Cole National Corp. v. Collins

Paul .W. Brown, -J. The issue presented-is whether the display cases and racks.purchased by the taxpayer aré ■“packages” within the meaning of the sales tax exception provided by R. C. 5739.02(B) (15).2 That section, in pertinent, part, provides that sales taxes -do not apply to the following: < “.Sales to persons engaged in any of the activities mentioned in division (E)(2) of Section 5739.01 of the Revised: Code, of. packages, including material and parts therefor, and of machinery, equipment, and material for use in packaging tangible personal property produced for sale, or sold at .retail. Packages include bags, baskets, cartons, crates, boxes, cans, bottles, bindings, wrappings, and [338] other similar devices and containers, and ‘packaging’ means placing therein.” (Emphasis added.) The taxpayer argues that this court should follow its decision in Custom Beverage Packers v. Kosydar (1973), 33 Ohio St. 2d 68, 73, wherein we held that unbound pallets on which cases of bottles were placed were not packages, because- they restrained the movement of those bottles in only one direction—downward. We noted that while a package need not fully enclose the packaged object, it must restrain movement in more than one plane of direction. The taxpayer claims that its display cases and racks are ■packages because they meet the aforementioned test. Although Custom Beverage Packers sets forth an essential characteristic of a package, it does not provide the sole criterion for making such a determination. Not all items that restrict movement in more than one direction are -packages. In fact, we limited Custom Beverage Packers to its facts by stating, at page 73: “We do not here decide whether pallets to which cases or other objects are bound are tax exempt.” The taxpayer also argues that its sole use of the display cases and racks was for packaging, and that the taxpayer itself did not use them for storage or display, although they were designed for that purpose, and so used by the retailer. Essentially, the taxpayer is arguing that even though the display cases and racks were subsequently used for another purpose by retailers, the court should focus on’v on whether those items were used as packages by this •taxpayer. - Taxpayer’s corporate tax manager, during testimony before the Board of Tax Appeals, admitted that the display cases and racks áre not solely packages, but that they are included with every initial order as a service to the independent retailer, where they function as a marketing aid. While the taxpayer emphasizes the necessity of its display cases and racks to properly segregate, organize and place its products in a marketable state, it admits that reorders are shipped in cardboard boxes. A typical sales brochure used by -the taxpayer to sor [339] lieit-ordersdor. entire assortments of lmives contained'statements such as the following: ' - ■ . “Qui; nf?Y¡ displays do more than hold knives. They merchandise.' Their smart, cont.ejnporary designs enhance the Kabar quality image. They aré pilferproof. And they provide key lock space for back-up-stock. # * In effect, the taxpayer intends the display eases and racks to be ¡used by its. independent retailers as service centers where the taxpayer’s products can be merchandized, The display cases and racks serve as a; vital, cog in the chain of distribution of the taxpayer’s products. Their function, as packaging- is incidental to their use as.a -npj.rketingaid.. ■ ; . .... . , ..... In Custom Beverage Packers v. Kosydar, supra, at. page 73, this court stated that the principles of cbjistn¡c:. tion announced;in National Tube Co. v. Glander (1952), 157 Ohio St. 407, apply to interpreting R. C. 5739.02(B) (15)., In paragraphs one and two of the syllabus in National Tube, Co., we delineated those principles: . First, that “the presumption obtains that every sale or use of tangible personal property in this state is ¿ax-able;” and second, that “[statutes relating to exemption, or exception from taxation are to be strictly construed, and one claiming siieh exemption or exception must affirmatively establish his right thereto.” . . ■ Tested, against these principles, taxpayer’s .argument'; must fail... This, court docs not believe it should focus only on. the: taxpayer’s physical use of the display eases and racks as ..packages, while ignoring their predominant eco-, nomic purpose and function as integral parts of an overall marketing plan. We find.that, the predominant,economic purpose of these-articles to the taxpayer was.to-facilitate the marketing of;its products, rather than to package same, and therefore the order of the Tax .Commissioner,, denying a tax exception-under R. C. 5739.02(B) (.15), was neither unreasonable nor.unl.awful, and is affirmed. . Decision affirmed. O’Neuíl, C. J., Herbert, Corrigan, Stern, Cet,ebrezze and W. Brown, JJ., concur. Footnotes [2] The sales tax exception provided by B. C. 5739.02(B) (15) is made expressly applicable to the uses of property by B. C. 5741.02(C)(2), and is intended herein to apply to all uses of property as well as sales.