L. J. Minor Corp. v. Breitenbach ( 1996 )

L. J. Minor Corporation, Appellant, v. Breitenbach, Cleveland Tax
Administrator, Appellee.
[Cite as L. J. Minor Corp. v. Breitenbach (1996), Ohio St.3d .]
Taxation -- Municipal income taxes -- Food products company
operating a manufacturing plant in city of Cleveland and a
warehouse and shipping facility in city of Brecksville not required
to pay municipal income taxes to Cleveland on sales resulting
from purchase orders received in Cleveland from customers
located outside Cleveland when products that filled those orders
were shipped to the customers from inventory stored in
Brecksville -- R.C. 718.02(A), applied.
(No. 95-1774 -- Submitted October 8, 1996 -- December 18, 1996.)
APPEAL from the Court of Appeals for Cuyahoga County, No. 67885.
From 1984 through 1988, appellant, L. J. Minor Corporation (“Minor”),
owned and operated a manufacturing plant in the city of Cleveland and a
warehouse and shipping facility in the city of Brecksville. Minor produced
food products at the Cleveland plant and shipped those products to the
Brecksville warehouse to be stored in inventory pending the receipt of purchase
orders from customers. Purchase orders received at the Cleveland plant were
forwarded to the Brecksville warehouse. Minor employees working at the
Brecksville warehouse then filled the orders from the Brecksville inventory and
shipped the orders via common carrier from Brecksville to Minor’s customers.
For tax years 1984 through 1988, Minor calculated and paid net profit
tax (“income tax”) to Cleveland by treating all shipments of goods made from
the Brecksville warehouse as Cleveland sales. For tax years 1984 through
1987, Minor also paid municipal income tax to the city of Brecksville, treating
the same shipments of goods from the Brecksville warehouse as Brecksville
sales.
Minor later sought a tax refund from Cleveland for overpayment of
income taxes from 1984 through 1988. Minor did not dispute that taxes were
payable to Cleveland for products shipped from Brecksville to customers
located in Cleveland. Minor maintained, however, that taxes were not payable
to Cleveland for products shipped from Brecksville to customers located
outside Cleveland. The Cleveland Tax Administrator denied Minor’s request
for a tax refund.
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Minor appealed the Tax Administrator’s decision to the Cleveland Board
of Review, which upheld the decision of the administrator on the theory that
the intent of the relevant tax legislation was to attribute sales to the city where
“a significant part of the activity comprising the entire sales process occurs[.]”
The board concluded that because a “significant portion of activity with respect
to the sales of the products” occurred in Cleveland and because the Brecksville
warehouse was “little more than a way station, *** sales of Minor’s food
products shipped from its Cleveland plant/general offices are ‘sales made in the
City’ for purpose of taxation[.]”
The Common Pleas Court of Cuyahoga County affirmed the board of
review. The Court of Appeals for Cuyahoga County in a split decision
affirmed the court of common pleas, finding that the board’s decision was not
unreasonable, arbitrary or unsupported by the evidence.
The cause is now before this court upon the allowance of a discretionary
appeal.
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Jones, Day, Reavis & Pogue and Roger F. Day, for appellant.
Sharon Sobol Jordan, Cleveland Law Director, and Debra D. Rosman,
Assistant Law Director, for appellee.
Paul A. Grau, Brecksville Director of Law, and Ross S. Cirincione,
urging reversal for amicus curiae, city of Brecksville.
Vorys, Sater, Seymour & Pease, Raymond D. Anderson, Eric A. Pierce
and Kevin M. Czerwonka, urging reversal for amici curiae, Borden, Inc. and
The Limited, Inc.
COOK, J. The issue before this court is whether Minor was required to
pay municipal income taxes to the city of Cleveland on sales resulting from
purchase orders received in Cleveland from customers located outside
Cleveland when the products that filled those orders were shipped to the
customers from inventory stored in Brecksville.
The portion of a company’s net profits subject to a particular municipal
corporation’s income tax is calculated by utilizing an apportionment formula
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that compares the company’s property, payroll, and sales within the boundaries
of that municipal corporation to the company’s total property, payroll, and
sales. R.C. 718.02(A). The resulting ratio is then applied to the taxpayer’s
total net profits to calculate that portion subject to the municipal corporation’s
tax.
The “sales” portion of the apportionment formula is defined as “[g]ross
receipts of the business or profession from sales made and services performed
during the taxable period in such municipal corporation to gross receipts of the
business or profession during the same period from sales and services,
wherever made or performed.” R.C. 718.02(A)(3). R.C. 718.02(B) defines
“sales made in a municipal corporation” as:
“(1) All sales of tangible personal property which is delivered within
such municipal corporation regardless of where title passes if shipped or
delivered from a stock of goods within such municipal corporation;
“(2) All sales of tangible personal property which is delivered within
such municipal corporation regardless of where title passes even though
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transported from a point outside such municipal corporation if the taxpayer is
regularly engaged through its own employees in the solicitation or promotion
of sales within such municipal corporation and the sales result from such
solicitation or promotion;
“(3) All sales of tangible personal property which is shipped from a place
within such municipal corporation to purchasers outside such municipal
corporation regardless of where title passes if the taxpayer is not, through its
own employees, regularly engaged in the solicitation or promotion of sales at
the place where delivery is made.”
The court of appeals affirmed the denial of Minor’s refund request on the
basis that “[t]he emphasis in this legislation is plainly upon the sales aspect of
the activity, not upon the physical act of loading the goods upon a truck or train
whose final destination is the customer.” A plain reading of R.C. 718.02(B)
establishes, however, that the place of shipment and the place of delivery
determine the municipal corporation to which a sale is attributable for taxing
purposes. Under the facts and circumstances of this case, the only situation in
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which products shipped from Minor’s Brecksville warehouse may be
attributable to Cleveland is where the products are shipped to customers
located in Cleveland. R.C. 718.02(B)(2) and (3).
The sales at issue here involve only products shipped from Brecksville to
customers located outside Cleveland. Under R.C. 718.02(B)(3), such sales are
deemed to have been made in Brecksville. Because R.C. 718.02(B)(3) plainly
and unambiguously states that sales of products shipped from within a
municipal corporation to purchasers outside that municipal corporation are
deemed to have occurred at the place of shipment so long as the taxpayer is not,
through its own employees, regularly engaged in the solicitation or promotion
of sales at the place where delivery is made, taxing authorities and the courts
may not interpret R.C. 718.02(B)(3) as embodying a contrary legislative intent.
“An unambiguous statute is to be applied, not interpreted.” Storer
Communications, Inc. v. Limbach (1988), 37 Ohio St.3d 193, 194, 525 N.E.2d
466, 467; Sears v. Weimer (1944), 143 Ohio St. 312, 28 O.O. 270, 55 N.E.2d
413, paragraph five of the syllabus.
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The judgment of the court of appeals is reversed, and the Cleveland Tax
Administrator is hereby ordered to refund to Minor that portion of net-profit
taxes paid by Minor to Cleveland for tax years 1984 through 1988 as the result
of sales of products shipped from Brecksville to customers located outside the
city of Cleveland.
Judgment reversed.
MOYER, C.J., DOUGLAS, RESNICK, F.E. SWEENEY, PFEIFER and
STRATTON, JJ., concur.
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