Title: Navistar, Inc. v. Testa

State: ohio

Issuer: Ohio Supreme Court

Document:

[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as 
Navistar, Inc. v. Testa, Slip Opinion No. 2015-Ohio-3283.] 
 
 
 
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. 2015-OHIO-3283 
NAVISTAR, INC., APPELLANT, v. TESTA, TAX COMMR., APPELLEE. 
[Until this opinion appears in the Ohio Official Reports advance sheets, it 
may be cited as Navistar, Inc. v. Testa, Slip Opinion No. 2015-Ohio-3283.] 
Commercial-activity-tax credit—R.C. 5751.53 authorizes the tax commissioner to 
issue a final determination changing the amount of potential CAT credit to 
reflect a correction of an inaccuracy or error in the original reported 
amount. 
(No. 2014-0140—Submitted May 6, 2015—Decided August 18, 2015.) 
APPEAL from the Board of Tax Appeals, No. 2010-575. 
____________________ 
FRENCH, J. 
{¶ 1} Under Ohio’s 2005 tax-reform legislation, the new commercial-
activity tax (“CAT”) was enacted “to replace the existing corporate-franchise and 
personal-property taxes,” which were phased out under that legislation for 
industrial corporations like Navistar, Inc.  Beaver Excavating Co. v. Testa, 134 
Ohio St.3d 565, 2012-Ohio-5776, 983 N.E.2d 1317, ¶ 23, citing Am.Sub.H.B. No. 
SUPREME COURT OF OHIO 
 
2
66, 151 Ohio Laws, Part II, 2868; R.C. 5733.01(G)(2).  In this appeal, appellant, 
Navistar, Inc., claims that it is due a credit against the CAT. 
{¶ 2} According to the testimony of employees of the Department of 
Taxation, the tax break at issue here, referred to simply as the “CAT credit,” was 
intended to restore a portion of the value of a corporate asset, known as a 
“deferred-tax asset,” the value of which would otherwise be substantially reduced 
by the transition from the franchise tax to the CAT.  Specifically, the CAT credit 
would preserve part of the value of net operating losses (“NOLs”) that taxpayers 
like Navistar had accumulated and were entitled to carry forward to later years 
and use as a deduction against income.  But with the phase out of the franchise tax 
for most taxpayers (including industrial corporations like Navistar) and its 
replacement by the CAT, those NOLs would have lost their value under state tax 
law unless a special tax break was created.  That tax break was the CAT credit, 
R.C. 5751.53. 
{¶ 3} In this appeal, Navistar complains that as a result of Navistar’s 2007 
restatement of its 2004 financial statement, the tax commissioner erroneously 
reduced the amount of its potential CAT credit from over $27 million to zero.  
The tax commissioner based his determination on the restatement’s increase in the 
“valuation allowance,” an accounting entry that reflects the company’s estimation 
of its future ability to realize the tax benefit of its NOLs.  The 2007 restatement 
increased Navistar’s valuation allowance from 62.4 percent to 100 percent; that 
increase led to a 100 percent offset of the NOLs for purposes of computing 
Navistar’s potential CAT credit. 
{¶ 4} Navistar contends that the tax commissioner had no statutory 
authority to adjust the amount of potential CAT credit based on accounting 
changes that were made after the deadline for applying for the CAT credit in June 
2006.  The tax commissioner, on the other hand, argues that his statutory audit 
January Term, 2015 
 
3
authority under R.C. 5751.53(D) allowed him to change the amount of potential 
CAT credit based on a subsequent restatement of the relevant accounting entries. 
{¶ 5} In addition, the parties disagree on a legal and factual issue 
concerning the importance of generally accepted accounting principles 
(“GAAP”).  Navistar argues that the CAT-credit statute took a “snapshot” of the 
company’s books and records as of the time the credit application was filed in 
June 2006 and that no subsequent changes to the accounting entries can be taken 
into account, even if those changes are necessary to bring the company’s financial 
reporting into compliance with GAAP.  But Navistar also argues that even if 
GAAP compliance is required to qualify for the credit, it has proved through 
expert testimony that the restatement’s increase in the valuation allowance to 100 
percent did not involve a correction required by GAAP, but instead constituted a 
different estimation of probabilities made by different management at a different 
point in time.  The original valuation allowance for 2004, under this view, was 
reasonable because it was within the range permitted under GAAP. 
{¶ 6} We read R.C. 5751.53(D) as authorizing the tax commissioner to 
issue a final determination changing the amount of potential CAT credit, but 
limiting that authority to making changes that reflect a correction of an inaccuracy 
or error in the original reported amount.  As a result, we conclude that the tax 
commissioner’s use of Navistar’s restated valuation allowance as the basis for the 
final determination was justified only if the restated valuation allowance was a 
correction of error, which in this context can be the case only if Navistar’s 
original valuation allowance was not in compliance with GAAP. 
{¶ 7} Whether Navistar’s original valuation allowance was in compliance 
with GAAP is a question of fact that must be determined in light of evidence that 
militates both ways.  The Board of Tax Appeals (“BTA”) considered certain 
statements by Navistar as relevant to this point but ignored the testimony of 
Navistar’s experts, an omission that makes the BTA’s decision unreasonable and 
SUPREME COURT OF OHIO 
 
4
unlawful.  We therefore vacate the BTA’s decision and remand the cause for a 
determination whether the original valuation allowance was in compliance with 
GAAP based upon all the evidence in the record.  Disposition of this case will 
depend upon that determination. 
NET OPERATING LOSSES AND THE CAT CREDIT 
{¶ 8} The franchise tax’s net-income method used the corporation’s 
federal “taxable income,” with Ohio adjustments, as the base on which the tax 
was imposed.  See R.C. 5733.04(I) and 5733.05(B).  As a general matter, “[t]he 
taxable income of a taxpayer engaged in business or profit-oriented activities is 
generally net profits rather than gross receipts or gross income.”  1 B. Bittker & L. 
Lokken, Federal Taxation of Income, Estates, and Gifts, ¶ 20.1.1 (3d Ed.1999).  
By contrast, Ohio’s CAT is measured not by net income but by the gross receipts 
generated by income-producing activity.  See R.C. 5751.01(F) (defining “gross 
receipts” as “the total amount realized by a person, without deduction for the cost 
of goods sold or other expenses incurred, that contributes to the production of 
gross income of the person, including the fair market value of any property and 
any services received, and any debt transferred or forgiven as consideration”); 
R.C. 5751.03 (imposing the tax on the “taxable gross receipts”).  Compared with 
the franchise tax that it replaced, the CAT imposes a lower rate of taxation on a 
larger tax base: a tax base that consists of revenues that have not been offset by 
expenses. 
{¶ 9} Under the franchise-tax law, which previously applied to Navistar, a 
corporation that experienced an NOL one year was allowed to use that loss to 
offset income in a different year by “carrying back” or “carrying forward” the 
NOL and using it as a deduction against income in a different year.  See R.C. 
5733.04(I)(1)(b). 
{¶ 10} Because Ohio’s franchise-tax law, along with other corporate-
income-tax laws, allowed a carryforward of NOLs, accounting principles required 
January Term, 2015 
 
5
that the future benefit be reflected as an asset on the corporation’s books and 
records and accompanying financial statements.  When the CAT was enacted in 
2005, corporations feared that the substantial Ohio portion of the NOL asset on 
their books would lose its value.  To soften that blow, the CAT credit was devised 
and was included in the original CAT legislation.  Navistar refers to the 
promulgation of R.C. 5751.53 as a “grand bargain” between Ohio franchise-tax 
payers and the tax department, under which the taxpayers would support the tax 
reform while still retaining some of the value of their Ohio deferred-tax assets 
such as NOLs. 
{¶ 11} Under R.C. 5751.53, taxpayers were able to compute a potential 
amount of CAT credit.  That amount consists of a portion of the Ohio-apportioned 
NOLs on their books at the end of their 2004 fiscal year, which, when adjusted, 
furnished a total amount of credit that could be used to reduce CAT liabilities 
over a period of up to 20 years, stretching from 2010 (the year the CAT was fully 
phased in and the general franchise tax phased out for taxpayers such as Navistar) 
through 2029.  R.C. 5733.01(G)(2)(a)(vi) (phase out of franchise tax); R.C. 
5751.53(B)(1) through (10). 
{¶ 12} The starting point for determining the potential CAT credit was the 
amount of Ohio-related NOLs on the corporation’s books at the end of fiscal year 
2004.  R.C. 5751.53(A)(5), (6), and (9).  That number would be reduced by the 
amount of “related valuation allowance.”  R.C. 5751.51(A)(6)(b).  “Valuation 
allowance” is an adjustment dictated by accounting principles that is made on the 
books from year to year to reflect the likelihood that the company will realize the 
tax benefit of the NOLs.  The less likely the corporation will be able to use the 
NOLs, the greater the valuation allowance.  The lump sum that resulted from 
offsetting the Ohio NOLs with the valuation allowance would be “amortized” 
over a period of up to 20 years beginning with calendar year 2010; the lump sum 
SUPREME COURT OF OHIO 
 
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is therefore referred to in the statute as the “amortizable amount.”  R.C. 
5751.53(A)(9) and (B). 
{¶ 13} To take the credit, a company was required to file an Amortizable 
Amount Report with the tax commissioner by June 30, 2006, that set forth the 
computation of the amortizable amount.  R.C. 5751.53(D).  The statute then gave 
the tax commissioner until June 30, 2010, to “audit the accuracy of the 
amortizable amount * * * and adjust the amortizable amount or, if appropriate, 
issue any assessment or final determination, as applicable, necessary to correct 
any errors found upon audit.”  Id. 
FACTUAL BACKGROUND 
{¶ 14} Navistar is in the business of manufacturing commercial trucks, 
buses, and military vehicles under the brand names International, Navistar 
Defense, and IC.  Navistar has long operated a manufacturing plant in Springfield, 
Ohio, as well as facilities in other states.  Before enactment of the CAT, Navistar 
was a longtime franchise-tax payer in Ohio. 
{¶ 15} Navistar timely filed its Amortizable Amount Report (together with 
its franchise-tax return for tax year 2005) on or about June 23, 2006.  To qualify 
for the CAT credit, a taxpayer must have “qualifying Ohio net operating loss 
carryforward equal to or greater than the qualifying amount” of $50 million.  R.C. 
5751.53(A)(4) and (A)(11).  It is undisputed that Navistar met that requirement. 
{¶ 16} Under R.C. 5751.53(A)(9)(a), the “amortizable amount” is 8 
percent of the sum of the taxpayer’s “disallowed Ohio net operating loss 
carryforward” and other deferred tax items that are not at issue here.  As relevant 
here, R.C. 5751.53(A)(6)(b) defines “disallowed Ohio net operating loss 
carryforward” as the “Ohio net operating loss carryforward  amount” that 
Navistar “used to compute the related deferred tax asset reflected on its books and 
records on the last day of its taxable year ending in 2004, adjusted for return to 
accrual,” reduced by the “qualifying related valuation allowance amount.”  The  
January Term, 2015 
 
7
“ ‘qualifying related valuation allowance amount’ is the amount of Ohio net 
operating loss reflected in [Navistar’s] computation of the valuation allowance 
account, as shown on its books and records on the last day of its taxable year 
ending in 2004.”  Id.  In its June 2006 Amortizable Amount Report, Navistar 
computed its amortizable amount as $27,048,726. 
{¶ 17} In December 2007, Navistar undertook a massive restatement of its 
books and financial statements as noted in its annual Form 10-K filed with the 
Securities and Exchange Commission (“SEC”).  Among other things, the 
restatement increased Navistar’s valuation allowance from 62.4 percent to 100 
percent.  The restated financials did not eliminate the NOLs or other deferred-tax 
assets from the company’s books; instead, the restatement merely increased the 
valuation allowance to the point that it completely offset the value of the assets as 
part of the company’s net worth. 
{¶ 18} The tax commissioner issued his final determination in this matter 
on January 11, 2010.  The commissioner noted his statutory authority to audit the 
accuracy of the amortizable amount under the CAT-credit statute, R.C. 
5751.53(D).  Next, the commissioner concluded that “later restated financial 
statements must be used, even if the correction occurred much after the period at 
issue.”  The commissioner referred to the 2007 restated financials for 2004 as a 
“correction” of previous error and characterized the “revised financial statements” 
as “the most up-to-date and accurate financial statements for Navistar under 
generally accepted accounting principles.”  (Emphasis added.)  Because the 
“restated financial statements revised the valuation allowance to one hundred 
percent,” the tax commissioner adjusted the amortizable amount to zero. 
{¶ 19} Navistar appealed to the BTA. 
 
 
SUPREME COURT OF OHIO 
 
8
EVIDENCE PRESENTED DURING THE BTA PROCEEDINGS 
Navistar’s admissions 
{¶ 20} The tax commissioner points to certain statements that he views as 
admissions by Navistar, some of which were relied upon in the BTA decision.  
First, the transmittal letter sent with the Amortizable Amount Report and the 2005 
franchise-tax return stated that Navistar was “currently undergoing a restatement 
examination of its financial statements for the years 2002, 2003, 2004, and 2005,” 
that “changes [would] occur to the 2002, 2003, and 2004 financial statements as 
part of this examination which [would] impact” the Amortizable Amount Report 
and the 2005 franchise-tax return, and that Navistar “reserve[d] [its] right to file 
these changes” with the state “when these items become final.” 
{¶ 21} Second, the revised Form 10-K that Navistar filed with the SEC on 
December 10, 2007, pertaining to the 2005 fiscal year, specifically stated that 
Navistar “determined that [it] did not apply FASB Statement No. 109 properly and 
that a full valuation allowance should be established for net U.S. and Canadian 
deferred tax assets based on the weight of positive and negative evidence, 
particularly our recent history of operating losses.”  (Emphasis added.)   
{¶ 22} Third, Form 8-K, which Navistar filed with the SEC in April 2006, 
identified four matters that required restatement; these matters did not involve 
deferred-tax assets.  But the document went on to enumerate 11 “items being 
reviewed,” and those items included deferred-tax assets. 
{¶ 23} The tax commissioner also urged the BTA to consider a civil 
complaint filed by Navistar’s parent corporation against its former accountants.  
See Navistar Internatl. Corp. v. Deloitte & Touche, L.L.P., N.D.Ill. case No. 1:11-
cv-03507.  The BTA examiner accepted the complaint into evidence, but refused 
to consider the complaint as an admission by Navistar.  In its decision, the BTA 
took no position on the examiner’s ruling, and instead stated as follows: 
 
January Term, 2015 
 
9
While we acknowledge the commissioner’s reference to the 
existence of litigation between [Navistar] and the accounting firm 
previously involved in the audit of its financial returns, such 
litigation and the allegations made by [Navistar] therein need not 
serve as the basis upon which we decide this matter given the grant 
[to audit the accuracy of the amortizable amount] provided by R.C. 
5751.53(D). 
 
BTA No. 2010-575, 2013 Ohio Tax LEXIS 7601, 9, (Dec. 31, 2013), fn. 4. 
Expert testimony 
{¶ 24} The tax commissioner introduced testimony of accounting 
professor Ray Stephens.  The hearing examiner accepted Stephens as an expert 
for purposes of the issues before the board, and the BTA reinforced that ruling by 
“reject[ing] as unfounded [Navistar’s] argument that * * * Stephens[] be found 
unqualified to offer an expert opinion regarding the accounting issues involved 
herein.”  Id. 
{¶ 25} Stephens expressed his opinion that the amount of Navistar’s CAT 
credit should be zero.  Stephens based his opinion on his review of Navistar’s 
SEC filings and the civil complaint, in addition to his accounting knowledge.  On 
cross-examination, Stephens opined that Navistar’s restatement of its financials 
amounted to an admission that its original valuation allowance was not in 
compliance with GAAP.  In other words, Stephens based his opinion concerning 
the GAAP-compliance of the initial valuation allowance on Navistar’s supposed 
admission that it was not in compliance with GAAP. 
{¶ 26} Navistar introduced two experts who testified to the crucial factual 
issue that the BTA ought to resolve in this case:  whether the original valuation 
allowance for 2004 was in compliance with GAAP. 
SUPREME COURT OF OHIO 
 
10
{¶ 27} Douglas Pinney, a certified public accountant and a specialist in 
income-tax accounting issues, opined that the restated valuation allowance should 
have no effect on the computation of the CAT credit.  Pinney supported his 
conclusion by noting that his review of documentation indicated that the tax-
adjusting entries on Navistar’s books in relation to the restated financials did not 
occur until after the filing deadline for the Amortizable Amount Report and were 
not part of the 2004 books and records that the statute requires be used in 
computing the amortizable amount.  Pinney also explained that the valuation 
allowance involves subjective factors with respect to projecting whether the 
benefit of deferred-tax assets is likely to be actually realized.  For that reason, 
Pinney testified, there is never a single number that is the “correct” valuation 
allowance, but instead, there is a range of numbers that might be acceptable for a 
valuation allowance under GAAP.  Pinney testified that the original valuation 
allowance, which was made part of the company’s books and records in early 
2005 and formed the basis for the 2006 Amortizable Amount Report, was 
reasonable and was in compliance with GAAP. 
{¶ 28} Pinney also testified about Navistar’s Form 8-K from 2006 and 
Form 10-K with the restated financials from 2007.  On Form 10-K, Navistar 
stated, “[W]e did not apply FASB Statement No. 109 properly” with respect to 
the deferred-tax assets and valuation allowance.  Asked how he reconciled that 
statement with his other opinions, Pinney responded that the quoted statement 
“doesn’t necessarily mean that the valuation allowance itself was incorrect.”  
With respect to Navistar’s Form 8-K, Pinney testified that Navistar was “simply 
indicat[ing] they were going to review this area,” i.e., the deferred-tax assets and 
valuation allowance. 
{¶ 29} Navistar also called Beth Savage, a certified public accountant who 
was a consultant for troubled companies.  Her testimony amplified Pinney’s point 
that the determination of the valuation allowance involves subjective judgment in 
January Term, 2015 
 
11
weighing factors and predicting future events.  She described the full valuation 
allowance in the restated financials as a “very conservative” position.  Like 
Pinney, she testified that the credit calculation on the 2006 Amortizable Amount 
Report was proper because “[t]he calculation was done at a point in time[;] they 
used the information that was available to [them] then, and I believe that amount 
is supportable under generally accepted accounting principles.” 
Fact testimony 
{¶ 30} Navistar called its vice president of tax, Carol Garnant, who 
confirmed the subjective aspect of the valuation allowance and added the 
historical perspective of having gone through the restatement process in her 
position at Navistar, testifying that neither the IRS nor any state authorities had 
found any fraudulent entries or accounting practices.  She also testified that 
Navistar had in fact been able to realize the value of its NOLs. 
{¶ 31} Navistar also called three Ohio Department of Taxation officials as 
on cross-examination to establish the historical background of the CAT credit. 
THE BTA DECISION 
{¶ 32} The BTA affirmed the tax commissioner’s determination.  Taking 
as its starting point R.C. 5751.53(D)’s authorization for the commissioner to 
“ ‘correct any errors found upon audit,’ ” the BTA concluded that Navistar’s 
Form 10-K and the transmittal letter that it sent with its Amortizable Amount 
Report were admissions that the 2007 restatement of the valuation allowance 
constitutes the correction of error in the earlier financial statements.  (Emphasis 
added by the BTA.)  2013 Ohio Tax LEXIS 7601, 8.  The BTA stated, “It is 
uncontested [that Navistar] undertook a comprehensive restatement of its 
financial statements so that they were ultimately revised in accordance with 
generally accepted accounting principles.”  Id.  Following the tax commissioner’s 
reasoning, the BTA treated Navistar’s statements as establishing that the change 
in valuation allowance corrected an earlier error.  Under this analysis, the restated 
SUPREME COURT OF OHIO 
 
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valuation allowance was in compliance with GAAP but the original valuation 
allowance was not.  In reaching its conclusion, however, the BTA ignored 
Navistar’s accounting evidence, which contradicted the idea that the original 
valuation allowance was not in compliance with GAAP. 
ANALYSIS 
{¶ 33} Navistar presented a twofold argument to the BTA and presents the 
same arguments here.  On the one hand, Navistar asserts that the tax 
commissioner lacked any authority to adjust the valuation allowance based on the 
restatement of financial statements that occurred after the June 2006 deadline for 
filing the Amortizable Amount Report.  On the other hand, Navistar presented 
considerable evidence to the BTA to negate any inference that the 2007 
restatement of the valuation allowance constituted the correction of an error in the 
original financial statements—thereby implicitly conceding that the tax 
commissioner might rely on a later financial restatement if it constituted the 
correction of an error in the original. 
{¶ 34} We disagree with Navistar’s first argument.  The plain language of 
R.C. 5751.53(D) authorizes the tax commissioner to “adjust” the amortizable 
amount on account of his review of the “accuracy” of the reported amount and 
empowers the commissioner to “correct any errors found upon audit.”  The 
deadline for doing so was June 30, 2010, so we must conclude that the 
commissioner could order corrections based on information that became available 
to him before that date—even if the information became available only after the 
deadline for filing the report in June 2006.  It follows that if the 2007 restatement 
of the valuation allowance cured an earlier inaccuracy or corrected an earlier 
error, it lay within the tax commissioner’s authority to adopt the restated valuation 
allowance. 
{¶ 35} We also agree with the tax commissioner that because the 
amortizable amount is computed by using amounts reflected in the company’s 
January Term, 2015 
 
13
books and records, R.C. 5751.53(A)(9)(a) and 5751.53(A)(6)(b), and those books 
and records must be maintained in accordance with GAAP, R.C. 5751.53(A)(10), 
a correction to the books and records that brings them into compliance with 
GAAP is a correction that the tax commissioner should recognize when issuing 
his determination regarding the accuracy of the amortizable amount pursuant to 
R.C. 5751.53(D).  That conclusion also furnishes the standard for determining 
whether the original valuation allowance was inaccurate or in error for purposes 
of applying R.C. 5751.53(D):  if the original valuation allowance is established to 
have been within the range acceptable under GAAP, then the later restatement of 
the valuation allowance does not involve error correction, and the tax 
commissioner lacks authority to adopt the restated allowance. 
{¶ 36} The BTA acknowledged the tax commissioner’s statutory authority 
to correct error, but the BTA’s decision is unreasonable and unlawful in its failure 
to consider and weigh all the conflicting evidence concerning whether the original 
valuation allowance was in compliance with GAAP.  Specifically, the BTA 
considered the official statements made by Navistar in its SEC filings as 
admissions, but it failed to consider the countervailing expert and lay testimony 
offered by Navistar.  We therefore vacate the BTA’s decision and remand the 
cause with the instruction that the BTA carefully consider and weigh all pertinent 
evidence before determining whether Navistar’s original valuation allowance was 
in compliance with GAAP. 
{¶ 37} One point of dispute remains.  Before the BTA and this court, the 
tax commissioner has sought to rely on the complaint filed in Illinois by 
Navistar’s parent corporation against its former accountants.  The hearing 
examiner admitted the complaint as evidence but rejected the tax commissioner’s 
argument that it constituted admissions against interest or statements by a party 
opponent.  The examiner also limited the tax commissioner’s use of the complaint 
in examining witnesses. 
SUPREME COURT OF OHIO 
 
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{¶ 38} The BTA’s decision neither explicitly nor implicitly overturned the 
hearing examiner’s ruling; instead, the board acquiesced in the ruling by noting 
that it need not rely on the complaint in reaching its decision.  2013 Ohio Tax 
LEXIS 7601, 9, fn. 4.  As a result, the hearing examiner’s ruling that precluded 
the use of the Illinois complaint as an admission has merged into the BTA’s 
decision and constitutes the law of this case, subject to challenge by the tax 
commissioner in this appeal.  See Grover v. Bartsch, 170 Ohio App.3d 188, 2006-
Ohio-6115, 866 N.E.2d 547, ¶ 9 (“Interlocutory orders * * * are merged into the 
final judgment,” with the result that “an appeal from the final judgment includes 
all interlocutory orders merged with it”). 
{¶ 39} The tax commissioner has not adequately challenged the BTA’s 
evidentiary ruling: he has neither specified it as an error in a protective notice of 
cross-appeal1 nor formally contested it through a proposition of law and argument 
in his brief.  See Household Fin. Corp. v. Porterfield, 24 Ohio St.2d 39, 46, 263 
N.E.2d 243 (1970) (an issue “considered by the board and alluded to in both oral 
argument and the briefs” was nonetheless “deemed to be abandoned” when it was 
“not presented to this court as a proposition of law and argued as such”); E. 
Liverpool v. Columbiana Cty. Budget Comm., 116 Ohio St.3d 1201, 2007-Ohio-
5505, 876 N.E.2d 575, ¶ 3.  Although the commissioner did allude to the issue in 
a footnote of his brief to this court, and although he reiterated the point during 
oral argument, his bare assertion that the Illinois complaint constitutes admissions 
against interest does not acknowledge the BTA examiner’s contrary ruling, much 
less advance specific arguments in opposition to that ruling.  See Util. Serv. 
Partners, Inc. v. Pub. Util. Comm., 124 Ohio St.3d 284, 2009-Ohio-6764, 921 
                                                 
1 In BTA appeals, it has been held necessary in some circumstances for an appellee to file a 
protective cross-appeal in order to advance alternative grounds for affirmance or to overturn 
explicit rulings of the BTA.  See, e.g., Dayton-Montgomery Cty. Port Auth. v. Montgomery Cty. 
Bd. of Revision, 113 Ohio St.3d 281, 2007-Ohio-1948, 865 N.E.2d 22, ¶ 33.  We do not reach the 
question whether a protective cross-appeal was necessary here, because we hold that the tax 
commissioner waived the issue.  
January Term, 2015 
 
15
N.E.2d 1038, ¶ 53 (argument effectively waived where “[n]o argument is supplied 
regarding whether the relevant case law, applied to the facts of this case, justifies 
a decision in [the party’s] favor”); In re Application of Columbus S. Power Co., 
129 Ohio St.3d 271, 2011-Ohio-2638, 951 N.E.2d 751, ¶ 19 (“it is not generally 
the proper role of this court to develop a party’s arguments”).  The tax 
commissioner has not shouldered the burden of demonstrating an abuse of 
discretion by the BTA’s examiner.  It follows that the tax commissioner has 
waived his right to rely on the Illinois complaint as admissions by Navistar and 
may not do so on remand. 
CONCLUSION 
{¶ 40} For these reasons, we vacate the BTA’s decision and remand the 
cause with the instruction that the BTA determine, based on a consideration of all 
the evidence in accordance with this opinion, whether the valuation allowance 
originally reported on Navistar’s Amortizable Amount Report was or was not in 
compliance with GAAP.  If the BTA determines that the original valuation 
allowance was in compliance with GAAP, the BTA shall reverse the tax 
commissioner’s determination and reinstate the amortizable amount as originally 
reported.  If the BTA determines that the original valuation allowance was not in 
compliance with GAAP, the BTA shall affirm the tax commissioner’s 
determination. 
Judgment accordingly. 
O’CONNOR, C.J., and LANZINGER, KENNEDY, and O’NEILL, JJ., concur. 
PFEIFER and O’DONNELL, JJ., dissent. 
__________________ 
PFEIFER, J., dissenting. 
{¶ 41} I agree with much of the majority opinion, including its most 
important holding, that R.C. 5751.53(D) authorizes the tax commissioner to issue 
a final determination changing the amount of potential commercial-activity-tax 
SUPREME COURT OF OHIO 
 
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credit to reflect a taxpayer’s correction of an inaccuracy or error in the original 
reported amount.  I agree that the books and records used to compute the 
amortizable amount must be maintained in accordance with generally accepted 
accounting principles (“GAAP”) and that when such books and records are 
corrected to become GAAP-compliant, the tax commissioner should recognize 
that correction when determining the amortizable amount pursuant to R.C. 
5751.53(D). 
{¶ 42} I disagree, however, with the majority’s ultimate disposition of the 
case, vacating the decision of the Board of Tax Appeals (“BTA”) and remanding 
the cause to the BTA.  The majority concludes that the BTA did not consider the 
testimony of appellant Navistar, Inc.’s experts regarding whether the original 
valuation allowance was in compliance with GAAP, and it admonishes the BTA 
to, on remand, “carefully consider and weigh all pertinent evidence before 
determining whether Navistar’s original valuation allowance was in compliance 
with GAAP.”  Majority opinion at ¶ 36. 
{¶ 43} Does this court have a reason to believe that the BTA was not 
“careful” in making its determination the first time around?  Is assessing 
carefulness a part of our standard of review of BTA decisions?  The fact that 
Navistar’s experts are not mentioned in the BTA’s decision does not mean that 
the BTA failed to take into account their testimony.  Obviously, the BTA placed 
more weight on the statements that Navistar itself made at the time it filed the 
amortizable amount with the Department of Taxation.  The BTA quotes the 
statement from Navistar’s assistant director of tax that Navistar was “ ‘currently 
undergoing a restatement of its financial statements for the years 2002, 2003, 
2004 and 2005’ ” and that “ ‘[Navistar] believe[s] that changes will occur to the 
2002, 2003 and 2004 financial statements as part of this examination which will 
impact the return and report that we are filing today.’ ”  BTA No. 2010-575, 2013 
Ohio Tax LEXIS 7601, 9 (Dec. 31, 2013).  The BTA decision also quotes from 
January Term, 2015 
 
17
Navistar’s statement to the Securities and Exchange Commission apprising it of 
errors in Navistar’s previously filed financial statements:  
 
In its Form 10-K, [Navistar] stated, in part: “In addition, in 
previously issued financial statements, we had established a partial 
valuation allowance with respect to our net U.S. and Canadian 
deferred tax assets. We reassessed our need for a valuation 
allowance and determined that we did not apply FASB Statement 
No. 109 properly and that a full valuation allowance should be 
established for net U.S. and Canadian deferred tax assets based on 
the weight of positive and negative evidence, particularly our 
recent history of operating losses.” 
 
(Emphasis sic.)  Id. at fn. 5.  The BTA concluded that Navistar’s books were 
“corrected to comport with generally accepted accounting principles.”  Id. at 11. 
There is no reason for this court to tamper with that factual finding.  This case 
should be over. 
{¶ 44} I also disagree with the majority’s ruling regarding the complaint 
by Navistar’s parent corporation filed in federal court in Illinois against its former 
accountants, Deloitte & Touche, L.L.P. (“Deloitte”), alleging multiple GAAP 
violations in accounting services Deloitte performed for Navistar in the time 
period relevant to this case.  Navistar Internatl. Corp. v. Deloitte & Touche, 
L.L.P., N.D.Ill. case No. 1:11-cv-03507.  One assertion in the complaint reads as 
follows: 
 
As a direct result of Deloitte’s fraudulent statements and 
omissions, as well as Deloitte’s incompetence and malpractice, 
Navistar was forced to fire Deloitte in 2006, hire new auditors, 
SUPREME COURT OF OHIO 
 
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overhaul its accounting records and, in 2007, issue a massive 
restatement of its financial statements for fiscal years 2003, 2004, 
and the first three quarters of 2005 * * *. 
 
{¶ 45} The majority holds that “the tax commissioner has waived his right 
to rely on the Illinois complaint as admissions by Navistar and may not do so on 
remand.”  Majority opinion at ¶ 39.  But the complaint has been admitted into 
evidence, and it is unclear what the BTA’s position is on whether the tax 
commissioner can use the complaint to prove his case.  It has some evidentiary 
value.  The hearing examiner, near the end of the hearing, told the tax 
commissioner’s counsel, “You can make any argument you want about it at this 
point.  It is evidence in the record.”  The BTA itself never ruled on how the 
complaint could be used; it concluded only that it did not need to rely on the 
complaint to arrive at its decision:   
 
While we acknowledge the commissioner's reference to the 
existence of litigation between [Navistar] and the accounting firm 
previously involved in the audit of its financial returns, such 
litigation and the allegations made by [Navistar] therein need not 
serve as the basis upon which we decide this matter given the grant 
provided by R.C. 5751.53(D). 
 
2013 Ohio Tax LEXIS 7601 at 9, fn. 4.  This is not a ruling that precludes the use 
of the complaint for any reason.  How the commissioner may use the complaint 
remains an open question.  It is the BTA, as fact-finder, that must decide what 
significance to accord the complaint on remand. 
 
O’DONNELL, J., concurs in the foregoing opinion. 
__________________ 
January Term, 2015 
 
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Maryann B. Gall; Vorys, Sater, Seymour & Pease, L.L.P., Laura A. 
Kulwicki, and Steven L. Smiseck, for appellant. 
 
Michael DeWine, Attorney General, and Barton A. Hubbard, Assistant 
Attorney General, for appellee. 
 
Bricker & Eckler, L.L.P., Mark A. Engel, and Anne Marie Sferra, urging 
reversal for amici curiae, Ohio Manufacturers’ Association and Ohio Chamber of 
Commerce. 
_______________________