Title: MIB, Inc. v. Tracy

State: ohio

Issuer: Ohio Supreme Court

Document:

MIB, INC., APPELLANT, v. TRACY, TAX COMMR., APPELLEE. 
[Cite as MIB, Inc. v. Tracy (1998), ___ Ohio St.3d ___.] 
Taxation — Delaware nonstock membership corporation, consisting of life 
insurance companies, which collects information from, and provides 
information to, members concerning applicants for life insurance — Use tax 
on charges made to Ohio companies for receiving and responding to 
inquiries for information on life insurance applicants. 
(No. 97-1283 — Submitted May 20, 1998 — Decided September 23, 1998.) 
APPEAL from the Board of Tax Appeals, No. 95-B-109. 
 
Appellant, MIB, Inc. (“MIB”), formerly Medical Information Bureau, is a 
Delaware nonstock membership corporation located in Massachusetts.  MIB’s 
membership currently consists of six hundred fifty life insurance companies, with 
about forty of those located in Ohio. 
 
MIB collects information from, and provides information to, members 
concerning applicants for life insurance.  The information collected from and 
provided to members by MIB is principally of a medical nature, but also includes 
some information about lifestyle.  Of the over two hundred types of information 
which MIB has coded for reporting, only five relate to lifestyle.  The lifestyle 
information relates to adverse driving record, participation in hazardous sports, 
aviation activity, possible overinsurance, and criminal association.  The 
information that MIB collects and distributes comes only from members.  This 
information is used by member companies in their pricing and underwriting of life 
insurance policies.  The goal of MIB’s members is to avoid the financial harm that 
might befall them if an applicant misrepresents or suffers a memory lapse about 
personal information. 
 
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When a member wants to input information to MIB, the member’s computer 
will contact a stand-alone front-end computer at MIB to verify its identity.  After 
identification has been established and the member’s data have been transmitted, 
MIB’s front-end computer terminates the communication.  MIB’s front-end 
computer stores the data received from members on a disc.  Later MIB’s front-end 
computer links up with MIB’s host computer and retrieves the data on the disc and 
transfers the data to the host computer. 
 
The host computer transfers and saves the incoming data to its own disc.  
Around midnight, the data that have been saved by the host computer during the 
day are taken off the disc and processed either by opening a new file or combining 
the data with an existing file.  Whether the data furnished by a member about an 
applicant become a new file or are combined with an existing file is determined in 
accordance with preset criteria stored in MIB’s host computer. 
 
A request for information on an applicant for insurance is made by a 
member’s computer’s contacting MIB and identifying itself to MIB’s front-end 
computer.  MIB’s front-end computer records the request on a disc and terminates 
the communication with the member.  The request for information is transferred 
from the disc to MIB’s host computer.  MIB’s host computer searches for the 
requested information and the results of the search are put on a disc at MIB’s 
front-end computer.  Finally, MIB’s front-end computer contacts the member’s 
computer and transmits the results of the search.  Inquiries by members are usually 
answered in two to five minutes. 
 
The computers and terminals located in members’ offices that are used to 
transmit and receive data are furnished and owned by MIB.  With few exceptions, 
member companies keypunch their input data, which is sent over regular telephone 
lines to MIB using a code furnished by MIB. 
 
3
 
The Tax Commissioner made a use-tax assessment against MIB for charges 
made to Ohio companies for the audit period January 1, 1989 through December 
31, 1991.  The charges being appealed are those made by MIB for receiving and 
responding to inquiries for information on applicants. 
 
The Board of Tax Appeals affirmed the Tax Commissioner’s assessment. 
 
This cause is now before the court upon an appeal as of right. 
__________________ 
 
Bricker & Eckler, LLP, Charles F. Glander, Mark A. Engel and Mary W. 
Leslie, for appellant. 
 
Betty D. Montgomery, Attorney General, and Barton A. Hubbard, Assistant 
Attorney General, for appellee. 
__________________ 
 
Per Curiam.  Appellant first contends that the members’ requests for 
information are not taxable under former R.C. 5739.01(B)(3)(e) because the 
members do not have direct access to the computer where the information is 
stored.  The essence of MIB’s contention is that because the members do not have 
direct control of the main computer where information is stored, the members do 
not receive access to its computer equipment.  We disagree. 
 
Although the tax at issue is the use tax, R.C. 5741.02(C)(2) excepts from the 
application of the use tax the acquisition of tangible personal property and services 
“which, if made in Ohio, would be a sale not subject to the tax imposed by 
sections 5739.01 to 5739.31 of the Revised Code.”  Therefore, we will discuss 
only whether MIB’s transactions with its members are subject to the sales tax. 
 
During the audit period, R.C. 5739.01(B)(3)(e) provided: 
 
“(B) ‘Sale’ * * * include[s] all of the following transactions for a 
consideration * * *: 
 
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“ * * * 
 
“(3) All transactions by which: 
 
“ * * * 
 
“(e) Automatic data processing or computer services are or are to be 
provided for use in business when the true object of the transaction is the receipt 
by the consumer of automatic data processing or computer services rather than the 
receipt of personal or professional services to which automatic data processing or 
computer services are incidental or supplemental.” 
 
In addition, former R.C. 5739.01(Y)(1) provided: 
 
“ ‘Automatic data processing and computer services’ means: * * * 
processing of others’ data, including keypunching or similar data entry services 
together with verification thereof; providing access to computer equipment for the 
purpose of processing data or examining or acquiring data stored in or accessible 
to such computer equipment * * *.  ‘Automatic data processing and computer 
services’ shall not include personal or professional services.” 
 
In support of its argument, MIB cites Tax Commr. Op. No. 92-0007 (Apr. 
30, 1992), and PNC Bank, Ohio, N.A. v. Tracy (July 7, 1995), BTA No. 93-T-
1316.  After reviewing these cases, we find them not helpful or persuasive because 
neither is analogous to the fact pattern presented by this case. 
 
In Quotron Sys., Inc. v. Limbach (1992), 62 Ohio St.3d 447, 584 N.E.2d 
658, customers were able to access Quotron’s computers to receive current pricing 
information on securities and commodities.  In Amerestate, Inc. v. Tracy (1995), 
72 Ohio St.3d 222, 648 N.E.2d 1336, customers were able to contact Amerestate’s 
computer to download and print the information desired.  In both of these cases, 
we held that the services provided were taxable as automatic data processing and 
computer services. 
 
5
 
MIB attempts to distinguish its factual situation from Quotron and 
Amerestate by pointing out that in those cases the customers had direct access to 
the database where the information was stored.  However, the wording of the 
statute does not require that the members have direct access to search MIB’s host 
computer before their transactions can be taxed. 
 
Prior to the audit period in this case, the definition of “automatic data 
processing and computer services” in former R.C. 5739.01(Y) did require the 
vendor to provide “direct access to computer equipment.”  140 Ohio Laws, Part II, 
2872, 3220.  However, in 1985 the General Assembly amended the definition to 
remove the word “direct.”  140 Ohio Laws, Part I, 225, 233. 
 
During the audit period, former R.C. 5739.01(Y)(1) defined “automatic data 
processing and computer services” as “providing access to computer equipment 
for the purpose of processing data or examining or acquiring data stored in or 
accessible to such computer equipment.”  (Emphasis added.)  See 142 Ohio Laws, 
Part I, 1435, 1496. 
 
The two words in R.C. 5739.01(Y)(1) that are key to our decision are 
“access” and “acquiring.”  R.C. 1.42 provides that “[w]ords and phrases shall be 
read in context and construed according to the rules of grammar and common 
usage.  Words and phrases that have acquired a technical or particular meaning, 
whether by legislative definition or otherwise, shall be construed accordingly.” 
 
The word “access,” as defined in Webster’s Third New International 
Dictionary (1986), at 11, has several meanings, but the ones most appropriate to 
the context of this statute are “permission, liberty, or ability to enter, approach, 
communicate with” and “freedom or ability to obtain or make use of.”  According 
to these definitions of “access,” MIB’s members had “access” to MIB’s computer 
 
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because they had the ability to communicate with and enter and make use of 
MIB’s computer equipment to retrieve the data stored therein. 
 
The second word of importance in R.C. 5739.01(Y)(1) is “acquiring.”  
Again, the word “acquiring” is not defined in the statute; however, the definition 
for “acquire” set forth in Webster’s Third New International Dictionary at 18 is “to 
come into possession, control, or power of disposal of often by some uncertain or 
unspecified means.”  The facts in this case clearly show that MIB’s members do 
come into possession of information from MIB’s computers.  The primary purpose 
of the members for making an inquiry is to acquire the information stored in 
MIB’s computers concerning applicants. 
 
Despite the inability of MIB’s members to search directly the data stored in 
MIB’s computer, the members had access to MIB’s computers.  Members were 
able to access MIB’s computer equipment using the equipment in their offices 
provided by MIB.  Despite the inability of the members to search MIB’s data files 
directly, and despite the members’ requests being routed through several 
computers, the members had access to MIB’s computers for the purpose of 
examining and acquiring the data stored therein.  As the BTA so aptly put it, “the 
computers utilized by MIB’s members worked in direct concert with the 
computers at MIB to provide that member with access to the information sought 
by that member.”  Thus, the transactions between MIB and its members qualify as 
automatic data processing and computer services. 
 
MIB argues next that it is rendering a personal service.  In support of this 
argument, MIB cites three cases: Credit Bur. of Miami Cty. v. Collins (1977), 50 
Ohio St.2d 270, 4 O.O.3d 439, 364 N.E.2d 27; Avco Broadcasting Corp. v. 
Lindley (1978), 53 Ohio St.2d 64, 7 O.O.3d 145, 372 N.E.2d 350; and Dun & 
Bradstreet, Inc. v. Lindley (1981), 66 Ohio St.2d 295, 20 O.O.3d 280, 421 N.E.2d 
 
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525.  MIB contends that its activities are similar to those granted exemption in 
these three cases.  We disagree with MIB’s analysis. 
 
The three cases cited by MIB were all decided prior to the enactment of the 
tax on automatic data processing and computer services in 1983.  140 Ohio Laws, 
Part II, 2872, 3215.  The definition of “automatic data processing and computer 
services” contained in former R.C. 5739.01(B)(3)(e) includes as a taxable sale a 
transaction in which the “true object of the transaction is the receipt by the 
consumer of automatic data processing and computer services rather than the 
receipt of personal or professional services to which automatic data processing or 
computer services are incidental or supplemental.”  The term “personal or 
professional services,” as used in R.C. 5739.01(B)(3)(e), is defined in R.C. 
5739.01(Y)(2).  In ComTech Sys., Inc. v. Limbach (1991), 59 Ohio St.3d 96, 98, 
570 N.E.2d 1089, 1092, we agreed with the Tax Commissioner’s statement that if 
there are automatic data processing and computer services involved, then we have 
to look to the definition of “personal and professional services” found in former 
R.C. 5739.01(Y)(2) to determine whether the services are personal or professional.  
See, also, CCH Computax, Inc. v. Tracy (1993), 68 Ohio St.3d 86, 623 N.E.2d 
1178. 
 
R.C. 5739.01(Y)(2) contains a nonexclusive listing, in subparagraphs (a) 
through (j), of general and specific examples of personal and professional services.  
However, except for credit information, which we will discuss later, MIB does not 
refer us to any personal or professional service listed in R.C. 5739.01(Y)(2) as an 
example of the type of service it provides for its members. 
 
The general description of personal and professional services contained in 
R.C. 5739.01(Y)(2)(a) states that these are situations “where the service provider 
receives data or information and studies, alters, analyzes, interprets, or adjusts 
 
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such material.”  The data gathered and reported by MIB are that provided by its 
members.  MIB has not cited any evidence showing that it alters, analyzes, 
interprets, or adjusts the data provided by its members.  The BTA found that 
“[t]here is no evidence that the members are given an interpretation or analysis of 
that information.”  Thus, MIB’s activities did not provide personal or professional 
services within the meaning of R.C. 5739.01(Y)(2). 
 
MIB’s last contention is that its computer services should be exempted as 
personal or professional services under  R.C. 5739.01(Y)(2)(i), which defines as 
an exempt personal or professional service: 
 
“(i) Providing credit information to users of such information by a 
consumer reporting agency, as defined in the ‘Fair Credit Reporting Act,’ 84 Stat. 
1114, 1129 (1970), 15 U.S.C. 1681a(f), or as hereafter amended, including but not 
limited to gathering, organizing, analyzing, recording, and furnishing such 
information by any oral, written, graphic or electronic medium[.]”  (Emphasis 
added.) 
 
The Tax Commissioner contends that in order to qualify for the exemption 
set forth in R.C. 5739.01(Y)(2)(i), MIB must show both (1) that it is a consumer 
reporting agency and (2) that the information it provides is credit information.  
The Tax Commissioner further contends that MIB does not qualify for the 
exemption because MIB does not provide access to credit information.  We agree 
with the Tax Commissioner. 
 
Although R.C. 5739.01(Y)(2)(i) specifically exempts as a personal or 
professional service providing “credit information,” it does not define the latter 
term.  Likewise, the Fair Credit Reporting Act (“FCRA”), Section 1681 et seq., 
Title 15, U.S.Code, which is referred to in R.C. 5739.01(Y)(2)(i), uses the term 
“credit information,” but also fails to define it. 
 
9
 
MIB contends that the term “credit information” was defined in the context 
of the FCRA in Fed. Trade Comm. v. TRW, Inc. (N.D.Tex.1991), 784 F.Supp. 361.  
However, review of that case does not confirm MIB’s contention.  TRW involved a 
consent order agreed to by the parties without trial adjudication of any issue of 
fact or law.  In the consent order the parties stated that “[f]or the purposes of this 
Order * * * ‘Credit Information’ means the information TRW maintains bearing 
on any of the characteristics listed in Sec. 603(d) of the FCRA [See Section 
1681a(d), Title 15, U.S.Code] with respect to any Consumer that TRW obtains 
from Subscribers, court records or any other source and from which TRW creates 
Consumer Reports.”  Id. at 362. 
 
By its own terms the definition of “credit information” set forth in TRW is 
limited to the consent order.  The facts recited in the TRW case do not describe 
what type of information TRW maintained, or for what purpose the information 
was used.  TRW does not establish a definition of “credit information” for 
purposes of R.C. 5739.01(Y)(2)(i). 
 
MIB further contends that it is a “consumer reporting agency” as defined by 
FCRA.  For purposes of discussion we are willing to accept MIB’s assertion.  
Section 1681a(f), Title 15, U.S.Code defines as a “consumer reporting agency” 
“any person which, for monetary fees, dues, or on a cooperative nonprofit basis, 
regularly engages in whole or in part in the practice of assembling or evaluating 
consumer credit information or other information on consumers for the purpose of 
furnishing consumer reports to third parties.”  (Emphasis added.) 
 
In turn, FCRA defines a “consumer report” in Section 1681a(d)(1), Title 15, 
U.S.Code as: 
 
“[A]ny written, oral, or other communication of any information by a 
consumer reporting agency bearing on a consumer’s credit worthiness, credit 
 
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standing, credit capacity, character, general reputation, personal characteristics, or 
mode of living which is used or expected to be used or collected in whole or in 
part for the purpose of serving as a factor in establishing the consumer’s eligibility 
for — 
 
“(A)  credit or insurance * * *.” 
 
From the above it can be seen that being a consumer reporting agency does 
not mean that the information being reported is credit information.  A credit 
reporting agency can provide consumer reports to third parties on “credit 
information or other information.”  To determine whether MIB is dealing with 
credit information we must look at the word “credit.”  Because “credit” is not 
defined in R.C. 5739.01(Y)(2)(i), we again follow R.C. 1.42.  “Credit” is defined 
in Webster’s Third New International Dictionary at 532, as “the balance in a 
person’s favor in an account; also: an amount or limit to the extent of which a 
person may receive goods or money for payment in the future”; “an amount or sum 
placed at a person’s disposal by a bank : a loan of money”; and “time given for 
payment for goods or services sold for future payment.”  Black’s Law Dictionary 
(6 Ed.1990), at 367, defines “credit” as “[t]he ability of a business or person to 
borrow money, or obtain goods on time, in consequence of the favorable opinion 
held by the particular lender as to solvency and past history of reliability.”  All of 
these definitions of “credit” relate in some way to money.  The evidence in this 
case fails to show that MIB’s reports were related to money or credit as opposed to 
insurance.  The information reported by MIB related solely to medical or lifestyle 
matters, not money matters.  One of MIB’s witnesses, an underwriter from a 
member company, was asked if any financial information is communicated, and he 
said he could not think of any financial information communicated to MIB. 
 
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The evidence clearly established that the information provided by MIB to its 
members was used to help determine an applicant’s eligibility for insurance, not 
credit.  The information provided by MIB to its members was not “credit 
information” within the meaning of R.C. 5739.01(Y)(2)(i). 
 
Accordingly, we find the decision of the Board of Tax Appeals to be 
reasonable and lawful, and we therefore affirm it. 
Decision affirmed. 
 
MOYER, C.J., RESNICK, F.E. SWEENEY, PFEIFER and COOK, JJ., concur. 
 
DOUGLAS, J., concurs in judgment only. 
 
LUNDBERG STRATTON, J., dissents. 
__________________ 
 
LUNDBERG STRATTON, J., dissenting.  I respectfully dissent.  I would find 
that MIB is exempt from taxation on information that it provides to its members. 
 
MIB contends that it is a “consumer reporting agency” as defined in the Fair 
Credit Reporting Act (“FCRA”), Section 1681 et seq., Title 15, U.S.Code, and 
therefore is exempt from taxation pursuant to R.C. 5739.01(Y)(2)(i).  The 
majority, “[f]or purposes of discussion,” accepts “MIB’s assertion.”  However, the 
majority concludes that MIB is not a consumer credit agency for tax purposes 
because “[t]he information provided by MIB to its members was not ‘credit 
information’ within the meaning of R.C. 5739.01(Y)(2)(i).”  I find that the 
majority’s analysis is incomplete. 
 
As the majority notes, a “consumer reporting agency” is “[a]ny person 
which, for monetary fees, dues, or on a cooperative nonprofit basis, regularly 
engages in whole or in part in the practice of assembling or evaluating consumer 
credit information or other information on consumers for the purpose of 
 
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furnishing consumer reports to third parties.”  (Emphasis added.) Section 
1681a(f), Title 15, U.S.Code. 
 
Also consistent with the majority’s conclusions, a “consumer report” 
communicates consumer credit or other information  regarding the consumer for 
purposes of establishing the consumer’s eligibility for “credit or insurance.” 
(Emphasis added.)  Section 1681a(d)(1), Title 15, U.S.Code. 
 
In determining whether MIB issues a consumer report, as defined in Section 
1681a(d)(1), the majority focuses exclusively on the definition of “credit” in a 
financial sense only and finds that MIB’s reports were not related to credit.  The 
majority ignores the fact that a consumer report may also transmit “other 
information” for the purpose of “furnishing consumer reports to third parties” in 
order to “establis[h] the consumer’s eligibility for * * * insurance.”  This is 
precisely what MIB does.  MIB assembles and disseminates information that 
contains medical and lifestyle information to allow its members to determine an 
individual’s insurance eligibility. 
 
Thus, I would find that MIB is a consumer reporting agency which is 
exempt from taxation pursuant to R.C. 5739.01(Y)(2)(i).  Accordingly, I would 
reverse the Board of Tax Appeals.