Case Title: Harsco Corp. v. Tracy

Citation: 1999-Ohio-155

Docket Number: 19981331

State: ohio

Court: Ohio Supreme Court

Date: 1999-08-04T00:00:00Z

Document:
[Cite as Harsco Corp. v. Tracy, 86 Ohio St.3d 189, 1999-Ohio-155.] 
 
 
 
 
 
HARSCO CORPORATION, APPELLANT, v. TRACY, TAX COMMR., APPELLEE. 
[Cite as Harsco Corp. v. Tracy (1999), 86 Ohio St.3d 189.] 
Taxation — Application of personal property tax to manufacturing inventory of a 
division sold by a corporation. 
(No. 98-1331 — Submitted March 16, 1999 — Decided August 4, 1999.) 
APPEAL from the Board of Tax Appeals, No. 95-K-294. 
 
On December 1, 1989, Harsco Corporation (“Harsco”), appellant, sold a 
distinct division it owned and operated in Wooster, Ohio, its Astro Metallurgical 
division, to Astro Metallurgical Corporation (“Astro Metallurgical”), a newly 
formed corporation.  In this sale, Harsco sold its division’s inventory to Astro 
Metallurgical.  Thus, after this sale, Harsco no longer operated a business or owned 
inventory in Wooster, but Harsco continued in business and owned personal 
property used in business in Ohio. 
 
On its 1990 personal property tax return, Harsco summed the month-ending 
true values of its inventory for the eleven months it owned the Astro Metallurgical 
division.  It then divided this total by twelve, the number of months Harsco 
operated in Ohio in 1989.  Accordingly, it listed $8,421,489 as the average value of 
its inventory for 1990. 
 
Astro Metallurgical also filed a 1990 return.  In its return, it divided its 
December inventory, the only month it owned personal property in Ohio, by one, 
the number of months it owned personal property in Ohio.  Thus, it listed 
$8,612,925.71 as the average value of its inventory for 1990. As Harsco points out, 
the two taxpayers reported a total of $17,034,415 for inventory at the Astro 
Metallurgical division location for tax year 1990. 
 
In an application for final assessment, Harsco requested the Tax 
Commissioner, appellee, to eliminate the inventory reported for its Astro 
 
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Metallurgical division from Harsco’s 1990 personal property tax return.  It claimed 
that including the inventory resulted in an excessive assessment and in violations 
of its federal due process and equal protection rights. The  Tax Commissioner, 
nevertheless, refused to modify the assessment, and Harsco appealed the Tax 
Commissioner’s order to the Board of Tax Appeals (“BTA”). 
 
At the BTA, Harsco presented as a witness William P. Driscoll, whom the 
BTA qualified as an expert in public finance and state and local tax issues.  
Driscoll clearly and crisply described how Ohio applies the personal property tax 
to manufacturing inventory and how this application affected Harsco and Astro 
Metallurgical in tax year 1990. 
 
In summary, Driscoll noted that averaging a taxpayer’s monthly inventory 
values for the prior year provided the inventory value for the taxpayer’s current tax 
year.  He explained that averaging month-ending inventory values evens 
fluctuating monthly inventory amounts and discourages manipulating inventory, 
which might occur if Ohio employed an ordained date on which to value inventory. 
 
Driscoll pointed out that, here, Harsco, an on-going taxpayer, sold a discrete 
division to Astro Metallurgical, a new taxpayer.  Driscoll explained that, under 
these circumstances, Ohio receives tax for inventory at the same business location 
from both taxpayers based on each one’s average monthly inventory at such 
location.  He testified that this result elevated ease of administering the tax over 
equity for taxpayers.  Driscoll testified that this situation provided extra-adequate 
revenue, a windfall, to the taxing district.  Driscoll called this sale a special and 
unusual circumstance that should invoke the Tax Commissioner’s authority to 
adjust the assessments under R.C. 5711.18. 
 
To remedy this situation, Driscoll proposed that the Tax Commissioner 
assume that no sale occurred.  Then the Tax Commissioner should add the month-
ending inventories of Harsco and Astro Metallurgical, divide the sum by twelve, 
 
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and assess the tax for this average monthly inventory against Astro Metallurgical 
up to Astro Metallurgical’s actual average monthly inventory amount.  If this 
combined average monthly inventory was greater than Astro Metallurgical’s actual 
average monthly inventory, the Tax Commissioner should assess Harsco for the 
difference. According to Driscoll, this solution would fairly tax the taxpayer that 
continued in business at the location and would provide appropriate tax revenues to 
the taxing district, since Harsco would make up any shortfall in tax revenues. 
 
The BTA, however, rejected Harsco’s argument and affirmed the Tax 
Commissioner’s order.  The BTA applied Rick Case Motors, Inc. v. Tracy (1994), 
71 Ohio St.3d 380, 643 N.E.2d 1137, and R.C. 5711.16 to determine that the 
statute requires the Tax Commissioner to assess the tax against Harsco in the 
manner that he did.  In addition, the BTA declined to address Harsco’s 
constitutional arguments, since the BTA lacks jurisdiction over constitutional 
claims. 
 
This cause is now before the court upon an appeal as of right. 
__________________ 
 
Baker & Hostetler, L.L.P., Edward J. Bernert and George H. Boerger, for 
appellant. 
 
Betty D. Montgomery, Attorney General, and Barton A. Hubbard, Assistant 
Attorney General, for appellee. 
 
Bricker & Eckler, L.L.P., Mark A. Engel and Mary Leslie Robins, urging 
reversal for amicus curiae, Ohio Manufacturers’ Association. 
__________________ 
 
Per Curiam.  Harsco, first, argues that the assessment process overstates the 
value of the inventory at the Astro Metallurgical division location and that the Tax 
Commissioner has authority under R.C. 5711.18 to adjust the assessments.  Harsco 
claims that it does not challenge applying the averaging principle; however, it 
 
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claims that averaging by the two taxpayers in the special circumstances of this case 
overstates the average value of the inventory.  The Tax Commissioner replies that, 
under the current statutes and case law, he correctly valued the inventory of both 
taxpayers.  We agree with the Tax Commissioner. 
 
R.C. 5711.16 sets forth how a manufacturer lists its inventory for the 
personal property tax: 
 
“When [a manufacturer] is required to return a statement of the amount of 
his personal property used in business, he shall include the average value, 
estimated as provided in this section, of all articles purchased, received, or 
otherwise held for the purpose of being used, in whole or in part, in manufacturing, 
combining, rectifying, or refining, and of all articles which were at any time by 
him manufactured or changed in any way, either by combining, rectifying, 
refining, or adding thereto, which he has had on hand during the year ending on the 
day such property is listed for taxation annually, or the part of such year during 
which he was engaged in business.  * * * 
 
“The average value of such property shall be ascertained by taking the value 
of all property subject to be listed on the average basis, owned by such 
manufacturer on the last business day of each month the manufacturer was 
engaged in business during the year, adding the monthly values together, and 
dividing the result by the number of months the manufacturer was engaged in such 
business during the year.  The result shall be the average value to be listed.  * * * ” 
(Emphasis supplied.) 
 
In Rick Case Motors, Inc. v.  Tracy (1994), 71 Ohio St.3d 380, 382, 643 
N.E.2d 1137, 1138, a case interpreting R.C. 5711.15, which directs the averaging 
of inventory held by a merchant, we stated: 
 
“[W]e have long and consistently held that a merchant must include in the 
calculations any inventory it held even if it did not hold inventory for a full year.  
 
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In United Eng.  & Foundry Co. v.  Bowers (1960), 171 Ohio St. 279, 282, 13 
O.O.2d 240, 241-242, 169 N.E.2d 697, 699, we held that these inventory valuation 
statutes may draw on the antecedent fact of holding inventory for a criterion in the 
operation of the statutes.  In Beerman Stores, Inc. v.  Bowers (1962), 173 Ohio St. 
59, 18 O.O.2d 258, 179 N.E.2d 521, we noted that inventory is taxable if it is used 
in business in Ohio.  At 62, 18 O.O.2d at 258 [259], 179 N.E.2d at 522, we stated: 
 
“ ‘The language of Section 5711.15, Revised Code, is clear that, where a 
merchant has an inventory in existence in the taxing district for some part of a 
year, such inventory must be included in the valuation of tangible personal 
property for tax purposes.  There is no requirement in such section that the 
inventory be in existence on tax listing day. 
 
“ ‘ * * * As we have noted, such section does not require the property to be 
in existence on any specific day, it requires only that such property shall have been 
used in business during the tax year.’ ” 
 
Despite Harsco’s argument that this averaging process unfairly measures its 
inventory value as of tax listing date on inventory it no longer holds, R.C. 5711.16 
states that “[t]he result [of the averaging process] shall be the average value to be 
listed.”  We apply clearly written statutes; we do not employ interpretive methods 
to discern their meaning.  Lancaster v. Fairfield Cty. Budget Comm. (1998), 83 
Ohio St.3d 242, 244-245, 699 N.E.2d 473, 475-476.  Accordingly, the statutes do 
not empower the Tax Commissioner to adjust a taxpayer’s average of monthly 
inventory values; the average value that Harsco calculated “shall be the average 
value to be listed.” 
 
Next, Harsco contends that this averaging method violates its federal right to 
equal protection because its property is not valued at its true value.  The Tax 
Commissioner denies this claim.  Again, we agree with Tax Commissioner. 
 
The United States Supreme Court explained the review of equal protection 
 
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claims in Nordlinger v. Hahn (1992), 505 U.S. 1, 10, 112 S.Ct. 2326, 2331-2332, 
120 L.Ed.2d 1, 12: 
 
“The Equal Protection Clause of the Fourteenth Amendment, § 1, commands 
that no State shall ‘deny to any person within its jurisdiction the equal protection of 
the laws.’  Of course, most laws differentiate in some fashion between classes of 
persons.  The Equal Protection Clause does not forbid classifications.  It simply 
keeps governmental decisionmakers from treating differently persons who are in 
all relevant respects alike.  F.S. Royster Guano Co. v. Virginia, 253 U.S. 412, 415 
[40 S.Ct. 560, 561, 64 L.Ed. 989, 990-991] (1920). 
 
“As a general rule, ‘legislatures are presumed to have acted within their 
constitutional power despite the fact that, in practice, their laws result in some 
inequality.’ McGowan v. Maryland, 366 U.S. 420, 425-426 [81 S.Ct. 1101, 1105, 6 
L.Ed.2d 393, 399] (1961).  Accordingly, this Court’s cases are clear that, unless a 
classification warrants some form of heightened review because it jeopardizes 
exercise of a fundamental right or categorizes on the basis of an inherently suspect 
characteristic, the Equal Protection Clause requires only that the classification 
rationally further a legitimate state interest.  See, e.g., Cleburne v.  Cleburne Living 
Center, Inc., 473 U.S. 432, 439-441 [105 S.Ct. 3249, 3254-3255, 87 L.Ed.2d 313, 
320-321] (1985); New Orleans v. Dukes, 427 U.S. 297, 303 [96 S.Ct. 2513, 2517, 
49 L.Ed.2d 511, 517] (1976).” 
 
Further, Driscoll’s statement at page sixteen of his report undermines 
Harsco’s claim.  Driscoll states: 
 
“If the goal of a fair tax system is the equal treatment of equals, then the 
system can fail for two reasons.  It can treat similarly situated persons in dissimilar 
ways.  Or, it can treat dissimilarly situated persons with inappropriate uniformity.  
In the current case, the treatment of the sale of an entire division of the business 
results in the latter kind of unfair treatment.” 
 
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Thus, Driscoll contends that the averaging process of this case treats 
“dissimilarly situated persons with inappropriate uniformity.”  The Equal 
Protection Clause, however, “keeps governmental decisionmakers from treating 
differently persons who are in all relevant respects alike.”  Nordlinger v. Hahn, 
supra.  If persons are dissimilarly situated, they are not in the same class, and the 
Equal Protection Clause does not shelter them. 
 
Nevertheless, we conclude that Harsco is within a class of similarly situated 
persons, i.e., personal property taxpayers whose inventory value is averaged 
differently depending on business circumstances.  Chicago Pacific Corp. v.  
Limbach (1992), 65 Ohio St.3d 432, 437, 605 N.E.2d 8, 12.  We rule, however, as 
we did in Chicago Pacific Corp., that “the state has a legitimate interest in levying 
a tax on average business inventory and avoiding the inequality of fluctuating 
inventories” and “discourages strategic mergers to avoid personal property tax.”  
Id. Leveling inventory fluctuations and discouraging strategic mergers provide 
rational bases for inventory averaging under R.C. 5711.16. 
 
Accordingly, we hold that the BTA’s decision is reasonable and lawful, and 
we affirm it. 
Decision affirmed. 
 
MOYER, C.J., DOUGLAS, RESNICK, F.E. SWEENEY and COOK, JJ., concur. 
 
PFEIFER and LUNDBERG STRATTON, JJ., dissent. 
__________________ 
 
LUNDBERG STRATTON, J., dissenting.  I respectfully dissent.  By rigidly 
adhering to the averaging provision of R.C. 5711.16, the Tax Commissioner has 
ignored the equally important provisions of R.C. 5711.18, which require an 
assessment of true value and give the assessor flexibility to make adjustments to 
reflect true value.  I believe this principle is also reflected in our holdings in 
Youngstown Sheet & Tube Co. v. Kosydar (1975), 44 Ohio St.2d 96, 73 O.O.2d 
 
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353, 338 N.E.2d 366, and Avco Corp. v. Limbach (1990), 51 Ohio St.3d 147, 555 
N.E.2d 284. 
 
In this case, the Tax Commissioner does not dispute that its evaluation 
method results in excessive valuation.  In fact, the valuation is 192 percent of true 
value because of Astro Metallurgical’s holding the property after the sale for only 
one month of the taxable year (but taxing it as a twelve-month holding). 
 
The Tax Commissioner could easily have adjusted the calculations to reflect 
one month’s holding of inventory to reflect the true value.  I believe both the 
statutes and our case law, as well as principles of fundamental fairness, require the 
adjustment. 
 
Therefore, I respectfully dissent, and would remand this case for a 
redetermination of value consistent with true value and the law. 
 
PFEIFER, J., concurs in the foregoing dissenting opinion.