Case Title: HealthSouth Corp. v. Testa

Citation: 2012-Ohio-1871

Docket Number: 2010-1916

State: ohio

Court: Ohio Supreme Court

Date: 2012-05-02T00:00:00Z

Document:
[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as 
HealthSouth Corp. v. Testa, Slip Opinion No. 2012-Ohio-1871.] 
 
 
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-1871 
HEALTHSOUTH CORPORATION, APPELLEE, v. TESTA,  
TAX COMMR., APPELLANT. 
[Until this opinion appears in the Ohio Official Reports advance sheets, 
it may be cited as HealthSouth Corp. v. Testa,  
Slip Opinion No. 2012-Ohio-1871.] 
Property tax—Application for reassessment—Burden of proof—Evidentiary 
decisions by Board of Tax Appeals—Standard of review of decisions of 
Board of Tax Appeals. 
(No. 2010-1916—Submitted February 8, 2012—Decided May 2, 2012.) 
APPEAL from the Board of Tax Appeals, No. 2005-A-1386. 
__________________ 
Per Curiam. 
{¶ 1} This personal-property-tax case comes to the court for the second 
time on appeal from the Board of Tax Appeals (“BTA”).  For tax year 2002, 
HealthSouth Corporation claims that as a result of massive accounting fraud, it 
reported fictitious personal-property assets at its physical rehabilitation, outpatient 
surgery, sports medicine, and other facilities in various Ohio taxing districts.  
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HealthSouth subsequently filed an application for final assessment for 2002 in 
order to obtain from the tax commissioner a new assessment that would reduce 
the taxable value in various taxing districts by removing fictitious assets.  The 
new assessment would in turn permit it to obtain refunds of overpayments for that 
year from the local taxing districts.  The BTA issued a decision that reversed the 
commissioner’s refusal to grant such a reassessment.  HealthSouth Corp. v. Levin, 
BTA No. 2005-A-1386, 2007 WL 3407988 (Nov. 9, 2007). 
{¶ 2} The tax commissioner appealed.  In HealthSouth Corp. v. Levin, 
121 Ohio St.3d 282, 2009-Ohio-584, 903 N.E.2d 1179, we rejected the tax 
commissioner’s primary claim that because HealthSouth’s value-reduction claim 
arose from its own accounting fraud, that claim was barred either by the statute or 
by the doctrine of estoppel.  We did hold, however, that the BTA’s disposition 
failed to explain why certain objections to the evidence offered by HealthSouth 
should be overruled.  Id. at ¶ 31, 35.  We remanded with the instruction that the 
BTA “complete its fact-finding” by explicitly addressing the commissioner’s 
objections.  Id. at ¶ 36. 
{¶ 3} After permitting the parties to submit additional briefs, the BTA 
issued its decision on October 6, 2010.  HealthSouth Corp. v. Wilkins, BTA No. 
2005-A-1386, 2010 WL 4162429 (Oct. 6, 2010).  In that decision, the BTA made 
two key findings:  (1) that “HealthSouth has sufficiently established that the assets 
designated as ‘AP SUMMARY’ never existed and therefore, should be removed 
from the subject assessment” and (2) that “HealthSouth has met its burden of 
proof with regard to establishing that the denial of its refund request was 
improper.”  Id. at *6.  The BTA regarded the record as the “starting point or 
underlying source of information for the amended filing,” and it remanded to the 
commissioner “for calculation of the refund due to the taxpayer HealthSouth.”  Id. 
{¶ 4} For the second time, the tax commissioner has appealed.  In this 
appeal, the commissioner asserts that the BTA lacked sufficient evidence for its 
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3 
 
findings.  We disagree.  Reviewing the BTA’s decision with maximum deference 
to that body’s weighing of the evidence, we conclude that the BTA acted 
reasonably and lawfully in remanding the cause to the commissioner for a 
determination of a reduced tax assessment.  We therefore affirm the decision of 
the BTA. 
I.  Factual Background 
{¶ 5} We discussed the factual background of this case in greater detail 
in our earlier decision, and rely on that discussion here.  HealthSouth Corp., 121 
Ohio St.3d 282, 2009-Ohio-584, 903 N.E.2d 1179, ¶ 8-10. 
{¶ 6} The evidence before the BTA included the transcript certified by 
the tax commissioner, which included the original 2002 return and supporting 
material such as balance sheets and asset lists for each Ohio facility.  The 
statutory transcript also contained HealthSouth’s application for final assessment 
along with a set of spreadsheets called “Amended Fixed Assets,” which 
encompassed 118 pages and was prepared by an outside consultant.  The first 
page of the fixed-asset list summarized the claim, and it showed that previously 
returned value should be reduced in each taxing district by amounts associated 
with the “AP SUMMARY” entries.  The claim would, if successful, reduce the 
total assessed value to $2,556,948—a requested reduction of more than half the 
value that was originally assessed. 
{¶ 7} Additionally, the BTA had before it the testimony of Michael D. 
Martin, a HealthSouth vice-president of tax.  HealthSouth also presented exhibits 
at the hearing as a basis for reducing the value reported at Ohio facilities for tax 
year 2002.  The tax commissioner objected to the evidence but did not file a 
posthearing brief in support of his position. 
{¶ 8} The BTA reversed and ordered that the commissioner reduce the 
2002-tax-year assessment.  HealthSouth Corp. v. Wilkins, BTA No. 2005-A-1386, 
2007 WL 3407988 (Nov. 9, 2007).  On appeal, the tax commissioner asserted that 
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HealthSouth could not alter its 2002 assessment because its reporting of fictitious 
assets constituted part of a deliberate corporate fraud.  After rejecting that 
argument, we vacated and remanded so that the BTA could “complete its 
factfinding.”  121 Ohio St.3d 282, 2009-Ohio-584, 903 N.E.2d 1179, ¶ 36. 
{¶ 9} On remand, the BTA found that HealthSouth had presented 
sufficient evidence, and remanded to the commissioner so that that official could 
issue a reduced tax assessment.  HealthSouth Corp., 2010 WL 4162429, *6 (Oct. 
6, 2010).  The commissioner has appealed. 
II.  Analysis 
A.  The standard of review 
{¶ 10} When confronted with a claim for reduction of a tax assessment, 
we recognize that the burden of proof at the BTA “rests on the taxpayer ‘to show 
the manner and extent of the error in the Tax Commissioner’s final 
determination.’ ”  A. Schulman, Inc. v. Levin, 116 Ohio St.3d 105, 2007-Ohio-
5585, 876 N.E.2d 928, ¶ 7, quoting Stds. Testing Laboratories, Inc. v. Zaino, 100 
Ohio St.3d 240, 2003-Ohio-5804, 797 N.E.2d 1278, ¶ 30.  We must affirm the 
BTA’s findings of fact if they are supported by reliable and probative evidence, 
and we afford deference to the BTA’s determination of the credibility of 
witnesses and its weighing of the evidence subject only to an abuse-of-discretion 
review on appeal.  R.C. 5717.04; Olentangy Local Schools Bd. of Edn. v. 
Delaware Cty. Bd. of Revision, 125 Ohio St.3d 103, 2010-Ohio-1040, 926 N.E.2d 
302, ¶ 15.  The function of weighing evidence and determining credibility belongs 
to the BTA, and therefore our review of that aspect of its findings is, as already 
noted, highly deferential.  See Highlights for Children, Inc. v. Collins, 50 Ohio 
St.2d 186, 187-188, 364 N.E.2d 13 (1977). 
{¶ 11} In this case, we must determine whether the BTA’s findings are 
supported by reliable and probative evidence.  Satullo v. Wilkins, 111 Ohio St.3d 
399, 2006-Ohio-5856, 856 N.E.2d 954, ¶ 14.  But if a “material portion of a 
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Board of Tax Appeals decision is not supported by any probative evidence of 
record, the decision is unreasonable and unlawful.”  Stds. Testing Laboratories, 
Inc., 100 Ohio St.3d 240, 2003-Ohio-5804, 797 N.E.2d 1278, ¶ 31, quoting 
Citizens Fin. Corp. v. Porterfield, 25 Ohio St.2d 53, 266 N.E.2d 828 (1971), 
paragraph two of the syllabus. 
B.  Reliable and probative evidence supported the BTA’s findings 
1.  Under the case law, the court reverses BTA findings only 
in the total absence of supporting evidence 
{¶ 12} We have stated that evidence is reliable if it is “dependable; that is, 
it can confidently be trusted,” a standard that is satisfied if there is “a reasonable 
probability that the evidence” establishes an asserted fact to be true.  Our Place, 
Inc. v. Ohio Liquor Control Comm., 63 Ohio St.3d 570, 571, 589 N.E.2d 1303 
(1992).  We have stated that evidence is probative if it “tends to prove the issue in 
question; it must be relevant in determining the issue.”  Id.  In other words, a 
document or testimony is reliable if it can be depended on to state what is true, 
and it is probative if it has the tendency to establish the truth of relevant facts. 
{¶ 13} The rules of evidence, including the hearsay rule, do not control 
administrative hearings, but the agency may consult the rules for guidance. 
Evid.R. 101(A); Plain Local Schools v. Franklin Cty. Bd. of Revision, 130 Ohio 
St.3d 230, 2011-Ohio-3362, 950 N.E.2d 268, ¶ 20.1  As a result, the BTA was 
permitted to rely on hearsay, and the BTA had authority to instruct the 
commissioner to do so when it ordered a remand in this case.  As a result, 
evidence that would be excluded as hearsay in a civil or criminal case may be 
                                                 
1  Because R.C 5717.02 generally requires the BTA to “order the hearing of additional evidence” 
based on the “application of any interested party,” and because the Rules of Evidence do not 
directly apply in administrative proceedings, we focus our attention not on whether the BTA 
abused its discretion in admitting evidence over objection, but rather on whether reliable and 
probative evidence supported the BTA’s findings. 
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admitted and considered under the relaxed standards of administrative 
proceedings. 
{¶ 14} Moreover, our case law establishes that we will reverse BTA 
findings only when there is a total absence of evidence to support a particular 
finding.  See Citizens Fin. Corp., 25 Ohio St.2d 53, 266 N.E.2d 828, paragraph 
two of the syllabus (“Where a material portion of a Board of Tax Appeals 
decision is not supported by any probative evidence of record, the decision is 
unreasonable and unlawful” [emphasis added]); Fed. Paper Board Co. v. 
Kosydar, 37 Ohio St.2d 28, 306 N.E.2d 416, paragraph two of the syllabus 
(same). 
2.  Evidence supported the BTA’s finding that 
“AP SUMMARY” assets were fictitious 
{¶ 15} The BTA concluded that “HealthSouth has sufficiently established 
that the assets designated as ‘AP SUMMARY’ never existed and therefore, 
should be removed from the subject assessment.”  HealthSouth Corp. v. Levin, 
BTA No. 2005-A-1386, 2010 WL 4162429, *6 (Oct. 6, 2010).  The BTA’s 
finding is grounded on HealthSouth’s Exhibit 1 at the BTA hearing, the Form 8-K 
filed with the SEC in June 2004, and Exhibit 5, the Form 10-K filed with the SEC 
that covered fiscal years ending in 2003 and 2002, with a restatement of financials 
for years ending in 2001 and 2000. 
{¶ 16} According to these documents, a Special Audit Review Committee 
had examined the corporation’s accounting for the period 1996 through 2002, 
determining that “accounting fraud at HealthSouth was by any standard both 
enormous and complex.”  In order to inflate earnings, revenues and expenses were 
misstated, a fraud that involved making over $2.7 billion in false or unsupported 
entries in the accounting systems. The concealment of revenue-inflation involved 
transfers out of a corporate suspense account onto the balance sheets of facilities.  
Because the adjustments were so large, the corporation used fixed-asset accounts; 
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it fabricated property, plant, and equipment of HealthSouth facilities in a manner 
described in HealthSouth’s June 2004 Form 8-K. 
{¶ 17} According to the committee’s report, “[n]early all of the fictitious 
assets” were processed to the general ledger and identified, for the most part, as 
“AP SUMMARY.”  Thereafter, those fictitious assets were “recorded as one or 
more assets in the fixed asset system,” with large AP SUMMARY entries being 
separated into a number of assets with lesser dollar values.  Sometimes the assets 
retained the AP SUMMARY designation, and other times they were “identified as 
furniture, computer equipment, or similar items that a facility would be expected 
to use.” 
{¶ 18} The tax commissioner contends that the cited passages of the Form 
8-K cannot be regarded as reliable and probative evidence because they are 
hearsay and not substantiated by personal-knowledge testimony of witnesses 
called to testify to the BTA.  We disagree. 
{¶ 19} First, it is a public filing that provides the sort of information that, 
in the absence of contravening evidence, may be relied upon as the grounds for 
assessment. 
{¶ 20} Second, filings at the Securities and Exchange Commission 
possess indicia of reliability because they are generated during the course of 
business for business purposes and involve the assembling of data from business-
record sources by persons who have a business duty to assemble such data.  See 
Evid.R. 803(6); Plain Local Schools, 130 Ohio St.3d 230, 2011-Ohio-3362, 957 
N.E.2d 268, ¶ 21 (no plain error in considering hearsay where testimony 
established the appraisal report as having been generated in the course of business 
for a specific business purpose); Charter Communications Properties, L.L.C. v. 
San Luis Obispo Cty., 198 Cal.App.4th 1089, 1102, 131 Cal.Rptr.3d 455 (2011) 
(taxpayer’s Form 10-K statements in conjunction with assessor’s hearsay 
testimony furnished a substantial evidentiary basis for the determination of a 
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material fact in valuing cable franchises for tax purposes); Diamond v. Davis, 38 
N.Y.S.2d 93, 98-100 (1942), affirmed without opinion, 265 A.D. 919, 39 
N.Y.S.2d 412 (1942), affirmed without opinion, 292 N.Y. 552, 54 N.E.2d 683 
(1944) (filings at Securities and Exchange Commission held competent to prove 
lack of ownership). 
{¶ 21} We conclude that the BTA had reliable and probative evidence to 
support the finding that “AP SUMMARY” assets never existed and that they 
should be removed from the assessment. 
3.  Evidence supported the BTA’s finding that the “AP SUMMARY”  
assets could be removed by taxing district 
{¶ 22} The BTA also found that HealthSouth had “met its burden of proof 
with regard to establishing that the denial of its refund request was improper,” and 
we hold that the BTA did not abuse its discretion in concluding that the evidence 
in the record furnished an adequate basis to permit the tax commissioner to reduce 
the assessment as to each taxing district on remand. 
{¶ 23} The record includes three layers of evidence concerning the value 
associated with “AP SUMMARY”  assets in each taxing district, as reported in 
the 2002 return.  First, with the return itself HealthSouth submitted asset lists that 
designated certain reported assets as “AP SUMMARY” and did so on a facility-
by-facility basis.  Second, in conjunction with its application for final assessment 
before the commissioner, HealthSouth presented a summary of assets showing 
“AP SUMMARY” assets to be removed for each facility.  Third, at the BTA 
hearing, HealthSouth presented exhibits that purport to tie fictitious assets with 
the facilities in the particular taxing districts, based on forensic accounting and a 
“bag and tag” inventory of assets. 
{¶ 24} The tax commissioner contends that HealthSouth’s witness at the 
BTA hearing, Michael Martin, lacked personal knowledge about the 2002 return 
because he had served in sales and use tax compliance until April 2003, at which 
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9 
 
time he took charge of property taxes at the company.  Nevertheless, by the time 
of the BTA hearing on February 22, 2007, Martin had headed the property-tax 
unit for almost four years; he was therefore familiar as a general matter with 
property-tax compliance. 
{¶ 25} We conclude that Martin’s testimony and the three layers of 
documentation satisfy the minimal legal standard of reliability.  The BTA hearing 
exhibits allegedly based on the restated financials can be cross-checked against 
the documentation submitted with the 2002 return and the computation submitted 
in connection with the application for final assessment.  The asset breakout filed 
along with the 2002 return shows the increments of taxable value associated with 
“AP SUMMARY” assets for each facility, which supplies at least a point of 
reference for evaluating other evidence of the value in the taxing districts. 
{¶ 26} Moreover, consideration of the documentation submitted with the 
2002 return does not depend on Martin’s testimony for its foundation, since its 
inclusion in the statutory transcript makes it part of the evidentiary record in spite 
of its hearsay character.  See Simon v. Lake Geauga Printing Co., 69 Ohio St.2d 
41, 44, 430 N.E.2d 468 (1982) (when items are certified as part of an 
administrative record to a higher tribunal, “evidence which might constitute 
inadmissible hearsay where stringent rules of evidence are followed must be taken 
into account”).  Furthermore, the commissioner himself relied on the original 
2002 report as the basis for the final assessment, and now cannot claim that the 
asset lists associated with the 2002 return have no evidentiary value whatsoever.  
Compare Cleveland v. Posner, 193 Ohio App.3d 211, 2011-Ohio-1370, 951 
N.E.2d 476, ¶ 28 (the documentation underlying a public agency’s determination 
is usually “admissible and prima facie evidence of what it asserts in an 
administrative hearing”). 
{¶ 27} The commissioner cites United Tel. Co. of Ohio v. Tracy, 84 Ohio 
St.3d 506, 705 N.E.2d 679 (1999), and MCI Metro Access Transm. Servs., L.L.C. 
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v. Levin, 10th Dist. Nos. 07AP-398 and 07AP-399, 2008-Ohio-5057, 2008 WL 
4416665, as authority.  In United Tel. Co., the plurality stated that a taxpayer 
could not rely on a statistical sampling method to prove the value associated with 
nontaxable property when there were documents available from which an accurate 
count could be computed.  Id. at 512.  Because no statistical sampling method is 
at issue in this case, United Tel. Co. is inapposite. 
{¶ 28} Likewise, the taxpayer in MCI Metro Access sought a reduction in 
value associated with Ohio property by applying a write-down percentage from its 
worldwide holdings and applying it to Ohio assets.  Unlike the taxpayer in that 
case, HealthSouth is not trying to apply a write-down percentage derived from its 
worldwide holdings and operations to its Ohio facilities.  Instead, the record here 
contains documentation showing the fictitious assets originally reported at Ohio 
facilities. 
{¶ 29} The commissioner has not shown the BTA decision to be 
unreasonable or unlawful, and therefore, we affirm.  R.C. 5717.04. 
C.  The commissioner’s other arguments furnish no basis for reversal 
{¶ 30} The commissioner claims that the 2002 returns are not reliable 
evidence because they were tainted with corporate fraud and were signed by 
Richard Botts, the former tax manager who was subsequently convicted of fraud.  
As a result, the commissioner argues, there can be no change in the 2002 
assessment without completely reconstructing the value of personal property in 
each taxing district as of the 2002-tax-year lien date, December 31, 2001. 
{¶ 31} This contention is barred by the law-of-the-case doctrine.2  
Hopkins v. Dyer, 104 Ohio St.3d 461, 2004-Ohio-6769, 820 N.E.2d 329, ¶ 15.  In 
                                                 
2  We are justified in raising the doctrine sua sponte because we have held that the law-of-the-case 
doctrine reflects a strong public policy to “ensure consistency of results in a case, to avoid endless 
litigation by settling the issues, and to preserve the structure of superior and inferior courts.”  
Brothers v. Morrone-O’Keefe Dev. Co., 10th Dist. No. 06AP-713, 2007-Ohio-1942, ¶ 35, quoting 
Hubbard ex rel. Creed v. Sauline (1996), 74 Ohio St.3d 402, 404, 659 N.E.2d 781 (1996).  On that 
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the first appeal to this court, the commissioner confined himself to the contention 
that HealthSouth had not adequately proved the quantitative effect of fictitious 
assets on the property value in each taxing district.  He failed to argue that 
HealthSouth had neglected to shoulder the burden to prove that its 2002 return 
was correct with respect to nonfictitious assets.  The commissioner is precluded 
from asserting an argument in this second appeal that could and should have been 
raised, but was not, during the first appeal.  Worthington City Schools Bd. of Edn. 
v. Franklin Cty. Bd. of Revision, 129 Ohio St.3d 3, 2011-Ohio-2316, 949 N.E.2d 
986, ¶ 22, fn. 2; accord Pollock v. Cohen, 32 Ohio St. 514, 519 (1877) (“all 
questions which existed on the record, and could have been considered on the first 
petition in error, must ever afterward be treated as settled by the first adjudication 
of the reviewing court”). 
{¶ 32} The commissioner also contends that HealthSouth failed to present 
“any of the necessary journal entries, balance sheets or other ‘final results’ 
evidence that HealthSouth would have been required to have created and 
maintained under generally accepted accounting principles (GAAP) and SEC 
regulations had it overstated its Ohio asset values.”  According to the 
commissioner, this should be fatal to its claim for relief. 
{¶ 33} No statute or administrative rule specifically conditions 
HealthSouth’s right to relief on producing such documentation.  It is well settled 
that the commissioner is free to adopt routine practices to guide the exercise of his 
discretion, see J.M. Smucker, L.L.C. v. Levin, 113 Ohio St.3d 337, 2007-Ohio-
2073, 865 N.E.2d 866, ¶ 19, but also that the commissioner cannot confer the 
force of law on a requirement without promulgating it as a rule.  McLean 
                                                                                                                                     
basis, it is proper that the doctrine be raised sua sponte.  See DiLaura v. New York Power Auth., 
982 F.2d 73, 76 (2d Cir.1992); Maxfield v. Cintas Corp., 487 F.3d 1132, 1135 (8th Cir.2007); 
Bollinger v. Oregon, 172 Fed. Appx. 770, 771 (9th Cir.2006); United States v. Wallace, 573 F.3d 
82, 90 (1st Cir. 2009), fn. 6. 
 
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Trucking Co. v. Lindley, 70 Ohio St.2d 106, 114-116, 435 N.E.2d 414 (1982); 
Condee v. Lindley, 12 Ohio St.3d 90, 92-93, 465 N.E.2d 450 (1984).  Absent such 
a law or regulation, HealthSouth’s failure to produce such evidence does not 
doom its claim. 
III.  Conclusion 
{¶ 34} Because the BTA acted reasonably and lawfully when it reversed 
the tax commissioner’s denial of HealthSouth’s application for a value reduction, 
we affirm the decision of the BTA.  The commissioner shall exercise his 
discretion on remand to determine a reduced tax assessment. 
Decision affirmed. 
O’CONNOR, C.J., and PFEIFER, LUNDBERG STRATTON, O’DONNELL, 
LANZINGER, CUPP, and MCGEE BROWN, JJ., concur. 
__________________ 
 
Siegel, Siegel, Johnson & Jennings Co., L.P.A., J. Kieran Jennings III, Jay 
P. Siegel, and Jason P. Lindholm, for appellee. 
 
Michael DeWine, Attorney General, and Barton A. Hubbard, Assistant 
Attorney General, for appellant. 
______________________