[Cite as HealthSouth Corp. v. Testa, 132 Ohio St.3d 55, 2012-Ohio-1871.]




               HEALTHSOUTH CORPORATION, APPELLEE, v. TESTA,
                              TAX COMMR., APPELLANT.
   [Cite as HealthSouth Corp. v. Testa, 132 Ohio St.3d 55, 2012-Ohio-1871.]
Property tax—Application for reassessment—Burden of proof—Evidentiary
        decisions by Board of Tax Appeals—Standard of review of decisions of
        Board of Tax Appeals.
     (No. 2010-1916—Submitted February 8, 2012—Decided May 2, 2012.)
             APPEAL from the Board of Tax Appeals, No. 2005-A-1386.
                                 __________________
        Per Curiam.
        {¶ 1} This personal-property-tax case comes to the court for the second
time on appeal from the Board of Tax Appeals (“BTA”). For tax year 2002,
HealthSouth Corporation claims that as a result of massive accounting fraud, it
reported fictitious personal-property assets at its physical-rehabilitation,
outpatient-surgery, sports-medicine, and other facilities in various Ohio taxing
districts. HealthSouth subsequently filed an application for final assessment for
2002 in order to obtain from the tax commissioner a new assessment that would
reduce the taxable value in various taxing districts by removing fictitious assets.
The new assessment would in turn permit it to obtain refunds of overpayments for
that year from the local taxing districts. The BTA issued a decision that reversed
the commissioner’s refusal to grant such a reassessment. HealthSouth Corp. v.
Levin, BTA No. 2005-A-1386, 2007 WL 3407988 (Nov. 9, 2007).
        {¶ 2} The tax commissioner appealed. In HealthSouth Corp. v. Levin,
121 Ohio St.3d 282, 2009-Ohio-584, 903 N.E.2d 1179, we rejected the tax
commissioner’s primary claim that because HealthSouth’s value-reduction claim
arose from its own accounting fraud, that claim was barred either by the statute or
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by the doctrine of estoppel. We did hold, however, that the BTA’s disposition
failed to explain why certain objections to the evidence offered by HealthSouth
should be overruled. Id. at ¶ 31, 35. We remanded with the instruction that the
BTA “complete its fact-finding” by explicitly addressing the commissioner’s
objections. Id. at ¶ 36.
       {¶ 3} After permitting the parties to submit additional briefs, the BTA
issued its decision on October 6, 2010. HealthSouth Corp. v. Wilkins, BTA No.
2005-A-1386, 2010 WL 4162429 (Oct. 6, 2010). In that decision, the BTA made
two key findings: (1) that “HealthSouth has sufficiently established that the assets
designated as ‘AP SUMMARY’ never existed and therefore, should be removed
from the subject assessment” and (2) that “HealthSouth has met its burden of
proof with regard to establishing that the denial of its refund request was
improper.” Id. at *6. The BTA regarded the record as the “starting point or
underlying source of information for the amended filing,” and it remanded to the
commissioner “for calculation of the refund due to the taxpayer HealthSouth.” Id.
       {¶ 4} For the second time, the tax commissioner has appealed. In this
appeal, the commissioner asserts that the BTA lacked sufficient evidence for its
findings. We disagree. Reviewing the BTA’s decision with maximum deference
to that body’s weighing of the evidence, we conclude that the BTA acted
reasonably and lawfully in remanding the cause to the commissioner for a
determination of a reduced tax assessment. We therefore affirm the decision of
the BTA.
                             I. Factual Background
       {¶ 5} We discussed the factual background of this case in greater detail
in our earlier decision and rely on that discussion here. HealthSouth Corp., 121
Ohio St.3d 282, 2009-Ohio-584, 903 N.E.2d 1179, ¶ 8-10.
       {¶ 6} The evidence before the BTA included the transcript certified by
the tax commissioner, which included the original 2002 return and supporting




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material such as balance sheets and asset lists for each Ohio facility.         The
statutory transcript also contained HealthSouth’s application for final assessment
along with a set of spreadsheets called “Amended Fixed Assets,” which
encompassed 118 pages and was prepared by an outside consultant. The first
page of the fixed-asset list summarized the claim, and it showed that previously
returned value should be reduced in each taxing district by amounts associated
with the “AP SUMMARY” entries. The claim would, if successful, reduce the
total assessed value to $2,556,948—a requested reduction of more than half the
value that was originally assessed.
       {¶ 7} Additionally, the BTA had before it the testimony of Michael D.
Martin, a HealthSouth vice-president of tax. HealthSouth also presented exhibits
at the hearing as a basis for reducing the value reported at Ohio facilities for tax
year 2002. The tax commissioner objected to the evidence but did not file a
posthearing brief in support of his position.
       {¶ 8} The BTA reversed and ordered that the commissioner reduce the
2002-tax-year assessment. HealthSouth Corp. v. Wilkins, BTA No. 2005-A-1386,
2007 WL 3407988 (Nov. 9, 2007). On appeal, the tax commissioner asserted that
HealthSouth could not alter its 2002 assessment because its reporting of fictitious
assets constituted part of a deliberate corporate fraud.      After rejecting that
argument, we vacated and remanded so that the BTA could “complete its fact-
finding.” 121 Ohio St.3d 282, 2009-Ohio-584, 903 N.E.2d 1179, ¶ 36.
       {¶ 9} On remand, the BTA found that HealthSouth had presented
sufficient evidence, and remanded to the commissioner so that that official could
issue a reduced tax assessment. HealthSouth Corp., 2010 WL 4162429, *6 (Oct.
6, 2010). The commissioner has appealed.




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                                  II. Analysis
                          A. The standard of review
       {¶ 10} When confronted with a claim for reduction of a tax assessment,
we recognize that the burden of proof at the BTA “rests on the taxpayer ‘to show
the manner and extent of the error in the Tax Commissioner’s final
determination.’ ” A. Schulman, Inc. v. Levin, 116 Ohio St.3d 105, 2007-Ohio-
5585, 876 N.E.2d 928, ¶ 7, quoting Stds. Testing Laboratories, Inc. v. Zaino, 100
Ohio St.3d 240, 2003-Ohio-5804, 797 N.E.2d 1278, ¶ 30. We must affirm the
BTA’s findings of fact if they are supported by reliable and probative evidence,
and we afford deference to the BTA’s determination of the credibility of
witnesses and its weighing of the evidence subject only to an abuse-of-discretion
review on appeal.     R.C. 5717.04; Olentangy Local Schools Bd. of Edn. v.
Delaware Cty. Bd. of Revision, 125 Ohio St.3d 103, 2010-Ohio-1040, 926 N.E.2d
302, ¶ 15. The function of weighing evidence and determining credibility belongs
to the BTA, and therefore our review of that aspect of its findings is, as already
noted, highly deferential. See Highlights for Children, Inc. v. Collins, 50 Ohio
St.2d 186, 187-188, 364 N.E.2d 13 (1977).
       {¶ 11} In this case, we must determine whether the BTA’s findings are
supported by reliable and probative evidence. Satullo v. Wilkins, 111 Ohio St.3d
399, 2006-Ohio-5856, 856 N.E.2d 954, ¶ 14. But if a “ ‘material portion of a
Board of Tax Appeals decision is not supported by any probative evidence of
record, the decision is unreasonable and unlawful.’ ” Stds. Testing Laboratories,
Inc., 100 Ohio St.3d 240, 2003-Ohio-5804, 797 N.E.2d 1278, ¶ 31, quoting
Citizens Fin. Corp. v. Porterfield, 25 Ohio St.2d 53, 266 N.E.2d 828 (1971),
paragraph two of the syllabus.




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                                    January Term, 2012




       B. Reliable and probative evidence supported the BTA’s findings
            1. Under the case law, the court reverses BTA findings only
                       in the total absence of supporting evidence
        {¶ 12} We have stated that evidence is reliable if it is “dependable; that is,
it can be confidently trusted,” a standard that is satisfied if there is “a reasonable
probability that the evidence” establishes an asserted fact to be true. Our Place,
Inc. v. Ohio Liquor Control Comm., 63 Ohio St.3d 570, 571, 589 N.E.2d 1303
(1992). We have stated that evidence is probative if it “tends to prove the issue in
question; it must be relevant in determining the issue.” Id. In other words, a
document or testimony is reliable if it can be depended on to state what is true,
and it is probative if it has the tendency to establish the truth of relevant facts.
        {¶ 13} The rules of evidence, including the hearsay rule, do not control
administrative hearings, but the agency may consult the rules for guidance.
Evid.R. 101(A); Plain Local Schools v. Franklin Cty. Bd. of Revision, 130 Ohio
St.3d 230, 2011-Ohio-3362, 957 N.E.2d 268, ¶ 20.1 The BTA was therefore
permitted to rely on hearsay, and the BTA had authority to instruct the
commissioner to do so when it ordered a remand in this case. As a result,
evidence that would be excluded as hearsay in a civil or criminal case may be
admitted and considered under the relaxed standards of administrative
proceedings.
        {¶ 14} Moreover, our case law establishes that we will reverse BTA
findings only when there is a total absence of evidence to support a particular
finding. See Citizens Fin. Corp., 25 Ohio St.2d 53, 266 N.E.2d 828, paragraph
two of the syllabus (“Where a material portion of a Board of Tax Appeals


1. Because R.C. 5717.02 generally requires the BTA to “order the hearing of additional evidence”
based on the “application of any interested party,” and because the Rules of Evidence do not
directly apply in administrative proceedings, we focus our attention not on whether the BTA
abused its discretion in admitting evidence over objection, but rather on whether reliable and
probative evidence supported the BTA’s findings.




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decision is not supported by any probative evidence of record, the decision is
unreasonable and unlawful” [emphasis added]); Fed. Paper Board Co. v.
Kosydar, 37 Ohio St.2d 28, 306 N.E.2d 416, paragraph two of the syllabus
(same).
                    2. Evidence supported the BTA’s finding that
                       “AP SUMMARY” assets were fictitious
          {¶ 15} The BTA concluded that “HealthSouth has sufficiently established
that the assets designated as ‘AP SUMMARY’ never existed and therefore,
should be removed from the subject assessment.” HealthSouth Corp. v. Levin,
BTA No. 2005-A-1386, 2010 WL 4162429, *6 (Oct. 6, 2010). The BTA’s
finding is grounded on HealthSouth’s Exhibit 1 at the BTA hearing, the Form 8-K
filed with the SEC in June 2004, and Exhibit 5, the Form 10-K filed with the SEC
that covered fiscal years ending in 2003 and 2002, with a restatement of financials
for years ending in 2001 and 2000.
          {¶ 16} According to these documents, a Special Audit Review Committee
had examined the corporation’s accounting for the period 1996 through 2002,
determining that “accounting fraud at HealthSouth was by any standard both
enormous and complex.” In order to inflate earnings, revenues and expenses were
misstated, a fraud that involved making over $2.7 billion in false or unsupported
entries in the accounting systems. The concealment of revenue-inflation involved
transfers out of a corporate suspense account onto the balance sheets of facilities.
Because the adjustments were so large, the corporation used fixed-asset accounts;
it fabricated property, plant, and equipment of HealthSouth facilities in a manner
described in HealthSouth’s June 2004 Form 8-K.
          {¶ 17} According to the committee’s report, “[n]early all of the fictitious
assets” were processed to the general ledger and identified, for the most part, as
“AP SUMMARY.” Thereafter, those fictitious assets were “recorded as one or
more assets in the fixed asset system,” with large AP SUMMARY entries being




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separated into a number of assets with lesser dollar values. Sometimes the assets
retained the AP SUMMARY designation, and other times they were “identified as
furniture, computer equipment, or similar items that a facility would be expected
to use.”
       {¶ 18} The tax commissioner contends that the cited passages of the Form
8-K cannot be regarded as reliable and probative evidence because they are
hearsay and not substantiated by personal-knowledge testimony of witnesses
called to testify to the BTA. We disagree.
       {¶ 19} First, it is a public filing that provides the sort of information that,
in the absence of contravening evidence, may be relied upon as the grounds for
assessment.
       {¶ 20} Second, filings at the Securities and Exchange Commission
possess indicia of reliability because they are generated during the course of
business for business purposes and involve the assembling of data from business-
record sources by persons who have a business duty to assemble such data. See
Evid.R. 803(6); Plain Local Schools, 130 Ohio St.3d 230, 2011-Ohio-3362, 957
N.E.2d 268, ¶ 21 (no plain error in considering hearsay where testimony
established the appraisal report as having been generated in the course of business
for a specific business purpose); Charter Communications Properties, L.L.C. v.
San Luis Obispo Cty., 198 Cal.App.4th 1089, 1102, 131 Cal.Rptr.3d 455 (2011)
(taxpayer’s Form 10-K statements in conjunction with assessor’s hearsay
testimony furnished a substantial evidentiary basis for the determination of a
material fact in valuing cable franchises for tax purposes); Diamond v. Davis, 38
N.Y.S.2d 93, 98-100 (1942), affirmed without opinion, 265 A.D. 919, 39
N.Y.S.2d 412 (1942), affirmed without opinion, 292 N.Y. 552, 54 N.E.2d 683
(1944) (filings at Securities and Exchange Commission held competent to prove
lack of ownership).




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       {¶ 21} We conclude that the BTA had reliable and probative evidence to
support the finding that “AP SUMMARY” assets never existed and that they
should be removed from the assessment.
       3. Evidence supported the BTA’s finding that the “AP SUMMARY”
                    assets could be removed by taxing district
       {¶ 22} The BTA also found that HealthSouth had “met its burden of proof
with regard to establishing that the denial of its refund request was improper,” and
we hold that the BTA did not abuse its discretion in concluding that the evidence
in the record furnished an adequate basis to permit the tax commissioner to reduce
the assessment as to each taxing district on remand.
       {¶ 23} The record includes three layers of evidence concerning the value
associated with “AP SUMMARY” assets in each taxing district, as reported in the
2002 return. First, with the return itself HealthSouth submitted asset lists that
designated certain reported assets as “AP SUMMARY” and did so on a facility-
by-facility basis. Second, in conjunction with its application for final assessment
before the commissioner, HealthSouth presented a summary of assets showing
“AP SUMMARY” assets to be removed for each facility. Third, at the BTA
hearing, HealthSouth presented exhibits that purport to tie fictitious assets with
the facilities in the particular taxing districts, based on forensic accounting and a
“bag and tag” inventory of assets.
       {¶ 24} The tax commissioner contends that HealthSouth’s witness at the
BTA hearing, Michael Martin, lacked personal knowledge about the 2002 return
because he had served in sales and use tax compliance until April 2003, at which
time he took charge of property taxes at the company. Nevertheless, by the time
of the BTA hearing on February 22, 2007, Martin had headed the property-tax
unit for almost four years; he was therefore familiar as a general matter with
property-tax compliance.




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       {¶ 25} We conclude that Martin’s testimony and the three layers of
documentation satisfy the minimal legal standard of reliability. The BTA hearing
exhibits allegedly based on the restated financials can be cross-checked against
the documentation submitted with the 2002 return and the computation submitted
in connection with the application for final assessment. The asset breakout filed
along with the 2002 return shows the increments of taxable value associated with
“AP SUMMARY” assets for each facility, which supplies at least a point of
reference for evaluating other evidence of the value in the taxing districts.
       {¶ 26} Moreover, consideration of the documentation submitted with the
2002 return does not depend on Martin’s testimony for its foundation, since its
inclusion in the statutory transcript makes it part of the evidentiary record in spite
of its hearsay character. See Simon v. Lake Geauga Printing Co., 69 Ohio St.2d
41, 44, 430 N.E.2d 468 (1982) (when items are certified as part of an
administrative record to a higher tribunal, “evidence which might constitute
inadmissible hearsay where stringent rules of evidence are followed must be taken
into account”). Furthermore, the commissioner himself relied on the original
2002 report as the basis for the final assessment and now cannot claim that the
asset lists associated with the 2002 return have no evidentiary value whatsoever.
Compare Cleveland v. Posner, 193 Ohio App.3d 211, 2011-Ohio-1370, 951
N.E.2d 476, ¶ 28 (the documentation underlying a public agency’s determination
is usually “admissible and prima facie evidence of what it asserts in an
administrative hearing”).
       {¶ 27} The commissioner cites United Tel. Co. of Ohio v. Tracy, 84 Ohio
St.3d 506, 705 N.E.2d 679 (1999), and MCI Metro Access Transm. Servs., L.L.C.
v. Levin, 10th Dist. Nos. 07AP-398 and 07AP-399, 2008-Ohio-5057, 2008 WL
4416665, as authority. In United Tel. Co., the plurality stated that a taxpayer
could not rely on a statistical sampling method to prove the value associated with
nontaxable property when there were documents available from which an accurate



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count could be computed. Id. at 512. Because no statistical sampling method is
at issue in this case, United Tel. Co. is inapposite.
         {¶ 28} Likewise, the taxpayer in MCI Metro Access sought a reduction in
value associated with Ohio property by applying a write-down percentage from its
worldwide holdings and applying it to Ohio assets. Unlike the taxpayer in that
case, HealthSouth is not trying to apply a write-down percentage derived from its
worldwide holdings and operations to its Ohio facilities. Instead, the record here
contains documentation showing the fictitious assets originally reported at Ohio
facilities.
         {¶ 29} The commissioner has not shown the BTA decision to be
unreasonable or unlawful, and therefore, we affirm. R.C. 5717.04.
     C. The commissioner’s other arguments furnish no basis for reversal
         {¶ 30} The commissioner claims that the 2002 returns are not reliable
evidence because they were tainted with corporate fraud and were signed by
Richard Botts, the former tax manager who was subsequently convicted of fraud.
As a result, the commissioner argues, there can be no change in the 2002
assessment without completely reconstructing the value of personal property in
each taxing district as of the 2002-tax-year lien date, December 31, 2001.
         {¶ 31} This contention is barred by the law-of-the-case doctrine.2
Hopkins v. Dyer, 104 Ohio St.3d 461, 2004-Ohio-6769, 820 N.E.2d 329, ¶ 15. In
the first appeal to this court, the commissioner confined himself to the contention


2. We are justified in raising the doctrine sua sponte because we have held that the law-of-the-
case doctrine reflects a strong public policy to “ ‘ensure consistency of results in a case, to avoid
endless litigation by settling the issues, and to preserve the structure of superior and inferior
courts.’ ” Brothers v. Morrone-O’Keefe Dev. Co., 10th Dist. No. 06AP-713, 2007-Ohio-1942,
¶ 35, quoting Hubbard ex rel. Creed v. Sauline, 74 Ohio St.3d 402, 404, 659 N.E.2d 781 (1996).
On that basis, it is proper that the doctrine be raised sua sponte. See DiLaura v. New York Power
Auth., 982 F.2d 73, 76 (2d Cir.1992); Maxfield v. Cintas Corp., 487 F.3d 1132, 1135 (8th
Cir.2007); Bollinger v. Oregon, 172 Fed.Appx. 770, 771 (9th Cir.2006); United States v. Wallace,
573 F.3d 82, 90 (1st Cir.2009), fn. 6.




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                                January Term, 2012




that HealthSouth had not adequately proved the quantitative effect of fictitious
assets on the property value in each taxing district. He failed to argue that
HealthSouth had neglected to shoulder the burden to prove that its 2002 return
was correct with respect to nonfictitious assets. The commissioner is precluded
from asserting an argument in this second appeal that could and should have been
raised, but was not, during the first appeal. Worthington City Schools Bd. of Edn.
v. Franklin Cty. Bd. of Revision, 129 Ohio St.3d 3, 2011-Ohio-2316, 949 N.E.2d
986, ¶ 22, fn. 2; accord Pollock v. Cohen, 32 Ohio St. 514, 519 (1877) (“all
questions which existed on the record, and could have been considered on the first
petition in error, must ever afterward be treated as settled by the first adjudication
of the reviewing court”).
       {¶ 32} The commissioner also contends that HealthSouth failed to present
“any of the necessary journal entries, balance sheets or other ‘final results’
evidence that HealthSouth would have been required to have created and
maintained under generally accepted accounting principles (GAAP) and SEC
regulations had it overstated its Ohio asset values.”              According to the
commissioner, this should be fatal to its claim for relief.
       {¶ 33} No     statute   or   administrative    rule    specifically   conditions
HealthSouth’s right to relief on producing such documentation. It is well settled
that the commissioner is free to adopt routine practices to guide the exercise of his
discretion, see J.M. Smucker, L.L.C. v. Levin, 113 Ohio St.3d 337, 2007-Ohio-
2073, 865 N.E.2d 866, ¶ 19, but also that the commissioner cannot confer the
force of law on a requirement without promulgating it as a rule.               McLean
Trucking Co. v. Lindley, 70 Ohio St.2d 106, 114-116, 435 N.E.2d 414 (1982);
Condee v. Lindley, 12 Ohio St.3d 90, 92-93, 465 N.E.2d 450 (1984). Absent such
a law or regulation, HealthSouth’s failure to produce such evidence does not
doom its claim.




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                                   III. Conclusion
       {¶ 34} Because the BTA acted reasonably and lawfully when it reversed
the tax commissioner’s denial of HealthSouth’s application for a value reduction,
we affirm the decision of the BTA.            The commissioner shall exercise his
discretion on remand to determine a reduced tax assessment.
                                                                Decision affirmed.
       O’CONNOR, C.J., and PFEIFER, LUNDBERG STRATTON, O’DONNELL,
LANZINGER, CUPP, and MCGEE BROWN, JJ., concur.
                              __________________
       Siegel, Siegel, Johnson & Jennings Co., L.P.A., J. Kieran Jennings III, Jay
P. Siegel, and Jason P. Lindholm, for appellee.
       Michael DeWine, Attorney General, and Barton A. Hubbard, Assistant
Attorney General, for appellant.
                           ______________________




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