Buckeye Internatl., Inc. v. Limbach

OPINIONS OF THE SUPREME COURT OF OHIO

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Buckeye International, Inc., Appellant, v. Limbach, Tax

Commr. of Ohio, Appellee.

Taxation -- Valuation of taxable property -- APB 16 valuations

are probative and competent evidence -- Taxpayer may

challenge APB 16 valuations -- Notice of appeal to Board

of Tax Appeals -- In resolving questions regarding

effectiveness of a notice of appeal, Supreme Court not

disposed to deny review by a hypertechnical reading of the

notice.

[Cite as Buckeye Internatl., Inc. v. Limbach (1992),

Ohio St.3d .]

(No. 91-1541 -- Submitted May 5, 1992 -- Decided August 5,

1992.)

Appeal from the Board of Tax Appeals, No. 87-D-970.

In December 1979, Worthington Industries, Inc. set in

motion the purchase of Buckeye International, Inc. ("Old

Buckeye"), a manufacturer of steel castings for the railroad

industry and injection-molded plastics for the automotive

industry. Worthington Industries established a wholly owned

subsidiary, Worthington International, Inc. ("International"),

appellant, to purchase Old Buckeye's stock. 733,128 shares

were purchased at $25 per share, giving International a

forty-four percent interest in Old Buckeye. On April 15, 1980,

the boards of directors of International and Old Buckeye agreed

to merge Old Buckeye into International by exchanging 1.5

shares of Worthington Industries common stock for each share of

Old Buckeye. In May 1980, Old Buckeye's shareholders approved

the merger. It became effective, retroactively, on April 20,

1980. Old Buckeye ceased to exist, and International changed

its name to Buckeye International, Inc. ("Buckeye").

In reporting the economic substance of this purchase to

its shareholders, Worthington Industries allocated the purchase

price according to (1970) Accounting Principles Board Opinion

16, in 1 Financial Accounting Standards Board, Accounting

Standards, Original Pronouncements (1982) 242-265 ("APB 16").

Worthington Industries added the cash initially paid for the

shares of stock and the over-the-counter market price of the

shares it issued for Old Buckeye stock to determine the price

it paid for Old Buckeye. Worthington Industries then

determined and added the value of the current and long-term

liabilities that it assumed and allocated this total under APB

16 categories of fixed assets. The fixed assets include real

estate and personal property. Worthington Industries derived

the ratios used to make the allocation from appraisals of Old

Buckeye's property. Old Buckeye had obtained the appraisals in

1979 for financing reasons.

According to Buckeye's outside accountant, who authorized

the signing of the auditor's opinion in Worthington Industries'

1980 annual report, APB 16 merely allocates the purchase price;

it is not designed to determine the fair value of assets.

However, according to this witness, APB 16 normally applies

only to arm's-length transactions between a willing buyer and a

willing seller. Further, this witness believed that

Worthington Industries correctly applied APB 16.

Worthington Industries, in reporting its assets in accord

with APB 16, allocated to its personal property a portion of

the purchase price. Thus, the amount reported for its personal

property was in excess of the historic book value of that

property. Notwithstanding this allocation, Buckeye, the

subsidiary, valued its personal property for the tax years

1982, 1983 and 1984 on the basis of the book values that Old

Buckeye had recorded. The subsidiary failed to account for the

allocated excess. Nor did the subsidiary produce any evidence

of value other than the book values.

On audit, the Tax Commissioner, appellee, added the

allocated excess amount to the book costs. In determining

value, she added (1) the $27,205,229 which represented histori-

cal book cost as listed by Buckeye on its 1982 tax return and

reported on the May 31, 1981 balance sheet attached to the

return, (2) the surplus from the sale and assigned by Buckeye

to personal property on its 1982 return ($9,819,000), and (3)

equipment additions since May 31, 1980 ($8,104,833). She

determined that the total true value for all personal property

was $45,129,062. Next, she calculated ratios, based on the

previously returned, book-cost values, to allocate this amount

to the various categories of equipment and to the taxing

districts containing the property. She also performed these

calculations for the 1983 and 1984 returns.

On appeal, the Board of Tax Appeals ("BTA") found that the

purchase was at arm's length and that Worthington Industries

had properly allocated the purchase price. Accordingly, the

BTA affirmed the commissioner's order.

In affirming, the BTA ignored a double-counting question

posed by Buckeye and declined to rule on several constitutional

questions raised by Buckeye. Further, the BTA did not rule on

Buckeye's claim that the commissioner included exempt property

in making the valuations.

Buckeye's claim of double counting relies upon the

following evidence. In Exhibit 10, it displayed net equipment

additions for 1980 and 1981. It had included this equipment in

its 1982 personal property tax return. These additions are

included in the $37,024,229 reported on its May 31, 1981

balance sheet, which was the starting point for the

commissioner's calculations. Buckeye says that the

commissioner added these same additions to that starting

point. Thus, Buckeye claims that these additions were counted

twice. Furthermore, the agent testified that these additions

were counted for all three years of the audit.

This cause is before this court upon an appeal as of right.

Vorys, Sater, Seymour & Pease, Raymond D. Anderson, Anker

M. Bell and Eric A. Pierce, for appellant.

Lee I. Fisher, Attorney General, and James C. Sauer, for

appellee.

Per Curiam. Two issues are presented for review. We

address them separately.

I

The Allocation Issue

Buckeye argues that APB 16 does not fairly value its

property and that the property should be valued based on its

depreciated book value. The commissioner responds that her

valuation comports with case law.

According to Tele-Media Co. of Addil v. Lindley (1982), 70

Ohio St.2d 284, 24 O.O.3d 367, 436 N.E.2d 1362, syllabus:

"The best evidence of the 'true value in money' of

tangible personal property is the proper allocation of the

purchase price of an actual, recent sale of the property in an

arm's-length transaction. (Conalco, Inc. v. Monroe Cty. Bd. of

Revision [1977], 50 Ohio St.2d 129 [4 O.O.3d 309, 363 N.E.2d

722], approved and followed.)"

Thus, if the sale is arm's-length, actual and recent, and

the purchase price is properly allocated, the BTA may adopt the

allocation as the true value.

Buckeye's witnesses admitted that the transaction was

arm's length. The arm's length nature of the sale was a

precondition for Worthington Industries' application of APB

16. The sale was actual and recent since it occurred one year

prior to the valuation date. Finally, Buckeye admitted that

the allocation was proper since it reported the sale on this

basis to its shareholders in its annual report. Thus, the BTA

reasonably and lawfully valued the property.

However, Buckeye contends that neither we nor the BTA has

approved the application of APB 16 in prior cases. Indeed, the

BTA rejected, until this case, all previous applications of APB

16. However, the BTA did find a proper allocation in this

case, and it has wide latitude to so find in valuation

matters. Snider v. Limbach (1989), 44 Ohio St.3d 200, 202, 542

N.E.2d 647, 649.

It is significant that Buckeye presented no evidence

(other than historic book values) of value to contradict the

allocation it made under APB 16 and which it publicly

represented to its shareholders. This failure is significant

when we consider whether the BTA's decision is supported by the

evidence. Book values may have little relation to current

values. Apparently, Old Buckeye did have appraisals made

shortly before the purchase. Thus, Buckeye presumably could

have produced evidence of the value of the personal property in

question had it chosen to do so.

Buckeye also contends that requiring it, a publicly traded

company, to value its property under APB 16, while privately

held companies may ignore APB 16 and value their property based

on depreciated book value, denies Buckeye of equal protection.

Under Allegheny Pittsburgh Coal Co. v. Cty. Comm. of

Webster Cty. (1989), 488 U.S. 336, 343, 102 L.Ed.2d 688, 697,

109 S.Ct. 633, 637, "[t]he Equal Protection Clause 'applies

only to taxation which in fact bears unequally on persons or

property of the same class,'" quoting Charleston Fed. S. & L.

Assn. v. Alderson (1945), 324 U.S. 182, 190, 89 L.Ed. 857, 863,

65 S.Ct. 624, 629. However, Buckeye presented no evidence to

"in fact" prove this treatment. Thus, Buckeye has not met its

evidentiary burden. Bank One Dayton, N.A. v. Limbach (1990),

50 Ohio St.3d 163, 172, 553 N.E.2d 624, 632. Moreover, we have

not held that Buckeye, or any other taxpayer, is bound by APB

16 valuations. Our holding is simply that the APB 16

valuations are probative and competent evidence. A taxpayer

may challenge such valuations. Snider v. Limbach, supra, at

201-202, 542 N.E.2d at 649. The decision of the BTA would then

be reviewed to determine whether it was reasonable and lawful.

II

The Double-Counting Issue

Buckeye claims that the auditor double counted personal

property additions and included exempt property as a part of

the excess amount allocated to personal property. The

commissioner maintains that Buckeye did not raise this error in

its notice of appeal to the BTA. The commissioner also argues

that Buckeye failed to establish the extent of that double

counting.

Failure to include errors in the notice of appeal to the

BTA results in the BTA's lack of jurisdiction over the errors

and the court's inability to review such errors. Osborne

Brothers Welding Supply, Inc. v. Limbach (1988), 40 Ohio St.3d

175, 178, 532 N.E.2d 739, 742. In response, Buckeye contends

that paragraphs one, six, and seven of its notice of appeal did

notify the BTA of these errors. Paragraph one states:

"(1) The commissioner erred in failing to follow the

general requirement of R.C. 5711.18 that in valuing '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.'"

In Manfredi Motor Transit Co. v. Limbach (1988), 35 Ohio

St.3d 73, 77, 518 N.E.2d 936, 940-941, we concluded that the

theory stated in the notice of appeal was so distinct from the

theory argued in the taxpayer's brief that the taxpayer should

have specifically stated the latter theory in the notice of

appeal. However, in Goodyear Tire & Rubber Co. v. Limbach

(1991), 61 Ohio St.3d 381, 383, 575 N.E.2d 146, 147, we

concluded that the taxpayer could assert an alternative

argument since it specified the commissioner's action that it

questioned, cited the statute under which it objected, and

asserted the treatment it believed the commissioner should have

applied to the income.

In this case, the claim of double counting relates to the

value of the property mentioned in paragraph one of the

notice. The commissioner's auditor admitted that double

counting property would be contrary to statute. We conclude

that Buckeye has raised an alternative argument similar to

Goodyear, rather than a distinct, separate objection as in

Manfredi. In resolving questions regarding the effectiveness

of a notice of appeal, we are not disposed to deny review by a

hypertechnical reading of the notice. Abex Corp. v. Kosydar

(1973), 35 Ohio St.2d 13, 17, 64 O.O.2d 8, 10, 298 N.E.2d 584,

587. Accordingly, we find that Buckeye has raised the issue of

double counting. Furthermore, Buckeye has presented evidence

indicating that the commissioner did double count property

additions. The BTA should not have ignored it. We direct the

BTA to analyze the evidence and decide whether Buckeye has

established a double counting of property and the amount

attributable thereto.

Finally, Buckeye argues that the commissioner included

exempt property in the value.1 Buckeye failed to quantify the

amounts of exempt property allegedly included in the excess

purchase price attributable to its property, and we allow that

portion of the BTA decision to stand.

Accordingly, we affirm the portion of the BTA's decision

that finds the allocated purchase price to be the value of the

personal property and remand this matter to the BTA for it to

determine whether the commissioner double counted personal

property and the consequence thereof.

Decision affirmed in part,

reversed in part

and cause remanded.

Moyer, C.J., Sweeney, Holmes, Douglas, H. Brown and

Resnick, JJ., concur.

Wright, J., concurs in judgment only.

FOOTNOTES

1 Buckeye also asserted a due process violation but did

not brief that argument.