Case Title: DaimlerChrysler Corp. v. Levin

Citation: 2008-Ohio-259

Docket Number: 20061731

State: ohio

Court: Ohio Supreme Court

Date: 2008-01-30T00:00:00Z

Document:
[Cite as DaimlerChrysler Corp. v. Levin, 117 Ohio St.3d 46, 2008-Ohio-259.] 
 
 
 
DAIMLERCHRYSLER CORPORATION, APPELLANT, v. LEVIN,  
TAX COMMR., APPELLEE. 
[Cite as DaimlerChrysler Corp. v. Levin, 117 Ohio St.3d 46, 2008-Ohio-259.] 
Use tax — Owner of vehicle is the “consumer” for use-tax purposes of repair 
services and repair parts for goodwill repairs, which are repairs paid for 
by the manufacturer after the warranty has expired — Owner paid for the 
goodwill repairs at time of purchase of the vehicle because the anticipated 
cost of goodwill repairs was incorporated in the price of the vehicle. 
(No. 2006-1731—Submitted October 16, 2007—Decided January 30, 2008.) 
APPEAL from the Board of Tax Appeals, Nos. 2004-T-187 and 2004-T-188. 
__________________ 
 
O’CONNOR, J. 
{¶ 1} In this appeal, DaimlerChrysler Corporation (“DCC”), a car 
manufacturer, asks the court to reverse a decision by the Board of Tax Appeals 
(“BTA”) that affirmed two use-tax assessments that had been affirmed by the Tax 
Commissioner.  The assessments require DCC to pay use taxes with respect to 
repair parts and repair services that DCC paid for under its “goodwill repair” 
program.  DCC had no contractual obligation to pay for the repairs at issue, but 
did so in order to retain and foster goodwill with its car buyers. 
{¶ 2} DCC advances several arguments why the BTA’s decision should 
be reversed.  We find that under the use-tax law, DCC was not the consumer of 
the parts and services at issue.  Instead, the car buyers, who actually enjoyed the 
benefit of the services and took possession of the parts, were the consumers of 
both.  Because DCC was not the consumer, it did not incur a use-tax obligation 
when it paid for the repairs, and thus the assessments are unlawful.  Since this 
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finding disposes of the entire case, we find it unnecessary to address DCC’s other 
arguments. 
Relevant Background 
{¶ 3} Before us are two use-tax assessments, the first pertaining to the 
audit period October 1, 1994, through December 31, 1997, and the second 
pertaining to the January 1, 1998, through December 31, 2000 audit period.  
During these audit periods, DCC possessed a direct-pay permit, which permitted 
it to pay sales and use taxes on purchases directly to the state, rather than to its 
vendors. 
{¶ 4} Both assessments are for “goodwill repairs,” which are repairs 
performed by dealers on DaimlerChrysler vehicles after the warranty period has 
expired.  The repairs were performed at no additional cost to the customer, and 
DCC reimbursed the dealer for all costs incurred.  The assessments encompass 
both parts and labor, because both types of transaction would normally be retail 
sales that are taxable on any vehicles repaired in Ohio.  Namely, sales of auto 
parts constitute taxable transactions of tangible personal property.  R.C. 
5739.01(B)(1).  Sales of repair services and installation services constitute taxable 
transactions pursuant to R.C. 5739.01(B)(3)(a) and (b).  See also R.C. 
5741.02(A)(1) and (C)(2) (limiting use tax to transactions that would involve 
taxable sales if the sales were made in Ohio). 
{¶ 5} Although DCC reimbursed the dealers for goodwill repairs, it did 
so as part of its profit-making enterprise.  In setting the vehicle prices, DCC 
considered two general types of information:  variable costs relating to Chrysler 
brands and the pricing of competitive products.  The goal was to establish a price 
that would both yield an appropriate profit margin and be a competitive market 
price.  The record shows that DCC builds the anticipated cost of goodwill repairs 
into the price of its vehicles.  When customers purchased DCC’s vehicles from 
the dealers, the dealer collected sales tax on the sale price of the car.  Thus, the 
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customers not only paid for the anticipated costs of goodwill repairs, they also 
paid sales tax on that amount. 
{¶ 6} The agreements between DCC and its dealers obligate the dealers 
to service the cars they sell and to comply with the warranty policy and procedure 
set by the manufacturer.  These agreements also specify that the dealers act as 
independent contractors in performing repairs, not as agents of DCC.  Customers 
typically had the option of selecting either a three-year/36,000-mile basic 
warranty or a 12-month/12,000-mile basic warranty with a seven-year/70,000-
mile power-train warranty. 
{¶ 7} As mentioned earlier, repairs made after the vehicle’s limited 
warranty had expired might be paid for by DCC under its goodwill-repair policy.  
Under DCC’s dealer self-authorization program, dealers were permitted to 
authorize goodwill repairs.  DCC’s written guidelines regarding the self-
authorization program encourage dealers not to simply offer to pay for the entire 
repair, but instead to work with customers to arrive at a reasonable amount for the 
customer to pay toward any repairs made outside the warranty period.  DCC’s 
guidelines impose caps on how much DCC will pay under its goodwill-repair 
policy. 
Analysis 
{¶ 8} R.C. 5741.01(F) defines “consumer” for use-tax purposes as a 
“person who has purchased tangible personal property or has been provided a 
service for storage, use, or other consumption or benefit in this state.”  
“Purchase,” as defined in R.C. 5741.01(D), means “acquired or received for a 
consideration, whether such acquisition or receipt was effected by a transfer of 
title, or of possession, or of both * * * .”   At the outset, we note that under these 
definitions, the car owner, not DCC, appears to be the consumer of the goods and 
services at issue herein, because he or she receives both title to and possession of 
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repair parts supplied under DCC’s goodwill-repair program.  Likewise, the car 
owner is “provided” a repair service for his or her “benefit.” 
{¶ 9} The Tax Commissioner relies heavily on Gen. Motors Corp. v. 
Wilkins, 102 Ohio St.3d 33, 2004-Ohio-1869, 806 N.E.2d 517, a case in which we 
held that General Motors Corporation (“GM”) was the “consumer” when it paid 
for repair parts and services under its warranty or repair programs.  Id. at ¶ 64, 65.  
But in spite of our reference in Gen. Motors to “repair programs” apart from 
warranty obligations, our analysis in Gen. Motors focused on warranty repairs.  
We held that GM “received the benefit of the services provided by the dealers 
because the services were necessary for GM to fulfill its obligations to its 
customers.”  Id., ¶ 64.  We applied the definition of “consumer” and concluded 
that “the motor vehicle owners were not consumers in these transactions, because 
they received the parts and services without any charge.”  Id. at ¶ 65.  By contrast, 
“GM was a consumer when it purchased and consumed the parts and services that 
were used to fulfill its warranty and repair programs.”  Id. 
{¶ 10} We conclude that in Gen. Motors, the manufacturer’s contractual 
obligation under its warranty agreements was the decisive factor in determining 
that the manufacturer was the consumer of parts and services. Quite simply, 
Ohio’s sales- and use-tax law treats warranties as an intangible right that is 
purchased separately from the vehicle.  As a result, the warranty contract is taxed 
separately.  See R.C. 5739.01(B)(7) (taxable sales include “transactions in which 
a warranty, maintenance or service contract, or similar agreement by which the 
vendor of the warranty, contract, or agreement agrees to repair or maintain the 
tangible personal property of the consumer”). 
{¶ 11} When a manufacturer becomes the obligor on a warranty relating 
to the products its dealers sell to customers, the logic of the sales- and use-tax law 
makes it the consumer of the repair parts and service it pays for in order to fulfill 
its obligations under the warranty.  That is so because the car buyer paid for the 
January Term, 2008 
5 
warranty, which gave her the contractual right not to be charged for those parts 
and services.  Thus, as we stated in Gen. Motors, the vehicle owners received 
parts and services without charge, because they had previously been charged for 
the entitlement to receive exactly that.  Id., 102 Ohio St.3d 33, 2004-Ohio-1869, 
806 N.E.2d 517, ¶ 64-65. 
{¶ 12} By contrast, the goodwill repairs in this case do not relate to any 
charge or consideration that is separable from the price of the cars that were 
purchased.  That is so because the buyers acquired no contractual right to have 
DCC pay for repairs needed after the warranty expires.  As a result, it is fair to 
view the portion of the price of the car that covers the cost of goodwill repairs as a 
“charge” for those repairs under R.C. 5741.01(F).  Thus, goodwill repairs involve 
parts and services for which the manufacturer pays, but they are not received by 
the car owners “without charge,” because the portion of the sale price related to 
the anticipated cost of such items constitutes a charge to the car owner.  Because 
the car owners paid a charge that relates to the cost of goodwill repairs, they can 
properly be viewed as the “consumers” in that transaction. 
{¶ 13} We recognize that our analysis in this case applies only in very 
limited situations.  In the typical case, the person who orders and pays for an item 
or a service will be the “consumer” of that item or service, even if the item or 
service is purchased with a view to benefiting another.  For example, if a parent 
orders and pays for a laptop computer to be delivered to her child at college, the 
parent will be the consumer for tax purposes, even though it is the child who 
actually derives the benefit of the computer.  In that case, of course, the computer 
was provided to the child “without charge.” 
{¶ 14} A situation more directly on point is when a seller of a product 
accommodates a dissatisfied purchaser by paying to replace a defective part.  In 
most cases, that seller is the “consumer” when it orders the replacement from a 
third-party supplier, pays for it, and has it shipped to the dissatisfied purchaser.  
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That is so even if the seller charged a little more for the product to cover 
situations in which it would pay for defective components. 
{¶ 15} But the present situation is different.  Quite simply, the selling and 
maintaining of automobiles is a unique business, as the evidence before the BTA 
well documents.  Car dealers are often locked into contracts with car 
manufacturers, under which the dealers must service the vehicles they sell in 
accordance with the contract specifications. 
{¶ 16} In each instance, when a repair is needed, the owner presents the 
car at the dealership and demands service.  The dealer then performs the repairs, 
billing either the car owner or the manufacturer.  In many instances, the dealer 
will “self-authorize,” i.e., determine without consulting the manufacturer whether 
the repair qualifies as a goodwill repair.  If the owner is billed, the owner is 
clearly the consumer of the parts and services.  Under Gen. Motors, the 
manufacturer is the consumer of the parts and services when it pays for warranty 
repairs. 
{¶ 17} As for goodwill repairs, we hold that the owner is the consumer.  
That result is justified because of the presence of the three elements we have 
already discussed.  First, the manufacturer increased the price it charged for the 
vehicles to cover the cost of such repairs.  Second, the increase in price is actually 
a charge for the goodwill repairs themselves, instead of a charge for a contractual 
obligation on the part of the manufacturer to pay for such repairs.  Third, the 
transactions at issue occur in the context of an ongoing contractual relationship 
between the dealer and the manufacturer, under which the dealer is obligated to 
provide repairs and determine whom to bill for such repairs. 
{¶ 18} The fact that all three of these elements are present distinguishes 
the present case from those in which a business distributes free items to promote 
its products.  See Am. Cyanamid Co. v. Tracy (1996), 74 Ohio St.3d 468, 659 
N.E.2d 1263 (pharmaceutical manufacturer owed use tax on free samples of 
January Term, 2008 
7 
prescription drugs it gave to Ohio doctors); Internatl. Thomson Publishing, Inc. v. 
Tracy (1997), 79 Ohio St.3d 415, 683 N.E.2d 1091 (textbook reseller owed use 
tax on copies of textbooks furnished without charge to teachers); Drackett Prods. 
Co. v. Limbach (1988), 38 Ohio St.3d 204, 527 N.E.2d 860 (retailer owed use tax 
on newspaper advertising supplements for which it had selected (1) the content, 
(2) the papers in which to place the supplement, and (3) the date on which to 
deliver the supplement).  In those cases, the recipients of the free items do not pay 
a charge and are therefore not the consumers of the items under the use-tax 
definition of “consumer.”  Nor would they be the consumers if the business 
promoting its products by giving the free items built the cost of the free items into 
the price of its products.  For example, if a publisher of textbooks provides a free 
sample of the new edition of the textbook to a person who previously purchased 
the prior edition, the recipient has not been “charged” for the sample, even if the 
cost of distributing samples was built into the price of the textbooks the recipient 
previously purchased.  That is so because distributing the sample does not closely 
relate to the sale of the earlier edition.  By contrast, the repair of a specific car 
very closely relates to the earlier purchase of that very car. 
{¶ 19} The Tax Commissioner asserts that the repairs at issue in this case 
should be compared to the “special-policy repairs” at issue in Gen. Motors, 102 
Ohio St.3d 33, 2004-Ohio-1869, 806 N.E.2d 517.  In Gen. Motors, the 
manufacturer paid for certain repairs that resulted from defects in materials or 
workmanship.  Those repairs were called “special-policy repairs.”  Gen. Motors 
Corp. v. Tracy (Oct. 4, 2002), BTA Nos. 97-T-168 and 97-T-169, at 4.  The BTA 
found that GM had calculated its sale price to cover the cost of special-policy 
repairs.  Id. at 6.  However, although GM would pay for a special-policy repair 
even if the warranty had expired, the BTA found that GM treated a repair as a 
“special policy adjustment” even if the warranty was still in effect. Id. at 4. 
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{¶ 20} This last finding is significant in determining the precedential 
effect of Gen. Motors on the outcome of this case.  Namely, our opinion in Gen. 
Motors did not identify any special-policy repairs that were not also covered by 
the warranty.  Nor did we devote any separate analysis to the issue whether GM 
would qualify as the consumer with respect to special-policy repairs if those 
repairs were not also covered by the warranty.  Accordingly, Gen. Motors is not 
controlling in determining who is the consumer of the goodwill repairs in this 
case, because the goodwill repairs were, by definition, not covered by the 
warranty. 
{¶ 21} Finally, we find that our conclusion is supported in a general way 
by the Michigan Supreme Court’s decision in Gen. Motors Corp. v. Dept. of 
Treasury, Revenue Div. (2002), 466 Mich. 231, 644 N.W.2d 734.  To be sure, 
Michigan law differs from Ohio law in that it considers the car buyers’ payment 
of sales tax as precluding imposition of use tax on warranty repairs as well as on 
goodwill repairs, id. at 232, whereas our Gen. Motors decision, 102 Ohio St.3d 
33, 2004-Ohio-1869, 806 N.E.2d 517, holds that the manufacturer is liable for use 
tax on warranty repairs (unless such repairs are otherwise exempted in whole or in 
part, see R.C. 5739.02(B)(42)(k)).  Quite simply, Michigan regards both warranty 
repairs and goodwill repairs as part of the consideration that is furnished to car 
owners at the time they purchase the car.  As a result, in Michigan, the sales tax 
paid on the car purchase constitutes payment of tax for replacement parts, and no 
use tax can be imposed when those parts are later provided.  By contrast, the 
theory that the goodwill-repair program constituted consideration that was 
furnished to the car buyers is foreclosed in Ohio by Coca-Cola Bottling Corp. v. 
Kosydar (1975), 43 Ohio St.2d 186, 193-194, 72 O.O.2d 104, 331 N.E.2d 440 
(lack of legal obligation to furnish dispensing equipment meant that furnishing the 
equipment was not consideration). 
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{¶ 22} Nonetheless, the Michigan court’s central concern parallels our 
own.  Specifically, car buyers paid enough to cover goodwill repairs, without 
obtaining a contractual right to such repairs, and they also paid sales tax on the 
amount they paid for goodwill repairs.  We do not believe that the legislature 
intended to dissuade the manufacturer from spending the money it has collected to 
fund those repairs, by imposing a second layer of taxation. 
{¶ 23} As previously stated, our determination that the car owners, not 
DCC, are the consumers with respect to goodwill repairs disposes of the entire 
case before us.  Accordingly, we do not reach the other arguments advanced by 
DCC. 
Decision reversed. 
 
PFEIFER, LUNDBERG STRATTON, and O’DONNELL, JJ., concur. 
 
MOYER, C.J., and LANZINGER and CUPP, JJ., dissent. 
__________________ 
 
MOYER, C.J., dissenting. 
{¶ 24} In Gen. Motors Corp. v. Wilkins, 102 Ohio St.3d 33, 2004-Ohio-
1869, 806 N.E.2d 517, we held that another car manufacturer was the “consumer” 
for use-tax purposes with respect to warranty and special-policy repairs that it 
paid on behalf of car owners.  The majority attempts to distinguish Gen. Motors 
from this case by describing Gen. Motors as addressing only the situation in 
which the manufacturer has a contractual obligation to pay for the repairs.  I 
disagree, and I would affirm the Board of Tax Appeals (“BTA”) in this case on 
the basis of Gen. Motors. 
{¶ 25} First, Gen. Motors did not address only warranty repairs; it 
addressed special-policy repairs as well.  The manufacturer in Gen. Motors had no 
more 
contractual 
obligation 
to 
perform 
special-policy 
repairs 
than 
DaimlerChrysler Corporation had to perform the goodwill repairs at issue in this 
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case.  Therefore, I find that Gen. Motors directly dictates that DaimlerChrysler is 
the consumer in this case. 
{¶ 26} Second, the majority attempts to distinguish Gen. Motors by 
finding that the car buyers in this case paid a “charge” to cover the cost of the 
repairs.  Because a warranty gives a customer the right to demand that the 
manufacturer pay for covered repairs, the amount that car buyers pay for the 
warranty is consideration for the purchase of the warranty, not consideration for 
the purchase of the repairs.  The majority recognizes this principle, but then 
erroneously concludes that in this case, where no warranties are at issue, the 
portion of the sale price that the car buyers pay to cover the cost of goodwill 
repairs somehow constitutes a charge for those repairs.  The logic of Gen. Motors 
dictates the contrary conclusion.  Namely, the payment made to purchase a car is 
consideration for the purchase of the car, not for the purchase of repairs 
performed long after the purchase of the car. 
{¶ 27} The mere fact that a manufacturer builds its overhead costs into the 
price of a car does not mean the car purchaser is purchasing the overhead items.  
For example, DaimlerChrysler probably built the cost of advertising into the price 
of its cars; that does not mean that car purchasers are purchasing the advertising 
when they purchase a car.  Nor are car buyers purchasing the machinery and 
equipment or the labor used to manufacture the car; they are purchasing a car, and 
nothing else. 
{¶ 28} Finally, the majority finds support in the Michigan Supreme 
Court’s decision in Gen. Motors Corp. v. Dept. of Treasury, Revenue Div. (2002), 
466 Mich. 231, 644 N.W.2d 734.  That case is inapposite for several reasons.  
Most significant is the fact that, in the Michigan case, the tax administrator had 
conceded that “parts provided under [a warranty] are not subject to use tax 
because the customers paid for the right to replacement parts under [the warranty] 
at the time of the retail sale.”  Id. at 233-234.  By contrast, in Ohio, the Tax 
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11 
Commissioner vigorously contends against the theory that paying for a warranty, 
or paying for a car, constitutes payment for repairs performed later.  We have 
already held that the manufacturer is liable for use tax with respect to – at a 
minimum – warranty repairs.  Gen. Motors.  Thus, the Michigan case simply does 
not constitute persuasive authority on the issue that we confront in this case. 
{¶ 29} For all these reasons, I respectfully dissent and would affirm the 
BTA. 
 
CUPP, J., concurs in the foregoing opinion. 
__________________ 
 
LANZINGER, J., dissenting. 
{¶ 30} I dissent from the holding that a vehicle owner who receives 
“goodwill repairs” is a “consumer” for use-tax purposes.  I would affirm the 
Board of Tax Appeals (“BTA”) based on Gen. Motors Corp. v. Wilkins, 102 Ohio 
St.3d 33, 2004-Ohio-1869, 806 N.E.2d 517. 
{¶ 31} A “consumer” for purposes of use tax is “any person who has 
purchased tangible personal property or has been provided a service for storage, 
use, or other consumption or benefit in this state. ‘Consumer’ does not include a 
person who receives, without charge, tangible personal property or a 
service.” (Emphasis added.)  R.C. 5741.01(F).  In this case, the payments for 
goodwill repairs by DaimlerChrysler Corporation (“DCC”) are more than simply 
payments for repairs performed after the warranty period.  They are payments for 
property and services provided to the owner without charge, and are made for the 
benefit of DCC in that they help retain the customer’s loyalty and goodwill. 
{¶ 32} In Gen. Motors, we affirmed the use-tax assessments upheld by the 
BTA against General Motors Corporation (“GM”) for amounts that GM, the 
manufacturer, had paid its Ohio dealers for parts and services to repair motor 
vehicles under the company’s warranty and special-policy repair programs even 
though GM claimed, as DCC does here, that it was not the consumer.  Without 
SUPREME COURT OF OHIO 
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overruling Gen. Motors, the majority allows DCC to escape assessment of the use 
tax by holding that DCC is not the consumer with respect to goodwill repairs. 
{¶ 33} The majority artificially limits Gen. Motors to apply only to 
warranty repairs on the faulty basis that GM was the consumer in that case only 
because it received the benefit of fulfilling a warranty contract.  But Gen. Motors 
had a broader application by its own terms.  There, we rejected GM’s argument 
that “the motor vehicle owner is the consumer because he or she paid for the 
repairs when they [sic] paid for the warranty or repair programs as part of the 
purchase price of the motor vehicle.” (Emphasis added.)  Id., 102 Ohio St.3d 33, 
2004-Ohio-1869, 806 N.E.2d 517, ¶ 64.  We recognized that the vehicle owner 
received those repair parts and services without charge, whether by warranty or 
not, and thus could not be a “consumer” for assessment of use tax. Id. at ¶ 65. 
{¶ 34} The important fact to consider is whether the vehicle owner pays 
for the repairs.  The majority acknowledges that DCC does not separately charge 
for goodwill repairs within a vehicle’s overall price.  In an illogical leap, however, 
the majority remarks that “it is fair to view the portion of the price of the car that 
covers the cost of goodwill repairs as a ‘charge’ for those repairs under R.C. 
5741.01(F).”  Majority opinion at ¶ 12.  But even if DCC builds the anticipated 
cost of goodwill repairs into the vehicle price, there is nothing in the record to 
show that the car owners are made aware by DCC or the car dealers of the 
possibility that they might receive free parts and services pursuant to the 
goodwill-repair program. 
{¶ 35} Therefore, goodwill repairs, which by definition are made without 
charge to customers, are made at the company’s discretion.  Yet DCC receives a 
benefit for these repairs in the form of its customers’ satisfaction.  That benefit is 
similar to, rather than distinct from, GM’s benefit of fulfilling contractual 
obligations through warranty repairs.  In other cases in which companies provided 
items free of charge to enhance the companies’ marketing efforts, customer-
January Term, 2008 
13 
satisfaction goals, or similar business purposes, we held that the companies were 
subject to use tax for the items.  See, e.g., Internatl. Thomson Publishing v. Tracy 
(1997), 79 Ohio St.3d 415, 683 N.E.2d 1091. 
{¶ 36} I conclude that this matter is resolved by Gen. Motors Corp. v. 
Wilkins, 102 Ohio St.3d 33, 2004-Ohio-1869, 806 N.E.2d 517. 
{¶ 37} Because DCC is the consumer for purposes of its goodwill-repair 
program, I dissent and would affirm the BTA’s decision. 
 
CUPP, J., concurs in the foregoing opinion. 
__________________ 
 
Jones Day and Charles M. Steines, for appellant. 
 
Marc Dann, Attorney General, and Barton A. Hubbard and Sophia 
Hussain, Assistant Attorneys General, for appellee. 
________________________