Title: PCM, Inc. v. Harris

State: ohio

Issuer: Ohio Supreme Court

Document:

[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as 
PCM, Inc. v. Harris, Slip Opinion No. 2023-Ohio-2974.] 
 
                                                                
 
 
 
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. 2023-OHIO-2974 
PCM, INC., APPELLANT, v. HARRIS,1 TAX COMMR., APPELLEE. 
[Until this opinion appears in the Ohio Official Reports advance sheets, it 
may be cited as PCM, Inc. v. Harris, Slip Opinion No. 2023-Ohio-2974.] 
Taxation—Use-tax assessments—Corporation’s challenge to Board of Tax 
Appeals’ assessment of use tax against it for certain items included in 
construction of one of its buildings fails because it does not cite any 
authority in support of proposition that when building contractor paid taxes 
on certain items during building’s construction, board may not then assess 
use tax against corporation for same items—Decision affirmed. 
(No. 2021-1217—Submitted May 2, 2023—Decided August 29, 2023.) 
APPEAL from the Board of Tax Appeals, No. 2020-477. 
__________________ 
 
 
 
1. When this case was filed, Jeffery McClain was the tax commissioner.  Patricia Harris is the current 
tax commissioner, and we have automatically substituted her for McClain as appellee in this case.  
See S.Ct.Prac.R. 4.06(B) and Civ.R. 25(D)(1). 
SUPREME COURT OF OHIO 
 
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Per Curiam. 
{¶ 1} This is an appeal from a Board of Tax Appeals’ decision upholding a 
final determination by appellee, Tax Commissioner Patricia Harris, who assessed a 
use tax against appellant, PCM, Inc.  The assessment relates to items used in the 
construction of a data center that PCM contracted to have built in 2013.  PCM raises 
four propositions of law.  PCM argues in its first and second propositions of law 
that the board erred in denying its hearing request.  PCM argues in its third 
proposition of law that it is not liable for the tax with respect to nine items, which 
it asserts are not subject to the use tax because they constitute real property rather 
than personal property or are otherwise nontaxable.  PCM argues in its fourth 
proposition of law that the tax commissioner erred in imposing a penalty.  Although 
not separately stated as a proposition of law, PCM also asserts that it is not liable 
for the use tax, because a contractor paid it on the items in question. 
{¶ 2} We reach the merits only of PCM’s argument that the contractor paid 
the use tax.  We reject that argument because PCM has not cited any authority 
showing that a contractor’s payment of the tax is legally significant for the purpose 
of this case.  We conclude that PCM forfeited the arguments under its third and 
fourth propositions of law because it did not timely raise those arguments during 
the petition-for-reassessment phase of this case.  As for PCM’s first and second 
propositions of law, we conclude that they are moot.  Even if we were to agree with 
PCM that the board erred in denying its hearing request, remanding this case to the 
board for a hearing would be futile because there would be nothing for PCM to 
litigate since it forfeited the arguments advanced in its third and fourth propositions 
of law. 
{¶ 3} We affirm the board’s decision upholding the tax commissioner’s 
final determination. 
 
 
January Term, 2023 
 
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I.  BACKGROUND 
{¶ 4} In 2013, PCM contracted with the Daimler Group for the construction 
of a data center in New Albany, Ohio.  In 2016, after construction was complete, 
the tax commissioner commenced an audit of PCM for the period January 1, 2013, 
through December 31, 2015.  One of the auditors toured PCM’s data center and 
reviewed its trial balances, fixed assets, accounts payable, invoices, and 
construction contract with Daimler.  The auditor found that certain items related to 
the data center’s construction should be taxed to PCM rather than Daimler because 
the items constituted the acquisition of “business fixtures/tangible personal 
property,” rather than real property.  Based on the auditor’s findings, the tax 
commissioner issued a $698,632.71 use-tax assessment against PCM, consisting of 
a tax of $555,512.49; preassessment interest of $59,793.35; and a penalty of 
$83,326.87. 
{¶ 5} In March 2018, PCM’s tax director, a nonattorney employee, filed a 
petition for reassessment with the tax commissioner.  PCM checked a box on the 
petition-for-reassessment form requesting that the tax commissioner do the 
following: “Please decide this matter based upon the information submitted.  No 
hearing is requested.”  PCM advanced two bases for reassessment in its petition.  
First, it quoted in part Ohio Adm.Code 5703-9-14(D)(1), which addresses the 
operation of the use-tax law in the construction setting.  Second, it stated that “all 
of the taxes required in the materials incorporated in the real property were included 
in the billings and paid by The Daimler Group to each of its vendors.”  PCM 
included with its petition a letter from Daimler attesting to this second point. 
{¶ 6} The tax commissioner issued a final determination in January 2020 
upholding the assessment.  The tax commissioner noted the bases advanced in 
PCM’s petition for reassessment but observed that PCM had failed to “identify the 
objected [to] transactions” or “provide[] any rationale as to why the assessed items 
are not business fixtures.”  The tax commissioner also observed that PCM had 
SUPREME COURT OF OHIO 
 
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failed to “submit any invoices, spreadsheets, receipts, or other information to 
corroborate [its] blanket assertion” that Daimler had paid the tax.  As a further 
ground for rejecting PCM’s reliance on Daimler’s letter, the tax commissioner cited 
the board’s decision in Meijer, Inc. v. Tracy, BTA No. 97-M-1618, 2001 WL 
128070 (Feb. 8, 2001), in which the board determined that Ohio’s tax “statutes 
contain no provision for crediting taxes paid by one consumer to the account of 
another,” id. at *10. 
{¶ 7} In March 2020, PCM, again acting through its tax director, filed a 
notice of appeal with the board but did not ask for a hearing.  Less than a week 
later, the board issued a scheduling order.  Interpreting PCM’s silence regarding a 
hearing as an “indicat[ion] * * * that a hearing [was] unnecessary,” the board 
directed the parties to “submit written argument[s] in support of their respective 
positions” by June 8, 2020.  In a joint motion, PCM’s tax director and the tax 
commissioner asked the board to extend the briefing deadline to September 28, 
2020, which the board did. 
{¶ 8} On September 8, 2020, PCM’s tax director filed a brief on PCM’s 
behalf.  And on September 28—the briefing deadline—PCM’s tax director filed a 
combined “request for hearing” and “motion to remand case back to tax 
commissioner,” which the tax commissioner opposed.  In asking for a hearing, 
PCM’s tax director stated that he “mistakenly, but honestly believed” that the notice 
of appeal he had filed with the board constituted a request for a hearing; he argued 
that it would be a “grave injustice” for the board to decide the case without a 
hearing. 
{¶ 9} The board denied PCM’s hearing request on the grounds that PCM 
had failed to show good cause why it did not request a hearing by the May 8, 2020 
deadline as required by the board’s rules and because the late request was filed by 
“a nonlawyer on behalf of a corporation.”  As to the latter point, the board cited 
Oglethorpe of Cambridge, L.L.C. v. McClain, BTA No. 2018-1304, 2020 WL 
January Term, 2023 
 
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122755 (Jan. 8, 2020), a case in which the board struck the brief filed on behalf of 
the appellant by an out-of-state attorney who had not acquired pro hac vice status.  
The board denied PCM’s motion to remand for similar reasons.  On the merits, the 
board affirmed the tax commissioner’s final determination.  This appeal followed. 
II.  ANALYSIS 
{¶ 10} “In reviewing a decision of the [Board of Tax Appeals], we 
determine whether the decision is reasonable and lawful, deferring to factual 
determinations of the [board] but correcting legal errors.”  N.A.T. Transp., Inc. v. 
McClain, 165 Ohio St.3d 250, 2021-Ohio-1374, 178 N.E.3d 454, ¶ 11.  For ease of 
analysis, we address PCM’s propositions of law out of order. 
A.  Daimler’s alleged tax payments 
{¶ 11} Although PCM intersperses its merit brief with statements that 
Daimler paid all applicable taxes and that the tax commissioner has overreached in 
taxing it for the same items, it did not raise this issue in a separate proposition of 
law.  We disagree with PCM’s statements in this regard. 
{¶ 12} To begin with, PCM cites no authority for the proposition that the 
payments have any legal significance that would affect PCM’s use-tax liability.  
Beyond this, the tax commissioner in a final determination addressed PCM’s tax-
payment argument.  The tax commissioner cited the board’s decision in Meijer, 
BTA No. 97-M-1618, 2001 WL 128070, in which the board held that Ohio’s tax 
statutes “contain no provision for crediting taxes paid by one consumer to the 
account of another,” id. at *10.  PCM has not acknowledged the decision in Meijer 
in its argument before this court, let alone cited any authority that calls it into 
question. 
B.  Whether nine items included in the tax commissioner’s assessment are taxable 
{¶ 13} In its third proposition of law, PCM contends that the tax 
commissioner erred in imposing use tax on nine items.  We do not reach the merits 
of this argument. 
SUPREME COURT OF OHIO 
 
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{¶ 14} There is a glaring discrepancy between the arguments asserted in this 
proposition of law and the findings set forth in both the tax commissioner’s final 
determination and the board’s decision.  Neither the tax commissioner’s final 
determination nor the board’s decision addresses the taxability of the nine items 
that PCM contests are nontaxable.  PCM says that the board “committed reversible 
error when it failed to properly address PCM’s legal arguments on these points and 
[that] the [board’s] decision is accordingly unreasonable and unlawful.”  The board 
did not err in failing to address the taxability of each item. 
{¶ 15} “[W]ith regard to substantive issues presented in tax appeals, we 
must refrain from ruling on issues that have not been properly preserved or 
presented.”  Abraitis v. Testa, 137 Ohio St.3d 285, 2013-Ohio-4725, 998 N.E.2d 
1149, ¶ 21.  Abraitis arose from the tax commissioner’s issuance of an income-tax 
assessment, but the above-quoted language is illustrative of a basic principle of 
administrative law: “[A]s a general rule * * * courts should not topple over 
administrative decisions unless the administrative body not only has erred but has 
erred against objection made at the time appropriate under its practice,” United 
States v. L.A. Tucker Truck Lines, Inc., 344 U.S. 33, 37, 73 S.Ct. 67, 97 L.Ed. 54 
(1952). 
{¶ 16} Applying these precepts, we conclude that PCM has forfeited the 
opportunity to challenge in this court the taxability of the nine items it identifies, 
because it failed to object to the assessments against these items during the petition-
for-reassessment phase of the case.  R.C. 5739.13(B) provides that the “petition 
shall indicate the objections of the party assessed,” but it permits the taxpayer to 
raise “additional objections * * * in writing” prior to the date of the final 
determination.  And Ohio’s use-tax law incorporates R.C. 5739.13’s requirements.  
See R.C. 5741.14; see also Karr v. McClain, 166 Ohio St.3d 513, 2022-Ohio-449, 
187 N.E.3d 540, ¶ 6. 
January Term, 2023 
 
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{¶ 17} When PCM filed its petition for reassessment, it set forth two bases 
for reassessment—it quoted Ohio Adm.Code 5703-9-14(D)(1) and it stated that 
Daimler had paid the applicable taxes.  We have already rejected PCM’s argument 
relating to Daimler’s payments and direct our focus here on PCM’s invocation of 
the administrative rule, which provides: 
 
A construction contractor who purchases materials or 
taxable services for incorporation into real property is the consumer 
of those materials or services and shall pay sales or use tax on their 
purchase price, except as provided by paragraph (F) of this rule.  The 
construction contractor is the consumer, even if a subcontractor 
provides the actual labor to incorporate those materials into the real 
property. 
 
Ohio Adm.Code 5703-9-14(D)(1). 
{¶ 18} PCM’s mere quotation of the rule does not constitute an “objection” 
within the meaning of R.C. 5739.13(B) to the assessment of use tax on the nine 
items identified by PCM.  See Merriam-Webster’s Collegiate Dictionary 855 (11th 
Ed.2020) (defining “objection” as “a reason or argument presented in opposition”).  
Indeed, as the tax commissioner correctly observed in her final determination, 
PCM’s petition failed to “identify the objected [to] transactions” or advance “any 
rationale” as to why it should not be held liable for the assessment.  Nor have we 
been presented with any evidence establishing that PCM asked the tax 
commissioner in writing to consider the taxability of the nine items prior to the date 
of her final determination.  By failing to object to the taxability of the items in its 
petition for reassessment or in another writing filed before the date of the tax 
commissioner’s final determination, PCM has forfeited the right to have this court 
consider the issue now. 
SUPREME COURT OF OHIO 
 
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C.  Whether the tax commissioner erred by imposing a penalty 
{¶ 19} In its fourth proposition of law, PCM contends that the tax 
commissioner erred by imposing a penalty.  But PCM did not ask the tax 
commissioner to abate the penalty during the petition-for-reassessment phase.  
Therefore, for the same reasons that we do not reach PCM’s third proposition of 
law, we do not reach its fourth proposition of law. 
D.  Whether the board should have granted PCM’s hearing request 
{¶ 20} In its first and second propositions of law, PCM faults the board for 
denying its request for a hearing.  We conclude that these propositions are moot.  
Even if we were to agree with PCM that the board erred, remanding the matter to 
the board to hold a hearing and allow PCM to develop a record concerning the 
taxability of the nine items at issue and the imposition of the penalty would be futile 
because, as previously discussed, PCM forfeited its arguments concerning these 
issues. 
III.  CONCLUSION 
{¶ 21} We affirm the board’s decision upholding the tax commissioner’s 
final determination. 
Decision affirmed. 
KENNEDY, C.J., and DEWINE, DONNELLY, STEWART, BRUNNER, and 
DETERS, JJ., concur. 
FISCHER, J., dissents. 
_________________ 
Taft Stettinius & Hollister, L.L.P., Jeremy A. Hayden, Aaron M. Herzig, 
and Christopher T. Tassone; and Duane Morris, L.L.P., and Adam P. Beckerink, 
for appellant. 
Dave Yost, Attorney General, and Raina Nahra Boulos, Assistant Attorney 
General, for appellee. 
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