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appealappellantappellee

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Federated Dept. Stores, Inc. v. Kosydar, 45 Ohio St.2d 1, 340 N.E.2d 840, 74 O.O.2d 1

Facts

The appellant, Federated Department Stores, Inc., operates retail department stores in Dayton, Ohio. The Tax Commissioner assessed sales and use taxes on certain purchases made by the appellant during the audit period from January 1, 1969, to December 31, 1969. The items in question included radio and television tapes, films, freelance art work for advertisements, and various partitions and fixtures used in the stores. The Board of Tax Appeals found that the real object of the transactions was the tangible personal property itself, leading to the appeal.

The appellant and cross-appellee, Federated Department Stores, Inc., Rike-Kumler Division, operates a group of retail department stores having six business locations in Dayton, Ohio.

Issue

The main legal issues were whether the transactions involving the purchase of advertising materials and fixtures were subject to sales and use taxes and whether the freelance art work constituted a personal service transaction exempt from such taxes.

At issue in this case are two categories of tangible personal property claimed by appellant to be excepted from Ohio sales and use taxes, pursuant to R.C. 5739.01(B) and (E)(2).

Rule

The court applied the principle that the real object of a transaction determines its taxability, specifically whether the service rendered was consequential or inconsequential in relation to the tangible personal property transferred.

This court, in Accountant's Computer Services v. Kosydar (1973), 35 Ohio St.2d 120, 298 N.E.2d 519, states the test for determining whether a ‘sale’ of tangible personal property may be excepted from the sales tax by virtue of R.C. 5739.01(B).

Analysis

The court analyzed the transactions to determine the taxpayer's true intent. It found that the taxpayer's primary objective was to acquire the tangible advertising materials, such as tapes and sketches, rather than the personal services of the artists. The court concluded that the personal services were inconsequential to the transactions, thus making them taxable under Ohio law. In contrast, the Board's finding regarding the freelance art work was reversed, as the court determined that the taxpayer's intent was to acquire the sketches themselves.

Our examination of the record before the Board of Tax Appeals indicates sufficient probative evidence that the appellant's real object in the transactions in question was to acquire possession of the radio and T.V. tapes and films to use in advertising, rather than the service performed in producing them.

Conclusion

The court affirmed the Board of Tax Appeals' decision regarding the assessments on advertising materials and fixtures but reversed the decision concerning the freelance art work, determining that it was not exempt from sales and use taxes.

The decision of the Board of Tax Appeals is against the weight of the evidence and contrary to the standards established by this court in Accountant's, supra.

Who won?

The prevailing party was the Tax Commissioner of Ohio, as the court upheld the assessments on advertising materials and fixtures, affirming the Board's decision on those items.

The Board of Tax Appeals found that ‘* * * the appellant was distinctly interested in the television commercials, photographs, radio tapes, advertising compositions and ‘layouts.’ The real object sought by the appellant in each of the transactions listed * * * was clearly the tangible personal property which it acquired for a consideration.'

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