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tortjurisdictionappealcorporation
tortjurisdictionappealleasecorporationappellant

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GATX Corp. v. Limbach, 21 Ohio App.3d 59, 486 N.E.2d 840, 21 O.B.R. 63

Facts

GATX Corporation, formerly known as General American Transportation Corporation, is a foreign corporation engaged in the leasing and manufacturing of railroad cars in Masury, Ohio. The company primarily generates income from leasing cars, while the manufacturing operation supports this leasing business. GATX filed its franchise tax reports for several years, requesting to exclude the payroll factor from the apportionment formula due to its disproportionate impact compared to the property and sales factors. The Tax Commissioner denied this request, leading to the appeal.

GATX Corporation (fka General American Transportation Corporation), appellant, is a foreign corporation doing business (manufacture of railroad cars) in Masury, Ohio. Its business activities include the leasing and manufacturing of railroad cars (hereinafter, cars), the storage of liquid commodities and shipping on the Great Lakes and various oceans. The leasing of cars is appellant's primary business. The manufacturing of cars is considered as an activity which would not be conducted were the appellant not in the business of leasing cars. The major portion of appellant's overall payroll is generated at its Ohio manufacturing facility and is not related to its leasing operations, which produce the bulk of appellant's income. The Ohio facility is operated to manufacture cars for use in appellant's leasing division. Eighty percent of the manufactured cars are leased rather than sold, and of the cars which appellant leases, 90% are manufactured by appellant. The only income which appellant records in its books for the manufacturing division is that on the 20% of the cars which are sold. No income is recorded on the other 80% which are transferred to appellant's leasing division.

Issue

Did the Tax Commissioner err in denying GATX Corporation's request to eliminate the payroll factor from the apportionment formula for franchise tax purposes?

Did the Tax Commissioner err in denying GATX Corporation's request to eliminate the payroll factor from the apportionment formula for franchise tax purposes?

Rule

Under R.C. 5733.05(B)(2)(d), if the apportionment provisions do not fairly represent the extent of the taxpayer's business, one or more factors may be excluded, and additional factors may be included with the Tax Commissioner's approval.

Under R.C. 5733.05(B)(2)(d), if the apportionment provisions do not fairly represent the extent of the taxpayer's business, one or more factors may be excluded, and additional factors may be included with the Tax Commissioner's approval.

Analysis

The court found that the payroll factor was disproportionately high compared to the property and sales factors, which distorted the overall apportionment formula. The court determined that the Tax Commissioner had the jurisdiction to consider GATX's evidence regarding alternative apportionment methods and that the inclusion of the payroll factor did not fairly represent GATX's business activities in Ohio.

The court found that the payroll factor was disproportionately high compared to the property and sales factors, which distorted the overall apportionment formula. The court determined that the Tax Commissioner had the jurisdiction to consider GATX's evidence regarding alternative apportionment methods and that the inclusion of the payroll factor did not fairly represent GATX's business activities in Ohio.

Conclusion

The Court of Appeals reversed the decision of the Board of Tax Appeals, vacated its order, and remanded the case for further proceedings consistent with its opinion.

The Court of Appeals reversed the decision of the Board of Tax Appeals, vacated its order, and remanded the case for further proceedings consistent with its opinion.

Who won?

GATX Corporation prevailed in the case because the court agreed that the payroll factor distorted the apportionment formula and should be eliminated, allowing for a more accurate representation of the company's business activities in Ohio.

GATX Corporation prevailed in the case because the court agreed that the payroll factor distorted the apportionment formula and should be eliminated, allowing for a more accurate representation of the company's business activities in Ohio.

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