MIB, Inc. v. Tracy

[This opinion has been published in Ohio Official Reports at 83 Ohio St.3d 154.]

MIB, INC., APPELLANT, v. TRACY, TAX COMMR., APPELLEE.

[Cite as MIB, Inc. v. Tracy, 1998-Ohio-117.]

Taxation—Delaware nonstock membership corporation, consisting of life

insurance companies, which collects information from, and provides

information to, members concerning applicants for life insurance—Use tax

on charges made to Ohio companies for receiving and responding to

inquiries for information on life insurance applicants.

(No. 97-1283—Submitted May 20, 1998—Decided September 23, 1998.)

APPEAL from the Board of Tax Appeals, No. 95-B-109.

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{¶ 1} Appellant, MIB, Inc. (“MIB”), formerly Medical Information Bureau,

is a Delaware nonstock membership corporation located in Massachusetts. MIB’s

membership currently consists of six hundred fifty life insurance companies, with

about forty of those located in Ohio.

{¶ 2} MIB collects information from, and provides information to,

members concerning applicants for life insurance. The information collected from

and provided to members by MIB is principally of a medical nature, but also

includes some information about lifestyle. Of the over two hundred types of

information which MIB has coded for reporting, only five relate to lifestyle. The

lifestyle information relates to adverse driving record, participation in hazardous

sports, aviation activity, possible overinsurance, and criminal association. The

information that MIB collects and distributes comes only from members. This

information is used by member companies in their pricing and underwriting of life

insurance policies. The goal of MIB’s members is to avoid the financial harm that

might befall them if an applicant misrepresents or suffers a memory lapse about

personal information.

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{¶ 3} When a member wants to input information to MIB, the member’s

computer will contact a stand-alone front-end computer at MIB to verify its

identity. After identification has been established and the member’s data have been

transmitted, MIB’s front-end computer terminates the communication. MIB’s

front-end computer stores the data received from members on a disc. Later MIB’s

front-end computer links up with MIB’s host computer and retrieves the data on

the disc and transfers the data to the host computer.

{¶ 4} The host computer transfers and saves the incoming data to its own

disc. Around midnight, the data that have been saved by the host computer during

the day are taken off the disc and processed either by opening a new file or

combining the data with an existing file. Whether the data furnished by a member

about an applicant become a new file or are combined with an existing file is

determined in accordance with preset criteria stored in MIB’s host computer.

{¶ 5} A request for information on an applicant for insurance is made by a

member’s computer’s contacting MIB and identifying itself to MIB’s front-end

computer. MIB’s front-end computer records the request on a disc and terminates

the communication with the member. The request for information is transferred

from the disc to MIB’s host computer. MIB’s host computer searches for the

requested information and the results of the search are put on a disc at MIB’s front-

end computer. Finally, MIB’s front-end computer contacts the member’s computer

and transmits the results of the search. Inquiries by members are usually answered

in two to five minutes.

{¶ 6} The computers and terminals located in members’ offices that are

used to transmit and receive data are furnished and owned by MIB. With few

exceptions, member companies keypunch their input data, which is sent over

regular telephone lines to MIB using a code furnished by MIB.

{¶ 7} The Tax Commissioner made a use-tax assessment against MIB for

charges made to Ohio companies for the audit period January 1, 1989 through

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December 31, 1991. The charges being appealed are those made by MIB for

receiving and responding to inquiries for information on applicants.

{¶ 8} The Board of Tax Appeals affirmed the Tax Commissioner’s

assessment.

{¶ 9} This cause is now before the court upon an appeal as of right.

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Bricker & Eckler, LLP, Charles F. Glander, Mark A. Engel and Mary W.

Leslie, for appellant.

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

Attorney General, for appellee.

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Per Curiam.

{¶ 10} Appellant first contends that the members’ requests for information

are not taxable under former R.C. 5739.01(B)(3)(e) because the members do not

have direct access to the computer where the information is stored. The essence of

MIB’s contention is that because the members do not have direct control of the

main computer where information is stored, the members do not receive access to

its computer equipment. We disagree.

{¶ 11} Although the tax at issue is the use tax, R.C. 5741.02(C)(2) excepts

from the application of the use tax the acquisition of tangible personal property and

services “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.” Therefore, we will discuss only

whether MIB’s transactions with its members are subject to the sales tax.

{¶ 12} During the audit period, R.C. 5739.01(B)(3)(e) provided:

“(B) ‘Sale’ * * * include[s] all of the following transactions for a

consideration * * *:

“***

“(3) All transactions by which:

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“***

“(e) Automatic data processing or computer services are or are to be

provided for use in business when the true object of the transaction is the receipt by

the consumer of automatic data processing or computer services rather than the

receipt of personal or professional services to which automatic data processing or

computer services are incidental or supplemental.”

{¶ 13} In addition, former R.C. 5739.01(Y)(1) provided:

“ ‘Automatic data processing and computer services’ means: * * *

processing of others’ data, including keypunching or similar data entry services

together with verification thereof; providing access to computer equipment for the

purpose of processing data or examining or acquiring data stored in or accessible

to such computer equipment * * *. ‘Automatic data processing and computer

services’ shall not include personal or professional services.”

{¶ 14} In support of its argument, MIB cites Tax Commr. Op. No. 92-0007

(Apr. 30, 1992), and PNC Bank, Ohio, N.A. v. Tracy (July 7, 1995), BTA No. 93-

T-1316. After reviewing these cases, we find them not helpful or persuasive

because neither is analogous to the fact pattern presented by this case.

{¶ 15} In Quotron Sys., Inc. v. Limbach (1992), 62 Ohio St.3d 447, 584

N.E.2d 658, customers were able to access Quotron’s computers to receive current

pricing information on securities and commodities. In Amerestate, Inc. v. Tracy

(1995), 72 Ohio St.3d 222, 648 N.E.2d 1336, customers were able to contact

Amerestate’s computer to download and print the information desired. In both of

these cases, we held that the services provided were taxable as automatic data

processing and computer services.

{¶ 16} MIB attempts to distinguish its factual situation from Quotron and

Amerestate by pointing out that in those cases the customers had direct access to

the database where the information was stored. However, the wording of the statute

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does not require that the members have direct access to search MIB’s host computer

before their transactions can be taxed.

{¶ 17} Prior to the audit period in this case, the definition of “automatic data

processing and computer services” in former R.C. 5739.01(Y) did require the

vendor to provide “direct access to computer equipment.” 140 Ohio Laws, Part II,

2872, 3220. However, in 1985 the General Assembly amended the definition to

remove the word “direct.” 140 Ohio Laws, Part I, 225, 233.

{¶ 18} During the audit period, former R.C. 5739.01(Y)(1) defined

“automatic data processing and computer services” as “providing access to

computer equipment for the purpose of processing data or examining or acquiring

data stored in or accessible to such computer equipment.” (Emphasis added.) See

142 Ohio Laws, Part I, 1435, 1496.

{¶ 19} The two words in R.C. 5739.01(Y)(1) that are key to our decision

are “access” and “acquiring.” R.C. 1.42 provides that “[w]ords and phrases shall

be read in context and construed according to the rules of grammar and common

usage. Words and phrases that have acquired a technical or particular meaning,

whether by legislative definition or otherwise, shall be construed accordingly.”

{¶ 20} The word “access,” as defined in Webster’s Third New International

Dictionary (1986), at 11, has several meanings, but the ones most appropriate to the

context of this statute are “permission, liberty, or ability to enter, approach,

communicate with” and “freedom or ability to obtain or make use of.” According

to these definitions of “access,” MIB’s members had “access” to MIB’s computer

because they had the ability to communicate with and enter and make use of MIB’s

computer equipment to retrieve the data stored therein.

{¶ 21} The second word of importance in R.C. 5739.01(Y)(1) is

“acquiring.” Again, the word “acquiring” is not defined in the statute; however,

the definition for “acquire” set forth in Webster’s Third New International

Dictionary at 18 is “to come into possession, control, or power of disposal of often

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by some uncertain or unspecified means.” The facts in this case clearly show that

MIB’s members do come into possession of information from MIB’s computers.

The primary purpose of the members for making an inquiry is to acquire the

information stored in MIB’s computers concerning applicants.

{¶ 22} Despite the inability of MIB’s members to search directly the data

stored in MIB’s computer, the members had access to MIB’s computers. Members

were able to access MIB’s computer equipment using the equipment in their offices

provided by MIB. Despite the inability of the members to search MIB’s data files

directly, and despite the members’ requests being routed through several

computers, the members had access to MIB’s computers for the purpose of

examining and acquiring the data stored therein. As the BTA so aptly put it, “the

computers utilized by MIB’s members worked in direct concert with the computers

at MIB to provide that member with access to the information sought by that

member.” Thus, the transactions between MIB and its members qualify as

automatic data processing and computer services.

{¶ 23} MIB argues next that it is rendering a personal service. In support

of this argument, MIB cites three cases: Credit Bur. of Miami Cty. v. Collins (1977),

50 Ohio St.2d 270, 4 O.O.3d 439, 364 N.E.2d 27; Avco Broadcasting Corp. v.

Lindley (1978), 53 Ohio St.2d 64, 7 O.O.3d 145, 372 N.E.2d 350; and Dun &

Bradstreet, Inc. v. Lindley (1981), 66 Ohio St.2d 295, 20 O.O.3d 280, 421 N.E.2d

525. MIB contends that its activities are similar to those granted exemption in these

three cases. We disagree with MIB’s analysis.

{¶ 24} The three cases cited by MIB were all decided prior to the enactment

of the tax on automatic data processing and computer services in 1983. 140 Ohio

Laws, Part II, 2872, 3215. The definition of “automatic data processing and

computer services” contained in former R.C. 5739.01(B)(3)(e) includes as a taxable

sale a transaction in which the “true object of the transaction is the receipt by the

consumer of automatic data processing and computer services rather than the

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receipt of personal or professional services to which automatic data processing or

computer services are incidental or supplemental.” The term “personal or

professional services,” as used in R.C. 5739.01(B)(3)(e), is defined in R.C.

5739.01(Y)(2). In ComTech Sys., Inc. v. Limbach (1991), 59 Ohio St.3d 96, 98,

570 N.E.2d 1089, 1092, we agreed with the Tax Commissioner’s statement that if

there are automatic data processing and computer services involved, then we have

to look to the definition of “personal and professional services” found in former

R.C. 5739.01(Y)(2) to determine whether the services are personal or professional.

See, also, CCH Computax, Inc. v. Tracy (1993), 68 Ohio St.3d 86, 623 N.E.2d 1178.

{¶ 25} R.C. 5739.01(Y)(2) contains a nonexclusive listing, in

subparagraphs (a) through (j), of general and specific examples of personal and

professional services. However, except for credit information, which we will

discuss later, MIB does not refer us to any personal or professional service listed in

R.C. 5739.01(Y)(2) as an example of the type of service it provides for its members.

{¶ 26} The general description of personal and professional services

contained in R.C. 5739.01(Y)(2)(a) states that these are situations “where the

service provider receives data or information and studies, alters, analyzes,

interprets, or adjusts such material.” The data gathered and reported by MIB are

that provided by its members. MIB has not cited any evidence showing that it

alters, analyzes, interprets, or adjusts the data provided by its members. The BTA

found that “[t]here is no evidence that the members are given an interpretation or

analysis of that information.” Thus, MIB’s activities did not provide personal or

professional services within the meaning of R.C. 5739.01(Y)(2).

{¶ 27} MIB’s last contention is that its computer services should be

exempted as personal or professional services under R.C. 5739.01(Y)(2)(i), which

defines as an exempt personal or professional service:

“(i) Providing credit information to users of such information by a

consumer reporting agency, as defined in the ‘Fair Credit Reporting Act,’ 84 Stat.

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1114, 1129 (1970), 15 U.S.C. 1681a(f), or as hereafter amended, including but not

limited to gathering, organizing, analyzing, recording, and furnishing such

information by any oral, written, graphic or electronic medium[.]” (Emphasis

added.)

{¶ 28} The Tax Commissioner contends that in order to qualify for the

exemption set forth in R.C. 5739.01(Y)(2)(i), MIB must show both (1) that it is a

consumer reporting agency and (2) that the information it provides is credit

information. The Tax Commissioner further contends that MIB does not qualify

for the exemption because MIB does not provide access to credit information. We

agree with the Tax Commissioner.

{¶ 29} Although R.C. 5739.01(Y)(2)(i) specifically exempts as a personal

or professional service providing “credit information,” it does not define the latter

term. Likewise, the Fair Credit Reporting Act (“FCRA”), Section 1681 et seq.,

Title 15, U.S.Code, which is referred to in R.C. 5739.01(Y)(2)(i), uses the term

“credit information,” but also fails to define it.

{¶ 30} MIB contends that the term “credit information” was defined in the

context of the FCRA in Fed. Trade Comm. v. TRW, Inc. (N.D.Tex.1991), 784

F.Supp. 361. However, review of that case does not confirm MIB’s contention.

TRW involved a consent order agreed to by the parties without trial adjudication of

any issue of fact or law. In the consent order the parties stated that “[f]or the

purposes of this Order * * * ‘Credit Information’ means the information TRW

maintains bearing on any of the characteristics listed in Sec. 603(d) of the FCRA

[See Section 1681a(d), Title 15, U.S.Code] with respect to any Consumer that TRW

obtains from Subscribers, court records or any other source and from which TRW

creates Consumer Reports.” Id. at 362.

{¶ 31} By its own terms the definition of “credit information” set forth in

TRW is limited to the consent order. The facts recited in the TRW case do not

describe what type of information TRW maintained, or for what purpose the

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information was used. TRW does not establish a definition of “credit information”

for purposes of R.C. 5739.01(Y)(2)(i).

{¶ 32} MIB further contends that it is a “consumer reporting agency” as

defined by FCRA. For purposes of discussion we are willing to accept MIB’s

assertion. Section 1681a(f), Title 15, U.S.Code defines as a “consumer reporting

agency” “any person which, for monetary fees, dues, or on a cooperative nonprofit

basis, regularly engages in whole or in part in the practice of assembling or

evaluating consumer credit information or other information on consumers for the

purpose of furnishing consumer reports to third parties.” (Emphasis added.)

{¶ 33} In turn, FCRA defines a “consumer report” in Section 1681a(d)(1),

Title 15, U.S.Code as:

“[A]ny written, oral, or other communication of any information by a

consumer reporting agency bearing on a consumer’s credit worthiness, credit

standing, credit capacity, character, general reputation, personal characteristics, or

mode of living which is used or expected to be used or collected in whole or in part

for the purpose of serving as a factor in establishing the consumer’s eligibility for—

“(A) credit or insurance * * *.”

{¶ 34} From the above it can be seen that being a consumer reporting

agency does not mean that the information being reported is credit information. A

credit reporting agency can provide consumer reports to third parties on “credit

information or other information.” To determine whether MIB is dealing with

credit information we must look at the word “credit.” Because “credit” is not

defined in R.C. 5739.01(Y)(2)(i), we again follow R.C. 1.42. “Credit” is defined

in Webster’s Third New International Dictionary at 532, as “the balance in a

person’s favor in an account; also: an amount or limit to the extent of which a

person may receive goods or money for payment in the future”; “an amount or sum

placed at a person’s disposal by a bank : a loan of money”; and “time given for

payment for goods or services sold for future payment.” Black’s Law Dictionary

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(6 Ed.1990), at 367, defines “credit” as “[t]he ability of a business or person to

borrow money, or obtain goods on time, in consequence of the favorable opinion

held by the particular lender as to solvency and past history of reliability.” All of

these definitions of “credit” relate in some way to money. The evidence in this case

fails to show that MIB’s reports were related to money or credit as opposed to

insurance. The information reported by MIB related solely to medical or lifestyle

matters, not money matters. One of MIB’s witnesses, an underwriter from a

member company, was asked if any financial information is communicated, and he

said he could not think of any financial information communicated to MIB.

{¶ 35} The evidence clearly established that the information provided by

MIB to its members was used to help determine an applicant’s eligibility for

insurance, not credit. The information provided by MIB to its members was not

“credit information” within the meaning of R.C. 5739.01(Y)(2)(i).

{¶ 36} Accordingly, we find the decision of the Board of Tax Appeals to be

reasonable and lawful, and we therefore affirm it.

Decision affirmed.

MOYER, C.J., RESNICK, F.E. SWEENEY, PFEIFER and COOK, JJ., concur.

DOUGLAS, J., concurs in judgment only.

LUNDBERG STRATTON, J., dissents.

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LUNDBERG STRATTON, J., dissenting.

{¶ 37} I respectfully dissent. I would find that MIB is exempt from taxation

on information that it provides to its members.

{¶ 38} MIB contends that it is a “consumer reporting agency” as defined in

the Fair Credit Reporting Act (“FCRA”), Section 1681 et seq., Title 15, U.S.Code,

and therefore is exempt from taxation pursuant to R.C. 5739.01(Y)(2)(i). The

majority, “[f]or purposes of discussion,” accepts “MIB’s assertion.” However, the

majority concludes that MIB is not a consumer credit agency for tax purposes

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because “[t]he information provided by MIB to its members was not ‘credit

information’ within the meaning of R.C. 5739.01(Y)(2)(i).” I find that the

majority’s analysis is incomplete.

{¶ 39} As the majority notes, a “consumer reporting agency” is “[a]ny

person which, for monetary fees, dues, or on a cooperative nonprofit basis,

regularly engages in whole or in part in the practice of assembling or evaluating

consumer credit information or other information on consumers for the purpose of

furnishing consumer reports to third parties.” (Emphasis added.) Section 1681a(f),

Title 15, U.S.Code.

{¶ 40} Also consistent with the majority’s conclusions, a “consumer report”

communicates consumer credit or other information regarding the consumer for

purposes of establishing the consumer’s eligibility for “credit or insurance.”

(Emphasis added.) Section 1681a(d)(1), Title 15, U.S.Code.

{¶ 41} In determining whether MIB issues a consumer report, as defined in

Section 1681a(d)(1), the majority focuses exclusively on the definition of “credit”

in a financial sense only and finds that MIB’s reports were not related to credit.

The majority ignores the fact that a consumer report may also transmit “other

information” for the purpose of “furnishing consumer reports to third parties” in

order to “establis[h] the consumer’s eligibility for * * * insurance.” This is

precisely what MIB does. MIB assembles and disseminates information that

contains medical and lifestyle information to allow its members to determine an

individual’s insurance eligibility.

{¶ 42} Thus, I would find that MIB is a consumer reporting agency which

is exempt from taxation pursuant to R.C. 5739.01(Y)(2)(i). Accordingly, I would

reverse the Board of Tax Appeals.

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