Dresser Industries, Inc. v. Lindley

Per Curiam. The issue presented for review is whether Jeffrey’s acquisition of property from its subcontractors is exempt from taxation under R.C. 5739.01(E)(1). The Board of Tax Appeals held that such property is tax exempt. For the reasons set forth below, we affirm. R.C. 5739.01 states in part as follows: “(E) ‘Retail sale’ and ‘sales at retail’ include all sales except those in which the purpose of the consumer is: “(1) To resell the thing transferred * * * in the form in which the same is, or is to be, received by him * * In construing the applicability of an exemption under R.C. 5739.01(E)(1) where the purchaser has put the property to more than one use, this court has consistently held that the purchaser’s primary use of the property must control the determination as to the property’s taxability. Fliteways v. Lindley (1981), 65 Ohio St. 2d 21, 25 [19 O.O.3d 219]; United States Shoe Corp. v. Kosydar (1975), 41 Ohio St. 2d 68, 71 [70 O.O.2d 159]; Jim White Chevrolet Co. v. Porterfield (1970), 22 Ohio St. 2d 79, 82 [51 O.O.2d 104]. It is the primary use of the property which is determinative and an otherwise incidental use will not destroy the exempt status. United States Shoe Corp., supra; A. J. Weigand, Inc. v. Bowers (1960), 171 Ohio St. 78, 79 [12 O.O.2d 90]. In the present case, the appellant-commissioner argues that the items acquired by Jeffrey pursuant to the subcontracts were for research and development of the explosion-proof electrical enclosure and miner-bolter projects. The commissioner contends that the primary purpose of the items was not resale, but rather for use to develop the projects. Since the property was ultimately transferred to the United States government as part of the projects, the commissioner argues that the Board of Tax Appeals erroneously-used an “ultimate use” test rather than a “primary use” test. In Fliteways, supra, this court examined the propriety of a sales and use tax assessment levied against a taxpayer who purchased airplanes for resale, but also utilized the aircraft in its charter service and flight training school prior to resale. In determining the applicability of the exemption under R.C. 5739.01(E)(1), we concluded that the record supported a finding that the taxpayer’s primary purpose when purchasing the aircraft was to resell them. Thus, even though the taxpayer used the aircraft in its charter service and flight training school to help defray the cost of carrying the aircraft in inventory, the airplanes remained for sale and their interim use was considered incidental. The rationale utilized in Fliteways, supra, is applicable to the case sub judice. Jeffrey’s primary purpose in obtaining the items under the subcon [70] tracts was to resell them as an integral part of a finished product. It is true that the property in question was used in the design process of the projects, however, the design of each project was merely incidental to the finished product. In addition, the terms of the contracts between Jeffrey and the United States government support our conclusion. Pursuant to the agreements, the title to the tangible personal property which was created automatically vested in the government. Therefore, Jeffrey had to resell the property obtained in the subcontracts to fulfill its contractual obligation to the United States. Accordingly, we hold that Jeffrey’s acquisition of property from its subcontractors is exempt from taxation under R.C. 5739.01(E)(1). The decision of the board being neither unreasonable nor unlawful is affirmed. Decision affirmed. Sweeney, Locher, Holmes and C. Brown, JJ., concur. Celebrezze, C.J., W. Brown and Hoffman, JJ., dissent. Hoffman, J., of the Fifth Appellate District, sitting for J.P. Celebrezze, J.