Court Opinion

ID: 6758475
Source: CourtListenerOpinion
Date Created: 2022-07-21 00:29:24.519599+00
Date Added: 2024-06-11T16:02:31.444323
License: Public Domain

William B. Brown, J.,
dissenting. Because I conclude that the Board of Tax Appeals decision in this case was unreasonable and unlawful, I respectfully dissent. Under the facts of the present case, it is my view that Dresser’s primary purpose in acquiring the property in question was to complete its research and development in order to fulfill its contractual obligations with the government and not to resell that property.
The majority opinion sets forth the appropriate test to be employed. The primary use or purpose test is applicable in all cases where the taxpayer’s purpose is unclear because dual uses exist. United States Shoe Corp. v. Kosydar (1975), 41 Ohio St. 2d 68 [70 O.O.2d 159]; A.J. Weigand, Inc. v. Bowers (1960), 171 Ohio St. 78 [12 O.O.2d 90]. However, the majority applies this test without sufficient examination of the facts.
In Fliteways v. Lindley (1981), 65 Ohio St. 2d 21 [19 O.O.3d 219], relied upon by the Board of Tax Appeals and by the majority, the taxpayer purchased airplanes for resale but used them in charter service and flight-training school prior to resale. The basis of the decision allowing an exemption was the finding that the intervening use was merely for the purpose of defraying the costs of carrying the aircraft in inventory. This interim use was considered incidental because the aircraft remained for sale at all times.
The facts of Fliteways are not at all similar to those of the present case. In contrast, in Jim White Chevrolet Co. v. Porterfield (1970), 22 Ohio St. 2d 79 [51 O.O.2d 104], an exemption under R.C. 5739.01(E)(1) was denied for *71new automobiles which were driven by the auto dealer’s sales personnel prior to their resale to the public. The court found that the dealer’s primary purpose in acquiring those cars was for use in advertising. Similarly, in United States Shoe Corp., supra, this court denied an exemption for various test-size shoes, as well as finished handbags and shoes which, though ultimately sold, “were used mainly to stimulate design ideas, to experiment with new materials, or to try new stitching techniques.” Id. at 72.
Such was the case here. Dresser was contractually obligated to design and engineer an explosion-proof electrical enclosure and a miner-bolter system. Dresser was aided in its design and development by the furnishing of engineering plans and drawings, prototypes, equipment and an underground test-mine facility pursuant to its subcontracts. It is true that title to and possession of the personal property ultimately passed to the government. Nevertheless, the taxpayer’s primary use of the property was in the fulfillment of its contractual obligations to design a finished product. In view of this fact, Dresser’s use of the property cannot be termed merely “incidental.”
The majority opinion implicitly concedes this point. There it is stated “the design of each project was merely incidental to the finished product.” This is precisely the point. When one poses the question as to what the government truly desired from its contracts with Dresser the answer is simple. Did the government desire a finished product or did it simply wish to acquire the various pieces which might lead to that product? Obviously the former is correct. Put another way, Dresser was not serving merely as a wholesaler of the personal property it obtained from its subcontractors. Rather, its role was that of developer and manufacturer.
The fact that title to the personal property vested in the government by contract is of little importance. That clause is standard boilerplate language in a government contract and should not be allowed to control the determination of Dresser’s primary purpose.
For the foregoing reasons, I conclude that Dresser’s primary purpose in obtaining the items under the subcontracts was not to resell them. As such, I would find the Board of Tax Appeals decision to grant an exemption unreasonable and unlawful and would reverse.
Celebrezze, C.J., and Hoffman, J., concur in the foregoing dissenting opinion.