Title: Valvoline Instant Oil Change, Inc. v. Tracy

State: ohio

Issuer: Ohio Supreme Court

Document:

Valvoline Instant Oil Change, Inc., Appellant, v. Tracy, Tax Commr., 
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Appellee. 
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Ashland Branded Marketing, Inc., Appellant, v. Tracy, Tax Commr., 
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Appellee. 
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SuperAmerica Group, Inc., Appellant, v. Tracy, Tax Commr., Appellee. 
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[Cite as Valvoline Instant Oil Change, Inc. v. Tracy (1997), _____ Ohio 
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St.3d ____.] 
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Taxation -- Listing personal property -- State’s use of different tax 
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listing date for existing businesses than for new businesses 
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not a violation of right to equal protection. 
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(Nos. 96-52, 96-53 and 96-54 -- Submitted September 19, 1996 -- 
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Decided March 19, 1997.) 
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Appeals from the Board of Tax Appeals, Nos. 94-B-1179, 94-B-1180 
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and 94-B-1181. 
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Ashland Oil, Inc. (“Ashland”), which paid its 1989 personal property 
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tax for the fiscal year ending September 30, 1988, operated three divisions 
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known as Valvoline Instant Oil Change, Ashland Branded Marketing, and 
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SuperAmerica.  Prior to October 2, 1989, Ashland incorporated these 
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divisions as separate, wholly owned subsidiaries.  Ashland named them 
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Valvoline Instant Oil Change, Inc., Ashland Branded Marketing, Inc., and 
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SuperAmerica Group, Inc., appellants.  On October 1, 1989, Ashland 
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transferred the assets of the former divisions to the respective subsidiaries, 
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and the subsidiaries began business.  The subsidiaries filed their 1989 
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personal property tax returns employing Ashland’s fiscal year listing date of 
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September 30, 1988. 
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The Tax Commissioner, appellee, audited the subsidiaries’ returns.  
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He listed their fixed assets as of the date they first engaged in business, 
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October 1, 1989, under R.C. 5711.03. The commissioner also listed the 
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average of their actual inventory levels for the last three months of 1989.  
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The subsidiaries concede that the commissioner assessed them 
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according to the statutes; however, they claim that this treatment denies 
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them equal protection.  On appeal, the Board of Tax Appeals (“BTA”) 
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affirmed the commissioner's orders after removing some property from the 
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assessments according to the parties’ stipulations.  The BTA declined to 
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address the constitutional questions under Cleveland Gear Co. v. Limbach 
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(1988), 35 Ohio St. 3d 229, 520 N.E.2d 188, paragraph one of the syllabus.  
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These causes are before this court upon appeals as of right. 
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3
 
William R. Buzo, for appellants. 
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Betty D. Montgomery, Attorney General and James C. Sauer, 
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Assistant Attorney General, for appellee. 
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Per Curiam.  R.C. 5711.03 provides: 
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“*** [A]ll taxable property shall be listed as to ownership or control, 
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valuation, and taxing districts as of the beginning of the first day of January, 
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annually, except that taxable personal property and credits used in business 
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shall be listed as of the close of business of the last day of December, 
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annually ***.  When a person or taxpayer engages in business in this state 
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on or after the first day of January, in any year, he shall list all his taxable 
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property, except inventory, as to value, ownership and taxing districts as of 
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the date he engages in business.  In listing inventory as to ownership and 
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taxing districts he shall list the probable average value intended to be used 
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in business from the date he engages in business until the first day of 
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January next thereafter.  ***”  (Emphasis added.) 
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The subsidiaries maintain that requiring them to list their property as 
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of the day they first engaged in business denies them equal protection when 
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existing businesses list their property as of the close of business of the prior 
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year.  They argue that this treatment results in an unequal burden on them as 
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new taxpayers.  We disagree and affirm the commissioner’s orders. 
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We observed in Doraty Rambler, Inc. v. Schneider (1965), 4 Ohio 
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St.2d 37, 39, 33 O.O. 2d 342, 343, 212 N.E.2d 580, 582, that “[t]he tangible 
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personal property tax in Ohio is prospective in nature and is levied and 
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assessed at the beginning of the year for the privilege of using tangible 
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personal property in business for the duration of the coming year.”  The 
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state may use antecedent facts as criteria in valuing personal property 
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inventory and, in this case, other personal property used in business for the 
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prospective personal property tax.  Cleveland Gear Co. v. Limbach (1988), 
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35 Ohio St.3d 229, 233, 520 N.E.2d 188, 193.   
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In Nordlinger v. Hahn (1992), 505 U.S. 1, 112 S. Ct. 2326, 120 L.Ed. 
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2d 1, the United States Supreme Court held that a state could discriminate in 
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favor of longer-term owners of real property to the detriment of newer 
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property owners.  The court, 505 U.S. at 10, 112 S. Ct. at 2331-2332, 120 
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L.Ed. 2d at 12, set forth the conditions under which a state may classify 
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individuals:  
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“The Equal Protection Clause of the Fourteenth Amendment, §1, 
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commands that no State shall ‘deny to any person within its jurisdiction the 
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equal protection of the laws.’  Of course, most laws differentiate in some 
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fashion between classes of persons.  The Equal Protection Clause does not 
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forbid classifications.  It simply keeps governmental decisionmakers from 
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treating differently persons who are in all relevant respects alike.  F.S. 
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Royster Guano Co. v. Virginia, 253 U.S. 412, 415 [40 S. Ct. 560, 561, 64 
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L.Ed. 989, 990-991] (1920).  
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“As a general rule, ‘legislatures are presumed to have acted within 
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their constitutional power despite the fact that, in practice their laws result 
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in some inequality.’  McGowan v. Maryland, 366 U.S. 420, 425-426 [81 
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S.Ct. 1101, 1105, 6 L.Ed. 2d 393, 398-399] (1961).  Accordingly, this 
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Court’s cases are clear that, unless a classification warrants some form of 
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heightened review because it jeopardizes exercise of a fundamental right or 
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categorizes on the basis of an inherently suspect characteristic, the Equal 
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Protection Clause requires only that the classification rationally furthers a 
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legitimate state interest.  See, e.g., Cleburne v. Cleburne Living Center, Inc., 
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473 U.S. 432, 439-441 [105 S. Ct. 3249, 3254-3255, 87 L.Ed. 2d 313, 320-
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321] (1985); New Orleans v. Dukes, 427 U.S. 297, 303 [96 S.Ct. 2513, 
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2517, 49 L.Ed.2d 511, 517] (1976).” 
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In this case, the state may discriminate between new businesses and 
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existing businesses insofar as these classifications have different listing 
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dates.  As mentioned, the state employs antecedent facts, i.e., the property 
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held by a business at the close of a business year, to estimate prospectively 
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the amount of property that a taxpayer will use in business during the 
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upcoming tax year.  However, new businesses do not have assets as of the 
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close of the prior business year.  They have not been in business.  Thus, 
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Ohio employs the property the new business owns on the day it first engages 
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in business in Ohio and the new business's probable average value of 
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inventory in calculating its personal property tax.  This Ohio may do.  To 
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levy this prospective tax on the property of new businesses, a legitimate 
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interest, Ohio may calculate the value of the property as of the date the new 
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business has its first opportunity to use the property in business.  Ohio may 
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also require the listing of the probable average value of inventory because it 
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evidently has concluded it has no other realistic measure of such inventory.  
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We hold that these listing requirements, which place new businesses in a 
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different classification from existing businesses, rationally further a 
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legitimate state interest, the prospective taxation of personal property used 
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in business. 
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Next, the subsidiaries cite Kroger Co. v. Schneider (1967), 9 Ohio St. 
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2d 80, 38 O.O.2d 204, 223 N.E.2d 676, to support their argument that R.C. 
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5711.03 places an unequal burden of taxation on them.  Kroger is 
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inapposite.  In Kroger, we held unconstitutional, under Section 2, Article I, 
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Ohio Constitution, a statute that applied graduated assessment rates to the 
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same class of inventory based on a merchant’s total value levels.  Such is 
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not the case here.  Here, Ohio employs a different tax listing date for 
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existing businesses than for new businesses.  As we have held, this 
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treatment does not violate the subsidiaries’ right to equal protection. 
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Accordingly, we affirm the decisions of the BTA. 
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Decisions affirmed. 
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MOYER, C.J., DOUGLAS, RESNICK, F.E. SWEENEY, PFEIFER, COOK 
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and LUNDBERG STRATTON, JJ., concur. 
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