Boothe Financial Corp. v. Lindley

Holmes, J. R.C. 5711.22 required appellant and IBM to list their personal property at seventy percent4 of true value in money. The method for determining true value is set forth in R.C. 5711.18, which provides, in pertinent part: “* * * In the case of personal property used in business, the book value thereof less book depreciation at such time shall be listed, and such depreciated book value shall be taken as the true value of such property, unless the assessor finds that such depreciated book value is greater or less than the then true value of such property in money. * * *” In State, ex rel. Park Investment Co., v. Bd. of Tax Appeals (1964), 175 Ohio St. 410 [25 O.O.2d 432], we discussed the meaning of the term “true value,” stating at 412: “In the last analysis the value or true value in money of any property is the amount for which that property would sell on the open market by a willing seller to a willing buyer. In essence, the value of property is the amount of money for which it may be exchanged, i.e., the sales price.” Since then this court has variously stated that standard, but we have consistently held that ultimately true value is to reflect market value. See, e.g., Grabler Mfg. Co. v. Kosydar (1975), 43 Ohio St. 2d 75 [72 O.O.2d 42]; Conalco v. Bd. of Revision (1977), 50 Ohio St. 2d 129 [4 O.O.3d 309]; Meyer v. Bd. of Revision (1979), 58 Ohio St. 2d 328 [12 O.O.3d 305]; and Tele-Media Co. v. Lindley (1982), 70 Ohio St. 2d 284 [24 O.O.3d 367]. [249] Here, the appellee required appellant and IBM to determine the value of their property by using depreciated book value. IBM based its book value on manufacturing cost, while appellant was required to base its book value on acquisition cost. This resulted in appellant’s property being valued at between six and seven times that of IBM’s,5 even though, for practical purposes, appellant’s property is identical to IBM’s. Appellant does not challenge the lawfulness of the valuation of his property. Rather, appellant argues that allowing IBM to determine the value of its property by using manufacturing cost less depreciation, with its concomitant gross undervaluation, without allowing it the same privilege, denies it equal protection.6 Under the facts of this particular case, we conclude that appellant was denied equal protection of the laws, so we reverse. States have great discretion in laying taxes; however, the taxing power is subject to the Equal Protection Clause. Allied Stores of Ohio, Inc. v. Bowers (1959), 358 U.S. 522, 526. In Hillsborough v. Cromwell (1946), 326 U.S. 620, the court discussed the application of the Equal Protection Clause to tax cases and said, at page 623: “The equal protection clause of the Fourteenth Amendment protects the individual from state action which selects him out for discriminatory treatment by subjecting him to taxes not imposed on others of the same class. The right is the right to equal treatment. * * *” Also, in Southern Railway Co. v. Watts (1923), 260 U.S. 519, 526, the court spoke on the same subject: “* * * The rule is well settled that a taxpayer, although assessed on not more than full value, may be unlawfully discriminated against by undervaluation of property of the same class belonging to others. Raymond v. Chicago Union Traction Co. [1907], 207 U.S. 20.”7 By applying these standards to the present dispute, its resolution becomes obvious. Both IBM and appellant were required to report the value of their property so that the value approximated market value. However, the appellee allowed IBM, a manufacturer-lessor, to report its property in a manner, manufacturing cost less depreciation, which caused it to be grossly undervalued. Furthermore, only a manufacturer, IBM, was allowed to so undervalue its property. Thus, the appellee intentionally and systematically [250] treats members of the same class, lessors of equipment, differently because one is a manufacturer. This denied appellant the “right to equal treatment.” Hillsborough v. Cromwell, supra. Further, appellant was discriminated against by the undervaluation of IBM’s property. Southern Railway Co. v. Watts, supra. See, also, Koblenz v. Bd. of Revision (1966), 5 Ohio St. 2d 214 [34 O.O.2d 424], Nonetheless, appellee argues that the disparate treatment of IBM and appellant does not violate equal protection. First, appellee correctly states that the different treatment of similarly situated taxpayers does not violate equal protection as long as there is rational basis for that treatment. Lehnhausen v. Lake Shore Auto Parts Co. (1973), 410 U.S. 356; Allied Stores of Ohio, Inc. v. Bowers, supra, at 527. Further, appellee argues that there is a rational basis for that treatment because appellant and IBM incurred different costs in securing their respective computers. This does not justify the disparate treatment here, for, as discussed above, the ultimate end of a tax on true value is a tax on market value. State, ex rel. Park Investment Co., v. Bd. of Tax Appeals; Grabler Mfg. Co. v. Kosydar; Conalco v. Bd. of Revision; Meyer v. Bd. of Revision; and Tele-Media Co. v. Lindley, supra. Consequently, cost figures cannot serve as justification for treating a purchaser-lessor differently from a manufacturer-lessor as each should be taxed on market value.8 Based on the foregoing, we hold that a taxpayer who leases equipment is denied equal protection when a competitor, who manufactures and leases essentially identical equipment, is allowed to grossly undervalue its property by reporting the property’s value as manufacturing cost less depreciation, and the former is not allowed to value his property in the same manner. Accordingly, we reverse the decision of the Board of Tax Appeals, and remand this cause in order that appellant may be allowed to report the value of its property in the same manner as IBM. Judgment accordingly. [251] W. Brown, Sweeney and C. Brown, JJ., concur. Celebrezze, C.J., Locher and J. P. Celebrezze, JJ., dissent. Footnotes [4] The General Assembly has since reduced this percentage. [5] I.e., the value of appellant’s computers when based on depreciated acquisition cost rather than depreciated manufacturing cost. [6] Equal protection is guaranteed by the Fourteenth Amendment to the United States Constitution, and Section 2, Article I of the Ohio Constitution. It should be noted that appellant does not argue that R.C. 5711.18 is facially unconstitutional; rather, appellant contends that its present application deprives it of equal protection. [7] Likewise, in Southland Mall, Inc. v. Garner (C.A. 6, 1972), 455 F. 2d 887, the court said at page 889: “In order to establish an equal protection violation it is not necessary for a taxpayer to prove that he was overassessed. He may show that his property was assessed at its true value while other property was intentionally undervalued.” [8] Alternatively, appellee argues that its method of establishing value must be upheld because to use a method other than depreciated book value will cause an administrative nightmare. We disagree. First, it is questionable whether administrative convenience can justify a denial of equal protection. See, e.g., Reed v. Reed (1971), 404 U.S. 71. Second, this decision will not result in all similar equipment being given the same value. Rather, the value of all similar equipment must be determined in the same manner. When the value of a manufacturer-lessor’s equipment becomes so undervalued that it does not reflect market value, the appellee must either adjust the manner in which the manufacturer establishes value, or risk equal protection challenges from competing purchaser-lessors. We note that other states require manufacturer-lessors to report equipment at its market value instead of manufacturing cost which does not reflect objective market value. See, e.g., Dept. of Assessments and Taxation v. Greyhound Computer Corp. (1974), 271 Md. 575, 320 A. 2d 40; State, ex rel. IBM Corp., v. Bd. of Review (1939), 231 Wis. 303, 285 N.W. 784; Xerox Corp. v. Hennipen (1976), 309 Minn. 239, 244 N.W. 2d 135; Xerox Corp. v. Bd. of Review (Iowa 1980), 298 N.W. 2d 416.