Case Title: United Tel. Co. of Ohio v. Limbach

Citation: 1994-Ohio-209

Docket Number: 19932428

State: ohio

Court: Ohio Supreme Court

Date: 1994-12-23T00:00:00Z

Document:
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United Telephone Company of Ohio, Appellant, v. Limbach, Tax                     
Commr., Appellee.                                                                
[Cite as United Tel. Co. of Ohio v. Limbach (1994),      Ohio                    
St.3d      .]                                                                    
Taxation -- Tangible personal property owned by a public utility                 
     telephone company which is not "used in business" is not                    
     subject to personal property tax -- R.C. 5709.01 and                        
     former R.C. 5727.06, harmonized.                                            
Tangible personal property owned by a public utility telephone                   
     company which is not "used in business" is not subject to                   
     personal property tax.  (R.C. 5709.01 and former 5727.06,                   
     harmonized.)                                                                
     (No. 93-2428 -- Submitted November 16, 1994 -- Decided                      
December 23, 1994.)                                                              
     Appeal from the Board of Tax Appeals, Nos. 91-Z-197,                        
91-Z-198 and 91-Z-199.                                                           
     This matter is before the court on an appeal by United                      
Telephone Company of Ohio ("United Telephone"), appellant, from                  
a decision of the Board of Tax Appeals ("BTA"), appellee,                        
affirming the disallowance by the Tax Commissioner of Ohio                       
("commissioner") of certain deductions taken by United                           
Telephone on its personal property tax returns for the 1987,                     
1988, and 1989 tax years.                                                        
     United Telephone is a public utility that provides local                    
and toll access telephone service to its business and                            
residential customers in Ohio.  The company maintains one                        
hundred eighty-eight central offices, each of which contains a                   
main distribution frame ("MDF"), which act as switching                          
stations.  Cables containing a number of insulated wire pairs                    
or fibers are connected to the MDF at each central office.  At                   
the customer's end, fiber or wires inside the cables are                         
connected to "drop lines" which go into residences or                            
businesses.  Each wire pair or two fibers make a two-way                         
conversation possible.                                                           
     During the tax years at issue United Telephone used three                   
kinds of cable to provide service to its customers:  copper                      
wire cable, coaxial cable, and fiberoptic cable.  United                         
Telephone classifies its wire pairs or optical fibers inside                     
its cables according to their current use.  Two classifications                  
of wire pairs or fibers  are at issue in this case:  "dead                       
pairs" or "dead fiber" and "bad pairs" or "bad fiber."  Dead                     
pairs and dead fiber are not connected to either an MDF or a                     
customer's drop line, and are included in cables to provide                      
excess capacity for the company to provide service to future                     
new customers.  Bad pairs and bad fiber are wire pairs and                       
fiber which have been damaged, have malfunctioned, or have                       
simply worn out.  In such an instance United Telephone switches                  
service from that "bad pair" or "bad fiber" to an available                      
operable pair or fiber within the same cable.                                    
     United Telephone deducted the value of both its dead and                    
bad pairs or fiber on its 1987, 1988 and 1989 personal property                  
tax returns as property not "used in business" and therefore                     
not personal property subject to taxation.  It claimed                           
deductions in the amount of $62,434,757, $68,388,234 and                         
$75,098,071 for the 1987, 1988, and 1989 tax years,                              
respectively.                                                                    
     The Tax Commissioner disallowed United's claimed                            
deductions for the value of the dead and bad pairs or fiber,                     
affirmed the assessments, and issued Certificates of                             
Determination for all three tax years.  United Telephone                         
appealed the commissioner's order in each case to the BTA.  The                  
BTA consolidated the appeals, and, after a hearing, affirmed                     
the commissioner's orders.  This matter is now before this                       
court as an appeal as of right.                                                  
                                                                                 
     Jones, Day, Reavis & Pogue, Maryann B. Gall, Michael                        
Dubetz, Jr., Jeffrey S. Sutton and George N. Nicholas; and W.                    
Wayne Walston, for appellant.                                                    
     Lee Fisher, Attorney General, and James C. Sauer,                           
Assistant Attorney General, for appellee.                                        
                                                                                 
     A. William Sweeney, J.     Both the commissioner and the                    
BTA found, pursuant to R.C. 5727.06 as amended in 1982, that                     
all of United Telephone's tangible personal property "owned and                  
located in this state" was subject to personal property tax,                     
including property not "used in business."  The BTA held that                    
amendments resulting from the enactment of Am.Sub.H.B. No. 201,                  
effective December 31, 1982, removed any former requirement                      
that a public utility's personal property must be "used in                       
business" to be taxable.  We reverse.                                            
     R.C. 5709.01 establishes the general principle that all                     
personal property located and "used in business" in Ohio is                      
taxable unless expressly exempted.  The statute provides, in                     
part, as follows:                                                                
     "(B) Except as provided by division (C) of this section or                  
otherwise expressly exempted from taxation:                                      
     "(1) All personal property located and used in business in                  
this state, *** [is] subject to taxation regardless of the                       
residence of the owners thereof."  (Emphasis added.)                             
     In Hatchadorian v. Lindley (1986), 21 Ohio St.3d 66, 68,                    
21 OBR 365, 367, 488 N.E. 2d 145, 147, we noted that property                    
that is not "used in business" within the meaning of R.C.                        
5701.08 is properly excludable from personal property tax.                       
Thus, while R.C. 5709.01 establishes the rule that personal                      
property "used in business" is subject to personal property                      
tax, we have recognized that the statutes establish a corollary                  
rule that tangible personal property not "used in business" is                   
not taxable.                                                                     
     R.C. Chapter 5727 codifies laws governing the taxation of                   
public utilities such as the appellant herein, United                            
Telephone.  Prior to 1982, R.C. 5727.06 provided in relevant                     
part:                                                                            
     "The property owned or operated by a public utility                         
required to make a return to the tax commissioner of its                         
property to be assessed for taxation by the commissioner shall                   
include such utility's plant, all real estate owned by the                       
public utility and all other property, including that mentioned                  
in section 5709.02 of the Revised Code, owned or operated by it                  
wholly or in part within this state, used in connection with or                  
as incidental to the operation of the public utility, where the                  
same is held in common or by the individuals operating such                      
public utility.  ***"  (Emphasis added.)  (133 Ohio Laws, Part                   
III, 2525-2526.)                                                                 
     The descriptive phrase "used in connection with or as                       
incidental to the operation of" was removed from R.C. 5727.06                    
by enactment of Am.Sub.H.B. No. 201.  During the tax years in                    
question, the amended statute provided substantially as follows:                 
     "Except as otherwise provided by law, the taxable property                  
of a public utility required to be assessed by the tax                           
commissioner is each kind of property mentioned in section                       
5709.02 of the Revised Code and:  ***                                            
     "(A) In the case of a railroad, all real property and                       
tangible personal property owned or operated in this state ***;                  
     "(B) In the case of all other public utilities except                       
freight line and equipment companies, all tangible personal                      
property owned and located in this state on the thirty-first                     
day of December of the preceding year."  (Emphasis added.) (139                  
Ohio Laws, Part I, 2054.)                                                        
     The commissioner argues that R.C. 5709.01 is a general                      
statute which contradicts former R.C. 5727.06, a special                         
statute.  The commissioner contends that former R.C. 5727.06                     
should be deemed to prevail over R.C. 5709.01, and that all of                   
United Telephone's personal property "owned and located in this                  
state" should be subject to tax irrespective of whether that                     
property is "used in business."  However, R.C. 1.51 directs us                   
to first construe conflicting statutory provisions, where                        
possible, to give effect to both.  Only where the conflict is                    
deemed irreconcilable does R.C. 1.51 mandate that one provision                  
shall prevail over the other.  We have judicially recognized                     
similar rules of statutory construction:                                         
     "First, all statutes which relate to the same general                       
subject matter must be read in pari materia.  See Maxfield v.                    
Brooks (1924), 110 Ohio St. 566, 144 N.E. 725; State, ex rel.                    
Bigelow, v. Butterfield (1936) 132 Ohio St. 5, 6 O.O. 490, 4                     
N.E. 2d 142.  And, in reading such statutes in pari materia,                     
and construing them together, this court must give such a                        
reasonable construction as to give the proper force and effect                   
to each and all such statutes.  Maxfield v. Brooks, supra.  The                  
interpretation and application of statutes must be viewed in a                   
manner to carry out the legislative intent of the sections.                      
See Benjamin v. Columbus (1957), 104 Ohio App. 293, 4 O.O. 2d                    
439, 148 N.E.2d 695, affirmed (1957), 167 Ohio St. 103, 4                        
O.O.2d 113, 146 N.E.2d 854; In re Hesse (1915), 93 Ohio St.                      
230, 112 N.E. 511.  All provisions of the Revised Code bearing                   
upon the same subject matter should be construed harmoniously.                   
State v. Glass (1971), 27 Ohio App.2d 214, 56 O.O.2d 391, 272                    
N.E.2d 893; State v. Hollenbacher (1920), 101 Ohio St. 478, 129                  
N.E. 702.  This court in the interpretation of related and                       
co-existing statutes must harmonize and give full application                    
to all such statutes unless they are irreconcilable and in                       
hopeless conflict.  Couts v. Rose (1950), 152 Ohio St. 458, 40                   
O.O. 482, 90 N.E.2d 139."  Johnson's Markets, Inc. v. New                        
Carlisle Dept. of Health (1991), 58 Ohio St.3d 28, at 35, 567                    
N.E.2d 1018, 1025.                                                               
     Applying these principles to the case at bar, we note that                  
former R.C. 5727.06 does not expressly exempt public utilities                   
from the mandate of R.C. 5709.01 ("Except as *** otherwise                       
expressly exempted from taxation, [a]ll personal property                        
located and used in business in this state, *** [is] subject to                  
taxation."  [Emphasis added.]).  Nor does former R.C. 5727.06                    
describe tangible property owned by a utility and located as                     
"subject to taxation" as does R.C. 5709.01.  The legislature's                   
expressed purpose in enacting Am.Sub. H.B. No. 201 was to amend                  
existing law so as "to require county auditors, instead of the                   
Tax Commissioner, to assess the real property of all public                      
utilities except railroads."  (139 Ohio Laws 2043.)1                             
Consistent with these rules of statutory interpretation, we                      
conclude that the General Assembly removed the phrase "used in                   
connection with *** the operation of" a public utility in                        
amending R.C. 5727.06 in 1982 because it found that language                     
superfluous in light of the "used in business" requirement set                   
forth in R.C. 5709.01.  Our conclusion is reinforced by the                      
legislature's inclusion of the introductory phrase "except as                    
otherwise provided by law" in the amended version of R.C.                        
5727.06.  We thus do not read former R.C. 5727.06 as removing                    
the "used in business" requirement established in R.C.                           
5709.01.  This construction harmonizes and gives effect to both                  
sections, as we are bound to do when possible.  United                           
Telephone was not required to pay personal property tax on                       
property not "used in business."  We therefore hold that                         
tangible personal property owned by a public utility telephone                   
company which is not "used in business" is not subject to                        
personal property tax.                                                           
     Having determined that personal property not "used in                       
business" by the taxpayer is not taxable, the decision of the                    
BTA is unreasonable and unlawful, and we reverse and remand                      
this cause to the BTA for further proceedings to determine                       
whether the dead and bad pairs and fiber at issue were "used in                  
business."  In so doing, the BTA should apply R.C. 5701.08 in                    
accordance with the principles set forth in Hatchadorian,                        
supra, and Dayton Press, Inc. v. Limbach (1989), 42 Ohio St.3d                   
101, 537 N.E.2d 219, which we today affirm.                                      
                                    Decision reversed                            
                                    and cause remanded.                          
     Moyer, C.J., Douglas, Wright, F.E. Sweeney and Pfeifer,                     
JJ., concur.                                                                     
     Resnick, J., concurs in the syllabus and judgment only.                     
                                                                                 
FOOTNOTE:                                                                        
     1  Prior to these 1982 amendments, the county auditor was                   
the designated assessor of all real estate in the county except                  
that owned by public utilities (both railroads and other                         
utilities).  See former R.C. 5713.01.  (138 Ohio Laws, Part II,                  
2910.)