Case Title: Bay Mech. & Elec. Corp. v. Testa

Citation: 2012-Ohio-4312

Docket Number: 2011-1197

State: ohio

Court: Ohio Supreme Court

Date: 2012-09-26T00:00:00Z

Document:
[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as 
Bay Mechanical & Elec. Corp. v. Testa, Slip Opinion No. 2012-Ohio-4312.] 
 
 
NOTICE 
This slip opinion is subject to formal revision before it is published in 
an advance sheet of the Ohio Official Reports.  Readers are requested 
to promptly notify the Reporter of Decisions, Supreme Court of Ohio, 
65 South Front Street, Columbus, Ohio 43215, of any typographical or 
other formal errors in the opinion, in order that corrections may be 
made before the opinion is published. 
 
SLIP OPINION NO. 2012-OHIO-4312 
BAY MECHANICAL & ELECTRICAL CORPORATION, APPELLANT, v. TESTA,  
TAX COMMR., APPELLEE. 
[Until this opinion appears in the Ohio Official Reports advance sheets,  
it may be cited as Bay Mechanical & Elec. Corp. v. Testa,  
Slip Opinion No. 2012-Ohio-4312.] 
Sales tax—R.C. 5739.01—Taxpayer burden—Decision affirmed. 
(No. 2011-1197—Submitted August 22, 2012—Decided September 26, 2012.) 
APPEAL from the Board of Tax Appeals, No. 2008-K-1687. 
____________________ 
Per Curiam. 
{¶ 1} In this case, Bay Mechanical & Electrical Corp., a specialty 
mechanical contractor, challenges a sales-tax assessment issued by the tax 
commissioner with respect to Bay’s purchase of allegedly taxable “employment 
services.”  During the audit period, which extends from January 1, 2003 through 
December 31, 2005, Bay purchased the services from two entities.  Bay treated 
the personnel supplied by Tradesmen International, Inc. and Construction Labor 
Contractors (“CLC”) as “permanent-assignment” employees, and therefore 
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regarded the attendant employment services as exempt pursuant to R.C. 
5739.01(JJ)(3).1   
{¶ 2} On audit, the commissioner overruled Bay’s exempt treatment of 
the transactions on the primary ground that Bay had failed to supply “facts and 
circumstances” evidence in relation to the assignment of individual employees.  
On appeal, the BTA found that the testimony and the summary exhibits offered by 
Bay were insufficient to prove entitlement to the exemption, with the result that 
the BTA affirmed the commissioner’s denial of the exemption.  Bay Mechanical 
& Elec. Corp. v. Levin, BTA No. 2008-K-1687, 2011 WL 2446198, *3-4 (June 
14, 2011). 
{¶ 3} Before this court, Bay renews its contention that the language of its 
contracts and the testimony offered satisfy the one-year and permanent-
assignment criteria of R.C. 5739.01(JJ)(3).  We disagree, and we therefore affirm 
the decision of the BTA. 
I.  Course of proceedings 
{¶ 4} Bay Mechanical & Electrical Corporation is a construction 
contractor that provides various services such as plumbing, piping, HVAC, 
electrical wiring, and maintenance work.  Bay directly employed “core 
employees” to carry out its projects, but additionally relied on labor supplied by 
third parties—in other words, Bay purchased “employment services,” which are 
generally subject to sales tax unless specifically excepted. 
{¶ 5} During the audit period, which stretches from January 1, 2003, 
through December 31, 2005, Bay held a direct-payment permit.  Although the 
                                                 
1 After the audit period at issue, the General Assembly amended the definition of employment 
service at R.C. 5739.01(JJ) and added an exception at paragraph (5).  Sub.H.B. No. 293, 151 Ohio 
Laws, Part V, 8842, 8864.  The amendment is not material to the analysis of the statute in this 
opinion, and it did not change the language of paragraph (3) at all.    In this opinion, however, 
R.C. 5739.01(JJ) and 5739.01(JJ)(3) refer to the version in effect during the audit period.  145 
Ohio Laws, Part III, 4009, 4297. 
 
January Term, 2012 
3 
 
sales-tax law usually requires vendors to charge the tax to their consumers and 
then remit the collected tax to the state, see R.C. 5739.03 and  5739.29, another 
section—R.C. 5739.031—empowers the commissioner to issue direct-payment 
permits to consumers.  Under such a permit, the consumer files monthly sales-tax 
returns that ascertain its own liability to pay the tax on its own purchases. 
1. The audit and assessment 
{¶ 6} The tax commissioner commenced his audit of Bay’s purchases 
with a notification letter dated February 13, 2006.  Over the course of several 
months, the tax agent worked out the method for the audit with Bay.  On 
December 20, 2006, Bay representatives met with the tax agent at Bay’s Lorain 
headquarters, and during that meeting, the taxability of the purchases from 
Tradesman and CLC was a principal subject of discussion.  A second meeting on 
February 20 resolved several issues but not the disagreement regarding the 
taxability of the employment services that Bay had purchased.  Bay argued that 
the Tradesmen and CLC transactions were exempt as “permanent-assignment” 
sales under R.C. 5739.01(JJ)(3).  The parties agreed that Bay would produce 
additional information for the tax agent’s review.  That additional information 
would have included employment-service invoices from Tradesmen and CLC as 
well as “job cost summary sheets and supporting accrual information.” 
{¶ 7} By letter dated March 7, 2007, Bay’s controller announced that 
Bay had decided not to produce the additional information.  The letter recited that 
Bay had furnished to the tax agent the employment-service contracts between it 
and Tradesmen and CLC, and that Bay had paid sales tax on employment services 
as to specified temporary employees supplied by other vendors.  Bay took the 
position that it had “followed the intent and the letter of the law with regard to 
leased construction labor” and asked the tax agent to proceed to issue his 
preliminary report without the benefit of additional documentation. 
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{¶ 8} The tax agent’s audit remarks reveal the department’s own 
position.  After reviewing the two CLC contracts and the three Tradesmen 
contracts, the tax agent concluded that two of the Tradesmen contracts were 
disqualified as a basis for exemption because they referred to non-permanent 
assignments.  In reviewing the other contracts, the agent first confirmed the 
existence of clauses that established that the contracts were “for at least one year” 
as required by R.C. 5739.01(JJ)(3).  Next, the agent stated that although the 
remaining three contracts referred to indefinite or permanent assignment of the 
employees, they did not qualify as a basis for exemption because they failed to 
specify those employees or positions subject to such permanent or indefinite 
assignment.  With respect to Tradesmen, the additional question arose whether 
employees had been assigned pursuant to the temporary-service contract or the 
permanent-assignment contract. 
{¶ 9} As a result of the audit, the tax department issued a use-tax 
assessment against Bay on May 25, 2007, calling for payment of $105,078.77 of 
use tax, of which $74,574.65 related to employment services. 2   In addition to the 
tax, penalties and interest were assessed. 
2. Petition for reassessment 
{¶ 10} On July 17, 2007, Bay filed its petition for reassessment, which 
challenged the employment-services portion of the assessment and stated that Bay 
was not requesting a hearing.  An attorney with the tax department’s Office of 
Chief Counsel wrote to Bay’s counsel, noting that the audit agent had requested 
“additional information, including comprehensive invoice and time sheet 
information for employees supplied to the petitioner by Tradesmen International, 
                                                 
2 The commissioner assessed the tax owed as use tax, not as sales tax.  The distinction has no 
practical significance in this context, because the undisputed realization of the benefit of the 
employment services within Ohio means that the purchases entail a taxable “use” as long as the 
separate sales-tax obligation remains unpaid.  See R.C. 5741.02(C)(1) (transactions subject to the 
sales tax are exempted from the use tax, but only if the sales tax has been paid).  Moreover, if the 
purchases are excepted from sales tax, there is no use tax, either.  R.C. 5741.02(C)(2).  
January Term, 2012 
5 
 
Inc. and Construction Labor Contractors.”  The attorney stated that the 
information was “necessary in order to determine whether or not the employees 
were placed with the petitioner on a permanent basis per H.R. Options, Inc. v. 
Zaino (2004), 100 Ohio St.3d 373, 800 N.E.2d 740,”  and requested that Bay 
supply it.  After receiving a second, similar letter, Bay’s counsel responded that 
Bay “has declined to submit any additional information, including comprehensive 
invoice and time sheet information for employees supplied to Bay Mechanical by 
Tradesmen International, Inc. and Construction Labor Contractors,” while also 
asserting that “[t]he information was provided to the auditor during the course of 
the audit.”  The record does not support the latter statement. 
{¶ 11} On July 22, 2008, the tax commissioner issued his final 
determination, which denied the exemption on the ground that Bay had failed to 
supply “facts and circumstances” evidence in the form of “comprehensive invoice 
and time-sheet information” and that Bay had failed to submit the tax 
department’s employment-services questionnaire.  The commissioner additionally 
faulted Bay for not supplying contracts with individual employees.  The 
commissioner concluded that he could not grant the exemption because Bay had 
“not supplied information regarding the employees’ contracts or the facts and 
circumstances regarding the employees’ assignments.” 
3. The BTA appeal 
{¶ 12} Bay appealed to the BTA and, at the BTA hearing, presented the 
testimony of Bay’s controller along with four summary exhibits.  The exhibits (1) 
identified the assigned employees by name, (2) associated each employee with 
either Tradesmen or CLC, (3) set forth the precise duration of each employee’s 
assignment, and  (4) stated the reason each employee had stopped working for 
Bay.  The controller testified that she had prepared the documents by referring to 
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the employment-service invoices received from Tradesmen and CLC—documents 
that the tax agent had requested during the audit but that were not produced.3 
{¶ 13} The tax commissioner objected to the introduction of the exhibits 
on the grounds that the invoices themselves constituted the evidence, but the 
board received the exhibits and made them a part of the record. 
{¶ 14} On June 14, 2011, the BTA issued its decision.  The BTA stated 
that Bay had the burden to prove that each employee covered under the contracts 
was assigned to Bay on a permanent basis—meaning that the personnel were 
assigned for a indefinite period and not assigned either as a substitute for an 
employee who is on leave or to meet seasonal or short-term workload conditions.  
Bay Mechanical, BTA No. 2008-K-1687, 2011 WL 2446198, *2, citing H.R. 
Options, Inc. v. Zaino, 100 Ohio St.3d 373, 2004-Ohio-1, 800 N.E.2d 740, ¶ 21-
22.  The BTA found that the controller’s testimony and exhibits, presenting as 
they did information “gleaned from records not before us,” did not rise to the 
level of proof required by H.R. Options.  Accordingly, the board affirmed the 
final determination of the commissioner, and the cause is now before us on an 
appeal of right. 
II. Legal Analysis 
{¶ 15} In a claim for tax exemption, the “onus is on the taxpayer to show 
that the language of the statute ‘clearly express[es] the exemption’ in relation to 
the facts of the claim.”  Anderson/Maltbie Partnership v. Levin, 127 Ohio St.3d 
178, 2010-Ohio-4904, 937 N.E.2d 547, ¶ 16, quoting Ares, Inc. v. Limbach, 51 
Ohio St.3d 102, 104, 554 NE.2d 1310 (1990).  And when a decision issued by this 
court furnishes a definitive construction of the exemption statute, we typically 
                                                 
3 In its reply brief, Bay argues that its production of the invoices in discovery at the BTA should 
substitute for its failure to produce them during the audit.  We address this contention in the legal 
analysis below. 
 
January Term, 2012 
7 
 
reject an exemption claim that would expand the exemption beyond the scope 
described in that decision.  See id. at ¶ 22. 
{¶ 16} Also significant are two settled propositions that govern, 
respectively, the BTA’s review of the tax commissioner’s determinations and our 
review of a BTA decision.  First, before the BTA, “[t]he Tax Commissioner’s 
findings ‘are presumptively valid, absent a demonstration that those findings are 
clearly unreasonable or unlawful.’ ”  A. Schulman, Inc. v. Levin, 116 Ohio St.3d 
105, 2007-Ohio-5585, 876 N.E.2d 928, ¶ 7, quoting Nusseibeh v. Zaino, 98 Ohio 
St.3d 292, 2003-Ohio-855, 784 N.E.2d 93, ¶ 10.  It was therefore Bay’s burden to 
rebut the presumptive validity of denying the exemption by affirmatively proving 
its entitlement to it.  Second, under R.C. 5717.04, the question for our 
determination is whether the BTA’s decision is reasonable and lawful, and 
because “[t]he function of weighing evidence and determining credibility belongs 
to the BTA, * * * our review of that aspect of its findings” applies the highly 
deferential abuse-of-discretion standard.  HealthSouth Corp. v. Testa, 132 Ohio 
St.3d 55, 2012-Ohio-1871, 969 N.E.2d 232, ¶ 10. 
{¶ 17} With these preliminaries in mind, we turn to the exemption claim 
at issue.  Effective January 1, 1993, Ohio imposes sales and use tax on the 
provision of “employment services.”  Am.Sub.H.B. No. 904, 144 Ohio Laws, Part 
IV, at 6598, 6688-6689, 6698 and 6797, codified at R.C. 5739.01(B)(3)(k) and 
5739.01(JJ).  We have held that a service, to be taxable pursuant to the definition 
of employment services at R.C. 5739.01(JJ), must meet three requirements:  “(1) 
it must provide or supply personnel on a temporary or long-term basis, (2) the 
personnel must perform work or labor under the supervision or control of another, 
and (3) the personnel must receive their wages, salary, or other compensation 
from the provider of the service.”  Moore Personnel Serv., Inc. v. Zaino, 98 Ohio 
St.3d 337, 2003-Ohio-1089, 784 N.E.2d 1178, ¶ 14.  There is no dispute that these 
elements are present in the transactions at issue. 
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{¶ 18} Shortly after enactment of the sales tax on employment services, 
the General Assembly decided to create an additional exception for “permanent-
assignment” employees.  Am.Sub.H.B. No. 152, 145 Ohio Laws, Part III at 4297, 
codified at R.C. 5739.01(JJ)(3).  Under that provision, “employment service” did 
not include “[s]upplying personnel to a purchaser pursuant to a contract of at least 
one year between the service provider and the purchaser that specifies that each 
employee covered under the contract is assigned to the purchaser on a permanent 
basis.”  In H.R. Options, 100 Ohio St.3d 373, 2004-Ohio-1, 800 N.E.2d 740, ¶ 21, 
we explained that “permanent” in the context of (JJ)(3) means that an employee is 
“assign[ed] to a position for an indefinite period,” which in turn means that (1) the 
assignment has no specified ending date and (2) the employee is not being 
provided either as a substitute for a current employee who is on leave or to meet 
seasonal or short-term workload conditions.  Id. ¶ 21.  We also held that R.C. 
5739.01(JJ)(3) was to be treated as an exception or exemption from taxation, with 
the result that it must be strictly construed against the taxpayer’s claim for tax 
relief.  H.R. Options, ¶ 17, clarified by H.R. Options, Inc. v. Wilkins, 102 Ohio 
St.3d 1214, 2004-Ohio-2085, 807 N.E.2d 363, ¶ 2. 
{¶ 19} H.R. Options is additionally significant because we construed the 
exemption as turning on the facts of each employee’s assignment rather than on 
the presence of “magic words” in the employment-service agreements themselves.  
H.R. Options, 100 Ohio St.3d 373, 2004-Ohio-1, 800 N.E.2d 740, ¶ 21.  Instead 
of requiring that the contracts recite “permanent” (or “indefinite”) assignment,4 
we viewed the language of the contracts as one element that, along with the facts 
and circumstances of the individual assignments, established whether the provider 
was truly “supplying personnel” in an exempt manner.  Indeed, instead of 
                                                 
4 As Bay points out, the H.R. Options contracts contained no such language themselves.  The 
contract language in that case was significant to the extent that it provided a contract term of at 
least one year and that it did not otherwise conflict with the conclusion that the personnel were 
assigned on a permanent basis. 
January Term, 2012 
9 
 
requiring the commissioner to focus on contract language in H.R. Options, we 
directed that official to look at two types of evidence when auditing a claim of 
exemption:  (1) the employment-services contract itself, to see whether it is 
consistent with the requirements set forth at (JJ)(3), and (2) the facts and 
circumstances of the assignment, in order to ascertain whether in actual practice 
the assignment of the particular employees was “indefinite” in character, or 
whether the assignments were seasonal, substitutional, or designed to meet short-
term workload conditions.  Id., ¶ 22. 
{¶ 20} These legal standards furnish the basis for our analysis of Bay’s 
appeal. 
1. Bay’s argument that its contract language entitles it to exemption  
without regard to the facts and circumstances is wrong 
{¶ 21} Bay argues that “the plain language of the [employment service 
contracts] alone is sufficient” to establish the exemption with respect to the 
purchase of employment services associated with employees assigned under those 
contracts.  In Bay’s view, the mere presence of “permanent” and “indefinite” 
assignment terminology in its contracts is dispositive:  no inquiry into facts and 
circumstances of the assignment of individual employees is necessary. 
{¶ 22} The foregoing discussion establishes that Bay is mistaken.  In H.R. 
Options, 100 Ohio St.3d 373, 2004-Ohio-1, 800 N.E.2d 740, the claim for 
exemption was potentially viable even though the contracts did not contain the 
magic words.  Id. at ¶ 21.  That was so because H.R. Options viewed contract 
language as merely one important element of establishing entitlement to the 
exemption.  Id. 
{¶ 23} Just as the absence of magic words is not dispositive of a 
permanent-assignment claim, neither does the presence of those words establish 
entitlement to the exemption as a matter of law.  In this regard, H.R. Options 
adopts a consistent theme sounded by the BTA itself when reviewing exemption 
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claims:  when “determining whether an exception or exemption to taxation 
applies, it is not just the form of a contract that is important,” but instead, the 
“crucial inquiry becomes a determination of what the seller is providing and of 
what the purchaser is paying for in their agreement.”  Excel Temporaries, Inc. v. 
Tracy, BTA No. 97-T-257, 1998 WL 775284, *2 (Oct. 30, 1998) (applying the 
permanent-assignment exception before H.R. Options); see also Stein, Inc. v. 
Tracy, BTA No. 92-T-1388, 1997 WL 704479, *16 (Nov. 7, 1997) (“not just the 
form of the contract” is important in determining whether [the sale-for-resale] 
exception applies, but also “what actually is being done by the parties involved”), 
affirmed in part and reversed (on other grounds) in part, 84 Ohio St.3d 501, 705 
N.E.2d 676 (1999).  Despite R.C. 5739.01(JJ)(3)’s explicit reference to contract 
language, the statute justifies the focus on “what actually is being done” by 
requiring that the provider actually “supply[ ] personnel” on a permanent-
assignment basis. 
{¶ 24} Accordingly, H.R. Options teaches that supplying personnel on an 
exempt basis under R.C. 5739.01(JJ)(3) means that the employees are actually 
provided to work for an indefinite period—i.e., that they are not serving as 
seasonal workers, as substitutes for regular employees on leave, or as labor 
needed to meet a short-term workload.  It follows that a contract can contain all 
the right language, but if a particular employee is seasonal, substitutional, or on a 
short-term-workload assignment, the provider is not “supplying” that employee  
“pursuant to” the agreement for purposes of qualifying for exemption under R.C. 
5739.01(JJ)(3). 
2. The existence and production of contracts with individual employees 
is not a necessary condition for exemption under R.C. 5739.01(JJ)(3) 
{¶ 25} In his final determination, the commissioner faults Bay for not 
producing contracts with individual employees.  Although the commissioner 
January Term, 2012 
11 
 
appears to have abandoned this contention, we think it prudent to address and 
dispose of it. 
{¶ 26} In H.R. Options, 100 Ohio St.3d 373, 2004-Ohio-1, 800 N.E.2d 
740, the commissioner audited and assessed against a vendor of employment 
services and, as it happened, that vendor had written agreements with the 
personnel that it supplied to the consumers of its employment services.  Those 
contracts with individual employees became important pieces of “facts and 
circumstance” evidence in determining the case.  By contrast, the present case 
presents an audit and assessment of a consumer of employment services.  As a 
result, the taxpayer would not in the ordinary course have possession of such 
contracts, even if they existed.  Nor is there any reason why such contracts are a 
necessary element for claiming exemption, especially given the statute’s explicit 
focus on the employment-services contracts and its omission of any mention of 
employee contracts. 
{¶ 27} We hold that the existence of contracts with individual employees 
was not a necessary condition for exemption under R.C. 5739.01(JJ)(3).5  
3. Claiming an exemption in the context of a direct-payment audit 
calls for producing appropriate documentation on request 
{¶ 28} It is significant that the present claim for exemption from the sales 
tax arises in the context of an audit of purchases made by a taxpayer that holds a 
direct-payment permit under R.C. 5739.031.  As noted, that section authorizes the 
issuance of permits that allow the taxpayer to avoid paying sales tax to vendors 
and instead report and remit tax on its purchases directly to the state. 
{¶ 29} Under R.C. 5739.031(D), the holder of a direct-payment permit 
has the duty to “keep and preserve suitable records of purchases together with 
invoices of purchases, bills of lading, asset ledgers, depreciation schedules, 
                                                 
5 If such contracts do exist and are in the possession of the taxpayer, however, they ought to be 
produced on request. 
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transfer journals, and such other primary and secondary records and documents in 
such form as the commissioner requires.”  As for the tax auditor, R.C. 5703.19(A) 
authorizes the commissioner and his agents to “inspect books, accounts, records, 
and memoranda of any person or public utility subject to [the] laws” that the tax 
commissioner is required to administer. Additionally, H.R. Options, 100 Ohio 
St.3d 373, 2004-Ohio-1, 800 N.E.2d 740, unequivocally establishes that “both the 
contract and the facts and circumstances of the employee’s assignment * * * must 
be reviewed to determine whether the employee is being assigned on a permanent 
basis.”  Id. at ¶ 21. 
{¶ 30} In this case, the commissioner fulfilled his duty by specifically 
requesting facts-and-circumstances evidence—notably, the employment-service 
invoices.  But Bay made a deliberate decision to refuse to honor that request.  
Under these circumstances, the commissioner acted reasonably and lawfully when 
he denied the exemption because of Bay’s failure to produce the requested 
pertinent documentation. 
{¶ 31} In so holding, we acknowledge that cases may arise where a 
taxpayer’s good-faith efforts to produce documentation could lead to failure.  In a 
given case, for example, a fire may have destroyed the relevant records or the 
records may be in the possession of someone other than the taxpayer and 
unattainable by the taxpayer.  Such circumstances might in a proper case justify 
suspending the requirement that facts-and-circumstances evidence be produced 
and reviewed.  Nor do we hold that a taxpayer must comply with arbitrary 
requests by the commissioner—indeed, the commissioner’s power to require 
production is constrained by the principle that the information request be 
reasonably calculated to lead to the production of matter relevant to whether 
personnel have been permanently assigned within the intendment of R.C. 
5739.01(JJ)(3) as construed by H.R. Options. 
January Term, 2012 
13 
 
{¶ 32} This case, however, presents a straightforward refusal by Bay to 
produce clearly relevant documents on request, some of which the taxpayer itself 
later used to prepare summary exhibits at the BTA.  The commissioner therefore 
acted appropriately in denying the exemption. 
4. The BTA acted reasonably and lawfully in affirming  
the commissioner’s denial of the exemption 
{¶ 33} As discussed, at the BTA, Bay took a step beyond its reliance on 
the employment-service contracts when it presented not only the testimony of its 
controller, but also four summary exhibits concerning the individual assignments 
that were referable to the contracts at issue.  The summary exhibits purport to 
show the names and periods of employment of particular employees pursuant to 
the employment-service contracts.  The testimony establishes that their foundation 
lies partly in invoices that the tax agent had previously requested without success.  
The BTA held that the evidence was not sufficient because of its summary nature, 
with the primary documentation not before the board.  Bay Mechanical, BTA No. 
2008-K-1687, 2011 WL 2446198, *3-4.  In other words, the BTA decided not to 
accord evidentiary weight to the exhibits. 
{¶ 34} Because (as already discussed) the BTA’s determinations of the 
credibility of witnesses and its weighing of the evidence are subject to a highly 
deferential abuse-of-discretion review on appeal, we will reverse only if we find 
an abuse of discretion.  HealthSouth Corp., 132 Ohio St.3d 55, 2012-Ohio-1871, 
969 N.E.2d 232, ¶ 10.  In two respects, the HealthSouth decision is instructive in 
applying the abuse-of-discretion standard in this context. 
{¶ 35} First, although the taxpayer’s evidence in HealthSouth showed  
substantial evidential weaknesses, we nonetheless affirmed the BTA’s decision to 
order the commissioner to issue a reduced assessment based on the totality of the 
record.  The same broad deference that we exercised toward the BTA’s judgment 
in HealthSouth is merited in this case as well. 
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{¶ 36} Second, HealthSouth was a case in which the record contained not 
only the taxpayer’s summary exhibits presented at the BTA, but other 
documentation to support the taxpayer’s claim that had been submitted 
contemporaneously with the original tax returns on which the commissioner had 
predicated his assessment.  HealthSouth, ¶ 23, 25-26.  By contrast, the underlying 
facts-and-circumstances evidence in the present case was neither shown to the tax 
agent during the audit, nor presented in support of Bay’s petition for 
reassessment, nor offered as an exhibit at the BTA hearing.  Accordingly, the 
record in this case was devoid of documentation that would corroborate the 
summary exhibits on which Bay chose to rely. 
{¶ 37} Bay suggests that by producing the underlying documentation to 
the tax commissioner’s counsel on CDs during discovery at the BTA, it cured its 
earlier failure to produce it during the audit or in connection with the petition for 
reassessment.  According to Bay, it “should not be penalized for producing the 
requested information for the first time during proceedings before [the BTA].”  
But imposing a penalty is completely beside the point.  The issue is:  did the 
primary documentation ever become part of the record so that the BTA could 
review it in deciding Bay’s appeal?  It did not.  Neither Bay nor the commissioner 
presented the documentation as a hearing exhibit. And because Bay had the 
burden of rebutting the commissioner’s determination, it was not the 
commissioner’s responsibility to offer the documents as evidence, even if he did 
obtain them through discovery.  Moreover, a taxpayer at the BTA is not entitled to 
relief merely because the commissioner adduces no evidence contra his claim.  
Higbee Co. v. Evatt, 140 Ohio St. 325, 332, 43 N.E.2d 273 (1942). 
{¶ 38} To show that the BTA abused its discretion by according no 
weight to the hearing exhibits, Bay must prove that the BTA’s “attitude is 
unreasonable, arbitrary, or unconscionable.”  J.M. Smucker, L.L.C. v. Levin, 113 
Ohio St.3d 337, 2007-Ohio-2073, 865 N.E.2d 866, ¶ 16.  Given that H.R. Options 
January Term, 2012 
15 
 
calls for the consideration of facts-and-circumstances evidence, that the 
documentation was completely withheld on audit, and that it was not offered as an 
exhibit at the BTA hearing, we conclude that the BTA did not act unreasonably, 
arbitrarily, or unconscionably when it disregarded the summary exhibits in spite 
of the controller’s foundational testimony. 
{¶ 39} Finally, Bay suggests that by virtue of admitting the summary 
exhibits under Evid.R. 1006, the BTA was constrained to accord them some 
evidential weight.  We disagree.  The Rules of Evidence are not binding at the 
BTA, even though they may be consulted for guidance.  Plain Local Schools Bd. 
of Edn. v. Franklin Cty. Bd. of Revision, 130 Ohio St.3d 230, 2011-Ohio-3362, 
957 N.E.2d 268, ¶ 20.  When a determination of the tax commissioner is 
appealed, the BTA convenes an evidentiary hearing, see R.C. 5717.02(D) (“upon 
the application of any interested party the board shall order the hearing of 
additional evidence”), and at the hearing evidence is received.  But just as the 
BTA’s discretion to receive evidence is unconstrained by the Rules of Evidence, 
so also is its discretion to accord no weight to the evidence so received. 
III.  Conclusion 
{¶ 40} For the foregoing reasons, the BTA acted reasonably and lawfully 
when it upheld the tax commissioner’s sales-tax assessment against Bay.  We 
therefore affirm the decision of the BTA. 
Decision affirmed. 
O’CONNOR, C.J., and LANZINGER, CUPP, and MCGEE BROWN, JJ., concur. 
PFEIFER and LUNDBERG STRATTON, JJ., dissent. 
O’DONNELL, J., not participating. 
__________________ 
 
PFEIFER, J., dissenting. 
{¶ 41} The issue before us is a close one.  It boils down to whether Bay 
Mechanical has submitted evidence of its claim for an R.C. 5739.01(JJ)(3) 
SUPREME COURT OF OHIO 
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exclusion from sales tax.  Bay Mechanical & Electrical Corporation believes that 
submitting the contracts and a summary of the work assignments at issue to the 
Board of Tax Appeals (“BTA”), having its controller testify regarding the 
contracts and work assignments before the BTA, and submitting the underlying 
documentation to the tax commissioner’s counsel are sufficient to establish its 
claim.  I agree. 
{¶ 42} It would have been better if Bay Mechanical had submitted the 
information earlier—to the tax commissioner before the necessity of an appeal to 
the BTA.  It would have been better if Bay Mechanical had submitted the 
underlying documentation to the BTA as well as the tax commissioner.  But the 
bottom line is that the information is now readily available, was available at the 
time of the appeal to the BTA, and is sufficient to establish Bay Mechanical’s 
entitlement to the tax exclusion.  I dissent. 
LUNDBERG STRATTON, J., concurs in the foregoing opinion. 
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Brouse McDowell, L.P.A., Joseph T. Dattilo, Thomas J. Ubbing, and 
Caroline L. Marks, for appellant. 
 
Michael DeWine, Attorney General, and Sophia Hussain, Assistant 
Attorney General, for appellee. 
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