Canton Structural Steel Co. v. Lindley

Per Curiam. The instant appeal concerns the proper construction of R. C. 5739.03, which states in pertinent part: “If any sale is claimed to be exempt under division (E) of section 5739.01 of the Revised Code or under section 5739.02 of the Revised Code, with the exception of divisions (B) (1) to (B) (11) of section 5739.02, the consumer must furnish to the vendor, and the vendor must obtain from the consumer, a certificate specifying the reason that the sale is not legally subject to the tax. If the transaction is claimed to be exempt under division (B) (13) of section 5739.02 of the Revised Code, the exemption certificate shall be signed by both the contractor and his contractee and such contractee shall be deemed to be the consumer of all items purchased under such claim of exemption in the event it is subsequently determined that the exemption is not properly claimed. The certificate shall be in such form as the tax commissioner by regulation prescribes. If no certificate is furnished or obtained within the period for filing the return for the period in which such sale is consummated, it shall be presumed that the tax applies. The failure to have so furnished, or to have so obtained, a certificate shall not prevent a vendor or consumer from establishing that the sale is not subject to the tax within sixty days of the giving of notice by the commissioner of intention to levy an assessment, in which event the tax shall not apply.” (Emphasis added.) The question presented is whether certificates of exemption that are timely received but are untimely destroyed prior to the commencement of a tax audit have been “obtained” for purposes of R. C. 5739.03. Appellant contends that “exemption certificates obtained pursuant to R. C. 5739.03 must be maintained by the vendor in [36] order to justify its failure to collect tax on sales. When exemption certificates have not been maintained, the vendor must, within the sixty days allowed by R. C. 5739.03, establish that the sale was not subject to the tax.” The basis for this position is appellant’s common-sense notion that “an exemption certificate serves no purpose if it is not maintained and made available to justify the vendor’s failure to collect that tax.” In other words, an exemption certificate that cannot be produced for audit has not been “obtained” pursuant to R. C. 5739.03. According to appellee, however, the aforestated view stretches the meaning of R. C. 5739.03 because “[t]his statute does not include ‘maintenance’ or ‘availability’ of the exemption certificate as triggers for the presumption [of taxability]. The presumption established in this section is only triggered when the vendor has failed timely to obtain the certificate.” Appellee argues that timely receipt of an exemption certificate is the equivalent of statutory obtainment thereof and that the 60-day provision is inapplicable because “the presumption in R. C. 5739.03 does not arise irrespective of whether the certificate was available to display to the Commissioner’s agents.” We disagree. The essential purpose of exemption certificates is to provide evidence of non-taxability. If certificates cannot be made available during an audit in furtherance of their evidentiary function, then, as a practical matter, it is irrelevant whether a taxpayer possessed certificates at any time prior to the audit.4 Appellee’s theory erroneously treats the certificates of exemption as ends in themselves, whereas under the statute, exemption certificates represent one of two approved means to the particular end of establishing a tax exemption. The Court of Appeals misconstrued R. C. 5739.03 by framing the issue in terms of whether the evidence indicated that the certificates had ever been present. The court should have looked to whether the certificates had served their [37] statutory purpose, which because of their unavailability they had not. Is it our view that non-functional certificates of exemption, such as those destroyed by appellee’s clerks for which no acceptable copies were available, have not been “obtained” under R. C. 5739.03.5 This conclusion is mitigated by the fact that R. C. 5739.03 affords the taxpayer a 60-day grace period in which to establish non-taxability by “letters of usage” or otherwise.6 The Court of Appeals did not misstate the law when it concluded that R. C. 5739.03 “does not require that the vendor must maintain the certificate against any contingencies and at its peril” because a vendor does have recourse to a statutorily approved procedural alternative by which to establish non-taxability. The Court of Appeals erred, however, in not enforcing the 60-day rule, with which appellee concededly did not comply. As we stated in American Handling Equipment Co. v. Kosydar (1975), 42 Ohio St. 2d 150, at page 153: “The duty imposed upon a taxpayer who neglects to obtain exemption certificates is clear; 60 days is provided, from the notice of intention to levy an assessment, to overcome the presumption that the tax applies.” See, also, Union Metal Mfg. Co. v. Kosydar (1974), 38 Ohio St. 2d 53; Dayton Sash & Door Co. v. Kosydar (1973), 36 Ohio St. 2d 120. Having determined that the Court of Appeals committed reversible error by misconstruing R. C. 5739.03, we find it unnecessary to pass on appellant’s second proposition of law regarding the proper standard of judicial review applicable to appeals taken from BTA orders pursuant to R. C. 5717.04. For the reasons hereinbefore stated the judgment of the Court of Appeals is reversed. Judgment reversed. Celebrezze, C. J., W. Brown, Sweeney and Locher, JJ., concur. [38] Holmes, C. Brown and Krupansky, JJ., concur in the judgment. Footnotes [4] Appellee would rely on Jones v. Glander (1948), 150 Ohio St. 192, for the proposition that a vendor may offer parol evidence in a sales-tax-assessment proceeding. Jones, however, was decided under former G. C. 5546-12 which did “not provide for the keeping of records of sales exempted from taxation * * (Emphasis sic.) Id. at page 196. R. C. 5739.11 clearly requires a vendor to record tax-exempt transactions and, therefore, Jones is inapposite to the case at bar and appellee’s reliance thereon is misplaced. [5] Obtaining a valid certificate pursuant to R. C. 5739.03 as construed herein is separate and distinct from the record keeping duties imposed by R. C. 5739.11 and Ohio Adm. Code 5703-9-02. [6] See Union Metal Mfg. Co. v. Kosydar (1974), 38 Ohio St. 2d 53, at page 56, fn. 3.