Court Opinion

ID: 6226739
Source: CourtListenerOpinion
Date Created: 2022-02-17 14:08:08.583614+00
Date Added: 2024-06-11T08:57:40.796162
License: Public Domain

[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

       {¶ 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.

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                                      January Term, 2022

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

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                                  SUPREME COURT OF OHIO

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.

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                                      January Term, 2022

         {¶ 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.

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