into: Real property under a construction contract with the Real property that is owned, or will be accepted for   United States government, its agencies, the state of ownership at the time of completion, by the United Ohio, or an Ohio political subdivision; States government, its agencies, the state of Ohio or an Ohio political subdivision;  A horticulture structure or livestock structure for a per-  A house of public worship or religious education; son engaged in the business of horticulture or produc- ing livestock; A building used exclusively for charitable purposes A building under a construction contract with an organi-   by a nonprofi t organization operated exclusively for zation exempt from taxation under section 501(c)(3) of charitable purposes as defi ned in Ohio Revised Code the Internal Revenue Code of 1986 when the building (R.C.) section 5739.02(B)(12); is to be used exclusively for the organization’s exempt purposes; The original construction of a sports facility under R.C. A hospital facility entitled to exemption under R.C.   section 307.696; section 140.08;   Real property outside this state if such materials and Building and construction materials and services sold services, when sold to a construction contractor in the for incorporation into real property comprising a con- state in which the real property is located for incorpora- vention center that qualifi es for property tax exemp- tion into real property in that state, would be exempt tion under R.C. 5709.084 (until one calendar year af- from a tax on sales levied by that state; ter the construction is completed). This certifi cate may be used by a contractee or subcontractor when buying materials for a construction contract where the owner/contractee has claimed one of the above exemptions. This certifi cate covers all sales of materials by the above-named vendor to the contractor or subcontractor for this particular construction contract only. Contractor/subcontractor Name Signed by Title Street address City, state, ZIP code Date

12/29/2019 Ohio Department of Taxation > communications > information_releases > property > pp200701 | State Agencies|Agencies’ Online Resources Information Releases 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 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. https://www.tax.ohio.gov/communications/information_releases/property/pp200701.aspx 1/3

12/29/2019 Ohio Department of Taxation > communications > information_releases > property > pp200701 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 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. 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. https://www.tax.ohio.gov/communications/information_releases/property/pp200701.aspx 2/3

12/29/2019 Ohio Department of Taxation > communications > information_releases > property > pp200701 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. 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. FAQs Online Self Help Information Interest Tax Tax Ohio The Ohio Services eLibrary Releases Calculator Webinars Alerts Taxes Finder Means Jobs https://www.tax.ohio.gov/communications/information_releases/property/pp200701.aspx 3/3

[Cite as Metamora Elevator Co. v. Fulton Cty. Bd. of Revision, 143 Ohio St.3d 359, 2015-Ohio- 2807.] M ETAMORA E LEVATOR C OMPANY , A PPELLEE , v . F ULTON C OUNTY B OARD OF R EVISION ET AL ., A PPELLANTS . [Cite as Metamora Elevator Co. v. Fulton Cty. Bd. of Revision, 143 Ohio St.3d 359, 2015-Ohio-2807.] In promulgating R.C. 5701.03, the General Assembly has expressly defined the term “business fixture” to include storage bins, and therefore, they are personal property not subject to real property tax. (No. 2014-0874—Submitted May 20, 2015—Decided July 15, 2015.) A PPEAL from the Board of Tax Appeals, No. 2011-1854. ____________________ S YLLABUS OF THE C OURT 1. A business fixture is an item of tangible personal property that is permanently attached to the land or to a building, structure, or improvement and primarily benefits the business conducted on the premises. 2. In promulgating R.C. 5701.03, the General Assembly has expressly defined the term “business fixture” to include storage bins, and therefore, they are personal property not subject to real property tax. ____________________ O’D ONNELL , J. {¶ 1} The Metamora Elevator Company filed complaints with the Fulton County Board of Revision (“BOR”), alleging that the grain storage bins on its property assessed by the county auditor as real property for tax purposes should be classified as personal property not subject to real estate tax. The complaints sought removal from the tax assessment of all property value associated with the grain storage bins.

S UPREME C OURT OF O HIO {¶ 2} After conducting a hearing, the BOR declined to change the assessment. Metamora appealed that decision to the Board of Tax Appeals (“BTA”), which determined the storage bins were temporary structures and held they should be classified as personal property, and therefore reversed the BOR. On appeal to this court, the Fulton County auditor and the BOR (collectively, “the county”) contend that the BTA misapplied the statutes when it found that the grain storage bins were personal property. Our review reveals that in 1992, the General Assembly added “business fixtures” as a category of personal property and expressly included storage bins in that category. Because of that statutory change, we affirm the decision of the BTA. F ACTUAL B ACKGROUND {¶ 3} The subject property consists of eight acres of land containing silos, storage bins, tanks, and buildings used to process and store grain. On March 29, 2010, Metamora filed separate complaints with the Fulton County Board of Revision, seeking to reduce the property value of two parcels from $2,022,600 to $1,514,070 and to remove the storage bins from the real property assessment, claiming that they are business fixtures. The BOR conducted a hearing, and at that time, Metamora orally amended its complaints to seek a further reduction of the real estate value to $820,740. {¶ 4} At the hearing before the BOR, Daniel Dembowski testified on behalf of the property owner, urging, along with counsel, that the storage bins are being improperly taxed as real property because they are business fixtures. He explained that on the company’s books, the bins are classified as equipment items. In the past, because personal property used in business was generally taxable, the owner made no effort to correct the county’s classification of the bins from real property to personal property; but the phase-out of the general personal property tax made it important to obtain the proper classification. 2

January Term, 2015 {¶ 5} When explaining photographs of the premises, Dembowski distinguished the concrete silo structures from the corrugated metal storage bins. He conceded that the former are permanent and constitute realty. By contrast, he asserted, the storage bins are modular units of corrugated sheeting bolted down in concrete foundations which can be and sometimes have been disassembled and reassembled, and he stated that Metamora has sold and removed bins in the past. {¶ 6} The BOR rejected the taxpayer’s claim, leaving the assessed valuation unchanged. Metamora then appealed the decision of the BOR to the BTA with respect to only one of the two parcels—a parcel with an initial assessment of $1,833,600 and a requested reduction to a value of $1,435,970. The BTA determined that the grain storage bins were personal rather than real property and therefore reversed the decision of the BOR and determined that the true value of the subject property was $738,240, which it derived from the auditor’s original value of $1,833,600 less the auditor’s value of the storage bins of $1,095,360. {¶ 7} In its analysis, the BTA applied Funtime, Inc. v. Wilkins , 105 Ohio St.3d 74, 2004-Ohio-6890, 822 N.E.2d 781, stating: It is undisputed by the parties that the Supreme Court’s holding in Funtime , supra, guides our analysis of the two statutes at issue, i.e., R.C. 5701.02 and R.C. 5701.03. In that case, the court articulated very specific instructions when reading the statutes: “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 3

S UPREME C OURT OF O HIO item is ‘otherwise specified’ under R.C. 5701.03, it is personal property.” Thus, we must first determine whether the grain storage bins meet one of the statutory definitions for real property set forth in [R.C.] 5701.02. (Footnote omitted.) BTA No. 2011-1854, 2014 WL 2708166, *1-2 (May 2, 2014), quoting Funtime at ¶ 33. {¶ 8} The BTA reviewed the statutory definitions of “structure” and “fixture” related to real property, both of which refer to the “permanent” character of the item or the permanency of its attachment to the land. It then made a specific finding that “the grain storage bins at issue are not permanent, but temporary structures.” Id. at *2. Based on that finding, the BTA concluded that the grain storage bins did not come within the definition of real property in the first instance and thus failed the first prong of the Funtime test. {¶ 9} And in footnote 7 of its opinion, the BTA stated: “Even if we had found that the storage grain bins were real property under R.C. 5701.02, we would have found that they meet the definition of ‘business fixture’ under R.C. 5701.03(B) because it is a category specifically enumerated in the statute.” The BTA summarized the testimony to the effect that the storage bins “were modular, not permanent, they can be removed and sold, and they can be disassembled for repair and subsequently reassembled.” Id . at *1. {¶ 10} In accordance with its holding, the BTA removed the storage bins from the assessment by subtracting from the auditor’s total valuation of $1,833,600 the amount of value computed by the auditor that was attributable to the bins—$1,095,360. The BTA therefore adopted a real property value of $738,240. {¶ 11} The county appealed that decision to this court. 4

January Term, 2015 C LAIMS OF THE L ITIGANTS {¶ 12} The county advances two propositions of law in support of its claim that the grain storage bins are real rather than personal property. {¶ 13} First, that a building or structure on the land is a permanent fabrication or construction that is attached or affixed to land and that increases or enhances utilization or enjoyment of the land, and constitutes an improvement on the land under Article XII, Section 2 of the Ohio Constitution, and must be taxed as real property. {¶ 14} Second, that a building or structure that constitutes a fabrication or construction on the land cannot be a fixture under R.C. 5701.02(C) because a fixture is a discrete and preexisting chattel or item of personal property that is brought to the land and that is then attached or affixed to land. {¶ 15} These arguments rely on the constitutional term “improvements,” which the county asserts is controlling because, it contends, the storage bins are improvements. Thus, it argues under the first proposition of law that “[a]ll classification cases depend upon what constitutes an ‘improvement’ under Article XII, Section 2 of the Ohio Constitution” and under the second proposition of law that “any attempt by the General Assembly to classify constitutional ‘improvements,’ such as a fixture or a structure, as personal property simply because the fixtures might be used in business would be unconstitutional.” {¶ 16} The county views the statutes as subordinate to an underlying constitutional definition of “improvements,” which it claims must guide the reading of the statutes. From that perspective, it contends that the grain storage bins are not “preexisting chattel” because they require assembly on site, are affixed at the site, and provide shelter for grain, which, the county claims, are characteristics of an improvement to land. {¶ 17} In opposition, Metamora urges that the grain storage bins are “impermanent” and therefore “do not meet any of the definitions of real property” 5

S UPREME C OURT OF O HIO contained in R.C. 5701.02 and “even if they did, they are ‘otherwise specified’ as business fixtures” by explicit statutory language in R.C. 5701.03(B). {¶ 18} Thus, we are called upon to determine whether the storage bins at issue are fixtures or improvements subject to real property tax or whether they are business fixtures and should be classified as personal property and, therefore, not subject to real property tax. S TANDARD OF R EVIEW {¶ 19} In this case, we consider the provisions of R.C. 5701.02 and 5701.03 as applied to undisputed facts; therefore, this case presents a question of law and our review is de novo. See Akron Centre Plaza, L.L.C. v. Summit Cty. Bd. of Revision , 128 Ohio St.3d 145, 2010-Ohio-5035, 942 N.E.2d 1054, ¶ 10. D ISPOSITION The term “business fixtures” includes storage bins {¶ 20} Historically, the distinction between fixtures that were real property and fixtures that were personal property was elusive. Compare Zangerle v. Std. Oil Co. of Ohio , 144 Ohio St. 506, 60 N.E.2d 52 (1945) (machinery fixed in place as part of an oil refinery constituted personal property because it was devoted primarily to the business conducted on the premises) and Roseville Pottery, Inc. v. Muskingum Cty. Bd. of Revision , 149 Ohio St. 89, 77 N.E.2d 608 (1948) (kilns that were 245 to 340 feet long and installed on cement slabs in solid connection with floors of the buildings in which the kilns were housed were personal property because they were primarily devoted to the business conducted) with Parkbrook Golf Corp. v. Donahue , 6 Ohio St.2d 198, 217 N.E.2d 211 (1966) (miniature golf course watering system and fence were realty under the definition at R.C. 5701.02 and were therefore not taxable as personal property used in business), Shutter Bug, Inc. v. Kosydar , 40 Ohio St.2d 99, 321 N.E.2d 239 (1974) (photo services kiosk was a structure on the land and therefore realty rather than personal property for tax purposes), and Green Circle Growers, Inc. v. Lorain 6

January Term, 2015 Cty. Bd. of Revision , 35 Ohio St.3d 38, 517 N.E.2d 899 (1988) (greenhouses consisting of prefabricated parts that were attached by bolts to metal pipes embedded in concrete at the location of their use were taxable as realty under definition of real property). {¶ 21} In 1992, however, the General Assembly amended the definitions of “real property” and “personal property” in a manner that resolves that issue in this case. Sub.S.B. No. 272, 144 Ohio Laws, Part I, 1528 (“S.B. 272”). S.B. 272 harmonized the definition of “real property” in R.C. 5701.02 with the definition of “personal property” in R.C. 5701.03. {¶ 22} R.C. 5701.02, relating to real property, defines real property in section (A) to 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.” (Emphasis added.) {¶ 23} R.C. 5701.03, relating to personal property, defines business fixture : (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. (Emphasis added.) It is apparent that the General Assembly has expressed its intent that fixtures are real property and that business fixtures are personal 7

S UPREME C OURT OF O HIO property, and it expressly stated that the term business fixtures includes storage bins. {¶ 24} We should clarify that our decision in Funtime , 105 Ohio St.3d 74, 2004-Ohio-6890, 822 N.E.2d 781, does not necessarily require a two-step analysis with initial consideration given to the definition of “real property” in all instances. For example, in Funtime at ¶ 46 we stated: 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 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. (Emphasis added.) Thus, in Funtime we did not strictly apply the two-step analysis that we announced in ¶ 33 of that opinion. Notably, Funtime held that the amusement park rides in that case were business fixtures. Id. at ¶ 47. {¶ 25} A business fixture is an item of tangible personal property that is permanently attached to the land or to a building, structure, or improvement and 8

January Term, 2015 primarily benefits the business conducted on the premises. R.C. 5701.03(B). In promulgating R.C. 5701.03, the General Assembly has expressly defined the term “business fixture” to include storage bins, and therefore, they are personal property not subject to real property tax. And in clarifying its intent, the General Assembly expressly stated that the term business fixtures includes storage bins. Therefore, our analysis need go no further than to apply the expressed intent of the General Assembly to the undisputed facts of this case. The constitutional argument {¶ 26} The county urges that the statutes must be read and applied in line with the meaning of the word “improvement” as used in Article XII, Section 2 of the Ohio Constitution, and it relies on cases from the 1940s for that interpretation. It argues that under those cases, storage bins are improvements. These cases, however, reveal that its position is incorrect. {¶ 27} In Roseville Pottery , 149 Ohio St. 89, 77 N.E.2d 608, the kilns at issue ranged from 245 to 340 feet long, were installed “on cement slabs in solid connection with floors of the buildings in which the kilns [were] located,” had tracks in them so items could be moved through them during production, and “c[ould] be removed and taken to other locations.” Id . at 91-92, 102. To be removed, however, the kilns had to be “knocked down.” Id . at 92. Those kilns must have been assembled and disassembled on site—much like the grain bins at issue here. {¶ 28} We determined in Roseville that the kilns were personal property— and we did so after acknowledging that if the statutes defining real and personal property conflicted with the Constitution, the Constitution would prevail. In holding that the kilns were personal property, we stated that the controlling features were that the kilns were “peculiarly adapted to the businesses they serve” and they could be “removed and taken to other locations.” Id . at 102. Thus, contrary to the constitutional improvement argument being advanced by the 9

S UPREME C OURT OF O HIO county in this case, in Roseville we based our decision on the fact that the property related more to the particular business being conducted at the plant than to the real estate where the property had been installed. {¶ 29} The General Assembly’s enactment of the “business fixture” definition in 1992 relies upon the very same distinction when it places items in the category of personal property based on their “primarily benefit[ting] the business conducted by the occupant on the premises and not the realty.” R.C. 5701.03(B). It follows that the definition of “business fixture” rests on a sound constitutional basis, justifying our reliance on it. C ONCLUSION {¶ 30} R.C. 5701.03(B), which relates to personal property, 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. {¶ 31} There is no dispute that the items at issue in this case are storage bins, and the General Assembly expressly stated that the term “business fixture” includes storage bins as personal property. For these reasons, we affirm the decision of the BTA. Decision affirmed. O’C ONNOR , C.J., and P FEIFER , L ANZINGER , K ENNEDY , F RENCH , and O’N EILL , JJ., concur. __________________ Bricker & Eckler, L.L.P., and Jonathan T. Brollier, for appellee. Rich & Gillis Law Group, L.L.C., Kelley A. Gorry, and James R. Gorry, for appellants. 10

January Term, 2015 Chad A. Endsley, Leah F. Curtis, and Amy M. Milam, urging affirmance for amici curiae Ohio Farm Bureau Federation, Inc., and Fulton County Farm Bureau. Kohrman, Jackson & Krantz, Luther L. Liggett Jr., and David M. Scott, urging affirmance for amicus curiae Central Ohio Farmers Co-Op. Barrett, Easterday, Cunningham & Eselgroth, L.L.P., David C. Barrett Jr., Kristi Kress Wilhelmy, and Amanda J. Stacy, urging affirmance for amicus curiae Ohio AgriBusiness Association. __________________ 11

ST 1999-01 - Sale and Installation of Computer Cabling - March, 1999; Revised December, 2019 This Information Release is updated to announce a change in the Department of Taxation's application of sales and use tax to the sale and installation of computer cabling. This change is made in response to a recent decision of the Ohio Board of Tax Appeals (Board) in the case Nationwide Mutual Insurance Company v. McClain (October 22, 2019), BTA Case No(s) 2018-313, 2018, 315 – 318 which overturned the Board’s previous decision in Newcome Corporation v. Tracy (December 11, 1998), BTA Case No. 97-M- 320. In the Newcome case, the Board determined that computer cabling was not a type of communication line that was "common to buildings." The Board also found that computer cabling primarily benefits the business conducted by the occupant of the building rather than the building, itself. Therefore, the Board ruled that installed computer cabling is a business fixture, within the meaning of section 5701.03(B) of the Revised Code, and is to be treated as tangible personal property, not realty. Conversely, in the Nationwide case, the Board concluded that computer cabling does not constitute a “business fixture” within the meaning of section 5701.03(B) of the Revised Code, and is to be treated as real property. The communication lines at issue are now “as common to a commercial property as telephone li nes and coaxial cables were in the past.” It is now clear that computer cabling for VoIP and internet communications are industry standards and incorporated into real property. This decision changes the Department's position on the application of sales and use tax effective October 22, 2019. Since computer cabling is incorporated into reality, it constitutes a construction contract under R.C. 5739.01(B)(5), and the sale and installation of such cabling is not subject to the sales tax. Persons who sell and install computer cabling should incur use tax on the cost of the cabling unless the customer desires specialized networks to meet a technical requirement. It is under the latter circumstances that the computer cabling would retain its status as tangible personal property as a business fixture after it is installed into realty. For audit purposes, this interpretation will be applied to all future transactions involving the installation of computer cabling. It will also be applied to any past transactions if, at the time of the transaction, the construction contractor neither collected tax as a vendor nor paid tax as a construction contractor. If a construction contractor who acted as a seller and installer of computer cabling or its customer seeks a refund of the tax paid on a past transaction, that seller and installer will be expected to accrue use tax as a construction contractor. The provisions of this release do not apply to any conduits and corresponding cabling for public utilities and telecommunications companies that are placed in public rights-of-way or private rights-of-way from the street to a building. Please call us at 1-888-405-4039 with any questions regarding this release. OHIO RELAY SERVICES FOR THE HEARING OR SPEECH IMPAIRED Phone: 1-800-750-0750

OHIO BOARD OF TAX APPEALS NATIONWIDE MUTUAL INSURANCE COMPANY, (et. al.), ) ) CASE NO(S). 2018-313, 2018-315, Appellant(s), ) 2018-316, 2018-317, 2018-318 ) vs. ) ) (SALES TAX) JEFFREY A. MCCLAIN, TAX ) COMMISSIONER OF OHIO, (et. ) DECISION AND ORDER al.), ) ) Appellee(s). APPEARANCES: For the Appellant(s) - NATIONWIDE MUTUAL INSURANCE COMPANY Represented by: ADAM L. GARN ZAINO HALL & FARRIN LLC 41 SOUTH HIGH STREET, SUITE 3600 COLUMBUS, OH 43215 For the Appellee(s) - JEFFREY A. MCCLAIN, TAX COMMISSIONER OF OHIO Represented by: CHRISTINE T. MESIROW ASSISTANT ATTORNEY GENERAL OFFICE OF OHIO ATTORNEY GENERAL 30 EAST BROAD STREET, 25TH FLOOR COLUMBUS, OH 43215 Entered Tuesday, October 22, 2019 Mr. Harbarger, Ms. Clements, and Mr. Caswell concur. The appellant taxpayer, Nationwide Mutual Insurance Company (“Nationwide”), appeals several final determinations of the Tax Commissioner, in which he denied Nationwide’s application for refund of sales tax. This matter is now considered upon the notices of appeal, the transcripts certified by the Tax Commissioner, joint stipulations of fact, and the parties’ written argument. At issue in the present appeal is whether Nationwide illegally or erroneously paid sales tax on the installation of communication cabling for Voice over Internet Protocol (“VoIP”) and internet. During a rehabilitation of its headquarters in Columbus, Nationwide engaged -1-

contractors to install the communication lines, which are standard CAT-5 or CAT-6 cabling and common to office buildings and other commercial buildings. The cabling was installed underneath the floors, above the ceilings, and in the walls, affixed to the building in the same way as are telephone lines and electric lines. Nationwide applied for a refund of the sales tax paid during the period from July 1, 2010 through December 31, 2012 related to the communication cabling and its installation, claiming that the installation constituted improvements to real property. After the commissioner denied its refund claim, Nationwide requested a hearing and presented additional evidence. The commissioner then issued final determinations affirming the denial of the claimed refund, indicating that the cabling constitutes a business fixture, citing to this board’s decision in Newcome Corp. v. Tracy (Dec. 11, 1998), BTA No. 97-M-320, unreported. Nationwide appealed to this board asserting that because it is incorporated into the real property, the cabling and installation thereof is not a “retail sale,” but rather a construction contract not subject to sales tax. As such, Nationwide contends, the commissioner erroneously denied its refund claim. The commissioner argues that Nationwide’s refund claims “fall squarely within” this board’s decision in Newcome , which found that the same kind of cabling at issue is a business fixture because it benefits the business conducted in the building and not the building itself. On appeal, a taxpayer challenging a determination of the commissioner must prove that the findings were incorrect because “the tax commissioner’s findings are presumed valid subject to rebuttal.” Accel, Inc. v. Testa , 152 Ohio St.3d 262, 2017-Ohio-8798, ¶14. The findings of the Tax Commissioner are presumptively valid. Alcan Aluminum Corp. v. Limbach , 42 Ohio St.3d 121 (1989). Consequently, it is incumbent upon a taxpayer challenging a determination of the -2-

commissioner to rebut the presumption and to establish a clear right to the requested relief. Belgrade Gardens v. Kosydar , 38 Ohio St.2d 135 (1974); Midwest Transfer Co. v. Porterfield , 13 Ohio St.2d 138 (1968). In this regard, the taxpayer is assigned the burden of showing in what manner and to what extend the commissioner’s determination is in error. Federated Dept. Stores, Inc. v. Lindley , 5 Ohio St.3d 213 (1983). In general, excise taxes are imposed upon all retail sales made in Ohio (sales tax), in addition to any storage, use, or consumption in this state of any tangible personal property (use tax), unless the transaction is specifically exempted. R.C. 5739.02; 5741.02. When an item of tangible personal property is incorporated into real property pursuant to a construction contract, the contractor is considered the consumer of the personal property and is responsible for the payment of the sales (or use) tax. R.C. 5739.01(B)(5). Real property generally includes the land along with all buildings, structures, improvements, and fixtures on the land. R.C. 5701.02(A). Excluded from this definition, however, are “business fixtures,” which are defined by R.C. 5701.03(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’ 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 -3-

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 Newman , this board concluded that communications cabling was a business fixture because it primarily benefited the business occupant and was not a communication line common to buildings. We commented that at that time (1998), “[a]s is obvious to even the most casual observer, computer equipment is evolving at a rapid pace.” Id. at 3. We also noted that despite the existence of “industry standard” cable installation, due to this rapid change in computer equipment and increasing use of computer networks, at that time existing cabling was rarely used when systems were upgraded or installed. Thus, we concluded that the cabling at issue was “designed to meet the technical requirements of the individual business consumer,” “would not be found in every building, nor would it be available to or even usable by other building occupants.” Id. at 19. As such, the board found that the cabling in that case was not common to buildings and fell within the definition of business fixture. Following this decision, the commissioner issued an Information Release to announce a change in the application of sales and use tax to the sale and installation of computer cabling based on the Newcome decision, indicating that it would now consider the sale and installation of such cabling to be a sale subject to the sales tax. Ohio Dept. of Taxation Information Release ST 1999-01 (Mar. 1999), “Sale and Installation of Computer Cabling.” In this case, we find that the cabling at issue does not constitute a “business fixture” but rather is incorporated into the real property. The parties stipulated that if Nationwide were to abandon the buildings in which the cabling was installed, “any business relocating into those buildings could be able to use the communication lines for its VoIP and internet -4-

communications. *** The communication lines were not designed to meet the requirements of the specific business Nationwide conducts in the buildings. They could be installed in any office building for VoIP and internet communications and are as common to commercial property as telephone lines and coaxial cables were in the past.” Thus, it is clear that the cabling at issue (and all industry standard communication cabling) is a communication line that is incorporated into real property, as opposed to a specialized network designed to meet technical requirements of an individual business consumer. As such, we agree with Nationwide that its installation constitutes a construction contract under R.C. 5739.01(B)(5) and not a retail sale subject to sales tax. Furthermore, the Information Release that applies Newcome to the sale and installation of all computer cabling is incorrect given the ubiquitous presence of industry-standard cabling in commercial buildings. This is not to say that a specialized network of computer cabling would never be considered a business fixture, but those are not the facts in this case. Based upon the foregoing, we find that Nationwide has met its burden of proof to demonstrate that its refund claim regarding the sales tax paid for its purchase of communications cabling and installation thereof was improperly denied. Accordingly, we reverse the commissioner’s final determinations. I hereby certify the foregoing to be a BOARD OF TAX APPEALS true and complete copy of the action taken by the Board of Tax Appeals of the State of Ohio and entered upon its RESULT OF VOTE YES NO journal this day, with respect to the captioned matter. Mr. Harbarger Ms. Clements Mr. Caswell _____________________________ Kathleen M. Crowley, Board Secretary -5-

[Cite as Willoughby Hills Dev. & Distrib., Inc. v. Testa , 155 Ohio St.3d 276, 2018-Ohio-4488.] W ILLOUGHBY H ILLS D EVELOPMENT AND D ISTRIBUTION , I NC ., A PPELLANT , v . T ESTA , T AX C OMMR ., A PPELLEE . [Cite as Willoughby Hills Dev. & Distrib., Inc. v. Testa , 155 Ohio St.3d 276, 2018-Ohio-4488.] Commercial-activity tax—Gross receipts—Gasoline distributor not eligible for gross-receipts exclusion from commercial-activity tax under R.C. 5751.01(F)(2)(l) because it was not acting as agent of manufacturer/supplier when selling gasoline to retailers—Board of Tax Appeals’ decision affirmed. (No. 2016-1137—Submitted June 26, 2018—Decided November 7, 2018.) A PPEAL from the Board of Tax Appeals, No. 2015-1069. _________________ Per Curiam. {¶ 1} Appellant, Willoughby Hills Development and Distribution, Inc. (“WHDD”), appeals a Board of Tax Appeals (“BTA”) decision that affirmed appellee tax commissioner’s denial of WHDD’s request for a commercial-activity- tax (“CAT”) refund. Subject to certain exclusions, the CAT is levied on each person or entity with taxable gross receipts above a certain threshold for the privilege of doing business in Ohio. See R.C. 5751.01 et seq. The issue here involves whether WHDD can meet the requirements of a gross-receipts exclusion that applies when a person or entity acts as an agent for another. We conclude that WHDD falls short of the requirements necessary for the exclusion to apply, and we accordingly affirm the BTA’s decision. FACTS AND PROCEDURAL BACKGROUND {¶ 2} WHDD is a Wickliffe-area distributor engaged in the business of purchasing and reselling gasoline to retailers located throughout northern Ohio.

S UPREME C OURT OF O HIO WHDD’s purchasing activities with Sunoco, Inc. (R&M) (“Sunoco”) and its reselling activities with retailer Sopinski Enterprises, Inc. (“Sopinski”) lie at the heart of this appeal. The Sunoco agreement {¶ 3} In 2004, WHDD negotiated an agreement with Sunoco under which Sunoco agreed to sell and WHDD agreed to purchase a Sunoco product styled “branded motor fuel,” a term referring to gasoline that Sunoco manufactures/supplies and delivers for purposes of resale under trademarks, trade names, and trade dress in which Sunoco has exclusive rights. We will refer to Sunoco’s bundle of trademarks, trade names, and trade dress as its “intangible assets.” {¶ 4} The agreement’s initial term was for 11 years, commencing January 1, 2004, and ending December 31, 2014. For each year, the agreement specifies the volume of gasoline that WHDD would purchase from Sunoco. WHDD’s purchasing volume generally increased over those 11 years, with WHDD agreeing to purchase 11.5 billion gallons in the first year and 15.5 billion gallons in the final year. The parties elected not to fix WHDD’s purchase price; instead, WHDD was to pay the price in effect at the time and place of delivery—WHDD refers to this as a type of “open price term” contemplated by R.C. 1302.18. {¶ 5} WHDD and Sunoco agreed that WHDD’s purchase and resale of gasoline to retailers consistently with Sunoco’s brand and image requirements formed the “essence” of their agreement. To this end, their agreement memorializes WHDD’s understanding of the “importance of the image conveyed to the public” by retailers that are authorized to use Sunoco’s intangible assets. Sunoco subjects those retailers to minimum standards and requirements that are set forth in a Sunoco image-standard manual. For example, the building, poles, and curbs located at each retailer’s premises must be painted in Sunoco-approved colors. 2

January Term, 2018 {¶ 6} The agreement denominates WHDD as an independent contractor and forbids WHDD to act as Sunoco’s agent or employee. Additionally, the agreement provides that WHDD may not “make any commitments or incur any expense or obligations of any kind on behalf of” Sunoco in the absence of Sunoco’s approval. The Sopinski agreement {¶ 7} In 2009, WHDD negotiated an agreement with Sopinski, a retailer, entitled “Product Sales Agreement.” This is the only agreement in the record between WHDD and a retailer; however, the parties have treated it as representative of WHDD’s contractual relationships with other retailers. {¶ 8} Under the agreement, Sopinski agreed to purchase its requirements of gasoline from WHDD. The agreement spans 15 years, commencing June 1, 2009, and ending May 31, 2024. Over this term, Sopinski obliged itself to purchase 33.375 million gallons of gasoline from WHDD. Sopinski agreed to pay the price that Sunoco charged to WHDD, subject to various upward adjustments. The agreement bars WHDD from “direct[ing] or control[ling]” Sopinski’s operations and employees. Proceedings before the tax commissioner {¶ 9} WHDD filed returns and paid taxes pursuant to the CAT statute. Thereafter, in January 2012, WHDD filed with the tax commissioner an application for a CAT refund, see R.C. 5751.08, in the amount of $417,228 for the period October 2007 through September 2011. WHDD predicated its refund claim on an alleged agency relationship with Sunoco. The tax commissioner, however, determined that no agency relationship existed and accordingly denied the claim. The tax commissioner based his decision in significant part on the language of the Sunoco agreement that describes WHDD as an independent contractor that lacks authority to act as Sunoco’s agent. The tax commissioner rejected the contention that Sunoco exercised sufficient control over WHDD such that it elevated their 3

S UPREME C OURT OF O HIO relationship to one of principal and agent, noting that Sunoco did not place supervisors or managers on WHDD’s premises to monitor WHDD’s work. BTA proceedings {¶ 10} WHDD appealed to the BTA, where its counsel asserted that WHDD should be deemed the agent of Sunoco because of what WHDD viewed as its responsibility to protect Sunoco’s intangible assets when they are used by retailers such as Sopinski. WHDD presented testimony from Tony Continenza, WHDD’s operation director, who testified that Sunoco instructs WHDD concerning the implementation at retail sites of credit-card programs, imaging operations, uniform protocols, and color schemes. He further explained that WHDD’s distributorship is exclusive to Sunoco and that all of WHDD’s relationships with retailers are memorialized in written agreements. No one from Sunoco or from any retailer appeared to testify. {¶ 11} The BTA affirmed the tax commissioner’s final determination, finding no agency relationship between WHDD and Sunoco. The BTA determined that WHDD was not acting on behalf of Sunoco when WHDD sold gasoline to retailers; rather, the BTA observed, the sales were made between WHDD and retailers in accord with their respective sales agreements. The BTA further determined that Sunoco did not exercise sufficient control over WHDD’s operations for WHDD to be its agent and that WHDD offered no evidence to justify the disregard of its agreement with Sunoco forbidding it to act as Sunoco’s agent. WHDD then filed this appeal. STANDARD OF REVIEW {¶ 12} We will affirm a BTA decision that is reasonable and lawful. Satullo v. Wilkins , 111 Ohio St.3d 399, 2006-Ohio-5856, 856 N.E.2d 954, ¶ 14. We apply de novo review to the BTA’s resolution of legal questions. Crown Communication, Inc. v. Testa , 136 Ohio St.3d 209, 2013-Ohio-3126, 992 N.E.2d 1135, ¶ 16. But the BTA’s findings concerning the weight of the evidence receive deference if there 4

January Term, 2018 is record support for them. Kinnear Rd. Redevelopment, L.L.C. v. Testa , 151 Ohio St.3d 540, 2017-Ohio-8816, 90 N.E.3d 926, ¶ 14. DISCUSSION The CAT {¶ 13} The CAT is “levied * * * on each person with taxable gross receipts for the privilege of doing business in this state.” R.C. 5751.02(A); see also R.C. 5751.01(A) (defining “person” for purposes of CAT statute as including companies “and any other entities”). “[G]ross receipts” is defined 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.” R.C. 5751.01(F). As an example, “gross receipts” includes “[a]mounts realized from the sale, exchange, or other disposition of the taxpayer’s property to or with another.” R.C. 5751.01(F)(1)(a). {¶ 14} In spite of its broad sweep, the term “gross receipts” is not without limits. One limitation is that “[p]roperty, money, and other amounts received or acquired by an agent on behalf of another in excess of the agent’s commission, fee, or other remuneration” are excluded from “gross receipts.” R.C. 5751.01(F)(2)(l). An “[a]gent” is “a person authorized by another person to act on its behalf to undertake a transaction for the other,” R.C. 5751.01(P), and includes “[a] person retaining only a commission from a transaction with the other proceeds from the transaction being remitted to another person,” R.C. 5751.01(P)(2). 1 1 The tax commissioner has adopted a rule interpreting R.C. 5751.01(P)’s definition of “agent.” See Ohio Adm.Code 5703-29-13. But the tax commissioner’s brief does not urge us to apply the rule, and WHDD’s brief asserts that it does not apply. Given the absence of adversarial briefing on the rule, we decline to address it. See Sizemore v. Smith , 6 Ohio St.3d 330, 333, 453 N.E.2d 632 (1983), fn. 2. 5

S UPREME C OURT OF O HIO Which of WHDD’s activities matter for the purpose of determining whether it is an agent of Sunoco under the CAT? {¶ 15} Before determining whether WHDD is an agent of Sunoco, we address an antecedent question: which of WHDD’s activities matter for the purpose of determining whether it is an agent under the CAT statute? {¶ 16} WHDD’s argument that it is Sunoco’s agent rests on the claim that it is responsible for managing and protecting Sunoco’s intangible assets. WHDD points to language in its agreement with Sunoco that directs it to “use [its] best efforts to require [its] Retailers to operate retail locations identified with [Sunoco’s intangible assets]” in a manner consistent with Sunoco’s “minimum requirements as to product offering, image, appearance and service.” At the BTA hearing, Continenza fleshed out aspects of this directive. He discussed a Sunoco manual that prescribes, among other things, the proper placement of logos, signs, and stickers at retail sites. Continenza explained that Sunoco “hold[s] us, [WHDD], directly responsible for complete imaging of that station.” If WHDD or a retailer served by WHDD fails to comply with Sunoco’s “minimum image standards and requirements,” WHDD shall be deemed “noncomplian[t] with a material provision” of the agreement. {¶ 17} The tax commissioner, on the other hand, claims that these activities have nothing to do with WHDD’s generation of gross receipts. According to the tax commissioner, the focal point should instead be on WHDD’s sales of gasoline to retailers as viewed through the lens of R.C. 5751.01(F)(1)(a). {¶ 18} We agree with the tax commissioner. R.C. 5751.01(F)(1)(a) provides that “gross receipts” includes “[a]mounts realized from the sale, exchange, or other disposition of the taxpayer’s property to or with another.” Thus, WHDD’s computation of gross receipts must include the amounts it realizes from selling its property to another. Here, under the section of WHDD’s contract with Sopinski entitled “Purchase and Sale of Products,” WHDD agreed to “sell” gasoline and 6

January Term, 2018 Sopinski agreed to “purchase and pay” WHDD for that gasoline. Given this clause, if WHDD was selling its own gasoline to Sopinski rather than someone else’s, then the amounts realized from selling this gasoline are includable as WHDD’s gross receipts. The terms of WHDD’s contract with Sunoco confirm that WHDD was selling its own gasoline to Sopinski. In the contract’s preamble, Sunoco agreed that it would “sell” and WHDD agreed that it would “purchase” Sunoco’s gasoline. And under the section of the contract entitled “Delivery and Receipt of Products,” WHDD agreed to take title to and accept the risk of loss on the gasoline upon delivery by Sunoco. 2 In taking title, WHDD acquired “the legal right to control and dispose of property,” Black’s Law Dictionary 1712 (10th Ed.2014). {¶ 19} WHDD stresses that its agreement with Sunoco states that WHDD’s purchase and resale of Sunoco’s gasoline “consistent with [Sunoco]’s standards and image requirements, is the essence of this Agreement.” An essence provision in a contract is generally understood to convey that a contractual requirement is “so important that if the requirement is not met, the promisor will be held to have breached the contract and a rescission by the promisee will be justified.” Id. at 1260. But while an essence provision may empower a party to rescind on a contract, it does not define the scope of a tax statute, a central inquiry here. {¶ 20} WHDD next claims that the price that it pays to Sunoco for the gasoline it resells to retailers encompasses the services it provides for Sunoco (i.e., managing and protecting Sunoco’s intangible assets). WHDD’s contract with Sunoco belies this theory—the contract speaks to sales of gasoline, not sales of services. And WHDD points to nothing else in the record to controvert the 2 WHDD apparently seeks to discount the import of this clause, asserting that “[t]hough the Distributor Agreement [with Sunoco] states that WHDD takes title to the gasoline, WHDD’s agreement with [Sopinski] states that title passes to the retail station at the Sunoco loading facility.” That argument is a reference to a passage in the Sopinski agreement stating that the gasoline “shall be delivered to [Sopinski] F.O.B.” at the loading facility. But it is not clear why the passage of title to Sopinski at the loading facility (as opposed to somewhere else) should matter for CAT purposes, and in any event, WHDD does not develop an argument to show why it should. 7

S UPREME C OURT OF O HIO contract’s plain terms. See Sunoco, Inc. (R&M) v. Toledo Edison Co. , 129 Ohio St.3d 397, 2011-Ohio-2720, 953 N.E.2d 285, ¶ 37 (“When the language of a written contract is clear, a court may look no further than the writing itself to find the intent of the parties”). {¶ 21} Another version of WHDD’s argument asserts that the gasoline and the intangible assets should be treated as one product. In support of this argument, WHDD cites two federal-court decisions, Hamro v. Shell Oil Co. , 674 F.2d 784, 787-788 (9th Cir.1982), and Smith v. Mobil Oil Corp. , 667 F.Supp. 1314, 1328 (W.D.Mo.1987), in which the courts determined that gasoline and the trademark identifying the gasoline should not be viewed as separate products for the purpose of a tying claim under antitrust law. The focal point here, however, is not on how best to understand the attributes of a particular product in the context of a tying claim; rather, it is on what actions should count when assessing whether one is an agent for CAT purposes. WHDD claims that its actions of superintending Sunoco’s intangible assets against retailers provide the polestar of that inquiry. But Hamro and Smith , with their product-based focus, have nothing to say about that inquiry. {¶ 22} In sum, if WHDD is to benefit from the gross-receipts exclusion that applies to agents, WHDD’s entitlement to that exclusion must turn on its acts of purchasing and selling gasoline, not on its responsibilities associated with managing and protecting Sunoco’s intangible assets. Does WHDD meet the CAT statute’s definition of “agent”? {¶ 23} Under the CAT statute, an “[a]gent” is “a person authorized by another person to act on its behalf to undertake a transaction for the other.” R.C. 5751.01(P). Because “agent” is defined by statute, WHDD must meet the definition’s requirements. See Good Samaritan Hosp. of Dayton v. Porterfield , 29 Ohio St.2d 25, 30, 278 N.E.2d 26 (1972) (“Where a statute defines terms used therein, such definition controls in the application of the statute * * *”); Gardner Plumbing, Inc. v. Cottrill , 44 Ohio St.2d 111, 115, 338 N.E.2d 757 (1975) (party 8

January Term, 2018 who asserts the existence of an agency relationship shoulders the burden of proving it). {¶ 24} The first condition that must be met under the statute is that the “agent” be a “person authorized” to act on another’s behalf. R.C. 5751.01(P). In other words, the person must be “endowed with authority.” Webster’s Third New International Dictionary 147 (2002) (defining “authorized”). As we explained above, that authority should be linked to WHDD’s gasoline dealings. {¶ 25} Authority is a concept with different shades of meaning. Compare State v. Billingsley , 133 Ohio St.3d 277, 2012-Ohio-4307, 978 N.E.2d 135, ¶ 26 (discussing apparent authority) with Damon’s Missouri, Inc. v. Davis , 63 Ohio St.3d 605, 608, 590 N.E.2d 254 (1992) (discussing actual authority). The CAT statute does not define the type of authority that must be bestowed on a person or entity to create an agency relationship for CAT purposes. But authority is a concept the roots of which may be traced to the common law of agency, Kerans v. Porter Paint Co. , 61 Ohio St.3d 486, 498, 575 N.E.2d 428 (1991) (Holmes, J., dissenting), and common-law understandings of this term thus provide proper indicia of statutory meaning, Scalia & Garner, Reading Law: The Interpretation of Legal Texts 320 (2012) (“A statute that uses a common-law term, without defining it, adopts its common-law meaning” [boldface omitted]). 3 {¶ 26} In Cincinnati Golf Mgt., Inc. v. Testa , 132 Ohio St.3d 299, 2012- Ohio-2846, 971 N.E.2d 929, we analyzed the issue of authority in deciding a question of agency in a sales-and-use-tax case. There, a company in charge of managing a city’s golf courses claimed that it was acting as the city’s agent when the company made certain purchases from vendors in the course of performing its 3 While R.C. 5751.01(K) provides that “[a]ny term used in this chapter that is not otherwise defined has the same meaning as when used in a comparable context in the laws of the United States relating to federal income taxes unless a different meaning is clearly required,” the parties do not identify any provision of federal-income-tax law that sheds light on how to discern the meaning of authority within the confines of agency principles. 9

S UPREME C OURT OF O HIO management duties. In the company’s view, this alleged agency relationship rendered the purchases nontaxable under an exemption provision for sales to political subdivisions. {¶ 27} The relevant statutes did not provide an answer to the question, so we looked to common-law understandings embodied in the case law and the Restatement. Based on those sources, we observed that the proper inquiry should center on whether the company had actual authority to bind the city to the company’s purchases, id. at ¶ 23-24, and that that issue should turn on the language of the company’s management contract with the city, id. at ¶ 25. “[O]ne of the most important features of the agency relationship is that the principal itself becomes a party to contracts that are made on its behalf by the agent” (emphasis sic), id. at ¶ 23, and “that the agent make the contracts on the principal’s behalf with actual authority to do so ” (emphasis sic), id. at ¶ 24. Paraphrasing the Restatement, we described actual authority as “an expression of intent by the principal that the agent act on behalf of the principal, along with the understanding of the agent.” Id. , citing 1 Restatement of the Law 3d, Agency, Section 3.01 (2006). Applying these principles, we concluded that the company was not endowed with actual authority to bind the city to the company’s purchases, because the contract between the company and the city expressly disclaimed an agency relationship. Id. at ¶ 25. {¶ 28} This case parts ways from Cincinnati Golf Mgt. insofar as it does not involve an exemption provision relating to sales-and-use-tax law but, rather, an exclusion relating to the CAT. But that difference is immaterial. In Cincinnati Golf Mgt. , we concluded that “the issue before us concerns the agency doctrine of authority.” Id. at ¶ 23. And here, the primacy of a putative agent’s authority to act for another arises by virtue of R.C. 5751.01(P)’s definition of “agent,” which uses the term “authorized” to modify “person.” Because the meaning of “authority” derives from agency principles, not from the definition of a particular tax statute, 10

January Term, 2018 there is no impediment to applying the logic of Cincinnati Golf Mgt. to the questions raised here. {¶ 29} Turning to WHDD’s contracts, a key set of clauses weigh in favor of concluding that WHDD was not acting as Sunoco’s agent when it sold gasoline to retailers. First, the Sunoco contract provides that WHDD “is an independent contractor” and “is not authorized to act as an agent * * * of [Sunoco].” While labels used in a contract are not controlling, Hope Academy Broadway Campus v. White Hat Mgt., L.L.C. , 145 Ohio St.3d 29, 2015-Ohio-3716, 46 N.E.3d 665, ¶ 41 (lead opinion), that provision is hardly “an expression of intent by the principal that the agent act on behalf of the principal,” Cincinnati Golf Mgt. , 132 Ohio St.3d 299, 2012-Ohio-2846, 971 N.E.2d 929, at ¶ 24. Second, that contract provides that WHDD “is not authorized * * * to make any commitments or incur any expense or obligations of any kind on behalf of [Sunoco]” unless Sunoco gives its approval. That provision marks a departure from “one of the most important features,” id. at ¶ 23, of an agency relationship, by in effect precluding WHDD, in the absence of Sunoco’s approval, from binding Sunoco to WHDD’s sales contracts with retailers. And notably, WHDD has not pointed to anything in the record showing that Sunoco has elsewhere granted such approval. The Sopinski contract reinforces the divide that exists between WHDD and Sunoco. It denominates WHDD—not Sunoco— as the seller of gasoline; indeed, Sunoco is not a party to that contract. {¶ 30} In addition, WHDD was not “act[ing] on [another’s] behalf,” R.C. 5751.01(P). “A purchaser is not ‘acting on behalf of’ a supplier in a distribution relationship in which goods are purchased from the supplier for resale. A purchaser who resells goods supplied by another is acting as a principal, not an agent.” 1 Restatement of the Law 3d, Agency, Section 1.01, at 30. Thus, WHDD was not acting as Sunoco’s agent when it sold gasoline to retailers; instead, it was acting as a principal for its own benefit. 11

S UPREME C OURT OF O HIO {¶ 31} Fischer v. Havelock , 134 Cal.App. 584, 25 P.2d 864 (1933), a tort- liability decision cited by WHDD, does not require a different result. In that case, the court found that a distributor of gasoline was the agent of the supplier, in part because the distributor never purchased the gasoline from the supplier. Id. at 588. Here, however, WHDD’s contract with Sunoco plainly contemplates that WHDD purchase and take title to the gasoline. Does the control test inform the agency analysis? {¶ 32} WHDD urges us to steer away from Cincinnati Golf Mgt. and instead apply the branch of agency law concerned with the control test. This argument picks up on a theme described above, with WHDD emphasizing that Sunoco exercises control over WHDD’s responsibilities for managing and protecting Sunoco’s intangible assets when they are used by retailers. WHDD additionally asserts that Sunoco exercises control over it with respect to its involvement with Sunoco’s credit- and debit-card programs, through which Sunoco makes certain card equipment available to WHDD, which then passes the equipment along to retailers. Under the agreement, WHDD is required to train its own personnel and retailers on how to use the card equipment in strict compliance with Sunoco’s directives. If WHDD fails to follow the requirements of the card program, Sunoco is permitted to terminate the agreement. Taking things a step further, WHDD asserts that Sunoco’s control is reflected not only in the duties assigned in the Sunoco contract but also in the duties Sunoco later assigned via interim instructions. {¶ 33} Dispositive here is that in Cincinnati Golf Mgt. , we declined an invitation to follow the control test: “Despite the extensive discussion of the control test by the BTA and the parties, we conclude that the proper focus is on whether or not CGMI [Cincinnati Golf Management, Inc.] had an agent’s actual authority to bind Cincinnati as the purchaser in the transactions at issue.” 132 Ohio St.3d 299, 2012-Ohio-2846, 971 N.E.2d 929, at ¶ 20. Accordingly, we reject WHDD’s invocation of the control test under these circumstances. 12

January Term, 2018 {¶ 34} Even assuming that the control test applied, WHDD’s agency argument would still falter. “[T]he legal consequences of agency may attach to only a portion of the relationship between two persons, a fact that dictates care in using the term ‘agency relationship.’ ” 1 Restatement of the Law 3d, Agency, Section 1.01, at 18. As noted above, the focal point of this case is WHDD’s gasoline dealings. Thus, WHDD would need to show that Sunoco exercised sufficient control over WHDD’s sales of gasoline to retailers. But WHDD does not develop an argument on this point. Moreover, the Sunoco contract provides that WHDD is “free to select its customers and set its own selling prices and terms of sale” in dealing with retailers and that WHDD is “in total control of [its] business and the [gasoline] and other products covered” in the agreement. The separateness of WHDD and Sunoco was reaffirmed by Continenza, who testified that Sunoco does not refer retailers to WHDD. CONCLUSION {¶ 35} For the foregoing reasons, we affirm the BTA’s decision. Decision affirmed. O’C ONNOR , C.J., and O’D ONNELL , F RENCH , F ISCHER , D E W INE , and D E G ENARO , JJ., concur. K ENNEDY , J., concurs in judgment only. _________________ Timothy G. Teresczuk Co., L.P.A., and Timothy G. Teresczuk, for appellant. Michael DeWine, Attorney General, and Barton A. Hubbard, Assistant Attorney General, for appellee. _________________ 13

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

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.