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Cincinnati Reds, L.L.C. v. Testa, 155 Ohio St.3d 512, 122 N.E.3d 1178, 2018-Ohio-4669

Facts

The Cincinnati Reds purchased promotional items to distribute to ticket holders at games to drive ticket sales, especially for games expected to have lower attendance. The Reds' CFO testified that the cost of these items was factored into ticket prices, and fans expected to receive them as part of their ticket purchase. The tax commissioner initially ruled that the promotional items were given away for free and not resold, leading to the Reds' appeal.

The Reds' CFO testified that the purpose of distributing promotional items is to drive ticket revenue at games that would otherwise be attended by fewer fans.

Issue

Whether the sale-for-resale exemption from use tax applies to the promotional items purchased by the Cincinnati Reds for distribution to ticket holders.

The main issue in this case is whether the sale-for-resale exception of R.C. 5739.01(E) relieves the Reds from having to pay use tax on promotional items, such as bobbleheads, that they distribute at games.

Rule

Under R.C. 5739.01(E), the sale-for-resale exemption applies to transactions where the consumer's purpose is to resell the item transferred.

Under R.C. 5739.01(E), the definition of 'retail sale' does not include those sales 'in which the purpose of the consumer is to resell the thing transferred or benefit of the service provided.'

Analysis

The court analyzed whether the Reds intended to give away the promotional items or sell them as part of the ticket purchase. The evidence indicated that fans purchased tickets with the expectation of receiving promotional items, which constituted consideration. The court found that the promotional items were an explicit part of the bargain, thus qualifying for the sale-for-resale exemption.

The court analyzed whether the Reds intended to give away the promotional items or sell them as part of the ticket purchase. The evidence indicated that fans purchased tickets with the expectation of receiving promotional items, which constituted consideration.

Conclusion

The Supreme Court reversed the Board of Tax Appeals' decision, concluding that the Reds were not liable for use tax on the promotional items.

We accordingly conclude that the Reds are not liable for use tax on the promotional items pursuant to R.C. 5741.02.

Who won?

Cincinnati Reds, L.L.C. prevailed because the court found that the promotional items were part of a sale to ticket holders, qualifying for the sale-for-resale exemption.

The Supreme Court held that the Reds demonstrated that ticket holders furnished consideration for promotional items, such that team was entitled to exemption.

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