# Rowe-Reilly Corp. v. Tracy

> Ohio Supreme Court · June 16, 1999 · 85 Ohio St. 3d 625

URL: https://www.frixlaw.com/law-library/cases/11151557

## Case

- **Court:** Ohio Supreme Court
- **Decided:** June 16, 1999
- **Citations:** 85 Ohio St. 3d 625; 1999 Ohio 326
- **Precedential status:** Published
- **Opinion:** Opinion
- **Judges:** Douglas, J.
- **Cited by:** 1 later opinions in the Frix Law Library

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## Opinion text

[This opinion has been published in Ohio Official Reports at 85 Ohio St.3d 625.]

ROWE-REILLY CORPORATION, D.B.A. ROUGH BROTHERS, APPELLANT, v.
TRACY, TAX COMMR., APPELLEE.
[Cite as Rowe-Reilly Corp. v. Tracy, 1999-Ohio-326.]
Taxation—Personal property tax on inventory of corporation engaged in the
business of selling various items to be used in the installation, operation,
and maintenance of greenhouses—Board of Tax Appeals’ decision
affirming assessments by Tax Commissioner that taxed as personal
property certain items of inventory is contrary to law and not supported by
the record, when.
(No. 98-1013—Submitted March 30, 1999—Decided June 16, 1999.)
APPEAL from the Board of Tax Appeals, Nos. 96-K-460, 96-K-461 and 96-K-462.
__________________
{¶ 1} Appellant, Rough Brothers,1 is a corporation with its principal place
of business in Cincinnati, Ohio. Appellant is engaged in the business of selling
various items to be used in the installation, operation, and maintenance of
greenhouses. Many of appellant’s customers are engaged in the growing of plants
and flowers in greenhouses. Appellant’s customers have also included retail
establishments such as Home Depot, as well as a pharmaceutical company and a
shopping mall.
{¶ 2} Appellant’s business consists of purchasing inventory items from
third-party suppliers. The inventory that appellant obtains includes items that form
the greenhouse structure, equipment that controls the growing environment of the
greenhouse, and benches used to set and irrigate plants and flowers. Appellant

1. During part of the assessment period in the instant matter, appellant’s corporate name was Rowe-
Reilly Corporation and it conducted business under the name of “Rough Brothers.” However, in
1991, appellant changed its corporate name to Rough Brothers, Inc.
SUPREME COURT OF OHIO

maintains an inventory of certain of these items in its warehouse, and the inventory
items are listed for sale in appellant’s “Greenhouse Supply Catalogue.” In essence,
appellant uses its inventory to design greenhouse structures to meet the needs and
specifications of its customers.
{¶ 3} Typically, appellant will receive an order from a customer through
one of appellant’s sales personnel. After receiving certain information from a
salesperson, appellant engineers and designs the ordered enclosure to meet the
customer’s specifications. Appellant then determines what equipment is needed
for the greenhouse design, calculates the costs for the order, pulls the needed items
from its inventory, and delivers the order to the customer’s job site. On occasion,
appellant orders items from a supplier and has those items shipped directly to a job
site. In order to meet a customer’s particular specifications, it may be necessary for
appellant to modify certain inventory items. Upon request, appellant will aid its
customers, as well as facilitate its own inventory sales, by providing construction
services.
{¶ 4} For tax years 1988 through 1993, appellant reported, for tax purposes,
its entire inventory as “agricultural merchandise.” Pursuant to former and current
R.C. 5701.08, appellant claimed an exemption from the personal property tax by
identifying itself as a merchant and listing all of the items in its inventory as
machinery and equipment designed and built for agricultural use. The Tax
Commissioner, appellee, however, found that appellant’s inventory did not qualify
as agricultural merchandise and therefore was not exempt from taxation as personal
property. The Tax Commissioner, therefore, entered assessments against appellant.
{¶ 5} On appeal, the Board of Tax Appeals (“BTA”) affirmed the Tax
Commissioner’s order. The BTA determined that appellant was a merchant but
found that the contested items in appellant’s inventory were not machinery and
equipment. Further, the BTA found that there was no evidence in the record to
indicate that the inventory items in question were necessarily designed and built for

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agricultural use. The BTA also held that appellant did not qualify for the personal
property exemption because appellant failed to comply with Ohio Adm.Code 5703-
3-30, in that it failed to segregate items in its inventory that qualified for the
exemption from those items that did not.
{¶ 6} Chairman Kiehner Johnson of the BTA dissented. Johnson agreed
with the majority opinion that appellant is a merchant, but disagreed with the
majority in that the chairman determined that appellant’s inventory did qualify as
machinery and equipment designed and built for agricultural use. Johnson also
concluded that appellant properly listed its inventory pursuant to Ohio Adm.Code
5703-3-30 as exempt agricultural property.
{¶ 7} Appellant has appealed the decision and order of the BTA to this
court. The cause is now before us upon an appeal as a matter of right.
__________________
Kegler, Brown, Hill & Ritter, Paul D. Ritter, Jr., Melvin D. Weinstein and
Lynda G. Loomis, for appellant.
Betty D. Montgomery, Attorney General, and Duane M. White, Assistant
Attorney General, for appellee.
__________________
DOUGLAS, J.
{¶ 8} This is an appeal from a decision of the BTA wherein the BTA
affirmed assessments by the Tax Commissioner that taxed as personal property
certain items of inventory owned by the appellant. The assessments levied against
the appellant were for tax years 1988 through 1993.2

2. The Tax Commissioner made three final determinations affirming preliminary assessments for
tax years 1988 and 1989, 1990 and 1991, and 1992 and 1993, respectfully. Appellant filed three
separate appeals with the BTA, case Nos. 96-K-460, 96-K-461, and 96-K-462. The BTA
consolidated the appeals for hearing, post-hearing briefing, and final determination.

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{¶ 9} During the tax years in question in this matter, R.C. 5709.01(B)
provided in pertinent part that unless otherwise expressly exempted from taxation:
“(1) All personal property located and used in business in this state * * *
[is] subject to taxation * * *.”
{¶ 10} For tax years 1988 to mid-1991, R.C. 5701.08 provided in pertinent
part:
“(A) Personal property is ‘used’ within the meaning of ‘used in business’
when employed or utilized in connection with ordinary or special operations, when
acquired or held as means or instruments for carrying on the business, * * * or when
stored or kept on hand as material, parts, products, or merchandise. * * * Leased
property used by the lessee exclusively for agricultural purposes and new or used
machinery and equipment and accessories therefor that are designed and built for
agricultural use and owned by a merchant as defined in section 5711.15 of the
Revised Code are not considered to be ‘used’ within the meaning of ‘used in
business.’ ” (140 Ohio Laws, Part II, 3173.)
{¶ 11} R.C. 5701.08, as amended by Am.Sub.H.B. No. 298, effective July
26, 1991, provides in pertinent part:
“(A) Personal property is ‘used’ within the meaning of ‘used in business’ *
* *.
“***
“(C) Leased property used by the lessee exclusively for agricultural
purposes and new or used machinery and equipment and accessories therefor that
are designed and built for agricultural use and owned by a merchant as defined in
section 5711.15 of the Revised Code are not considered to be ‘used’ within the
meaning of ‘used in business.’ ” (144 Ohio Laws, Part III, 4408-4409.)
{¶ 12} The Tax Commissioner promulgated a rule found in Ohio
Adm.Code 5703-3-30 that sets forth the criteria needed to qualify for the personal

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property tax exemption under the provisions of R.C. 5701.08. Ohio Adm.Code
5703-3-30 provides:
“Pursuant to division (A)[C] of section 5701.08 of the Revised Code * * *
new or used machinery and equipment and accessories therefor which are designed
and built for agricultural use and owned by a merchant, as defined in section
5711.15 of the Revised Code, are not considered ‘used in business’ and, therefore,
not subject to personal property tax under the provisions of division (B)(1) of
section 5709.01 of the Revised Code.
“To qualify for this exception such property must meet all of the following
conditions:
“(A) It must be owned by a merchant. Property consigned to a merchant
does not qualify. Also, a manufacturer is not a merchant with regard to property he
manufacturers.
“(B) It must be machinery and equipment, or accessories therefor. Tools
and implements do not qualify. Qualifying accessories are those that are usable
only when attached to or coupled with qualifying machinery and equipment.
“(C) It must be designed and built for agricultural use. Typical qualifying
items include balers, combines, cultivators, driers, feed grinders, harrows, rotary
hoes, mills, pickers, planters, plows, shellers, and silo fillers. Also qualifying are
farm-type loaders, spreaders, tillers, tractors, and wagons. However, neither home
lawn and garden-type items, nor general-use items such as bulldozers, graders,
trenchers, and trucks, shall be considered as designed and built for agricultural use.”
{¶ 13} We note preliminarily that we agree with the BTA’s determination
that appellant is a “merchant” as that term is defined by R.C. 5711.15. However,
we do not agree with the remainder of the majority decision of the BTA in this
cause. For the following reasons, we reverse the decision of the BTA and remand
this cause for further proceedings consistent with this opinion.
I

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{¶ 14} Appellant argues that its inventory, items that are sold to its
customers to construct, operate, and maintain greenhouses that are used in the
growing of plants and flowers, is machinery and equipment designed and built for
agricultural use and, thus, is exempt from personal property taxation pursuant to
R.C. 5701.08. Appellant contends that the BTA erred when it concluded that the
inventory items were not machinery and equipment. Appellant further contends
that the BTA improperly held that there was no evidence in the record that
appellant’s inventory was designed or built for agricultural use.
{¶ 15} The BTA held that “[b]ased upon the evidence and testimony
presented, we find that the items under consideration do not meet the second and
third criteria [of Ohio Adm.Code 5703-3-30]. Specifically, the contested items
herein are not machinery or equipment, but are inventory; they are parts, which in
combination, can be used to construct a structure, which, if a customer so chooses,
will be utilized in the growing of plants. [Footnote omitted.] Further, there is no
evidence in the record to indicate that any of the inventory items in question are
necessarily designed or built for agricultural pursuits. The inventory parts, as listed,
are used by appellant’s customers for the construction of greenhouses and
sometimes, other structures not related to agriculture. However, there is no
evidence in the record to indicate that this inventory was specifically built and
designed for use in agriculture, and arguably, the items could be used for other
pursuits, unrelated to agriculture * * *.” (Emphasis sic.)
{¶ 16} This court has previously determined that it will not reverse a
decision of the BTA that is reasonable and lawful based upon the record and
evidence submitted. See SFZ Transp., Inc. v. Limbach (1993), 66 Ohio St.3d 602,
613 N.E.2d 1037. “A review as to the reasonableness and lawfulness of the agency
decision necessarily includes an examination of the record ‘to examine the evidence
and determine as to the ultimate facts established by it, and whether such ultimate
facts furnished sufficient legal predicate upon which to base the order complained

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of.’ * * * ‘The fact that a question of law involves a consideration of the facts or
the evidence, does not turn it into a question of fact or raise a factual issue; nor does
that consideration involve the court in weighing the evidence or passing upon its
credibility.’ ” (Citations omitted.) Id. at 605, 613 N.E.2d at 1040. In SFZ
Transportation, the court concluded that the BTA’s rejection of “uncontradicted
data * * * is not the sort of weighing of evidence or determination of credibility to
which we must defer.” Id.
{¶ 17} The BTA concluded that there was no evidence in the record before
the board that appellant’s inventory was necessarily designed and built for
agricultural use. The BTA also determined that items in appellant’s inventory could
be used in pursuits unrelated to agriculture. We disagree.
{¶ 18} In Benken v. Porterfield (1969), 18 Ohio St.2d 133, 47 O.O.2d 287,
247 N.E.2d 749, syllabus, the court held that the growing and selling of plants in
greenhouses is agriculture. In the case now before us, appellant’s president, Albert
Reilly, was the sole witness before the BTA. Reilly repeatedly testified that
appellant’s inventory included items that are used in the construction and repair of
greenhouses as well as equipment intended to control the growing environment
inside the greenhouse. Reilly further testified that appellant’s inventory was
purchased from third-party suppliers and was held for sale to customers engaged in
the business of “[g]rowing, maintaining or selling horticultural products.” Reilly
indicated that, during the tax years in question, appellant’s inventory sales did not
reflect any sales to customers other than those engaged in the growing of plants and
flowers. Moreover, appellant’s sales catalogues clearly indicate that the inventory
items in question were intended to be used in the construction, operation, and repair
of greenhouses.
{¶ 19} A majority of the BTA apparently rejected or ignored what we
believe to be uncontroverted evidence regarding the intended and subsequent use
of appellant’s inventory items. As we admonished in SFZ Transportation, the court

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will not defer to such determinations by the BTA. SFZ Transp., Inc. v. Limbach,
66 Ohio St.3d at 605, 613 N.E.2d at 1040.
{¶ 20} Reilly did testify that appellant’s inventory items could be used for
other purposes, e.g., a swimming pool cover. However, for the tax years at issue,
we have found no direct evidence in the record that would lead us to conclude
appellant’s inventory items were used for purposes other than in the construction,
operation, and maintenance of greenhouses. We therefore find that the evidence
submitted to the BTA overwhelmingly established that appellant’s inventory during
the time in question was designed and built for agricultural use and ultimately used
for such purposes, and that the BTA erred in holding otherwise.
{¶ 21} The BTA also determined that the contested items in appellant’s
inventory are not machinery or equipment pursuant to the provisions of R.C.
5701.08 and Ohio Adm.Code 5703-3-30. However, in Benken v. Porterfield, 18
Ohio St.2d at 138, 47 O.O.2d at 289, 247 N.E.2d at 753, the court found some
property, similar to certain items at issue in this case, to be equipment and
machinery used in agriculture. Among those items included were lath houses,
plumbing and heating equipment, planting benches, and fans. See Benken v.
Porterfield (July 9, 1968), BTA No. 66931, unreported. In fact, the BTA indicated
that some of appellant’s inventory, specifically heating, ventilation, and shading
equipment, may qualify as “equipment” if the evidence established that it was
designed and built for agriculture. We have already deemed that there is sufficient
evidence in the record to conclude that appellant’s inventory for the years in
question was designed and built for agricultural use. Thus, the only question that
remains is to determine specifically those items included in appellant’s inventory
that qualify as “machinery and equipment,” in order for those items to be statutorily
exempt from personal property tax pursuant to R.C. 5701.08. We therefore remand
this question to the BTA for consideration and determination whether any of the

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items in appellant’s inventory qualify as “machinery and equipment, or [and]
accessories therefor,” pursuant to R.C. 5701.08 and Ohio Adm.Code 5703-3-30.
II
{¶ 22} In a secondary holding, the BTA determined that appellant could not
qualify for the agricultural-use-personal-property exemption, since it failed to
properly list its property in accordance with Ohio Adm.Code 5703-3-30. Ohio
Adm.Code 5703-3-30 provides:
“A merchant shall be required to disclose in his personal property tax return
all property held for sale, segregating property qualifying for this exception from
non-qualifying property, and list the monthly-ending values of all non-qualifying
property in ‘Schedule 3A.’ ”
{¶ 23} Appellee argues, and the BTA agreed, that appellant may not claim
an exemption for property that it fails to properly list on its personal property tax
return. In contrast, appellant contends that it fully complied with Ohio Adm.Code
5703-3-30 because it listed its entire inventory on its balance sheets as qualifying
for the R.C. 5701.08 exemption. In other words, appellant argues that since none
of the items in its inventory was “non-qualifying,” it was not required to list any
non-qualifying property in Schedule 3A.
{¶ 24} We find that appellant properly complied with the listing
requirements of Ohio Adm.Code 5703-3-30. Ohio Adm.Code 5703-3-30 requires
a merchant to segregate property qualifying for the agricultural-use-personal-
property exemption from non-qualifying property and list the month-ending values
of the non-qualifying property in Schedule 3A. Since appellant claimed that its
entire inventory qualified for the exemption, it obviously follows that there was no
property remaining to list as non-qualifying. It would be nonsensical to hold that
appellant failed to comply with the listing requirements of Ohio Adm.Code 5703-
3-30 before the taxability of said property has been determined by the Tax
Commissioner. Any conclusion to the contrary is unreasonable and unlawful. See

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First Banc Group of Ohio v. Lindley (1981), 68 Ohio St.2d 81, 22 O.O.3d 297, 428
N.E.2d 427.
III
{¶ 25} Accordingly, we find that the BTA’s conclusions in this matter are
contrary to law and not supported by the record before this court. We therefore
reverse the decision of the BTA and remand this matter to it for final determination
consistent with this opinion.
Decision reversed
and cause remanded.
MOYER, C.J., RESNICK, F.E. SWEENEY, PFEIFER, COOK and LUNDBERG
STRATTON, JJ., concur.
__________________

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/11151557. Public record. Not legal advice.