Case Title: Rowe-Reilly Corp. v. Tracy

Citation: 1999-Ohio-326

Docket Number: 19981013

State: ohio

Court: Ohio Supreme Court

Date: 1999-06-16T00:00:00Z

Document:
[Cite as Rowe-Reilly Corp. v. Tracy, ___ Ohio St.3d ___, 1999-Ohio-326.] 
 
 
 
 
 
ROWE-REILLY CORPORATION, D.B.A. ROUGH BROTHERS, APPELLANT, v. TRACY, 
TAX COMMR., APPELLEE. 
[Cite as Rowe-Reilly Corp. v. Tracy (1999), ___ Ohio St.3d ___.] 
Taxation — Personal property tax on inventory of corporation engaged in the 
business of selling various items to be used in the installation, operation, 
and maintenance of greenhouses — Board of Tax Appeals’ decision 
affirming assessments by Tax Commissioner that taxed as personal property 
certain items of inventory is contrary to law and not supported by the 
record, when. 
(No. 98-1013 — Submitted March 30, 1999 — Decided June 16, 1999.) 
APPEAL from the Board of Tax Appeals, Nos. 96-K-460, 96-K-461 and 96-K-462. 
 
Appellant, Rough Brothers,1 is a corporation with its principal place of 
business in Cincinnati, Ohio.  Appellant is engaged in the business of selling 
various items to be used in the installation, operation, and maintenance of 
greenhouses.  Many of appellant’s customers are engaged in the growing of plants 
and flowers in greenhouses.  Appellant’s customers have also included retail 
establishments such as Home Depot, as well as a pharmaceutical company and a 
shopping mall. 
 
Appellant’s business consists of purchasing inventory items from third-party 
suppliers.  The inventory that appellant obtains includes items that form the 
greenhouse structure, equipment that controls the growing environment of the 
greenhouse, and benches used to set and irrigate plants and flowers.  Appellant 
maintains an inventory of certain of these items in its warehouse, and the inventory 
items are listed for sale in appellant’s “Greenhouse Supply Catalogue.”  In essence, 
appellant uses its inventory to design greenhouse structures to meet the needs and 
specifications of its customers. 
 
 
2
 
Typically, appellant will receive an order from a customer through one of 
appellant’s sales personnel.  After receiving certain information from a 
salesperson, appellant engineers and designs the ordered enclosure to meet the 
customer’s specifications.  Appellant then determines what equipment is needed 
for the greenhouse design, calculates the costs for the order, pulls the needed items 
from its inventory, and delivers the order to the customer’s job site.  On occasion, 
appellant orders items from a supplier and has those items shipped directly to a job 
site.  In order to meet a customer’s particular specifications, it may be necessary 
for appellant to modify certain inventory items.  Upon request, appellant will aid 
its customers, as well as facilitate its own inventory sales, by providing 
construction services. 
 
For tax years 1988 through 1993, appellant reported, for tax purposes, its 
entire inventory as “agricultural merchandise.”  Pursuant to former and current 
R.C. 5701.08, appellant claimed an exemption from the personal property tax by 
identifying itself as a merchant and listing all of the items in its inventory as 
machinery and equipment designed and built for agricultural use.  The Tax 
Commissioner, appellee, however, found that appellant’s inventory did not qualify 
as agricultural merchandise and therefore was not exempt from taxation as 
personal property.  The Tax Commissioner, therefore, entered assessments against 
appellant. 
 
On appeal, the Board of Tax Appeals (“BTA”) affirmed the Tax 
Commissioner’s order.  The BTA determined that appellant was a merchant but 
found that the contested items in appellant’s inventory were not machinery and 
equipment.  Further, the BTA found that there was no evidence in the record to 
indicate that the inventory items in question were necessarily designed and built 
for agricultural use.  The BTA also held that appellant did not qualify for the 
personal property exemption because appellant failed to comply with Ohio 
 
 
3
Adm.Code 5703-3-30, in that it failed to segregate items in its inventory that 
qualified for the exemption from those items that did not. 
 
Chairman Kiehner Johnson of the BTA dissented.  Johnson agreed with the 
majority opinion that appellant is a merchant, but disagreed with the majority in 
that the chairman determined that appellant’s inventory did qualify as machinery 
and equipment designed and built for agricultural use.  Johnson also concluded that 
appellant properly listed its inventory pursuant to Ohio Adm.Code 5703-3-30 as 
exempt agricultural property. 
 
Appellant has appealed the decision and order of the BTA to this court.  The 
cause is now before us upon an appeal as a matter of right. 
__________________ 
 
Kegler, Brown, Hill & Ritter, Paul D. Ritter, Jr., Melvin D. Weinstein and 
Lynda G. Loomis, for appellant. 
 
Betty D. Montgomery, Attorney General, and Duane M. White, Assistant 
Attorney General, for appellee. 
__________________ 
 
DOUGLAS, J.  This is an appeal from a decision of the BTA wherein the 
BTA affirmed assessments by the Tax Commissioner that taxed as personal 
property certain items of inventory owned by the appellant.  The assessments 
levied against the appellant were for tax years 1988 through 1993.2 
 
During the tax years in question in this matter, R.C. 5709.01(B) provided in 
pertinent part that unless otherwise expressly exempted from taxation: 
 
“(1) All personal property located and used in business in this state * * * [is] 
subject to taxation * * *.” 
 
For tax years 1988 to mid-1991, R.C. 5701.08 provided in pertinent part: 
 
“(A) Personal property is ‘used’ within the meaning of ‘used in business’ 
when employed or utilized in connection with ordinary or special operations, when 
 
 
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acquired or held as means or instruments for carrying on the business, * * * or 
when stored or kept on hand as material, parts, products, or merchandise.  * * * 
Leased property used by the lessee exclusively for agricultural purposes and new 
or used machinery and equipment and accessories therefor that are designed and 
built for agricultural use and owned by a merchant as defined in section 5711.15 of 
the Revised Code are not considered to be ‘used’ within the meaning of ‘used in 
business.’ ”  (140 Ohio Laws, Part II, 3173.) 
 
R.C. 5701.08, as amended by Am.Sub.H.B. No. 298, effective July 26, 
1991, provides in pertinent part: 
 
“(A) Personal property is ‘used’ within the meaning of ‘used in business’ * * 
*. 
 
“ * * * 
 
“(C) Leased property used by the lessee exclusively for agricultural purposes 
and new or used machinery and equipment and accessories therefor that are 
designed and built for agricultural use and owned by a merchant as defined in 
section 5711.15 of the Revised Code are not considered to be ‘used’ within the 
meaning of ‘used in business.’ ”  (144 Ohio Laws, Part III, 4408-4409.) 
 
The Tax Commissioner promulgated a rule found in Ohio Adm.Code 5703-
3-30 that sets forth the criteria needed to qualify for the personal property tax 
exemption under the provisions of R.C. 5701.08.  Ohio Adm.Code 5703-3-30 
provides: 
 
“Pursuant to division (A)[C] of section 5701.08 of the Revised Code * * * 
new or used machinery and equipment and accessories therefor which are designed 
and built for agricultural use and owned by a merchant, as defined in section 
5711.15 of the Revised Code, are not considered ‘used in business’ and, therefore, 
not subject to personal property tax under the provisions of division (B)(1) of 
section 5709.01 of the Revised Code. 
 
 
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“To qualify for this exception such property must meet all of the following 
conditions: 
 
“(A) It must be owned by a merchant.  Property consigned to a merchant 
does not qualify.  Also, a manufacturer is not a merchant with regard to property he 
manufacturers. 
 
“(B) It must be machinery and equipment, or accessories therefor.  Tools 
and implements do not qualify.  Qualifying accessories are those that are usable 
only when attached to or coupled with qualifying machinery and equipment. 
 
“(C) It must be designed and built for agricultural use.  Typical qualifying 
items include balers, combines, cultivators, driers, feed grinders, harrows, rotary 
hoes, mills, pickers, planters, plows, shellers, and silo fillers.  Also qualifying are 
farm-type loaders, spreaders, tillers, tractors, and wagons.  However, neither home 
lawn and garden-type items, nor general-use items such as bulldozers, graders, 
trenchers, and trucks, shall be considered as designed and built for agricultural 
use.” 
 
We note preliminarily that we agree with the BTA’s determination that 
appellant is a “merchant” as that term is defined by R.C. 5711.15.  However, we do 
not agree with the remainder of the majority decision of the BTA in this cause.  For 
the following reasons, we reverse the decision of the BTA and remand this cause 
for further proceedings consistent with this opinion. 
I 
 
Appellant argues that its inventory, items that are sold to its customers to 
construct, operate, and maintain greenhouses that are used in the growing of plants 
and flowers, is machinery and equipment designed and built for agricultural use 
and, thus, is exempt from personal property taxation pursuant to R.C. 5701.08.  
Appellant contends that the BTA erred when it concluded that the inventory items 
were not machinery and equipment.  Appellant further contends that the BTA 
 
 
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improperly held that there was no evidence in the record that appellant’s inventory 
was designed or built for agricultural use. 
 
The BTA held that “[b]ased upon the evidence and testimony presented, we 
find that the items under consideration do not meet the second and third criteria [of 
Ohio Adm.Code 5703-3-30].  Specifically, the contested items herein are not 
machinery or equipment, but are inventory; they are parts, which in combination, 
can be used to construct a structure, which, if a customer so chooses, will be 
utilized in the growing of plants.  [Footnote omitted.]  Further, there is no evidence 
in the record to indicate that any of the inventory items in question are necessarily 
designed or built for agricultural pursuits.  The inventory parts, as listed, are used 
by appellant’s customers for the construction of greenhouses and sometimes, other 
structures not related to agriculture.  However, there is no evidence in the record to 
indicate that this inventory was specifically built and designed for use in 
agriculture, and arguably, the items could be used for other pursuits, unrelated to 
agriculture * * *.”  (Emphasis sic.) 
 
This court has previously determined that it will not reverse a decision of the 
BTA that is reasonable and lawful based upon the record and evidence submitted.  
See SFZ Transp., Inc. v. Limbach (1993), 66 Ohio St.3d 602, 613 N.E.2d 1037.  “A 
review as to the reasonableness and lawfulness of the agency decision necessarily 
includes an examination of the record ‘to examine the evidence and determine as to 
the ultimate facts established by it, and whether such ultimate facts furnished 
sufficient legal predicate upon which to base the order complained of.’  * * * ‘The 
fact that a question of law involves a consideration of the facts or the evidence, 
does not turn it into a question of fact or raise a factual issue; nor does that 
consideration involve the court in weighing the evidence or passing upon its 
credibility.’ ”  (Citations omitted.)  Id. at 605, 613 N.E.2d at 1040.  In SFZ 
Transportation, the court concluded that the BTA’s rejection of “uncontradicted 
 
 
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data * * * is not the sort of weighing of evidence or determination of credibility to 
which we must defer.”  Id. 
 
The BTA concluded that there was no evidence in the record before the 
board that appellant’s inventory was necessarily designed and built for agricultural 
use.  The BTA also determined that items in appellant’s inventory could be used in 
pursuits unrelated to agriculture.  We disagree. 
 
In Benken v. Porterfield (1969), 18 Ohio St.2d 133, 47 O.O.2d 287, 247 
N.E.2d 749, syllabus, the court held that the growing and selling of plants in 
greenhouses is agriculture.  In the case now before us, appellant’s president, Albert 
Reilly, was the sole witness before the BTA.  Reilly repeatedly testified that 
appellant’s inventory included items that are used in the construction and repair of 
greenhouses as well as equipment intended to control the growing environment 
inside the greenhouse.  Reilly further testified that appellant’s inventory was 
purchased from third-party suppliers and was held for sale to customers engaged in 
the business of “[g]rowing, maintaining or selling horticultural products.”  Reilly 
indicated that, during the tax years in question, appellant’s inventory sales did not 
reflect any sales to customers other than those engaged in the growing of plants 
and flowers.  Moreover, appellant’s sales catalogues clearly indicate that the 
inventory items in question were intended to be used in the construction, operation, 
and repair of greenhouses. 
 
A majority of the BTA apparently rejected or ignored what we believe to be 
uncontroverted evidence regarding the intended and subsequent use of appellant’s 
inventory items.  As we admonished in SFZ Transportation, the court will not 
defer to such determinations by the BTA.  SFZ Transp., Inc. v. Limbach, 66 Ohio 
St.3d at 605, 613 N.E.2d at 1040. 
 
Reilly did testify that appellant’s inventory items could be used for other 
purposes, e.g., a swimming pool cover.  However, for the tax years at issue, we 
 
 
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have found no direct evidence in the record that would lead us to conclude 
appellant’s inventory items were used for purposes other than in the construction, 
operation, and maintenance of greenhouses.  We therefore find that the evidence 
submitted to the BTA overwhelmingly established that appellant’s inventory 
during the time in question was designed and built for agricultural use and 
ultimately used for such purposes, and that the BTA erred in holding otherwise. 
 
The BTA also determined that the contested items in appellant’s inventory 
are not machinery or equipment pursuant to the provisions of R.C. 5701.08 and 
Ohio Adm.Code 5703-3-30.  However, in Benken v. Porterfield, 18 Ohio St.2d at 
138, 47 O.O.2d at 289, 247 N.E.2d at 753, the court found some property, similar 
to certain items at issue in this case, to be equipment and machinery used in 
agriculture.  Among those items included were lath houses, plumbing and heating 
equipment, planting benches, and fans.  See Benken v. Porterfield (July 9, 1968), 
BTA No. 66931, unreported.  In fact, the BTA indicated that some of appellant’s 
inventory, specifically heating, ventilation, and shading equipment, may qualify as 
“equipment” if the evidence established that it was designed and built for 
agriculture.  We have already deemed that there is sufficient evidence in the record 
to conclude that appellant’s inventory for the years in question was designed and 
built for agricultural use.  Thus, the only question that remains is to determine 
specifically those items included in appellant’s inventory that qualify as 
“machinery and equipment,” in order for those items to be statutorily exempt from 
personal property tax pursuant to R.C. 5701.08.  We therefore remand this question 
to the BTA for consideration and determination whether any of the items in 
appellant’s inventory qualify as “machinery and equipment, or [and] accessories 
therefor,” pursuant to R.C. 5701.08 and Ohio Adm.Code 5703-3-30. 
II 
 
 
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In a secondary holding, the BTA determined that appellant could not qualify 
for the agricultural-use-personal-property exemption, since it failed to properly list 
its property in accordance with Ohio Adm.Code 5703-3-30.  Ohio Adm.Code 
5703-3-30 provides: 
 
“A merchant shall be required to disclose in his personal property tax return 
all property held for sale, segregating property qualifying for this exception from 
non-qualifying property, and list the monthly-ending values of all non-qualifying 
property in ‘Schedule 3A.’ ” 
 
Appellee argues, and the BTA agreed, that appellant may not claim an 
exemption for property that it fails to properly list on its personal property tax 
return.  In contrast, appellant contends that it fully complied with Ohio Adm.Code 
5703-3-30 because it listed its entire inventory on its balance sheets as qualifying 
for the R.C. 5701.08 exemption.  In other words, appellant argues that since none 
of the items in its inventory was “non-qualifying,” it was not required to list any 
non-qualifying property in Schedule 3A. 
 
We find that appellant properly complied with the listing requirements of 
Ohio Adm.Code 5703-3-30.  Ohio Adm.Code 5703-3-30 requires a merchant to 
segregate property qualifying for the agricultural-use-personal-property exemption 
from non-qualifying property and list the month-ending values of the non-
qualifying property in Schedule 3A.  Since appellant claimed that its entire 
inventory qualified for the exemption, it obviously follows that there was no 
property remaining to list as non-qualifying.  It would be nonsensical to hold that 
appellant failed to comply with the listing requirements of Ohio Adm.Code 5703-
3-30 before the taxability of said property has been determined by the Tax 
Commissioner.  Any conclusion to the contrary is unreasonable and unlawful.  See 
First Banc Group of Ohio v. Lindley (1981), 68 Ohio St.2d 81, 22 O.O.3d 297, 428 
N.E.2d 427. 
 
 
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III 
 
Accordingly, we find that the BTA’s conclusions in this matter are contrary 
to law and not supported by the record before this court.  We therefore reverse the 
decision of the BTA and remand this matter to it for final determination consistent 
with this opinion. 
Decision reversed 
and cause remanded. 
 
MOYER, C.J., RESNICK, F.E. SWEENEY, PFEIFER, COOK and LUNDBERG 
STRATTON, JJ., concur. 
FOOTNOTES: 
1. 
During part of the assessment period in the instant matter, appellant’s 
corporate name was Rowe-Reilly Corporation and it conducted business under the 
name of “Rough Brothers.”  However, in 1991, appellant changed its corporate 
name to Rough Brothers, Inc. 
2. 
The Tax Commissioner made three final determinations affirming 
preliminary assessments for tax years 1988 and 1989, 1990 and 1991, and 1992 
and 1993, respectfully.  Appellant filed three separate appeals with the BTA, case 
Nos. 96-K-460, 96-K-461, and 96-K-462.  The BTA consolidated the appeals for 
hearing, post-hearing briefing, and final determination.