Title: Meridian Technology Leasing Corp. v. Tracy

State: ohio

Issuer: Ohio Supreme Court

Document:

11246 
Meridian Technology Leasing  Corporation, Appellee v. Tracy, Tax 
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Commr., Appellant. 
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[Cite as Meridian Technology  Leasing  Corp.  v. Tracy (1995), _____ 
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Ohio St.3d _____.] 
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Taxation -- Personal property tax -- Computer equipment leased to and used 
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by domestic insurance company not entitled to exemption pursuant to 
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R.C. 5725.25(A), when. 
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(No. 94-994 -- Submitted May 10, 1995 -- Decided August 30, 1995.) 
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Appeal from the Board of Tax Appeals, No. 92-M-994. 
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The Tax Commissioner appeals from the decision and order of the 
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Board of Tax Appeals (“BTA”) exempting from personal property tax 
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certain computer equipment owned by appellee, Meridian Technology 
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Leasing Corporation (“Meridian”), and leased  by it to Progressive Casualty 
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Insurance Company (“Progressive”).  Meridian is an Illinois corporation 
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engaged solely in the business of leasing equipment. 
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On or about July 22, 1986, Meridian entered into a master lease 
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agreement with Progressive for the lease of certain computer equipment.   
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During 1989, the tax year at issue, Progressive was licensed and paid tax as 
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a domestic insurance company.  Progressive used the leased computer 
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equipment in its insurance business.  The master lease, and supplements 
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thereto, between Meridian and Progressive provided that title to the 
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equipment remained with Meridian, and Progressive had only the right to 
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use the equipment.  For the tax year at issue, Meridian listed the computer 
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equipment leased to Progressive on its personal property tax return and paid 
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the tax.  As required by the terms of the master lease, Progressive 
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reimbursed Meridian for the personal property taxes paid by Meridian for 
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the leased computer equipment. 
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This case was commenced by Meridian’s filing of an application for 
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final assessment for tax year 1989 with the Tax Commissioner, seeking 
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exemption for the computer equipment leased to Progressive.  The 
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commissioner denied the request for exemption, and Meridian filed its 
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notice of appeal with the BTA.  The BTA reversed the  commissioner and 
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agreed with Meridian, stating that “the correct focus should be on the use of 
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the property, and we find that the appellant has proved that the property in 
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issue was used by a domestic insurance company in furtherance of its 
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domestic insurance business * * *.” 
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This cause is before the court upon an appeal as a matter of right. 
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__________ 
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Baker & Hostetler, Edward J. Bernert and George H. Boerger for 
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appellee. 
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Betty D. Montgomery, Attorney General, and James  C. Sauer, 
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Assistant Attorney General, for appellant. 
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__________ 
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Per Curiam.  The Tax Commissioner contends that the BTA 
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disregarded the plain language of R.C. 5725.25(A) and incorrectly focused 
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on the “use of the property.” The commissioner maintains that ownership of 
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the property and assets, not their use, is the criterion for the exemption set 
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forth in R.C. 5725.25(A). 
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Meridian contends that the computer equipment in question is entitled 
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to exemption pursuant to R.C. 5727.25(A), which provides that domestic 
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insurance companies are subject to real estate taxes, but that the annual 
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franchise tax levied by R.C. 5725.18 “shall be in lieu of all other taxes on 
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the other property and assets of such domestic insurance company.”  
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Meridian contends it is entitled, under the terms of R.C. 5725.25(A), to 
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exemption of the computer equipment leased to Progressive.  Meridian 
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further contends that it is entitled to the exemption because the property in 
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question need not be owned by a domestic insurance company to be exempt 
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from personal property tax. 
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The language at issue is found in R.C. 5725.25(A), which states that 
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the annual domestic insurance company franchise tax “shall be in lieu of all 
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other taxes on the other property and assets of such domestic insurance 
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company.”  A reading of the plain language of this statute and interpretation 
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of the word “of” in the context of the statute and according to common 
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usage, R.C. 1.42, lead to only one conclusion:  the “property and assets of” 
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the domestic insurance company exempted by R.C. 5725.25(A) are the 
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“property and assets” owned by the domestic insurance company.  Mindful 
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that exemptions from taxation are not favored by the law and that the 
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intention to grant an exemption must be clearly expressed, Pfeiffer v. 
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Jenkins (1943), 141 Ohio St.66, 25 O.O. 197, 46 N.E.2d 767, we find that 
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no other meaning can logically be attached to this language.  R.C. 
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5725.25(A) is devoid of any concept that the exemption is to be based upon 
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the use of the property by the domestic insurance company.  In Poe v. 
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Seaborn (1930), 282 U.S.101, 109, 51 S.Ct.58, 75 L.Ed. 239, 243, the 
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United States Supreme Court was required to interpret a tax provision which 
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assessed a tax upon the “net income of every individual.”  The court stated 
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that “[t]he use of the word ‘of’ denotes ownership.  It would be a strained 
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construction, which, in the absence of further definition by Congress, 
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should impute a broader significance to the phrase.” 
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While the computer equipment in question may have been leased to 
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and used by Progressive, the terms of the master lease agreement, clearly 
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state that the equipment always remained the property of Meridian; title was 
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never transferred from Meridian to Progressive, and the computer 
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equipment never became the “property and assets of” Progressive.  The 
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exemption from all other taxes (except real estate taxes) granted to domestic 
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insurance companies by R.C. 5725.25(A) is granted in exchange for their 
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payment of an annual franchise tax.  The facts in this case show that only 
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Progressive was taxed as a domestic insurance company.  Meridian, the 
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owner of the computer equipment, was not a domestic insurance company 
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and did not pay the annual franchise tax levied by R.C. 5725.18; therefore, 
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its ownership of personal property is not exempted by R.C. 5725.25(A).  
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The BTA and Meridian relied on this court’s decision in CC Leasing 
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Corp. v. Limbach (1986), 23 Ohio St.3d 204, 23 OBR 384, 492 N.E.2d 421, 
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as authority to support their position.  The issue in CC Leasing Corp., 
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however, was whether nuclear fuel rod assemblies leased to Toledo Edison  
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Company and Cleveland  Electric  Illuminating Company should be listed  
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for taxation full value based upon their use by the electric companies for 
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generating electricity, or listed at a reduced value based upon their use by 
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the leasing company in its leasing business.  The statute at issue in CC 
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Leasing Corp., R.C. 5711.22(C), required personal property “used for the 
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generation” of electricity for others to be listed and assessed at its true value 
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in money.  This court held that although the leasing company used the 
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nuclear fuel rod assemblies in its leasing business, the leased property was 
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ultimately used by the electric companies for the generation of electricity for 
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others, and therefore was required to be listed at full value.  In CC Leasing 
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Corp. the listing status was, according to statute, determined by the ultimate 
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use of the property by the lessees, not by the lessor’s use or ownership of 
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the property.  When, as in this case, the relevant criterion for exemption is 
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ownership, the ownership must be determined by the facts and cannot be 
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imputed. 
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A second contention raised by Meridian is that its position is 
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reinforced by R.C. 5725.25(B) which subjects to tangible personal property 
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tax the property owned by a domestic insurance company and leased or held 
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for leasing to a person other than an insurance company for use in business.  
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Meridian’s logic is that because equipment owned by a domestic insurance 
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company and leased to a domestic insurance companies remains exempt, 
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property leased to a domestic insurance company by a company that is not a 
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domestic insurance company should also be exempt.  Meridian’s argument 
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is not compelling because it overlooks the fact that for the exemption 
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contained in R.C. 5725.25(A) to be effective for leased property, the leased 
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property must be both owned by a domestic insurance company and leased 
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by it to an insurance company for use in business.  The exemption set forth 
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in R.C. 5725.25(A), whether or not the property is leased, is premised on 
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ownership of the property by a domestic insurance company. In this case  
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Meridian, not Progressive, always retained ownership of computer 
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equipment in question; therefore, the exemption is not applicable to 
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Meridian. 
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The decision of the BTA was unreasonable and unlawful.  
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Accordingly, the decision of the BTA is reversed. 
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Decision reversed. 
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MOYER, C.J., DOUGLAS, WRIGHT, RESNICK, F.E. SWEENEY, PFEIFER 
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and COOK, JJ., concur. 
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