Title: D&A Rofael Enterprises, Inc. v. Tracy

State: ohio

Issuer: Ohio Supreme Court

Document:

[Cite as D&A Rofael Enterprises, Inc. v. Tracy, 85 Ohio St.3d 118, 1999-Ohio-256.] 
 
 
 
 
D&A ROFAEL ENTERPRISES, INC., D.B.A. THE GREAT STEAK & FRY COMPANY, 
APPELLANT, v. TRACY, TAX COMMISSIONER, APPELLEE. 
SHTEIWI, D.B.A. THE GREAT STEAK & FRY COMPANY, APPELLANT, v. TRACY, TAX 
COMMISSIONER, APPELLEE. 
[Cite as D&A Rofael Enterprises, Inc. v. Tracy (1999), 85 Ohio St.3d 118.] 
Taxation — Sales tax on food — Food consumed in food court areas of malls is 
consumed on the premises and subject to sales tax — R.C. 5739.01(K) 
definition of “premises,” construed and applied. 
(Nos. 98-1403 and 98-1404 — Submitted December 10, 1998 — Decided March 
31, 1999.) 
APPEALS from the Board of Tax Appeals, Nos. 96-J-1000 and 96-J-999. 
 
These cases have been consolidated for briefing, argument, and decision.  
D&A Rofael Enterprises, Inc. (“Rofael”) and Diab Shteiwi, appellants, both doing 
business as The Great Steak & Fry Company, operate three restaurants in the 
Cleveland area: one in the Galleria at Erieview, a mall in downtown Cleveland 
(Rofael); one in the Beachwood Place Shopping Center, a mall in Beachwood 
(Rofael); and one in the Midway Mall in Elyria (Shteiwi). 
 
At each of these locations, appellant(s) operate fast food restaurants serving 
cheese steaks, fries, salad, and soft drinks.  The restaurants, which range in size 
from 410 square feet to 919 square feet, occupy leased areas in the food court 
areas of the malls.  (The term “food court” also includes the area that the 
Beachwood Place lease refers to as “picnic.”)  The restaurants contain a counter 
where orders are taken, food is delivered, and payment is made.  Behind the 
counter there is a grill, fryer, and cold table. 
 
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When the food is prepared, appellants deliver it to their customers at the 
counter, either on a plastic tray or in bags.  Appellants’ customers do not consume 
their food at the counters.  Customers take their food away from the counter either 
on a tray or in a bag, to be consumed in the food court or elsewhere.  A witness 
who had managed all three restaurants testified that other than employees of some 
of the stores, he did not recall seeing customers consuming food within the malls 
except for the food court.  Use of the food court area is not restricted to appellants’ 
customers or those of any other restaurant in the food court area. 
 
The areas denominated as food court areas are areas within the mall 
surrounded by fast food restaurants.  In the middle of the food court area is a 
seating area containing tables and chairs.  The tables and chairs in the seating area 
are the property of the mall owners.  At all three locations, the trays furnished by 
appellants to their customers are the property of the mall owners; the mall owners 
employ the people who clear the tables, pick up the trays, and take out the trash 
left in the food court areas.  Appellants pay the mall owners a pro-rata share of the 
costs incurred in providing and maintaining the food court areas. 
 
Persons other than those who have purchased food from the food court 
restaurants also use the food court facilities; no one is required to purchase food to 
use the food court facilities.  For instance, the tables and chairs in the food court 
areas may be used as a resting spot by shoppers or mall walkers, or by mall 
employees as a place to take a break or eat their packed lunch.  In some cases, the 
food court area may be used after hours for a charity dinner. 
 
The Tax Commissioner audited appellants’ sales tax returns for all three 
locations for the period July 1, 1989 through November 30, 1992, as to appellant 
Rofael, and from August 1, 1990 through November 30, 1992, as to appellant 
Shteiwi.  Appellant Rofael agreed to a one-day test check of its sales at the 
 
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Beachwood Place and Galleria at Erieview malls.  The test checks at both 
locations showed a higher percentage of taxable sales to gross sales than had been 
reported by appellant.  Appellant Shteiwi’s own “corrected” ratio of taxable to 
gross sales, based on the Cleveland-area audits, at the Midway Mall also showed a 
higher ratio of taxable sales to gross sales.  Based upon the test checks and 
appellant’s own report of sales at the Midway Mall, the commissioner made 
additional assessments at all three locations. 
 
Appellants appealed the commissioner’s final orders to the Board of Tax 
Appeals (“BTA”), which affirmed the assessments. 
 
This cause is now before the court upon appeals as of right. 
__________________ 
 
Frost & Jacobs L.L.P. and Larry H. McMillin, for appellants. 
 
Betty D. Montgomery, Attorney General, and Duane M. White, Assistant 
Attorney General, for appellee. 
__________________ 
 
Per Curiam.  Section 3(C), Article XII of the Ohio Constitution provides 
that “no excise tax shall be levied or collected upon the sale or purchase of food 
for human consumption off the premises where sold.”  The constitutional 
provision has been enacted as R.C. 5739.02(B)(2), which exempts from sales tax 
“[s]ales of food for human consumption off the premises where sold.”  The issue 
presented by this case is whether food consumed in the food court areas of the 
malls is consumed on or off the “premises,” as that term is defined in R.C. 
5739.01(K). 
 
R.C. 5739.01(K) defines “premises” as follows: 
 
“ ‘Premises’ includes any real property or portion thereof upon which any 
person engages in selling tangible personal property at retail or making retail sales 
 
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and also includes any real property or portion thereof designated for, or devoted 
to, use in conjunction with the business engaged in by such person.” 
 
The only case decided by this court involving the legislative definition of 
“premises” in R.C. 5739.01 was Ilersich v. Schneider (1964), 176 Ohio St. 255, 27 
O.O.2d 157, 199 N.E.2d 388.  The taxpayer in Ilersich operated a drive-in soft ice 
cream and soft drink business.  Sales were made to customers through windows in 
the building located on the property and the products were sold in containers.  A 
blacktop area large enough to accommodate thirty-eight motor vehicles 
surrounded the building from which the sales were made.  A number of the 
customers ate or drank their purchases on the property, but away from the 
building. 
 
The taxpayer in Ilersich contended that former R.C. 5739.01(L), now 
renumbered R.C. 5739.01(K), was unconstitutional and that our prior decisions 
precluded the imposition of a tax where the food was not consumed at the 
immediate and precise place where it was purchased.  This court found the 
General Assembly’s definition of “premises” to be a valid enactment, and that it 
represented “a permissible legislative interpretation and application of the 
indefinite constitutional phrase, ‘off the premises where sold,’ to meet modern 
merchandising practices.”  Id. at 257, 27 O.O.2d at 158, 199 N.E.2d at 390. 
 
Here, appellants contend that the term “premises” in R.C. 5739.01(K) does 
not include the food court areas adjacent to appellants’ restaurants.  We disagree. 
 
The Tax Commissioner cites Buddies Lunch Sys., Inc. v. Bowers (1960), 
170 Ohio St. 410, 11 O.O.2d 160, 165 N.E.2d 924, as support for his position.  
While the facts in Buddies are similar, it involved an assessment that was made 
prior to the effective date of the enactment of what is now R.C. 5739.01(K).  
Although Buddies contains a reference to what is now R.C. 5739.01(K), the 
 
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definition of “premises” set forth therein was not the basis for this court’s 
decision. 
 
R.C. 5739.01(K) consists of two parts.  The first part of R.C. 5739.01(K) 
includes within the definition of “premises” “any real property or portion thereof 
upon which any person engages in selling tangible personal property at retail or 
making retail sales.”  Here, the real property or portion thereof upon which 
appellants engage in selling and making retail sales would include only the small 
area leased by appellants.  Since no food was consumed on the real property or 
portion thereof leased by appellants, the first part of R.C. 5739.01(K) would not 
subject appellants’ sales to sales tax. 
 
The second part of R.C. 5739.01(K) provides that the term “premises” “also 
includes any real property or portion thereof designated for, or devoted to, use in 
conjunction with the business engaged in by such person.”  The second part of 
R.C. 5739.01(K) obviously is intended to expand the meaning of “premises” to 
include additional real property beyond just the real property or portion thereof 
where the retail sale or selling took place.  Nowhere in R.C. 5739.01(K) is there 
any requirement that the additional real property or portion thereof be owned or 
controlled by the person making the retail sale or engaging in selling.  In addition, 
there is no requirement contained in the second part of R.C. 5739.01(K) that any 
retail sale or selling must take place on the additional real property or portion 
thereof. 
 
There are two requirements that must be met for the additional real property 
or portion thereof to be considered within the definition of “premises”: (1) the real 
property be either designated for, or devoted to (2) use in conjunction with the 
business engaged in by such person. 
 
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The BTA found that “the food court or picnic area [is] designed [sic, 
designated] and devoted to use in conjunction with the sale of and consumption of 
food from the food court restaurants.”  This determination by the BTA is a 
determination of ultimate fact subject to review by this court.  In Ace Steel Baling, 
Inc. v. Porterfield (1969), 19 Ohio St.2d 137, 142, 48 O.O.2d 169, 171, 249 
N.E.2d 892, 895, this court stated: 
 
“The decision of the board derived from an inference of an ultimate fact, 
i.e., a factual conclusion derived from given basic facts.  The reasonableness of 
such an inference is a question appropriate for judicial determination.  ‘What the 
evidence in a case tends to prove, is a question of law; and when all the facts are 
admitted which the evidence tends to prove, the effect of such facts raises a 
question of law only.’  Turner v. Turner (1867), 17 Ohio St. 449, 452.  See, also, 
Southern Pacific Co. v. Pub. Util. Comm. (1953), 41 Cal.2d 354, 362, 260 P.2d 
70.” 
 
In Strongsville Bd. of Edn. v. Cuyahoga Cty. Bd. of Revision (1997), 77 
Ohio St.3d 402, 405, 674 N.E.2d 696, 699, we stated: 
 
“[W]e affirm the BTA’s basic factual findings if sufficient, probative 
evidence of record supports these findings.  We also affirm the BTA’s rulings on 
credibility of witnesses and weight attributed to evidence if the BTA has exercised 
sound discretion in rendering these rulings.  Finally, we affirm the BTA’s findings 
on ultimate facts, i.e., factual conclusions derived from given basic facts, Ace Steel 
Baling, Inc. v. Porterfield (1969), 19 Ohio St.2d 137, 142, 48 O.O.2d 169, 171-
172, 249 N.E.2d 892, 895-896, if the evidence the BTA relies on meets these 
above conditions, and our analysis of the evidence and reading of the statutes and 
case law confirm its conclusion.” 
 
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We must therefore consider whether the law and the evidence in this case 
support the BTA’s determination of ultimate fact.  The second part of R.C. 
5731.01(K) requires that to be included within the definition of “premises,” the 
real property must be either designated for, or devoted to, use in conjunction with 
the business of the persons selling tangible personal property or making retail 
sales.  Following the requirements of statutory construction in R.C. 1.42, we will 
consider the three terms italicized above according to their common usage. 
 
Webster’s Third New International Dictionary (1986) 612, defines 
“designate” to mean “to point out the location of” or “to choose and set apart.”  It 
defines “devote” to mean “to provide (something) for use.”  Id. at 620.  Finally, 
the word “conjunction” is defined to mean “the act of conjoining or the state of 
being conjoined.”  Id. at 480.  In turn, “conjoin” means “to join together (as 
separate entities) for a common purpose or a common end.”  Id. at 479. 
 
Comparing the preceding definitions with the facts herein confirms that the 
food court areas in the malls were designated for or devoted to use in conjunction 
with appellants’ businesses.  The food court areas are set apart and provided for 
the use of customers of appellants’ businesses. 
 
Leases for both the Galleria at Erieview and the Midway Mall contain 
essentially identical language stating, “The ‘Food Court Area’ shall be defined as 
that portion of the Shopping Center [Galleria] as LANDLORD in its discretion 
from time to time designates.  * * * A depiction of the Food Court Area as 
presently designated by LANDLORD is set forth in Exhibit A-1.”  Section 1, 
Article 1.  In addition, these leases provide that the food court seating area within 
the food court area “shall be defined as any common seating area or areas within 
the Food Court Area * * * as LANDLORD in its discretion from time to time 
designates, and which is made available for the non-exclusive use of the customers 
 
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of the Food Court Area.”  Id.  These leases also provide that the food court area is 
“designed and established to create the effect of an integrated yet diversified food 
service facility in which various food-related and other operations may be 
conducted.”  Preamble, Food Court Addendum. 
 
Finally, these leases provide, “[I]t is the intent of the parties hereto that such 
food and beverages be sold primarily for consumption within the Food Court 
Seating Area.”  Section 1, Article 2. 
 
The Beachwood Place lease provides that the picnic area is furnished “for 
the convenience of customers of Tenant [appellant] and other tenants of the 
PICNIC.”  Section 20.20, Article XX.  Clearly the food court areas in all the malls 
are provided for and intended to be used by appellants’ customers in conjunction 
with appellants’ businesses. 
 
The facts in this case support the BTA’s finding that the food court areas 
within the malls are included within the definition of “premises’ set forth in R.C. 
5739.01(K).  For all the foregoing reasons, the decisions of the Board of Tax 
Appeals are reasonable and lawful and are, therefore, affirmed. 
Decisions affirmed. 
 
MOYER, C.J., DOUGLAS, RESNICK, F.E. SWEENEY, PFEIFER, COOK and 
LUNDBERG STRATTON, JJ., concur.