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

Citation: 2010-Ohio-1861

Docket Number: 20091296

State: ohio

Court: Ohio Supreme Court

Date: 2010-05-05T00:00:00Z

Document:
[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as 
Internatl. Business Machines Corp. v. Levin, Slip Opinion No. 2010-Ohio-1861.] 
 
 
 
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. 2010-OHIO-1861 
INTERNATIONAL BUSINESS MACHINES CORPORATION ET AL., APPELLANTS, v. 
LEVIN, TAX COMMR., APPELLEE. 
[Until this opinion appears in the Ohio Official Reports advance sheets, it 
may be cited as Internatl. Business Machines Corp. v. Levin,  
Slip Opinion No. 2010-Ohio-1861.] 
Taxation — Sales and use tax — R.C. 5739.071 — R.C. 5741.10 — Electronic 
information services. 
(No. 2009-1296 — Submitted February 17, 2010 — Decided May 5, 2010.) 
APPEAL from the Board of Tax Appeals, Nos. 2007-Z-1140, 2007-Z-1141,  
and 2007-Z-1143. 
__________________ 
CUPP, J. 
{¶ 1} Appellants, International Business Machines Corporation (“IBM 
Corp.”) and IBM Credit Corp. (“IBM Credit”) (collectively, “IBM”), appeal from 
a decision of the Board of Tax Appeals (“BTA”) that affirmed three final 
determinations of the Tax Commissioner, each of which declined to award 
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interest on certain refunds.  We hold that the commissioner and the BTA properly 
denied the interest claims. 
Facts 
{¶ 2} The factual record in this case is sparse, and there are no 
evidentiary disputes.  Citing R.C. 5739.071 and 5741.10 as the statutory bases, the 
Tax Commissioner issued separate final determinations granting use-tax refunds 
to IBM Corp. and IBM Credit.  The refunds to IBM Corp. amounted to 
$1,137,811.31 in the aggregate, and the refunds to IBM Credit amounted to 
$2,825,920.79.1  Additionally, citing only R.C. 5739.071, the commissioner 
granted IBM Corp. a sales-tax refund of $321,005.26. 
{¶ 3} With each refund, IBM requested an award of interest; in each 
instance, the commissioner denied that request.  IBM appealed each case to the 
BTA on the sole issue of the denial of interest.  The parties waived an evidentiary 
hearing and submitted briefs on the legal arguments. 
{¶ 4} On June 23, 2009, the BTA issued a single decision covering all of 
the refund claims.  The BTA rejected IBM’s claim that the reference in R.C. 
5739.071(A) to the general refund provisions, R.C. 5739.07 (sales tax) and 
                                                 
1.  Particularly unclear is the status of IBM Credit with respect to the transactions for which it 
received refunds.  The BTA recited that “IBM Credit Corporation [  ] collected sales and use taxes 
for tax years 1997 through 2006.” (Emphasis added.)  Internatl. Business Machines Corp. v. Levin 
(June 23, 2009), BTA Nos. 2007-Z-1140, 2007-Z-1141, and 2007-Z-1143, at 2.  In its brief, IBM 
further explains that “IBM Credit Corporation collected Ohio use taxes during the years 1997 
through 2006 for computers and related items sold or leased to International Business Machines 
Corporation.” (Emphasis added.) This makes it appear that IBM Credit acted as a use-tax seller 
(the use-tax equivalent of a sales-tax vendor) with respect to the transactions, rather than as a 
“consumer” who purchased and used the items as a “provider of electronic information services” 
pursuant to R.C. 5739.071(A).  We have stated that one of the statutory prerequisites a claimant 
must show to obtain a 25 percent refund is that the claimant “is a provider of electronic 
information services.”  Key Servs. Corp. v. Zaino (2002), 95 Ohio St.3d 11, 16, 764 N.E.2d 1015.  
We must presume, however, that the commissioner properly evaluated the refund claims when he 
authorized the grant of refunds.  See Wheeling Steel Corp. v. Evatt (1944), 143 Ohio St. 71, 28 
O.O. 21, 54 N.E.2d 132, paragraph seven of the syllabus (“The action of an administrative officer 
or board within the limits of the jurisdiction conferred by law is presumed, in the absence of proof 
to the contrary, to be valid and to have been done in good faith and in the exercise of sound 
judgment”). 
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5741.10 (use tax), incorporated the statutory right to interest under those 
provisions.  See R.C. 5739.132(B).  IBM appealed. We affirm the decision of the 
BTA. 
Analysis 
{¶ 5} In 1983, Ohio first imposed sales and use taxes on the provision of 
“automatic data processing and computer services” (“ADPCS”).  Am.Sub.H.B. 
No. 291, 140 Ohio Laws, Part II, 2872, 3215, 3220.  In 1993, the General 
Assembly amended the taxation of ADPCS in two principal ways. Am.Sub.H.B. 
No. 152,  145 Ohio Laws Part II, 3341, and Part III, 4287, 4294, 4305-4306.  
First, the broader category ADPCS was broken down into three categories of 
taxable services:  automatic data processing services (“ADP”), electronic 
information services (“EIS”), and computer services.  R.C. 5739.01(B)(3)(e) and 
5739.01(Y).  Second, the legislature enacted a partial tax refund provision only 
for “providers of EIS.”  R.C. 5739.071.  This case concerns that tax benefit. 
{¶ 6} R.C. 5739.071(A) states that the Tax Commissioner “shall refund 
to a provider of electronic information services twenty-five per cent” of the sales 
tax or use tax it pays on its purchases of computers, related equipment, and 
software.  The equipment and software must be “primarily used to acquire, 
process, or store information for use by business customers or to transmit or 
disseminate such information to such customers.”  The tax benefit is also 
available when the provider pays taxes on the purchase of “the services of 
installing or repairing such property, and agreements to repair or maintain such 
property.” As for the refund procedure, R.C. 5739.071(A) provides:  
“Applications for a refund shall be made in the same manner and subject to the 
same time limitations as provided in sections 5739.07 and 5741.10 of the Revised 
Code.” R.C. 5739.07 is the general refund provision in the sales-tax law; R.C. 
5741.10 is the general refund provision in the use-tax law.  Both provisions 
premise refunds on illegal or erroneous payments made by the taxpayer. 
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{¶ 7} With respect to interest on refunds, division (F) of R.C. 5739.07, 
applicable to sales tax, explicitly states that “[w]hen a refund is granted under this 
section, it shall include interest thereon as provided by section 5739.132 of the 
Revised Code.”  R.C. 5741.10, applicable to use tax, relies on a comprehensive 
incorporation of sales-tax refund provisions into the use tax:  refunds of use-tax 
amounts  “paid * * * by a seller or consumer illegally or erroneously shall be 
made in the same manner as refunds are made to a vendor or consumer under 
section 5739.07 of the Revised Code.”  Finally, for tax payments due on or after 
January 1, 1998, R.C. 5739.132(B) expressly requires interest to be “allowed and 
paid on any refund granted pursuant to section 5739.07 or 5741.10 of the Revised 
Code from the date of overpayment.” 
{¶ 8} Against this statutory backdrop, IBM argues that the 25 percent 
refunds the commissioner allowed under R.C. 5739.071(A) should bear interest.  
We cannot agree, and we must affirm the denial of interest. 
R.C. 5739.071(A) does not incorporate the entitlement to interest because the 
incorporation language is limited, and because R.C. 5739.132(B) does not 
call for interest when refunds are allowed under R.C. 5739.071(A) 
{¶ 9} IBM first argues that the second sentence of R.C. 5739.071(A), by 
referring to the general refund provisions, incorporates the right to interest that is 
allowed on refunds that are granted under those provisions.  In opposition, the 
commissioner points out that the plain terms of the language of incorporation are 
limited, and do not – certainly do not expressly – encompass a right to interest. 
{¶ 10} As noted, R.C. 5739.071(A) states that “[a]pplications for a refund 
shall be made in the same manner and subject to the same time limitations as 
provided in sections 5739.07 and 5741.10 of the Revised Code.”  We agree with 
the Tax Commissioner that the express terms of this incorporation are limited to 
two aspects of a refund claim:  the manner and the timing of making an 
application for the refund.  Indeed, the language of R.C. 5739.071 is strikingly 
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more restrictive than that of R.C. 5741.10, which broadly calls for refunds of use 
tax to “be made in the same manner” as sales tax refunds.  Instead of referring to 
the making of the refunds themselves, R.C. 5739.071 refers narrowly to the 
making of the application for a refund. 
{¶ 11} Moreover, the interest provision in R.C. 5739.132(B) by its 
express terms does not apply to refunds granted under R.C. 5739.071(A).  The 
interest provision states that interest shall be “allowed and paid on any refund 
granted pursuant to section 5739.07 or 5741.10 of the Revised Code.”  But the 25 
percent refunds at issue are not granted under those general refund provisions. 
Rather, they are authorized under R.C. 5739.071(A) itself, which states that the 
“tax commissioner shall refund to a provider of electronic information services 
twenty-five per cent of the tax it pays” on the purchase of qualifying equipment 
and software.  In plain language, R.C. 5739.071(A) “grants” the 25 percent 
refunds. The consequence is that such refunds do not qualify as refunds 
authorized, or “granted,” pursuant to the general refund provisions, R.C. 5739.07 
and R.C. 5741.10.  Because R.C. 5739.132(B) by its terms allows interest only on 
refunds granted under the general provisions, no interest may be allowed on the 
25 percent refunds granted pursuant to R.C. 5739.071(A).  See Gen. Elec. Co. v. 
DeCourcy (1979), 60 Ohio St.2d 68, 69, 14 O.O.3d 270, 397 N.E.2d 397, citing 
State ex rel. Cleveland Concession Co. v. Peck (1954), 161 Ohio St.31, 52 O.O. 
476, 117 N.E.2d 429 (absent express legislative allowance of interest, taxpayer 
may not obtain interest on illegally or erroneously collected real estate taxes). 
{¶ 12} IBM additionally argues that the portion of R.C. 5739.132(B) that 
relates to refunds of tax payments due on or after January 1, 1998, specifically 
does not, in so many words, link the award of interest to the status of the refunded 
amount being an “illegal or erroneous” payment.  It is true that the first sentence 
of division (B), which relates to refunds of taxes due prior to January 1, 1998, 
does refer to “payment of an illegal or erroneous assessment.” However, IBM 
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misconstrues the legislative purpose for not using the term “illegal or erroneous” 
in the second sentence of that division.  The different language reflects the 
expansion of circumstances under which interest on refunds is allowed:  formerly, 
interest was awarded on refunds of taxes that had been paid under the compulsion 
of a mistaken tax assessment, but not on voluntary overpayments.  Beginning in 
mid-1998, interest was allowed on all overpayments, including voluntary ones 
based on the taxpayer’s own mistake.  Because the allowance of interest was now 
triggered by any refund under the general refund provisions, there was no need to 
mention the terms “illegal” and “erroneous” in the body of the statute.  But the 
“illegal or erroneous” requirement was still relevant, because both R.C. 5739.07 
and R.C. 5741.10 link refunds to illegal or erroneous payments (be they voluntary 
or compulsory in character). 
{¶ 13} In summary, because R.C. 5739.132(B) only authorizes payment 
of interest with respect to refunds granted under the general refund provisions, 
interest is not available on the 25 percent refunds granted under R.C. 
5739.071(A). 
Because the amounts refunded under R.C. 5739.071(A) were legally  
required to be paid at the time they were paid, they do not qualify as 
“overpayments” or as “illegal or erroneous payments” 
{¶ 14} In an attempt to bring its claim within the ambit of the general 
refund statutes – and thereby trigger the requirement of R.C. 5739.132(B) to pay 
interest on the refund – IBM argues in the alternative that the 25 percent sum 
subject to rebate is really an “illegal or erroneous” payment in the sense that, as 
counsel stated at oral argument, “it has to be prepaid, but it also has to be 
refunded.”  We do not believe this assertion accurately describes the situation. In 
fact, conceding that the full amount of the tax, which includes the 25 percent 
refundable portion – must be “prepaid” under R.C. 5739.071(A) defeats this 
argument.  Because the full sales or use tax is, in law, required to be paid 
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“upfront,” that is, at the time of the sales transaction, it cannot be a payment that 
is either “illegal” or “erroneous.”  It is legally required. Indeed, it would be illegal 
or erroneous (or both) if IBM did not to make the upfront payment to its vendor or 
seller, who, in turn, is then required to remit the money to the state. 
{¶ 15} This reasoning accords with our discussion of R.C. 5739.071(A) in 
Key Servs. Corp. v. Zaino (2002), 95 Ohio St.3d 11, 15, 764 N.E.2d 1015.  In that 
case, we considered an argument advanced by the taxpayer that R.C. 5739.071 
constituted a type of refund statute that should be accorded “liberal construction” 
in favor of the taxpayer.  In rejecting that argument, we stated that a taxpayer 
seeking the 25 percent refunds under R.C. 5739.071(A) “is not seeking the return 
of an illegal or erroneous payment.”  Instead, we found that R.C. 5739.071(A) is 
“more analogous to a tax exemption than it is to an illegal or erroneous payment.”  
Similarly, the 25 percent refunds granted under R.C. 5739.071(A) cannot be 
considered as “illegal or erroneous payments” for purposes of the interest statute. 
There is no basis for an in pari materia reading of the statues in this case 
because there are no statutory conflicts to harmonize 
{¶ 16} IBM also suggests that R.C. 5739.071(A) should be read in pari 
materia with the general refund statues, which provide that interest must be paid.  
We find this argument unavailing.  Because the general refund statutes and R.C. 
5739.071(A) address different subject matters, there are no inconsistencies to 
reconcile. 
{¶ 17} As previously discussed, the general refund statutes furnish a 
remedy when taxes have been paid in excess of what is legally owed.  By 
contrast, R.C. 5739.071(A) constitutes a partial tax exemption which, 
procedurally, is statutorily effected through a refund mechanism.  Even though 
the procedural mechanism by which a refund is effected is the same in both 
statutes, the two statutes still address different underlying subjects:  the need to 
afford a remedy for overpayment of taxes on the one hand, and, on the other hand, 
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the public policy desirability of affording a limited tax reduction for the statutorily 
specified transactions on the other.  Accord Key Servs. Corp., 95 Ohio St.3d at 15, 
764 N.E.2d 1015 (R.C. 5739.071 is “analogous to a tax exemption”). 
{¶ 18} A review of our cases in which statutes have been read in pari 
materia clarifies the distinction.  In State ex rel. Cordray v. Midway Motor Sales, 
Inc., 122 Ohio St.3d 234, 2009-Ohio-2610, 910 N.E.2d 432, we used the doctrine 
to reconcile statutes and an administratively prescribed odometer-disclosure 
affidavit.  We held that the violation of the odometer-disclosure statute must be a 
“knowing” violation in order to harmonize all of the provisions relating to the 
subject; as we observed, “if we were to read the statutes any other way, the 
odometer disclosure affidavit would be rendered meaningless.”  Id. at ¶ 26. 
{¶ 19} In United Tel. Co. of Ohio v. Limbach (1994), 71 Ohio St.3d 369, 
643 N.E.2d 1129, we addressed the Tax Commissioner’s claim that by deleting 
from R.C. 5727.06 the phrase, “used in connection with or as incidental to the 
operation,” the General Assembly had made all property of a public utility taxable 
even though R.C. 5709.01 limited personal-property taxation in general to 
property “located and used in business in this state.” We resolved the disputed 
significance of deleting the language from the public-utility property tax by 
construing those statutes in pari material with the general limitation on personal-
property taxation:  the court declined to construe the deletion of the language as 
eliminating the used-in-business requirement for public-utility property, given 
that the general statutes continued to prescribe that requirement for all personal 
property taxation.  Id. at 372. 
{¶ 20} Nothing resembling the contradictions at issue in Midway Motor 
and United Tel. is at issue in this case.  The absence of statutory authorization of 
interest for one category of refunds does not inherently contradict the 
authorization of interest for another category of refunds. 
Conclusion 
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{¶ 21} In light of the above discussion, the Tax Commissioner correctly 
denied an allowance of interest with respect to refunds granted under R.C. 
5739.071(A), and the BTA correctly affirmed that denial.  The BTA’s decision is, 
therefore, affirmed. 
Decision affirmed. 
 
PFEIFER, 
LUNDBERG 
STRATTON, 
O’CONNOR, 
O’DONNELL, 
and 
LANZINGER, JJ., concur. 
 
BROWN, C.J., not participating. 
__________________ 
 
Baker & Hostetler L.L.P., Edward J. Bernert, and Kelvin M. Lawrence, 
for appellants. 
 
Richard Cordray, Attorney General, and Barton A. Hubbard and Sophia 
Hussain, Assistant Attorneys General, for appellee. 
______________________