Gen. Motors Corp. v. Tracy

[This opinion has been published in Ohio Official Reports at 73 Ohio St.3d 29.]

GENERAL MOTORS CORPORATION, APPELLANT, v. TRACY, TAX COMMR.,

APPELLEE.

[Cite as Gen. Motors Corp. v. Tracy, 1995-Ohio-294.]

Taxtation—Sales and use taxes—Use tax on purchases of natural gas from out-of-

state vendors—Acquisition of natural gas from natural gas companies that

merely market natural gas not exempt from tax under R.C. 5739.02(B)(7).

(Nos. 94-642, 94-643 and 94-644—Submitted April 25, 1995—Decided August

9, 1995.)

APPEAL from the Board of Tax Appeals, Nos. 91-K-1558, 92-K-146 and

92-H-510.

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{¶ 1} General Motors Corporation ("GM"), appellant, contests the

assessment of use tax on its purchases of natural gas from out-of-state vendors.

{¶ 2} GM purchased natural gas from independent natural gas marketers to

heat its manufacturing plants. These marketers obtained natural gas from producers

outside the state and arranged for transportation to the initial receiving pipeline of

the national natural gas pipeline outside the state. These marketers did not own the

transportation equipment; they paid a fee to pipeline companies to transport the

natural gas to the insertion points. GM took title to the gas at delivery to the

receiving pipeline outside the state. GM then arranged to transport and deliver the

natural gas to its locations in Ohio: the Lordstown plant, the Defiance Central

Foundry, and the Packard Electric facility in Warren.

{¶ 3} The Tax Commissioner, appellee, assessed a use tax for various audit

periods in these three cases because GM purchased the natural gas outside Ohio

and consumed it in Ohio. GM appealed the commissioner's order to the Board of

Tax Appeals ("BTA"), and the BTA affirmed the order (except for a penalty on

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preassessment interest), citing for support its decision in Chrysler Corp. v. Tracy

(Jan. 21, 1994), BTA No. 91-K-1523, unreported.

{¶ 4} These causes are now before this court upon appeals as of right.

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Jones, Day, Reavis & Pogue, John C. Duffy, Jr., Timothy B. Dyk and

Gregory A. Castanias, for appellant.

Betty D. Montgomery, Attorney General, and Barton A. Hubbard, Assistant

Attorney General, for appellee.

Emens, Kegler, Brown, Hill & Ritter Co., L.P.A., Paul D. Ritter, Jr., Holley

R. Fischer and Thomas W. Hill, urging affirmance for amicus curiae, Enron Access

Corp.

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Per Curiam.

{¶ 5} R.C. 5741.02 imposes a use tax on the storage, use, or consumption

of tangible personal property in Ohio. R.C. 5741.02(C)(2) exempts from this tax

acquisitions "which, if made in Ohio, would be a sale not subject to the tax imposed

by sections 5739.01 to 5739.31 of the Revised Code." GM claims that the instant

acquisitions would be exempt under R.C. 5739.02(B)(7) as sales of natural gas by

a natural gas company.

{¶ 6} However, in Chrysler Corp. v. Tracy (1995), 73 Ohio St.3d 26, 652

N.E.2d 185, we upheld the determination of the Public Utilities Commission of

Ohio that a vendor in the type of sales now before us is by definition not a natural

gas company and held that R.C. 5739.02(B)(7) does not exempt this type of sale.

Consequently, we affirm the BTA's decision as to this claim.

{¶ 7} GM also contends that the commissioner's application of this

exemption statute violates the Commerce and Equal Protection Clauses of the

Federal Constitution. According to New Energy Co. of Indiana v. Limbach (1988),

486 U.S. 269, 273-274, 108 S. Ct. 1803, 1807-1808, 100 L.Ed.2d 302, 308:

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January Term, 1995

"It has long been accepted that the Commerce Clause not only grants

Congress the authority to regulate commerce among the States, but also directly

limits the power of the States to discriminate against interstate commerce. See,

e.g., Hughes v. Oklahoma, 441 U.S. 322, 326 [99 S.Ct. 1727, 1731, 60 L.Ed.2d 250,

255-256] (1979); H.P. Hood & Sons, Inc. v. Du Mond, 336 U.S. 525, 543-535 [69

S.Ct. 657, 663-664, 93 L.Ed. 865, 872-873] (1949); Welton v. Missouri 91 U.S. 275

[23 L.Ed. 347] (1876). This 'negative' aspect of the Commerce Clause prohibits

economic protectionism—that is, regulatory measures designed to benefit in-state

economic interests by burdening out-of-state competitors. See, e.g., Bacchus

Imports, Ltd. v. Dias, 468 U.S. 263, 270-273 [104 S.Ct. 3049, 3054-3056, 82

L.Ed.2d 200, 208-210] (1984); H.P. Hood & Sons, supra, at 532-533 [69 S.Ct. at

662-663, 93 L.Ed. at 871-872]; Guy v. Baltimore, 100 U.S. 434, 443 [25 L.Ed. 743]

(1880). Thus, state statutes that clearly discriminate against interstate commerce

are routinely struck down, see, e.g., Sporhase v. Nebraska ex rel. Douglas, 458 U.S.

941 [102 S.Ct. 3456, 73 L.Ed.2d 1254] (1982); Lewis v. BT Investment Managers,

Inc., 447 U.S. 27 [100 S.Ct. 2009, 64 L.Ed.2d 702] (1980); Dean Milk Co. v.

Madison 340 U.S. 349 [71 S.Ct. 295, 95 L.Ed. 329] (1951), unless the

discrimination is demonstrably justified by a valid factor unrelated to economic

protectionism, see, e.g., Maine v. Taylor, 477 U.S. 131 [106 S.Ct. 2440, 91 L.Ed.2d

110] (1986)."

{¶ 8} According to the testimony, the commissioner exempts sales of

natural gas only if the selling companies own or operate the transportation and

distribution equipment and deliver the natural gas to consumers in Ohio. GM

reasons that only Ohio companies owning transportation and distribution

equipment can qualify because only these domestic companies can physically

deliver natural gas to Ohio consumers. Thus, so it argues, the commissioner's

application is an undue burden on interstate commerce and invalid. The

commissioner responds that he treats in-state and out-of-state purchases from

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independent marketers of natural gas the same; he does not exempt either one's

sales if it does not own the transportation and distribution equipment.

{¶ 9} We have before us purchases by GM of natural gas from a company

that does not own any production, transportation, or distribution equipment. The

commissioner claims that he would tax purchases from these persons whether they

sold natural gas in-state or out-of-state. Thus, the commissioner's application of

the statute does not benefit in-state purchasers by favoring in-state vendors over

out-of-state vendors; he treats purchases from both the same. His application does

not violate GM's Commerce Clause protection.

{¶ 10} On close inspection, GM actually argues that the commissioner's

application burdens out-of-state vendors of natural gas. However, GM is not a

member of that class and lacks standing to challenge the constitutionality of this

application on that basis; our further comment on this question is inappropriate.

Indus. Energy Consumers of Ohio Power Co. v. Pub. Util. Comm. (1994), 68 Ohio

St. 3d 547, 557-558, 629 N.E. 2d 414, 422.

{¶ 11} Also, GM's equal protection argument is submerged in its

Commerce Clause argument. It claims that the Equal Protection Clause prohibits

Ohio from imposing a more onerous use tax on out-of-state companies engaging in

interstate commerce than on domestic companies. However, as concluded in the

Commerce Clause discussion, the commissioner does not favor in-state purchases

over out-of-state purchases. If the vendor does not own transportation or

distribution equipment, the commissioner does not exempt its sales of natural gas

to Ohio consumers.

{¶ 12} Finally, GM contends that the BTA incorrectly determined that the

commissioner did not abuse his discretion in remitting only a portion of the

statutory penalty. According to Jennings & Churella Constr. Co. v. Lindley (1984),

10 Ohio St.3d 67, 70, 10 OBR 357, 359-360, 461 N.E. 2d 897, 900:

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January Term, 1995

"R.C. 5739.13 mandates the imposition of a penalty in the event of an

assessment. Remission of the penalty is discretionary. In Servomation Corp. v.

Kosydar (1976), 46 Ohio St.2d 67 [75 O.O.2d 147, 346 N.E.2d 290], we held this

discretionary power valid and constitutional as an exercise of the state's police

power.

"Appellate review of this discretionary power is limited to a determination

of whether an abuse has occurred. Interstate Motor Freight System v. Bowers

(1960), 170 Ohio St. 483 [11 O.O.2d 240, 166 N.E.2d 229]. An abuse of discretion

connotes a decision that is unreasonable, arbitrary or unconscionable. State v.

Adams (1980), 62 Ohio St.2d 151, 157 [16 O.O.3d 169, 173, 404 N.E.2d 144, 149];

Chester Twp. v. Geauga Cty. Budget Comm. (1976), 48 Ohio St.2d 372, 373 [2

O.O. 3d 484, 358 N.E.2d 610, 611]." (Emphasis sic; footnote omitted.)

{¶ 13} We have consistently refused to find an abuse of discretion on the

commissioner's remitting a portion of the statutory penalty, even in the face of

good-faith efforts at compliance. Kings Entertainment Co. v. Limbach (1992), 63

Ohio St.3d 369, 371, 588 N.E. 2d 777, 779. Consequently, we affirm the BTA's

decision on the penalty.

{¶ 14} Accordingly, we affirm the BTA's decision, since it is reasonable

and lawful.

Decision affirmed.

MOYER, C.J., DOUGLAS, WRIGHT, RESNICK, F.E. SWEENEY, PFEIFER and

COOK, JJ., concur.

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