United Transportation Union Insurance v. Tracy

Douglas, J. A “fraternal benefit society” is defined in R.C. 3921.02 as “[a]ny incorporated society, order, or supreme lodge, without capital stock, including one exempted under division (A)(2) of section 3921.37 of the Revised Code whether incorporated or not, conducted solely for the benefit of its members and their beneficiaries and not for profit, operated on a lodge system with ritualistic form of work, having a representative form of government, and providing benefits in accordance with this chapter.” A fraternal benefit society may “create, maintain, and operate charitable, benevolent, or educational institutions for the benefit of its members and their families.” R.C. 3921.12. See, also, R.C. 3921.05.2 To that end, a fraternal benefit society may enter into contractual obligations to provide, among other benefits, death, endowment, annuity, and life insurance payments to its members and their dependents. R.C. 3921.16. R.C. 3921.24 provides an exemption from certain taxes for fraternal benefit societies. R.C. 3921.24 states: “Every fraternal benefit society organized or licensed under this chapter is hereby declared to be a charitable and benevolent institution, and all of its funds are exempt from all state, county, district, municipal, and school taxes other than franchise taxes and taxes on real estate.” (Emphasis added.) United contends that R.C. 3921.24 (former R.C. 3921.40)3 exempts fraternal benefit societies like itself from assessment of the state use tax. Specifically, United argues that the General Assembly intended to provide fraternal benefit societies with an exemption from “all” taxes except franchise taxes and taxes on real estate. Therefore, United asserts that the BTA erred in affirming the use tax assessment imposed by the commissioner. For the reasons that follow, we disagree with United. It is well established that “[statutes relating to the exemption or exception from sales or use taxes are to be strictly construed, and one claiming such [335] exemption or exception must affirmatively show his right thereto.” Celina Mut. Ins. Co. v. Bowers (1965), 5 Ohio St.2d 12, 34 O.O.2d 7, 213 N.E.2d 175, paragraph one of the syllabus. See, also, Philips Industries, Inc. v. Limbach (1988), 37 Ohio St.3d 100, 101, 524 N.E.2d 161, 161-162. Further, “[o]ur duty is limited to a determination of whether the decision of the Board of Tax Appeals was unreasonable or unlawful.” Id. In arguing that it is exempt from paying the use tax, United has set forth a selective reading of R.C. 3921.24. By its very terms, the statute does not exempt United from paying use taxes. Instead, R.C. 3921.24 specifically states that “funds” of a fraternal benefit society are exempt from “all state, county, district, municipal, and school taxes other than franchise taxes and taxes on real estate.” United gives little, if any, significance to the term “funds,” which precedes the language “all state * * * taxes.” The term “funds” is not defined in R.C. Chapter 3921. The BTA therefore looked to a definition of the term as it was defined in a former edition of Black’s Law Dictionary. The BTA also analyzed how the term was used in former sections of R.C. Chapter 3921 and how it is currently being used. The BTA then concluded, and we agree, that the term “funds” generally involves money or other liquid assets held by a fraternal benefit society to accomplish the society’s purposes. Specifically, the BTA correctly observed that “the term ‘funds’ as used in [former] R.C. 3921.40 means and includes the fund or funds which are maintained and invested as prescribed by law to carry out the purposes of the society. It is these funds and the investments of these funds which are intended to be exempt from taxation except for the levy of franchise tax upon the net worth of the society and levy of tax upon its real property.” United asserts that the BTA’s decision was premised on an improper “narrow” interpretation of the term “funds.” United points to R.C. 3921.22(B), which provides that a fraternal benefit society can create and apply any “funds” necessary to carry out “any purpose” permitted by the laws of the society. Therefore, according to United, the purchases in question should be exempt from the use tax because it used “funds” to purchase the items. However, it is clear that R.C. 3921.24 exempts from taxation a fraternal benefit society’s funds, not transactions on which Ohio imposes a use tax. The BTA correctly determined that the use tax levied by the commissioner was not upon the funds held by United. Rather, the tax assessment was issued “upon the various items of office materials that were needed and utilized by the society in conducting its affairs.” Thus, the use tax is not a tax on the funds of a fraternal benefit society. R.C. 5741.02(A) levies “an excise tax * * * on the storage, use, or other consumption in the state of tangible personal property or the benefit realized in [336] this state of any service provided.” R.C. 5741.04 requires the consumer to pay the tax to the vendor based on the purchase price. In Gen. Motors Corp. v. Lindley (1981), 67 Ohio St.2d 331, 333, 21 O.O.3d 208, 210, 423 N.E.2d 479, 481, we stated: “The use tax levied under R.C. Chapter 574Í 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 [51 O.O.2d 62, 63, 257 N.E.2d 742, 743]. 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 Bd. Co. v. Kosydar (1974), 37 Ohio St.2d 28, at 32 [66 O.O.2d 82, 85, 306 N.E.2d 416, 419]. 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).” (Emphasis sic.) Accordingly, the commissioner did not assess a tax on the funds of United. Rather, the commissioner properly assessed a tax on United’s exercise of its privilege to use the items it purchased, measured by the purchase price of the items. The BTA correctly decided this issue. Finally, United argues that we should examine R.C. 3921.24 in light of R.C. 5739.02(B)(12) to understand how the two statutes parallel each other in support of United’s position. United does not claim exemption directly under R.C. 5739.02(B)(12). Instead, United asserts that this statute reveals the General Assembly’s intention to exempt charitable institutions and institutions with charitable purposes from sales and use taxes. Again, we disagree. The BTA properly rejected United’s argument. First, R.C. 3921.24 does not exempt fraternal benefit societies on the basis of their status as charitable and benevolent institutions. Instead, R.C. 3921.24 simply designates them as such institutions and independently exempts their funds from various taxes. Second, R.C. 5739.02(B)(12) exempts sales of tangible personal property or services to “nonprofit organizations operated exclusively for charitable purposes.” (The exemption is made applicable to the use tax by R.C. 5741.02.) The statute then defines charitable purposes, but the definition does not include the purposes of a fraternal benefit society. Consequently, we find that R.C. 5739.02(B)(12) fails to support United’s claim. Thus, we hold that United is not entitled to an exemption from payment of the use tax with respect to the purchases in question. The decision of the BTA was both reasonable and lawful. . Accordingly, we affirm the decision of the BTA. Decision affirmed. [337] Moyer, C.J., Resnick, F.E. Sweeney and Cook, JJ., concur. Pfeifer and Lundberg Stratton, JJ., dissent. Footnotes [2] R.C. 3921.05 provides that “[a] fraternal benefit society shall operate for the benefit of its members and their beneficiaries by providing any of the benefits set forth in section 3921.16 of the Revised Code, and by operating for social, intellectual, educational, charitable, benevolent, moral, fraternal, patriotic, or religious purposes for the benefit of its members and any other persons as determined by the society.” [3] United’s actual arguments focus on former R.C. 3921.40. United, however, agrees that Am.Sub. H.B. No. 468 (enacting current R.C. 3921.24) did hot change “the substance” of former R.C. 3921.40.