Case Title: Internatl. Business Machines Corp. v. Zaino

Citation: 2002-Ohio-349

Docket Number: 20001700

State: ohio

Court: Ohio Supreme Court

Date: 2002-01-30T00:00:00Z

Document:
[Cite as Internatl. Business Machines Corp. v. Zaino, 94 Ohio St.3d 152, 2002-Ohio-349.] 
 
 
INTERNATIONAL BUSINESS MACHINES CORPORATION, APPELLANT, v. ZAINO, 
TAX COMMR., APPELLEE. 
[Cite as Internatl. Business Machines Corp. v. Zaino (2002), 94 Ohio St.3d 
152.] 
Taxation — Franchise tax — Petition for reassessment — Taxpayer seeking 
refund of an overpayment of franchise tax must file an application for 
refund — R.C. 5733.11, construed and applied. 
(No. 00-1700 — Submitted September 19, 2001 — Decided January 30, 2002.) 
APPEAL from the Board of Tax Appeals, No. 99-K-616. 
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SYLLABUS OF THE COURT 
When the tax commissioner has made an assessment under R.C. 5733.11, the 
amount that may be contested and refunded under that statute is limited to 
the amount paid on the deficiency assessment. 
__________________ 
 
PFEIFER, J.  The question presented by this case is whether a taxpayer 
seeking a refund of an overpayment of franchise tax may seek that refund through 
a reassessment petition or whether the taxpayer must file an application for 
refund.  We find that the law requires the filing of an application for refund. 
Factual and Procedural Background 
 
This appeal involves the 1993 Ohio franchise tax report of appellant, 
International Business Machines Corporation (“IBM”).  On September 25, 1996, 
the commissioner and IBM entered into an agreement to extend the three-year 
deadline for the commissioner to assess, or the taxpayer to seek a refund of, the 
franchise tax for 1993 until April 15, 1997.  On February 19, 1997, after an audit 
of IBM’s 1993 Ohio franchise tax return, the commissioner issued an increased 
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assessment.  On March 11, 1997, IBM filed a petition for reassessment, asserting 
that the increase in the franchise tax base resulting from the commissioner’s audit 
“should be offset” by changes in certain deferred tax asset accounts.  After an 
October 7, 1998 hearing before the commissioner on the reassessment, IBM’s 
counsel sent a letter dated October 15, 1998, in which he stated, “The assessment 
for 1993 should be vacated and a refund for the remaining amount [i.e., the 
amount already paid for that year] plus applicable interest, should be made.”  IBM 
never, however, filed a refund claim for the 1993 tax year. 
 
In his final determination the commissioner accepted IBM’s treatment of 
the deferred tax accounts in accordance with a decision of the Board of Tax 
Appeals (“BTA”) in USX Corp. v. Tracy (Jan. 22, 1999), BTA Nos. 92-H-1479 
and 92-H-1480, unreported.  The commissioner cancelled the assessment in its 
entirety but did not grant the refund requested by IBM. 
 
IBM appealed to the BTA, where the commissioner’s final determination 
was affirmed. 
 
This cause is now before this court upon an appeal as of right. 
Law and Analysis 
 
R.C. 5733.11 provides: 
 
“(A) If any corporation required to file a report under this chapter * * * 
fails to remit the full amount of the tax due for the period covered by the report, 
the tax commissioner may make an assessment against the corporation for any 
deficiency * * *. 
 
“(B) Unless the corporation to which the notice of assessment is directed 
files with the commissioner within sixty days after service * * *, a petition for 
reassessment in writing, * * * and makes payment of the portion of the 
assessment required by division (E) of this section, the assessment shall become 
final, and the amount of the assessment shall be due and payable from the 
corporation assessed * * *. 
January Term, 2002 
3 
 
“* * * 
 
“(F) * * * If upon final determination of the petition an error in the 
assessment is corrected by the commissioner, upon petition so filed or pursuant to 
a decision of the board of tax appeals or any court to which the determination or 
decision has been appealed, so that the amount due from the corporation under the 
corrected assessment is less than the portion paid, there shall be issued to the 
corporation, its assigns, or legal representative a refund in the amount of the 
overpayment as provided by section 5733.12 of the Revised Code * * *.”  
(Emphasis added.) 
 
A deficiency assessment may be made under R.C. 5733.11 when the 
taxpayer remits an amount with its return that is less than the amount due in the 
judgment of the commissioner.  Under the procedure set forth in R.C. 5733.11, 
the commissioner makes the deficiency “assessment” and gives notice to the 
taxpayer. R.C. 5733.11(A).  The taxpayer may contest the deficiency 
“assessment” by filing a “petition for reassessment.” R.C. 5733.11(B).  However, 
as a prerequisite to filing a petition for reassessment, the taxpayer may be required 
to pay all, some, or none of the deficiency assessment. R.C. 5733.11(E). 
 
If the corporation pays all or some of the deficiency assessment upon 
filing for the reassessment, and the commissioner, the BTA, or a court determines 
that “the amount due from the corporation under the corrected assessment is less 
than the portion paid,” a refund of the overpayment amount shall be issued.  R.C. 
5733.11(F). 
 
Since the portion of the assessment required to be paid as a prerequisite to 
filing a petition for reassessment can range from full payment to no payment, the 
amount that is subject to refund is tied to the amount “paid.”  Therefore, any 
refund under R.C. 5733.11 cannot exceed the “portion paid.”  There is no 
language in R.C. 5733.11 that grants the commissioner authority to refund any 
amount greater than that paid toward the deficiency assessment with the petition 
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for reassessment.  Therefore, when the commissioner has made an assessment 
under R.C. 5733.11, the amount that may be contested and refunded under that 
statute is limited to the amount paid on the deficiency assessment.  No refund of 
the money paid with the filing of the franchise tax returns is available under R.C. 
5733.11. 
 
IBM contends that two separate clauses in R.C. 5733.11 indicate 
otherwise.  First, IBM cites the language that states, “The petition shall indicate 
the corporation’s objections, but additional objections may be raised in writing if 
received prior to the date shown on the final determination by the commissioner.” 
R.C. 5733.11(B).  IBM contends that since it mentioned “refund” in its letter of 
October 15, 1998, it somehow turned the petition for reassessment into an 
application for refund.  However, the only issue in an R.C. 5733.11 petition is the 
deficiency assessment.  The “additional objections” the statute allows refer only 
to supplemental attacks against the deficiency assessment; they cannot be used to 
create a separate claim for refund in excess of the assessment. 
 
IBM also cites the phrase from R.C. 5733.11(B) that the “commissioner 
may make such correction to the assessment as the commissioner finds proper.”  
By its own terms this phrase limits the commissioner’s correction to “the 
assessment.”  The commissioner’s assessment concerns only the deficiency 
assessment, not amounts paid with the return. 
 
If IBM wanted a refund on the amounts paid with its return it should have 
filed for a refund under R.C. 5733.12(B).  In contrast to R.C. 5733.11, which is 
limited to assessments, R.C. 5733.12(B) provides for refunds of both amounts 
paid with the return and on an assessment: 
 
“(B) [A]n application to refund to the corporation the amount of taxes * * 
* overpaid, paid illegally or erroneously, or paid on any illegal, erroneous, or 
excessive assessment, * * * shall be filed with the tax commissioner, on the form 
January Term, 2002 
5 
prescribed by the commissioner, within three years from the date of the illegal, 
erroneous, or excessive payment of the tax * * *. 
 
“On the filing of the refund application, the commissioner shall determine 
the amount of refund due * * *.” 
 
In Lancaster Colony Corp. v. Lindley (1980), 61 Ohio St.2d 268, 271, 15 
O.O.3d 270, 272, 400 N.E.2d 905, 907, this court stated that “R.C. 5733.12 
specifically makes reference to refunds sought due to illegal or erroneous 
payments, as well as to refunds on illegal or erroneous assessments.  The statutes 
make a clear distinction as to assessments.”  Thus, under R.C. 5733.12(B), 
procedures are set forth for a corporation to seek a refund of taxes either (1) 
“overpaid,” (2) “paid illegally or erroneously,” or (3) “paid on any illegal, 
erroneous, or excessive assessment.” 
 
Items (1) and (2) above relate to a refund of those amounts paid with the 
return.  On the other hand, item (3) relates to a refund of taxes paid under an 
assessment.  To be eligible for a refund of either type requires the filing of an 
“application to refund.”  No application for refund was ever filed in this case. 
 
IBM’s failure to file an application for refund under R.C. 5733.12(B) was 
a failure to substantially comply with a specific requirement.  In Am. Restaurant 
& Lunch Co. v. Glander (1946), 147 Ohio St. 147, 34 O.O. 8, 70 N.E.2d 93, in 
paragraph one of the syllabus, this court held that “[w]here a statute confers the 
right of appeal, adherence to the conditions thereby imposed is essential to the 
enjoyment of the right conferred.”  In Akron Std. Div. of Eagle-Picher Industries, 
Inc. v. Lindley (1984), 11 Ohio St.3d 10, 12, 11 OBR 9, 10, 462 N.E.2d 419, 420, 
we held that if a statutory requirement runs to the core of procedural efficiency, 
substantial compliance must occur or the appeal is to be dismissed.  Here, R.C. 
5733.12(B) requires a refund application to be filed “with the tax commissioner, 
on the form prescribed by the commissioner.”  Those requirements go to the core 
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of procedural efficiency and, because IBM did not substantially comply, the Tax 
Commissioner had no jurisdiction to consider the refund sought. 
Decision affirmed. 
 
MOYER, C.J., DOUGLAS, RESNICK, F.E. SWEENEY, COOK and LUNDBERG 
STRATTON, JJ., concur. 
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Bricker & Eckler, L.L.P., and Mark A. Engel, for appellant. 
 
Betty D. Montgomery, Attorney General, and Richard C. Farrin, Assistant 
Attorney General, for appellee. 
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