Title: Karr v. McClain

State: ohio

Issuer: Ohio Supreme Court

Document:

[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as Karr 
v. McClain, Slip Opinion No. 2022-Ohio-449.] 
 
 
 
 
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. 2022-OHIO-449 
KARR, APPELLEE, v. MCCLAIN, TAX COMMR., APPELLANT. 
[Until this opinion appears in the Ohio Official Reports advance sheets, it 
may be cited as Karr v. McClain, Slip Opinion No. 2022-Ohio-449.] 
Taxation—Use taxes—Tax penalties—R.C. 5739.13(A)—Tax commissioner has 
discretion whether to impose a penalty for unpaid taxes—Abatement of a 
penalty is clearly erroneous when there is no basis for finding that the tax 
commissioner acted arbitrarily or unconscionably—Board of Tax Appeals’ 
decision abating penalty reversed. 
(No. 2021-0457—Submitted October 26, 2021—Decided February 17, 2022.) 
APPEAL from the Board of Tax Appeals, No. 2020-1041. 
__________________ 
Per Curiam. 
{¶ 1} In this appeal, appellant, Jeffrey McClain, Tax Commissioner of 
Ohio, seeks reinstatement of a tax penalty that the Board of Tax Appeals (“BTA”) 
abated.  Because the BTA’s ruling is clearly erroneous, we reverse. 
SUPREME COURT OF OHIO 
 
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{¶ 2} This appeal involves a use-tax assessment against appellee, Wesley 
T. Karr.  Karr purchased a Peterbilt truck, but he did not pay tax on the truck, 
claiming that the transportation-for-hire exemption applied to his purchase.  R.C. 
5739.02(B)(32); see N.A.T. Transp., Inc. v. McClain, 165 Ohio St.3d 250, 2021-
Ohio-1374, 178 N.E.3d 454, ¶ 13-17.  When the tax commissioner demanded that 
Karr prove his entitlement to the exemption, Karr failed to demonstrate that he had 
the requisite for-hire transportation certificate and that the truck was primarily used 
for transporting property belonging to others.  The tax commissioner, therefore, 
denied the exemption, assessed unpaid tax in the amount of $4,821.25, added 
preassessment interest in the amount of $35.64, and exercised his statutory 
discretion to impose a 15 percent penalty amounting to $723.19. 
{¶ 3} Karr appealed to the BTA, which decided the case based on the notice 
of appeal, the statutory transcript submitted by the tax commissioner, and written 
argument.  In its decision, the BTA upheld the tax assessment against Karr because 
he failed to rebut the tax commissioner’s findings.  BTA No. 2020-1041, 2021 WL 
1093736, *1 (Mar. 16, 2021).  Although the BTA found that Karr had not met his 
burden to show that the tax commissioner erred by assessing unpaid tax, the BTA 
found that the tax commissioner had “abused his discretion in assessing a penalty.”  
Id.  In support of this finding, the BTA stated: 
 
Karr has provided evidence that he had a [Public Utilities 
Commission of Ohio] certification but not which certification.  Per 
the final determination, he had a Department of Transportation 
certification, but it was the wrong one, albeit a related one.  We do 
not find the documents as confusing as the Commissioner did when 
read together with the lease.  However, that issue is irrelevant since 
Karr has not shown he had the requisite certifications. 
 
January Term, 2022 
 
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Id.  The BTA upheld the assessment of unpaid tax and interest but reversed the 
imposition of the penalty and remanded the case to the tax commissioner with 
instructions to abate the penalty.  Id. 
{¶ 4} The tax commissioner unsuccessfully sought reconsideration of the 
BTA’s abatement of the penalty.  BTA No. 2020-1041, 2021 WL 1545466 (Apr. 
12, 2021).  The tax commissioner has appealed and filed a brief.  Karr did not file 
a brief. 
{¶ 5} In his second proposition of law, the tax commissioner contests the 
BTA’s finding of an abuse of discretion.  We conclude that the BTA’s holding that 
the tax commissioner abused his discretion and the BTA’s order abating the penalty 
are clearly erroneous, and we reverse that portion of the BTA’s decision. 
{¶ 6} Under R.C. 5739.13(A), the tax commissioner “may make an 
assessment [of sales tax] against either the vendor or consumer, as the facts may 
require, based upon any information in the commissioner’s possession.”  See also 
R.C. 5741.14 (sales-tax assessment and penalty provisions apply to the assessment 
of use tax); N.A.T. Transp., 165 Ohio St.3d 250, 2021-Ohio-1374, 178 N.E.3d 454, 
at ¶ 13, 15 (use-tax liability parallels sales-tax liability with respect to exemptions 
from taxation).  In this case, the tax commissioner issued the assessment against 
Karr as the “consumer” who purchased the truck.  And R.C. 5739.133(A) provides 
that “[a] penalty may be added to every amount [of sales tax] assessed * * * (3) 
* * * up to fifteen per cent of the amount assessed.” 
{¶ 7} By stating that a penalty “may be added,” the statute confers 
discretionary authority on the tax commissioner to impose a penalty in conjunction 
with an assessment of unpaid sales tax.  See J.M. Smucker, L.L.C. v. Levin, 113 
Ohio St.3d 337, 2007-Ohio-2073, 865 N.E.2d 866, ¶ 14-15 (collecting cases).1  
 
1. We note that many of the earlier tax-penalty cases addressed statutes that required the initial 
imposition of the penalty but then conferred discretion to abate the penalties on reassessment.  By 
contrast, the statute in this case confers discretion on the tax commissioner when he initially issues 
SUPREME COURT OF OHIO 
 
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Because the decision whether to impose a penalty is within the tax commissioner’s 
discretion, the BTA may reverse the imposition of a penalty only if it finds an abuse 
of discretion.  Id. at ¶ 16. 
{¶ 8} An abuse of discretion in the tax-penalty context is an act showing an 
“arbitrary or unconscionable attitude” on the part of the tax commissioner.  Renacci 
v. Testa, 148 Ohio St.3d 470, 2016-Ohio-3394, 71 N.E.3d 962, ¶ 32, citing J.M. 
Smucker, L.L.C., at ¶ 16.  Here, the BTA recited that it found an abuse of discretion, 
but it made no explicit determination that the tax commissioner acted with an 
arbitrary or unconscionable attitude. 
{¶ 9} More importantly, the evidence that the BTA pointed to would not 
support such a finding.  The exemption statute plainly conditions the exemption on 
the taxpayer holding a certificate authorizing him to engage in the transportation of 
personal property belonging to others for consideration, and nearly 20 years ago we 
clarified what type of certificate will qualify under R.C. 5739.01(Z)(1).  See 
Rumpke Container Serv., Inc. v. Zaino, 94 Ohio St.3d 304, 762 N.E.2d 995 (2002); 
see also N.A.T. Transp., 165 Ohio St.3d 250, 2021-Ohio-1374, 178 N.E.3d 454, at 
¶ 16-17.  Our decision in Renacci is instructive on what constitutes an arbitrary 
denial of penalty abatement.  In Renacci, we rejected the tax commissioner’s claim 
that he had discretion to retain the penalty based solely on the taxpayers’ 
noncompliance with a legal interpretation that the tax commissioner had adopted, 
without giving due consideration to whether the taxpayers had reasonable cause for 
a different interpretation of the relevant law.  Renacci at ¶ 20, 25, 36, 40-42.  Unlike 
Renacci, this appeal involves a taxpayer who formally claimed an exemption but 
failed to prove he was entitled to the exemption under well-established law. 
 
the assessment of unpaid tax.  But we conclude that the distinction makes no difference in this 
context: the tax commissioner’s discretionary authority extended throughout the reassessment 
proceedings, so he had the discretion to abate the penalty in the final determination.  His decision 
not to do so merited the BTA’s deference. 
January Term, 2022 
 
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{¶ 10} Under these circumstances, the BTA’s abatement of the penalty was 
clearly erroneous because the record provided no basis for finding that the tax 
commissioner acted arbitrarily or unconscionably in imposing the penalty.2  We 
therefore reverse the BTA’s abatement of the penalty, but we leave intact the BTA’s 
decision to affirm the assessment of unpaid tax and interest. 
Judgment accordingly. 
O’CONNOR, C.J., and KENNEDY, DEWINE, DONNELLY, STEWART, and 
BRUNNER, JJ., concur. 
FISCHER, J., dissents. 
_________________ 
 
Dave Yost, Attorney General, and Kimberly G. Allison, Assistant Attorney 
General, for appellant. 
_________________ 
 
2. Under his first proposition of law, the tax commissioner argues that the BTA lacked jurisdiction 
to abate the penalty because Karr failed to set forth a separate claim for relief from the penalty in 
his notice of appeal to the BTA.  Compare Obetz v. McClain, 164 Ohio St.3d 529, 2021-Ohio-1706, 
173 N.E.3d 1200, ¶ 19 (under pre-2013 version of R.C. 5717.02(B), the BTA lacked jurisdiction to 
grant relief from a final determination based on errors that were not sufficiently specified in the 
notice of appeal).  Because we hold that the BTA had no authority to abate the penalty in the absence 
of arbitrary or unconscionable conduct by the tax commissioner, we do not need to address the 
jurisdictional issue.  Likewise, the tax commissioner’s third proposition of law is moot.