[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as
Navistar, Inc. v. Testa, Slip Opinion No. 2015-Ohio-3283.]




                                        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. 2015-OHIO-3283
        NAVISTAR, INC., APPELLANT, v. TESTA, TAX COMMR., APPELLEE.
  [Until this opinion appears in the Ohio Official Reports advance sheets, it
  may be cited as Navistar, Inc. v. Testa, Slip Opinion No. 2015-Ohio-3283.]
Commercial-activity-tax credit—R.C. 5751.53 authorizes the tax commissioner to
        issue a final determination changing the amount of potential CAT credit to
        reflect a correction of an inaccuracy or error in the original reported
        amount.
      (No. 2014-0140—Submitted May 6, 2015—Decided August 18, 2015.)
              APPEAL from the Board of Tax Appeals, No. 2010-575.
                               ____________________
        FRENCH, J.
        {¶ 1} Under Ohio’s 2005 tax-reform legislation, the new commercial-
activity tax (“CAT”) was enacted “to replace the existing corporate-franchise and
personal-property taxes,” which were phased out under that legislation for
industrial corporations like Navistar, Inc. Beaver Excavating Co. v. Testa, 134
Ohio St.3d 565, 2012-Ohio-5776, 983 N.E.2d 1317, ¶ 23, citing Am.Sub.H.B. No.
                             SUPREME COURT OF OHIO




66, 151 Ohio Laws, Part II, 2868; R.C. 5733.01(G)(2). In this appeal, appellant,
Navistar, Inc., claims that it is due a credit against the CAT.
       {¶ 2} According to the testimony of employees of the Department of
Taxation, the tax break at issue here, referred to simply as the “CAT credit,” was
intended to restore a portion of the value of a corporate asset, known as a
“deferred-tax asset,” the value of which would otherwise be substantially reduced
by the transition from the franchise tax to the CAT. Specifically, the CAT credit
would preserve part of the value of net operating losses (“NOLs”) that taxpayers
like Navistar had accumulated and were entitled to carry forward to later years
and use as a deduction against income. But with the phase out of the franchise tax
for most taxpayers (including industrial corporations like Navistar) and its
replacement by the CAT, those NOLs would have lost their value under state tax
law unless a special tax break was created. That tax break was the CAT credit,
R.C. 5751.53.
       {¶ 3} In this appeal, Navistar complains that as a result of Navistar’s 2007
restatement of its 2004 financial statement, the tax commissioner erroneously
reduced the amount of its potential CAT credit from over $27 million to zero.
The tax commissioner based his determination on the restatement’s increase in the
“valuation allowance,” an accounting entry that reflects the company’s estimation
of its future ability to realize the tax benefit of its NOLs. The 2007 restatement
increased Navistar’s valuation allowance from 62.4 percent to 100 percent; that
increase led to a 100 percent offset of the NOLs for purposes of computing
Navistar’s potential CAT credit.
       {¶ 4} Navistar contends that the tax commissioner had no statutory
authority to adjust the amount of potential CAT credit based on accounting
changes that were made after the deadline for applying for the CAT credit in June
2006. The tax commissioner, on the other hand, argues that his statutory audit




                                          2
                               January Term, 2015




authority under R.C. 5751.53(D) allowed him to change the amount of potential
CAT credit based on a subsequent restatement of the relevant accounting entries.
       {¶ 5} In addition, the parties disagree on a legal and factual issue
concerning the importance of generally accepted accounting principles
(“GAAP”). Navistar argues that the CAT-credit statute took a “snapshot” of the
company’s books and records as of the time the credit application was filed in
June 2006 and that no subsequent changes to the accounting entries can be taken
into account, even if those changes are necessary to bring the company’s financial
reporting into compliance with GAAP. But Navistar also argues that even if
GAAP compliance is required to qualify for the credit, it has proved through
expert testimony that the restatement’s increase in the valuation allowance to 100
percent did not involve a correction required by GAAP, but instead constituted a
different estimation of probabilities made by different management at a different
point in time. The original valuation allowance for 2004, under this view, was
reasonable because it was within the range permitted under GAAP.
       {¶ 6} We read R.C. 5751.53(D) as authorizing the tax commissioner to
issue a final determination changing the amount of potential CAT credit, but
limiting that authority to making changes that reflect a correction of an inaccuracy
or error in the original reported amount. As a result, we conclude that the tax
commissioner’s use of Navistar’s restated valuation allowance as the basis for the
final determination was justified only if the restated valuation allowance was a
correction of error, which in this context can be the case only if Navistar’s
original valuation allowance was not in compliance with GAAP.
       {¶ 7} Whether Navistar’s original valuation allowance was in compliance
with GAAP is a question of fact that must be determined in light of evidence that
militates both ways. The Board of Tax Appeals (“BTA”) considered certain
statements by Navistar as relevant to this point but ignored the testimony of
Navistar’s experts, an omission that makes the BTA’s decision unreasonable and




                                         3
                             SUPREME COURT OF OHIO




unlawful. We therefore vacate the BTA’s decision and remand the cause for a
determination whether the original valuation allowance was in compliance with
GAAP based upon all the evidence in the record. Disposition of this case will
depend upon that determination.
                    NET OPERATING LOSSES AND THE CAT CREDIT
       {¶ 8} The franchise tax’s net-income method used the corporation’s
federal “taxable income,” with Ohio adjustments, as the base on which the tax
was imposed. See R.C. 5733.04(I) and 5733.05(B). As a general matter, “[t]he
taxable income of a taxpayer engaged in business or profit-oriented activities is
generally net profits rather than gross receipts or gross income.” 1 B. Bittker & L.
Lokken, Federal Taxation of Income, Estates, and Gifts, ¶ 20.1.1 (3d Ed.1999).
By contrast, Ohio’s CAT is measured not by net income but by the gross receipts
generated by income-producing activity. See R.C. 5751.01(F) (defining “gross
receipts” as “the total amount realized by a person, without deduction for the cost
of goods sold or other expenses incurred, that contributes to the production of
gross income of the person, including the fair market value of any property and
any services received, and any debt transferred or forgiven as consideration”);
R.C. 5751.03 (imposing the tax on the “taxable gross receipts”). Compared with
the franchise tax that it replaced, the CAT imposes a lower rate of taxation on a
larger tax base: a tax base that consists of revenues that have not been offset by
expenses.
       {¶ 9} Under the franchise-tax law, which previously applied to Navistar, a
corporation that experienced an NOL one year was allowed to use that loss to
offset income in a different year by “carrying back” or “carrying forward” the
NOL and using it as a deduction against income in a different year. See R.C.
5733.04(I)(1)(b).
       {¶ 10} Because Ohio’s franchise-tax law, along with other corporate-
income-tax laws, allowed a carryforward of NOLs, accounting principles required




                                         4
                               January Term, 2015




that the future benefit be reflected as an asset on the corporation’s books and
records and accompanying financial statements. When the CAT was enacted in
2005, corporations feared that the substantial Ohio portion of the NOL asset on
their books would lose its value. To soften that blow, the CAT credit was devised
and was included in the original CAT legislation.          Navistar refers to the
promulgation of R.C. 5751.53 as a “grand bargain” between Ohio franchise-tax
payers and the tax department, under which the taxpayers would support the tax
reform while still retaining some of the value of their Ohio deferred-tax assets
such as NOLs.
       {¶ 11} Under R.C. 5751.53, taxpayers were able to compute a potential
amount of CAT credit. That amount consists of a portion of the Ohio-apportioned
NOLs on their books at the end of their 2004 fiscal year, which, when adjusted,
furnished a total amount of credit that could be used to reduce CAT liabilities
over a period of up to 20 years, stretching from 2010 (the year the CAT was fully
phased in and the general franchise tax phased out for taxpayers such as Navistar)
through 2029.    R.C. 5733.01(G)(2)(a)(vi) (phase out of franchise tax); R.C.
5751.53(B)(1) through (10).
       {¶ 12} The starting point for determining the potential CAT credit was the
amount of Ohio-related NOLs on the corporation’s books at the end of fiscal year
2004. R.C. 5751.53(A)(5), (6), and (9). That number would be reduced by the
amount of “related valuation allowance.” R.C. 5751.51(A)(6)(b). “Valuation
allowance” is an adjustment dictated by accounting principles that is made on the
books from year to year to reflect the likelihood that the company will realize the
tax benefit of the NOLs. The less likely the corporation will be able to use the
NOLs, the greater the valuation allowance. The lump sum that resulted from
offsetting the Ohio NOLs with the valuation allowance would be “amortized”
over a period of up to 20 years beginning with calendar year 2010; the lump sum




                                        5
                            SUPREME COURT OF OHIO




is therefore referred to in the statute as the “amortizable amount.”          R.C.
5751.53(A)(9) and (B).
       {¶ 13} To take the credit, a company was required to file an Amortizable
Amount Report with the tax commissioner by June 30, 2006, that set forth the
computation of the amortizable amount. R.C. 5751.53(D). The statute then gave
the tax commissioner until June 30, 2010, to “audit the accuracy of the
amortizable amount * * * and adjust the amortizable amount or, if appropriate,
issue any assessment or final determination, as applicable, necessary to correct
any errors found upon audit.” Id.
                            FACTUAL BACKGROUND
       {¶ 14} Navistar is in the business of manufacturing commercial trucks,
buses, and military vehicles under the brand names International, Navistar
Defense, and IC. Navistar has long operated a manufacturing plant in Springfield,
Ohio, as well as facilities in other states. Before enactment of the CAT, Navistar
was a longtime franchise-tax payer in Ohio.
       {¶ 15} Navistar timely filed its Amortizable Amount Report (together with
its franchise-tax return for tax year 2005) on or about June 23, 2006. To qualify
for the CAT credit, a taxpayer must have “qualifying Ohio net operating loss
carryforward equal to or greater than the qualifying amount” of $50 million. R.C.
5751.53(A)(4) and (A)(11). It is undisputed that Navistar met that requirement.
       {¶ 16} Under R.C. 5751.53(A)(9)(a), the “amortizable amount” is 8
percent of the sum of the taxpayer’s “disallowed Ohio net operating loss
carryforward” and other deferred tax items that are not at issue here. As relevant
here, R.C. 5751.53(A)(6)(b) defines “disallowed Ohio net operating loss
carryforward” as the “Ohio net operating loss carryforward           amount” that
Navistar “used to compute the related deferred tax asset reflected on its books and
records on the last day of its taxable year ending in 2004, adjusted for return to
accrual,” reduced by the “qualifying related valuation allowance amount.” The




                                        6
                                January Term, 2015




“ ‘qualifying related valuation allowance amount’ is the amount of Ohio net
operating loss reflected in [Navistar’s] computation of the valuation allowance
account, as shown on its books and records on the last day of its taxable year
ending in 2004.” Id. In its June 2006 Amortizable Amount Report, Navistar
computed its amortizable amount as $27,048,726.
       {¶ 17} In December 2007, Navistar undertook a massive restatement of its
books and financial statements as noted in its annual Form 10-K filed with the
Securities and Exchange Commission (“SEC”).             Among other things, the
restatement increased Navistar’s valuation allowance from 62.4 percent to 100
percent. The restated financials did not eliminate the NOLs or other deferred-tax
assets from the company’s books; instead, the restatement merely increased the
valuation allowance to the point that it completely offset the value of the assets as
part of the company’s net worth.
       {¶ 18} The tax commissioner issued his final determination in this matter
on January 11, 2010. The commissioner noted his statutory authority to audit the
accuracy of the amortizable amount under the CAT-credit statute, R.C.
5751.53(D).    Next, the commissioner concluded that “later restated financial
statements must be used, even if the correction occurred much after the period at
issue.” The commissioner referred to the 2007 restated financials for 2004 as a
“correction” of previous error and characterized the “revised financial statements”
as “the most up-to-date and accurate financial statements for Navistar under
generally accepted accounting principles.”       (Emphasis added.)     Because the
“restated financial statements revised the valuation allowance to one hundred
percent,” the tax commissioner adjusted the amortizable amount to zero.
       {¶ 19} Navistar appealed to the BTA.




                                         7
                            SUPREME COURT OF OHIO




            EVIDENCE PRESENTED DURING THE BTA PROCEEDINGS
                                Navistar’s admissions
       {¶ 20} The tax commissioner points to certain statements that he views as
admissions by Navistar, some of which were relied upon in the BTA decision.
First, the transmittal letter sent with the Amortizable Amount Report and the 2005
franchise-tax return stated that Navistar was “currently undergoing a restatement
examination of its financial statements for the years 2002, 2003, 2004, and 2005,”
that “changes [would] occur to the 2002, 2003, and 2004 financial statements as
part of this examination which [would] impact” the Amortizable Amount Report
and the 2005 franchise-tax return, and that Navistar “reserve[d] [its] right to file
these changes” with the state “when these items become final.”
       {¶ 21} Second, the revised Form 10-K that Navistar filed with the SEC on
December 10, 2007, pertaining to the 2005 fiscal year, specifically stated that
Navistar “determined that [it] did not apply FASB Statement No. 109 properly and
that a full valuation allowance should be established for net U.S. and Canadian
deferred tax assets based on the weight of positive and negative evidence,
particularly our recent history of operating losses.” (Emphasis added.)
       {¶ 22} Third, Form 8-K, which Navistar filed with the SEC in April 2006,
identified four matters that required restatement; these matters did not involve
deferred-tax assets. But the document went on to enumerate 11 “items being
reviewed,” and those items included deferred-tax assets.
       {¶ 23} The tax commissioner also urged the BTA to consider a civil
complaint filed by Navistar’s parent corporation against its former accountants.
See Navistar Internatl. Corp. v. Deloitte & Touche, L.L.P., N.D.Ill. case No. 1:11-
cv-03507. The BTA examiner accepted the complaint into evidence, but refused
to consider the complaint as an admission by Navistar. In its decision, the BTA
took no position on the examiner’s ruling, and instead stated as follows:




                                         8
                              January Term, 2015




               While we acknowledge the commissioner’s reference to the
       existence of litigation between [Navistar] and the accounting firm
       previously involved in the audit of its financial returns, such
       litigation and the allegations made by [Navistar] therein need not
       serve as the basis upon which we decide this matter given the grant
       [to audit the accuracy of the amortizable amount] provided by R.C.
       5751.53(D).


BTA No. 2010-575, 2013 Ohio Tax LEXIS 7601, 9, (Dec. 31, 2013), fn. 4.
                                  Expert testimony
       {¶ 24} The tax commissioner introduced testimony of accounting
professor Ray Stephens. The hearing examiner accepted Stephens as an expert
for purposes of the issues before the board, and the BTA reinforced that ruling by
“reject[ing] as unfounded [Navistar’s] argument that * * * Stephens[] be found
unqualified to offer an expert opinion regarding the accounting issues involved
herein.” Id.
       {¶ 25} Stephens expressed his opinion that the amount of Navistar’s CAT
credit should be zero. Stephens based his opinion on his review of Navistar’s
SEC filings and the civil complaint, in addition to his accounting knowledge. On
cross-examination, Stephens opined that Navistar’s restatement of its financials
amounted to an admission that its original valuation allowance was not in
compliance with GAAP. In other words, Stephens based his opinion concerning
the GAAP-compliance of the initial valuation allowance on Navistar’s supposed
admission that it was not in compliance with GAAP.
       {¶ 26} Navistar introduced two experts who testified to the crucial factual
issue that the BTA ought to resolve in this case: whether the original valuation
allowance for 2004 was in compliance with GAAP.




                                        9
                            SUPREME COURT OF OHIO




       {¶ 27} Douglas Pinney, a certified public accountant and a specialist in
income-tax accounting issues, opined that the restated valuation allowance should
have no effect on the computation of the CAT credit. Pinney supported his
conclusion by noting that his review of documentation indicated that the tax-
adjusting entries on Navistar’s books in relation to the restated financials did not
occur until after the filing deadline for the Amortizable Amount Report and were
not part of the 2004 books and records that the statute requires be used in
computing the amortizable amount. Pinney also explained that the valuation
allowance involves subjective factors with respect to projecting whether the
benefit of deferred-tax assets is likely to be actually realized. For that reason,
Pinney testified, there is never a single number that is the “correct” valuation
allowance, but instead, there is a range of numbers that might be acceptable for a
valuation allowance under GAAP. Pinney testified that the original valuation
allowance, which was made part of the company’s books and records in early
2005 and formed the basis for the 2006 Amortizable Amount Report, was
reasonable and was in compliance with GAAP.
       {¶ 28} Pinney also testified about Navistar’s Form 8-K from 2006 and
Form 10-K with the restated financials from 2007. On Form 10-K, Navistar
stated, “[W]e did not apply FASB Statement No. 109 properly” with respect to
the deferred-tax assets and valuation allowance. Asked how he reconciled that
statement with his other opinions, Pinney responded that the quoted statement
“doesn’t necessarily mean that the valuation allowance itself was incorrect.”
With respect to Navistar’s Form 8-K, Pinney testified that Navistar was “simply
indicat[ing] they were going to review this area,” i.e., the deferred-tax assets and
valuation allowance.
       {¶ 29} Navistar also called Beth Savage, a certified public accountant who
was a consultant for troubled companies. Her testimony amplified Pinney’s point
that the determination of the valuation allowance involves subjective judgment in




                                        10
                                January Term, 2015




weighing factors and predicting future events. She described the full valuation
allowance in the restated financials as a “very conservative” position.        Like
Pinney, she testified that the credit calculation on the 2006 Amortizable Amount
Report was proper because “[t]he calculation was done at a point in time[;] they
used the information that was available to [them] then, and I believe that amount
is supportable under generally accepted accounting principles.”
                                    Fact testimony
       {¶ 30} Navistar called its vice president of tax, Carol Garnant, who
confirmed the subjective aspect of the valuation allowance and added the
historical perspective of having gone through the restatement process in her
position at Navistar, testifying that neither the IRS nor any state authorities had
found any fraudulent entries or accounting practices.       She also testified that
Navistar had in fact been able to realize the value of its NOLs.
       {¶ 31} Navistar also called three Ohio Department of Taxation officials as
on cross-examination to establish the historical background of the CAT credit.
                               THE BTA DECISION
       {¶ 32} The BTA affirmed the tax commissioner’s determination. Taking
as its starting point R.C. 5751.53(D)’s authorization for the commissioner to
“ ‘correct any errors found upon audit,’ ” the BTA concluded that Navistar’s
Form 10-K and the transmittal letter that it sent with its Amortizable Amount
Report were admissions that the 2007 restatement of the valuation allowance
constitutes the correction of error in the earlier financial statements. (Emphasis
added by the BTA.) 2013 Ohio Tax LEXIS 7601, 8. The BTA stated, “It is
uncontested [that Navistar] undertook a comprehensive restatement of its
financial statements so that they were ultimately revised in accordance with
generally accepted accounting principles.” Id. Following the tax commissioner’s
reasoning, the BTA treated Navistar’s statements as establishing that the change
in valuation allowance corrected an earlier error. Under this analysis, the restated




                                         11
                              SUPREME COURT OF OHIO




valuation allowance was in compliance with GAAP but the original valuation
allowance was not.      In reaching its conclusion, however, the BTA ignored
Navistar’s accounting evidence, which contradicted the idea that the original
valuation allowance was not in compliance with GAAP.
                                      ANALYSIS
       {¶ 33} Navistar presented a twofold argument to the BTA and presents the
same arguments here.         On the one hand, Navistar asserts that the tax
commissioner lacked any authority to adjust the valuation allowance based on the
restatement of financial statements that occurred after the June 2006 deadline for
filing the Amortizable Amount Report. On the other hand, Navistar presented
considerable evidence to the BTA to negate any inference that the 2007
restatement of the valuation allowance constituted the correction of an error in the
original financial statements—thereby implicitly conceding that the tax
commissioner might rely on a later financial restatement if it constituted the
correction of an error in the original.
       {¶ 34} We disagree with Navistar’s first argument. The plain language of
R.C. 5751.53(D) authorizes the tax commissioner to “adjust” the amortizable
amount on account of his review of the “accuracy” of the reported amount and
empowers the commissioner to “correct any errors found upon audit.”             The
deadline for doing so was June 30, 2010, so we must conclude that the
commissioner could order corrections based on information that became available
to him before that date—even if the information became available only after the
deadline for filing the report in June 2006. It follows that if the 2007 restatement
of the valuation allowance cured an earlier inaccuracy or corrected an earlier
error, it lay within the tax commissioner’s authority to adopt the restated valuation
allowance.
       {¶ 35} We also agree with the tax commissioner that because the
amortizable amount is computed by using amounts reflected in the company’s




                                          12
                               January Term, 2015




books and records, R.C. 5751.53(A)(9)(a) and 5751.53(A)(6)(b), and those books
and records must be maintained in accordance with GAAP, R.C. 5751.53(A)(10),
a correction to the books and records that brings them into compliance with
GAAP is a correction that the tax commissioner should recognize when issuing
his determination regarding the accuracy of the amortizable amount pursuant to
R.C. 5751.53(D). That conclusion also furnishes the standard for determining
whether the original valuation allowance was inaccurate or in error for purposes
of applying R.C. 5751.53(D): if the original valuation allowance is established to
have been within the range acceptable under GAAP, then the later restatement of
the valuation allowance does not involve error correction, and the tax
commissioner lacks authority to adopt the restated allowance.
       {¶ 36} The BTA acknowledged the tax commissioner’s statutory authority
to correct error, but the BTA’s decision is unreasonable and unlawful in its failure
to consider and weigh all the conflicting evidence concerning whether the original
valuation allowance was in compliance with GAAP.            Specifically, the BTA
considered the official statements made by Navistar in its SEC filings as
admissions, but it failed to consider the countervailing expert and lay testimony
offered by Navistar. We therefore vacate the BTA’s decision and remand the
cause with the instruction that the BTA carefully consider and weigh all pertinent
evidence before determining whether Navistar’s original valuation allowance was
in compliance with GAAP.
       {¶ 37} One point of dispute remains. Before the BTA and this court, the
tax commissioner has sought to rely on the complaint filed in Illinois by
Navistar’s parent corporation against its former accountants.         The hearing
examiner admitted the complaint as evidence but rejected the tax commissioner’s
argument that it constituted admissions against interest or statements by a party
opponent. The examiner also limited the tax commissioner’s use of the complaint
in examining witnesses.




                                        13
                               SUPREME COURT OF OHIO




        {¶ 38} The BTA’s decision neither explicitly nor implicitly overturned the
hearing examiner’s ruling; instead, the board acquiesced in the ruling by noting
that it need not rely on the complaint in reaching its decision. 2013 Ohio Tax
LEXIS 7601, 9, fn. 4. As a result, the hearing examiner’s ruling that precluded
the use of the Illinois complaint as an admission has merged into the BTA’s
decision and constitutes the law of this case, subject to challenge by the tax
commissioner in this appeal. See Grover v. Bartsch, 170 Ohio App.3d 188, 2006-
Ohio-6115, 866 N.E.2d 547, ¶ 9 (“Interlocutory orders * * * are merged into the
final judgment,” with the result that “an appeal from the final judgment includes
all interlocutory orders merged with it”).
        {¶ 39} The tax commissioner has not adequately challenged the BTA’s
evidentiary ruling: he has neither specified it as an error in a protective notice of
cross-appeal1 nor formally contested it through a proposition of law and argument
in his brief. See Household Fin. Corp. v. Porterfield, 24 Ohio St.2d 39, 46, 263
N.E.2d 243 (1970) (an issue “considered by the board and alluded to in both oral
argument and the briefs” was nonetheless “deemed to be abandoned” when it was
“not presented to this court as a proposition of law and argued as such”); E.
Liverpool v. Columbiana Cty. Budget Comm., 116 Ohio St.3d 1201, 2007-Ohio-
5505, 876 N.E.2d 575, ¶ 3. Although the commissioner did allude to the issue in
a footnote of his brief to this court, and although he reiterated the point during
oral argument, his bare assertion that the Illinois complaint constitutes admissions
against interest does not acknowledge the BTA examiner’s contrary ruling, much
less advance specific arguments in opposition to that ruling. See Util. Serv.
Partners, Inc. v. Pub. Util. Comm., 124 Ohio St.3d 284, 2009-Ohio-6764, 921

1
  In BTA appeals, it has been held necessary in some circumstances for an appellee to file a
protective cross-appeal in order to advance alternative grounds for affirmance or to overturn
explicit rulings of the BTA. See, e.g., Dayton-Montgomery Cty. Port Auth. v. Montgomery Cty.
Bd. of Revision, 113 Ohio St.3d 281, 2007-Ohio-1948, 865 N.E.2d 22, ¶ 33. We do not reach the
question whether a protective cross-appeal was necessary here, because we hold that the tax
commissioner waived the issue.




                                             14
                                January Term, 2015




N.E.2d 1038, ¶ 53 (argument effectively waived where “[n]o argument is supplied
regarding whether the relevant case law, applied to the facts of this case, justifies
a decision in [the party’s] favor”); In re Application of Columbus S. Power Co.,
129 Ohio St.3d 271, 2011-Ohio-2638, 951 N.E.2d 751, ¶ 19 (“it is not generally
the proper role of this court to develop a party’s arguments”).             The tax
commissioner has not shouldered the burden of demonstrating an abuse of
discretion by the BTA’s examiner. It follows that the tax commissioner has
waived his right to rely on the Illinois complaint as admissions by Navistar and
may not do so on remand.
                                   CONCLUSION
       {¶ 40} For these reasons, we vacate the BTA’s decision and remand the
cause with the instruction that the BTA determine, based on a consideration of all
the evidence in accordance with this opinion, whether the valuation allowance
originally reported on Navistar’s Amortizable Amount Report was or was not in
compliance with GAAP.        If the BTA determines that the original valuation
allowance was in compliance with GAAP, the BTA shall reverse the tax
commissioner’s determination and reinstate the amortizable amount as originally
reported. If the BTA determines that the original valuation allowance was not in
compliance with GAAP, the BTA shall affirm the tax commissioner’s
determination.
                                                             Judgment accordingly.
       O’CONNOR, C.J., and LANZINGER, KENNEDY, and O’NEILL, JJ., concur.
       PFEIFER and O’DONNELL, JJ., dissent.
                              __________________
       PFEIFER, J., dissenting.
       {¶ 41} I agree with much of the majority opinion, including its most
important holding, that R.C. 5751.53(D) authorizes the tax commissioner to issue
a final determination changing the amount of potential commercial-activity-tax




                                         15
                            SUPREME COURT OF OHIO




credit to reflect a taxpayer’s correction of an inaccuracy or error in the original
reported amount.    I agree that the books and records used to compute the
amortizable amount must be maintained in accordance with generally accepted
accounting principles (“GAAP”) and that when such books and records are
corrected to become GAAP-compliant, the tax commissioner should recognize
that correction when determining the amortizable amount pursuant to R.C.
5751.53(D).
       {¶ 42} I disagree, however, with the majority’s ultimate disposition of the
case, vacating the decision of the Board of Tax Appeals (“BTA”) and remanding
the cause to the BTA. The majority concludes that the BTA did not consider the
testimony of appellant Navistar, Inc.’s experts regarding whether the original
valuation allowance was in compliance with GAAP, and it admonishes the BTA
to, on remand, “carefully consider and weigh all pertinent evidence before
determining whether Navistar’s original valuation allowance was in compliance
with GAAP.” Majority opinion at ¶ 36.
       {¶ 43} Does this court have a reason to believe that the BTA was not
“careful” in making its determination the first time around?          Is assessing
carefulness a part of our standard of review of BTA decisions? The fact that
Navistar’s experts are not mentioned in the BTA’s decision does not mean that
the BTA failed to take into account their testimony. Obviously, the BTA placed
more weight on the statements that Navistar itself made at the time it filed the
amortizable amount with the Department of Taxation. The BTA quotes the
statement from Navistar’s assistant director of tax that Navistar was “ ‘currently
undergoing a restatement of its financial statements for the years 2002, 2003,
2004 and 2005’ ” and that “ ‘[Navistar] believe[s] that changes will occur to the
2002, 2003 and 2004 financial statements as part of this examination which will
impact the return and report that we are filing today.’ ” BTA No. 2010-575, 2013
Ohio Tax LEXIS 7601, 9 (Dec. 31, 2013). The BTA decision also quotes from




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Navistar’s statement to the Securities and Exchange Commission apprising it of
errors in Navistar’s previously filed financial statements:


               In its Form 10-K, [Navistar] stated, in part: “In addition, in
       previously issued financial statements, we had established a partial
       valuation allowance with respect to our net U.S. and Canadian
       deferred tax assets. We reassessed our need for a valuation
       allowance and determined that we did not apply FASB Statement
       No. 109 properly and that a full valuation allowance should be
       established for net U.S. and Canadian deferred tax assets based on
       the weight of positive and negative evidence, particularly our
       recent history of operating losses.”


(Emphasis sic.) Id. at fn. 5. The BTA concluded that Navistar’s books were
“corrected to comport with generally accepted accounting principles.” Id. at 11.
There is no reason for this court to tamper with that factual finding. This case
should be over.
       {¶ 44} I also disagree with the majority’s ruling regarding the complaint
by Navistar’s parent corporation filed in federal court in Illinois against its former
accountants, Deloitte & Touche, L.L.P. (“Deloitte”), alleging multiple GAAP
violations in accounting services Deloitte performed for Navistar in the time
period relevant to this case. Navistar Internatl. Corp. v. Deloitte & Touche,
L.L.P., N.D.Ill. case No. 1:11-cv-03507. One assertion in the complaint reads as
follows:


       As a direct result of Deloitte’s fraudulent statements and
       omissions, as well as Deloitte’s incompetence and malpractice,
       Navistar was forced to fire Deloitte in 2006, hire new auditors,




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         overhaul its accounting records and, in 2007, issue a massive
         restatement of its financial statements for fiscal years 2003, 2004,
         and the first three quarters of 2005 * * *.


         {¶ 45} The majority holds that “the tax commissioner has waived his right
to rely on the Illinois complaint as admissions by Navistar and may not do so on
remand.” Majority opinion at ¶ 39. But the complaint has been admitted into
evidence, and it is unclear what the BTA’s position is on whether the tax
commissioner can use the complaint to prove his case. It has some evidentiary
value.    The hearing examiner, near the end of the hearing, told the tax
commissioner’s counsel, “You can make any argument you want about it at this
point. It is evidence in the record.” The BTA itself never ruled on how the
complaint could be used; it concluded only that it did not need to rely on the
complaint to arrive at its decision:


                While we acknowledge the commissioner's reference to the
         existence of litigation between [Navistar] and the accounting firm
         previously involved in the audit of its financial returns, such
         litigation and the allegations made by [Navistar] therein need not
         serve as the basis upon which we decide this matter given the grant
         provided by R.C. 5751.53(D).


2013 Ohio Tax LEXIS 7601 at 9, fn. 4. This is not a ruling that precludes the use
of the complaint for any reason. How the commissioner may use the complaint
remains an open question. It is the BTA, as fact-finder, that must decide what
significance to accord the complaint on remand.
         O’DONNELL, J., concurs in the foregoing opinion.
                                __________________




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       Maryann B. Gall; Vorys, Sater, Seymour & Pease, L.L.P., Laura A.
Kulwicki, and Steven L. Smiseck, for appellant.
       Michael DeWine, Attorney General, and Barton A. Hubbard, Assistant
Attorney General, for appellee.
       Bricker & Eckler, L.L.P., Mark A. Engel, and Anne Marie Sferra, urging
reversal for amici curiae, Ohio Manufacturers’ Association and Ohio Chamber of
Commerce.
                          _______________________




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