[Cite as Durabilt, Inc. v. Testa, 2011-Ohio-5374.]


                       [Please see nunc pro tunc opinion at 2011-Ohio-5781.]

                                         COURT OF APPEALS
                                        STARK COUNTY, OHIO
                                     FIFTH APPELLATE DISTRICT

DURABILT, INC.,

Appellant/Cross-Appellee,

v.

JOSEPH W. TESTA,
TAX COMMISSIONER OF OHIO,

Appellee/Cross Appellant.

JUDGES:
Hon. William B. Hoffman, P.J.
Hon. John W. Wise, J.
Hon. Patricia A. Delaney, J.

Case No. 2011CA00016


OPINION


CHARACTER OF PROCEEDING:                             On Appeal from the Ohio Board of Tax
                                                     Appeals, Case No. 2008-M-501

JUDGMENT:                                            Affirmed

DATE OF JUDGMENT ENTRY:                              October 17, 2011

APPEARANCES:

For Appellant/Cross-Appellee                         For Appellee/Cross-Appellant

RICHARD W. ARNOLD                                    MICHAEL DEWINE
KRISTEN S. MOORE                                     OHIO ATTORNEY GENERAL
Day Ketterer Ltd.                                    RYAN P. O'ROURKE
Millennium Centre, Suite 300                         Assistant Prosecuting Attorney
200 Market Avenue, North                             30 East Broad Street, 25th Floor
P.O. Box 24215                                       Columbus, Ohio 43215
Canton, Ohio 44701-4213
Hoffman, P.J.


         {¶ 1} Plaintiff-appellant/Cross-appellee Durabilt, Inc. appeals the December 21,

2010 Decision and Order of the Board of Tax Appeals affirming the final order of the

Tax Commissioner Appellee/ Cross-Appellant Joseph W. Testa, Tax Commissioner of

Ohio.    Appellee/Cross-appellant Tax Commissioner has filed a cross-assignment of

error.

                            STATEMENT OF THE CASE AND FACTS

         {¶ 2} Appellant/Cross-appellee Durabilt, Inc. (Durabilt) is in the business of

constructing pole buildings. Appellee Tax Commissioner alleges Durabilt failed to pay a

use tax, pursuant to findings of an audit for the period of July 1, 1995 to June 30, 2001.

Appellant was issued a use tax assessment by Appellee Tax Commissioner of Ohio

(“Tax Commissioner”).       Durabilt filed a petition for reassessment challenging the

assessment.      Durabilt contends it is merely a seller of construction services, not a

purchaser of materials.

         {¶ 3} The Tax Commissioner issued a final determination rejecting Durabilt’s

petition on February 8, 2008. Durabilt then appealed the Tax Commissioner’s final

determination to the Board of Tax Appeals (BTA). On December 21, 2010, the BTA

issued a Decision and Order affirming the Tax Commissioner, holding Durabilt was a

consumer of materials used in the course of performing construction contracts.

         {¶ 4} As part of its business operations in constructing pole buildings, Durabilt

entered into a joint and mutual relationship with a material supplier, Holmes Lumber, by
which Durabilt would provide construction services to the customer and Holmes would

provide the construction materials.

      {¶ 5} Pursuant to the business arrangement, the customer would contact

Durabilt. Durabilt then created the building design, and entered into a contract with the

customer. Durabilt would then place an order with Holmes Lumber according to the

customer’s needs.    The contract was a “total package bid” wherein Durabilt would

receive a deposit for its design and planning services, Holmes would receive a set price

for the materials draw, and Durabilt would receive the final labor draw.      The “total

package” allowed Durabilt to bid the job at a price most likely not to be matched if a

potential customer attempted to purchase the materials from an outside supplier.

However, Holmes Lumber was not disclosed on the face of the contract between

Durabilt and the customer.

      {¶ 6} The contract signed by the customer required the full price for the job be

paid in installments. A down payment was made on the execution of the contract, a

second payment was made when materials were delivered, a third payment was made

when the roof was felted, and the final payment was made on completion.

      {¶ 7} The contract between Durabilt and the customer (designated as the

“owner”) states, “Unless otherwise arranged by Durabilt, the Owner shall make

payments directly to Durabilt…” The contract does not instruct the customer to make

any payments to Holmes Lumber. The contract further states, “After the project is

complete, any excess materials delivered to the project remain the property of Durabilt.”

The contract sets forth several remedies for Durabilt in the event the customer fails to
pay for the pole building, including but not limited to, filing a mechanic’s lien. Holmes

Lumber is not vested with any rights or remedies under the contract.

      {¶ 8} Holmes Lumber extended Durabilt a line of credit as part of their business

relationship, and Durabilt paid on the line of credit from time to time.      In addition,

Holmes Lumber discounted the materials sold as part of the pole buildings, giving

Durabilt a competitive edge in the market for pole building construction.         Durabilt

approved the price quoted by Holmes Lumber for the materials.

      {¶ 9} Additionally, Holmes Lumber possessed a power of attorney from Durabilt

allowing Holmes to deposit checks for the materials directly into Durabilt’s account.

Often the price for the materials set forth in the contract exceeded the actual costs of

the materials, and Holmes Lumber would credit the excess funds to Durabilt’s account.

Durabilt’s corporate counsel, Eric Domer, testified the materials draw was always

greater than the cost of the materials themselves, and Holmes would credit the excess

funds to Durabilt’s account. Tr. At 31-35.

      {¶ 10} The construction materials were then delivered directly to the customer, at

the customer’s convenience. The customer signed a Holmes Lumber delivery slip. At

the time of delivery, and would pay Holmes Lumber for the materials cost. Attorney

Domer testified often the customer pays Durabilt directly for the materials, with “all the

checks written to Durabilt regardless of whether they were material checks or labor

checks…” Tr. at 42.

      {¶ 11} The Tax Commissioner ultimately determined the contract between

Durabilt and its customer was a construction contract, and Durabilt was a construction

contractor, liable for the tax due on its purchases of materials from Holmes Lumber.
       {¶ 12} The Board of Tax Appeals affirmed the assessment, and determined

Durabilt to be a consumer of the building materials purchased from Holmes Lumber in

its capacity as a construction contractor; therefore, liable for use tax pursuant to R.C.

5739.13.

       {¶ 13} Durabilt now appeals the December 21, 2010 Decision and Order of the

BTA affirming the decision of the Tax Commissioner, assigning as error:

       {¶ 14} I. “THE OHIO BOARD OF TAX APPEALS ERRED BY CONCLUDING

THAT DURABILT, INC. WAS A CONSUMER OF THE CONSTRUCTION MATERIALS

WHEN DURABILT, INC. DID NOT POSSESS THE MATERIALS, TRANSPORT THE

MATERIALS, PAY FOR THE MATERIALS, OR GIVE ANY CONSIDERATION FOR

THE MATERIALS.

       {¶ 15} II. “THE OHIO BOARD OF TAX APPEALS ERRED BY CONCLUDING

THAT DURABILT, INC. WAS A CONSTRUCTION CONTRACTOR WITHIN THE

MEANING OF OHIO ADMINISTRATIVE CODE SECTION 5703-9-14, AND NOT AN

OUTSIDE CONTRACTOR, WHEN THE CONSTRUCTION MATERIALS AT ISSUE

WERE NEVER PURCHASED BY DURABILT, INC. NOR TRANSFERRED TO

DURABILT, INC.

       {¶ 16} III. “THE OHIO BOARD OF TAX APPEALS ERRED BY NOT GIVING

ANY CREDENCE TO THE ONLY SWORN TESTIMONY CONCERNING WHO WAS

THE PURCHASER OF THE CONSTRUCTION MATERIALS.”

       {¶ 17} Appellee/Cross-appellant Tax Commissioner assigns as cross-assignment

of error:
      {¶ 18} I. “THE BOARD OF TAX APPEALS ERRED IN FAILING TO SET FORTH

AN ALTERNATIVE BASIS FOR HOLDING DURABILT LIABLE- NAMELY, THAT

DURABILT SHOULD BE HELD LIABLE FOR USE TAX DUE TO ITS PARTICIPATION

IN A JOINT VENTURE WITH HOLMES LUMBER.”

      {¶ 19} The Board of Tax Appeals, when reviewing the decision of the Tax

Commissioner, must presume the Commissioner’s findings are correct, absent a

demonstration those finding are clearly unreasonable or unlawful.         Hatchadorian v.

Lindley (1986), 21 Ohio St.3d 66. The burden rests on the taxpayer to demonstrate

what manner and to what extent the commissioner’s findings and assessments are in

error. American Fiber Systems v. Levin, 125 Ohio St.3d 374, 2010-Ohio-1468.

      {¶ 20} Our standard of review on appeal from the decision of the Board of Tax

Appeals is set forth in Ohio Revised Code Section 5717.04:

      {¶ 21} “If upon hearing and consideration of such record and evidence the court

decides that the decision of the board appealed from is reasonable and lawful it shall

affirm the same, but if the court decides that such decision of the board is unreasonable

or unlawful, the court shall reverse and vacate the decision or modify it and enter final

judgment in accordance with such modification.”

                                DURABILT’S DIRECT APPEAL

                                            I and II

      {¶ 22} Durabilt’s first and second assignments of error raise common and

interrelated issues; therefore, we will address the arguments together.

      {¶ 23} In the first and second assignments of error, Durabilt argues it is not a

“consumer” of construction materials as it did not possess the materials, transport the
materials, pay for the materials or give any consideration for the materials. Rather,

Durabilt contends it is merely a seller of construction services, and did not make any

“purchase” of materials.     The Tax Commissioner’s final determination rejected this

argument. The BTA affirmed the Tax Commissioner, holding Durabilt was a consumer

of materials used in the course of performing its construction contracts. Durabilt further

argues it is not a construction contractor as defined in Ohio Administrative Code 5703-

9-14(A).

       {¶ 24} In General Motors Corp. v. Lindley (1981), 67 Ohio St.2d 331, the Ohio

Supreme Court held:

       {¶ 25} “The use tax levied under R.C. Chapter 5741 is an excise tax, not an ad

valorem tax. As such, it is imposed ‘neither on the ownership of property, nor is it with

respect to such ownership. It is not a tax ‘laid directly on persons or property.’ * * * It is a

tax assessed for some special privilege or immunity. * * * ‘(Citations omitted.) Howell

Air, Inc., v. Porterfield (1970), 22 Ohio St.2d 32, 34, 257 N.E.2d 742. The use tax,

therefore, is not a tax laid upon the property, itself, but, rather, ‘is a tax upon the

privilege of use of property * * *.’ Federal Paper Board Co. v. Kosydar (1974), 37 Ohio

St.2d 28, at 32, 306 N.E.2d 416. Under the statutes in question, ‘ ‘Use’ means and

includes the exercise of any right or power incidental to the ownership of the thing

used.’ R.C. 5741.01(C).”

       {¶ 26} R.C. 5741.02(B) imposes a use tax on each consumer who stores, uses

or otherwise consumes tangible personal property in Ohio. The term “consumer” is

defined as “any person who has purchased tangible personal property or has been

provided a service for storage, use, or other consumption or benefit in this state.
‘Consumer’ does not include a person who receives, without charge, tangible personal

property or a service.” R.C. 5741.01(F).

       {¶ 27} R.C. 5741.01(D) provides:

       {¶ 28} “Purchase means acquired or received for a consideration, whether such

acquisition or receipt was effected by a transfer of title, or of possession, or of both, or a

license to use or consume; whether such transfer was absolute or conditional, and by

whatever means the transfer was effected; and whether the consideration was money,

credit, barter, or exchange***”

       {¶ 29} The term “consumer” is incorporated in R.C. 5739.01(B)(5), which reads:

       {¶ 30} “(5) The production or fabrication of tangible personal property for a

consideration for consumers who furnish either directly or indirectly the materials used

in the production of fabrication work; and include the furnishing, preparing, or serving for

a consideration of any tangible personal property consumed on the premises of the

person furnishing, preparing, or serving such tangible personal property. Except as

provided in section 5739.03 of the Revised Code, a construction contract pursuant to

which tangible personal property is or is to be incorporated into a structure or

improvement on and becoming a part of real property is not a sale of such tangible

personal property. The construction contractor is the consumer of such tangible

personal property, provided that the sale and installation of carpeting, the sale and

installation of agricultural land tile, the sale and erection or installation of portable grain

bins, or the provision of landscaping and lawn care service and the transfer of property

as part of such service is never a construction contract.”

       {¶ 31} Ohio Administrative Code Section 5703-9-14(A) provides:
       {¶ 32} “(A) A ‘construction contract’ is any agreement, written or oral, pursuant to

which tangible personal property is or is to be transferred or incorporated into real

property, as defined in section 5701.02 of the Revised Code, so as to become a part

thereof without regard to whether it is new construction or an addition to or alteration of

an existing building or structure. A ‘construction contractor’ is any person who performs

such an agreement, whether as prime contractor or subcontractor.”

       {¶ 33} A review of the contract Durabilt entered into with its customers indicates

the only parties to the contract were Durabilt and the individual customer. Holmes

Lumber is not mentioned or named in the agreement. The contract further provides all

payments are to be made directly to Durabilt in installments.            Specifically, one

installment payment is due when materials are delivered. Durabilt further retains the

right to retain the excess materials remaining after completion of the project. Finally,

the agreement vests Durabilt with the right to terminate the project, the right to retain

prior payments as liquidated damages, the right to file a mechanic’s lien and the right to

seek costs and interest in collecting payments.

       {¶ 34} Further, testimony at the hearing before the BTA herein established the

relationship between Durabilt and Holmes Lumber was not disclosed to the individual

customers at the time the contract was signed. As set forth in the statement of the facts

and case supra, Holmes Lumber as a practice, and more often Durabilt itself, collected

the materials draw in excess of the cost of the materials and credited Durabilt with the

excess funds. Durabilt’s own corporate counsel testified the customers started writing

all the checks to Durabilt regardless of whether they were materials checks or labor

checks. Tr. At 42. The testimony suggests the relationship was mutually beneficial, but
we find it does not suggest Durabilt was not a construction contractor liable for the tax

on purchases made from Holmes Lumber.

       {¶ 35} We find the BTA’s conclusion the relationship between Holmes Lumber

and Durabilt created consideration for the use of the materials and was tantamount to a

purchase of the materials is not unreasonable or unlawful.

       {¶ 36} As such the Tax Commissioner’s conclusion Durabilt was the party

responsible for performing the services provided for in the construction contract;

therefore, the construction contractor is also not unreasonable or unlawful.      As the

construction contractor, Durabilt is deemed the consumer of the materials liable for

paying the use tax on the purchase of the materials.

       {¶ 37} The first and second assignments of error are overruled.

                                               III.

       {¶ 38} In the third assignment of error, Appellant asserts the Board of Tax

Appeals failed to give any credence whatsoever to the sworn testimony presented in

this case.

       {¶ 39} Upon review of the decision of the BTA, Appellant’s argument is belied by

the extensive citation to the testimony of Appellant’s corporate counsel, Eric Domer.

The BTA clearly considered the arguments presented by Durabilt, and made the

conclusion Durabilt was liable for the use tax assessed.         The record does not

demonstrate the determination was unreasonable or unlawful.

       {¶ 40} The third assignment of error is overruled.
                 TAX COMMISSIONER’S CROSS ASSIGNMENT OF ERROR

                                                  I

       {¶ 41} On Cross-appeal, Appellee/Cross-appellant Tax Commissioner argues

Durabilt is alternatively liable for the use tax assessed due to its participation in a joint

venture with Holmes Lumber.

       {¶ 42} Based upon our analysis and disposition of Appellant/Cross-appellee’s

assigned errors we find the arguments raised herein moot.

       {¶ 43} The December 21, 2010 Decision and Order of the Board of Tax Appeals

is hereby affirmed.

By: Hoffman, P.J.

Wise, J. and Delaney, J. concur


                                              s/ William B. Hoffman _________________
                                              HON. WILLIAM B. HOFFMAN


                                              s/ John W. Wise _____________________
                                              HON. JOHN W. WISE


                                              s/ Patricia A. Delaney _________________
                                              HON. PATRICIA A. DELANEY


              IN THE COURT OF APPEALS FOR STARK COUNTY, OHIO
                         FIFTH APPELLATE DISTRICT


DURABILT, INC.                                :
                                              :
Appellant/Cross-Appellee,                     :
                                           :
v.                                         :         JUDGMENT ENTRY
                                           :
JOSEPH W. TESTA,                           :
TAX COMMISSIONER OF OHIO                   :
                                           :
Appellee/Cross Appellant.                  :         Case No. 2011CA00016


      For the reasons stated in our accompanying Opinion, the December 21, 2010

Decision and Order of the Board of Tax Appeals is hereby affirmed. Costs to Appellant.




                                           s/ William B. Hoffman _________________
                                           HON. WILLIAM B. HOFFMAN


                                           s/ John W. Wise _____________________
                                           HON. JOHN W. WISE


                                           s/ Patricia A. Delaney _________________
                                           HON. PATRICIA A. DELANEY
