United Tel. Co. of Ohio v. Limbach - Ohio Supreme Court Opinion - Ohio Supreme Court Decision

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OPINIONS OF THE SUPREME COURT OF OHIO

**** SUBJECT TO FURTHER EDITING ****

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United Telephone Company of Ohio, Appellant, v. Limbach, Tax
Commr., Appellee.
[Cite as United Tel. Co. of Ohio v. Limbach (1994), Ohio
St.3d .]
Taxation -- Tangible personal property owned by a public utility
telephone company which is not "used in business" is not
subject to personal property tax -- R.C. 5709.01 and
former R.C. 5727.06, harmonized.
Tangible personal property owned by a public utility telephone
company which is not "used in business" is not subject to
personal property tax. (R.C. 5709.01 and former 5727.06,
harmonized.)
(No. 93-2428 -- Submitted November 16, 1994 -- Decided
December 23, 1994.)
Appeal from the Board of Tax Appeals, Nos. 91-Z-197,
91-Z-198 and 91-Z-199.
This matter is before the court on an appeal by United
Telephone Company of Ohio ("United Telephone"), appellant, from
a decision of the Board of Tax Appeals ("BTA"), appellee,
affirming the disallowance by the Tax Commissioner of Ohio
("commissioner") of certain deductions taken by United
Telephone on its personal property tax returns for the 1987,
1988, and 1989 tax years.
United Telephone is a public utility that provides local
and toll access telephone service to its business and
residential customers in Ohio. The company maintains one
hundred eighty-eight central offices, each of which contains a
main distribution frame ("MDF"), which act as switching
stations. Cables containing a number of insulated wire pairs
or fibers are connected to the MDF at each central office. At
the customer's end, fiber or wires inside the cables are
connected to "drop lines" which go into residences or
businesses. Each wire pair or two fibers make a two-way
conversation possible.
During the tax years at issue United Telephone used three

kinds of cable to provide service to its customers: copper
wire cable, coaxial cable, and fiberoptic cable. United
Telephone classifies its wire pairs or optical fibers inside
its cables according to their current use. Two classifications
of wire pairs or fibers are at issue in this case: "dead
pairs" or "dead fiber" and "bad pairs" or "bad fiber." Dead
pairs and dead fiber are not connected to either an MDF or a
customer's drop line, and are included in cables to provide
excess capacity for the company to provide service to future
new customers. Bad pairs and bad fiber are wire pairs and
fiber which have been damaged, have malfunctioned, or have
simply worn out. In such an instance United Telephone switches
service from that "bad pair" or "bad fiber" to an available
operable pair or fiber within the same cable.
United Telephone deducted the value of both its dead and
bad pairs or fiber on its 1987, 1988 and 1989 personal property
tax returns as property not "used in business" and therefore
not personal property subject to taxation. It claimed
deductions in the amount of $62,434,757, $68,388,234 and
$75,098,071 for the 1987, 1988, and 1989 tax years,
respectively.
The Tax Commissioner disallowed United's claimed
deductions for the value of the dead and bad pairs or fiber,
affirmed the assessments, and issued Certificates of
Determination for all three tax years. United Telephone
appealed the commissioner's order in each case to the BTA. The
BTA consolidated the appeals, and, after a hearing, affirmed
the commissioner's orders. This matter is now before this
court as an appeal as of right.

Jones, Day, Reavis & Pogue, Maryann B. Gall, Michael
Dubetz, Jr., Jeffrey S. Sutton and George N. Nicholas; and W.
Wayne Walston, for appellant.
Lee Fisher, Attorney General, and James C. Sauer,
Assistant Attorney General, for appellee.

A. William Sweeney, J. Both the commissioner and the
BTA found, pursuant to R.C. 5727.06 as amended in 1982, that
all of United Telephone's tangible personal property "owned and
located in this state" was subject to personal property tax,
including property not "used in business." The BTA held that
amendments resulting from the enactment of Am.Sub.H.B. No. 201,
effective December 31, 1982, removed any former requirement
that a public utility's personal property must be "used in
business" to be taxable. We reverse.
R.C. 5709.01 establishes the general principle that all
personal property located and "used in business" in Ohio is
taxable unless expressly exempted. The statute provides, in
part, as follows:
"(B) Except as provided by division (C) of this section or
otherwise expressly exempted from taxation:
"(1) All personal property located and used in business in
this state, *** [is] subject to taxation regardless of the
residence of the owners thereof." (Emphasis added.)
In Hatchadorian v. Lindley (1986), 21 Ohio St.3d 66, 68,
21 OBR 365, 367, 488 N.E. 2d 145, 147, we noted that property
that is not "used in business" within the meaning of R.C.

5701.08 is properly excludable from personal property tax.
Thus, while R.C. 5709.01 establishes the rule that personal
property "used in business" is subject to personal property
tax, we have recognized that the statutes establish a corollary
rule that tangible personal property not "used in business" is
not taxable.
R.C. Chapter 5727 codifies laws governing the taxation of
public utilities such as the appellant herein, United
Telephone. Prior to 1982, R.C. 5727.06 provided in relevant
part:
"The property owned or operated by a public utility
required to make a return to the tax commissioner of its
property to be assessed for taxation by the commissioner shall
include such utility's plant, all real estate owned by the
public utility and all other property, including that mentioned
in section 5709.02 of the Revised Code, owned or operated by it
wholly or in part within this state, used in connection with or
as incidental to the operation of the public utility, where the
same is held in common or by the individuals operating such
public utility. ***" (Emphasis added.) (133 Ohio Laws, Part
III, 2525-2526.)
The descriptive phrase "used in connection with or as
incidental to the operation of" was removed from R.C. 5727.06
by enactment of Am.Sub.H.B. No. 201. During the tax years in
question, the amended statute provided substantially as follows:
"Except as otherwise provided by law, the taxable property
of a public utility required to be assessed by the tax
commissioner is each kind of property mentioned in section
5709.02 of the Revised Code and: ***
"(A) In the case of a railroad, all real property and
tangible personal property owned or operated in this state ***;
"(B) In the case of all other public utilities except
freight line and equipment companies, all tangible personal
property owned and located in this state on the thirty-first
day of December of the preceding year." (Emphasis added.) (139
Ohio Laws, Part I, 2054.)
The commissioner argues that R.C. 5709.01 is a general
statute which contradicts former R.C. 5727.06, a special
statute. The commissioner contends that former R.C. 5727.06
should be deemed to prevail over R.C. 5709.01, and that all of
United Telephone's personal property "owned and located in this
state" should be subject to tax irrespective of whether that
property is "used in business." However, R.C. 1.51 directs us
to first construe conflicting statutory provisions, where
possible, to give effect to both. Only where the conflict is
deemed irreconcilable does R.C. 1.51 mandate that one provision
shall prevail over the other. We have judicially recognized
similar rules of statutory construction:
"First, all statutes which relate to the same general
subject matter must be read in pari materia. See Maxfield v.
Brooks (1924), 110 Ohio St. 566, 144 N.E. 725; State, ex rel.
Bigelow, v. Butterfield (1936) 132 Ohio St. 5, 6 O.O. 490, 4
N.E. 2d 142. And, in reading such statutes in pari materia,
and construing them together, this court must give such a
reasonable construction as to give the proper force and effect
to each and all such statutes. Maxfield v. Brooks, supra. The
interpretation and application of statutes must be viewed in a

manner to carry out the legislative intent of the sections.
See Benjamin v. Columbus (1957), 104 Ohio App. 293, 4 O.O. 2d
439, 148 N.E.2d 695, affirmed (1957), 167 Ohio St. 103, 4
O.O.2d 113, 146 N.E.2d 854; In re Hesse (1915), 93 Ohio St.
230, 112 N.E. 511. All provisions of the Revised Code bearing
upon the same subject matter should be construed harmoniously.
State v. Glass (1971), 27 Ohio App.2d 214, 56 O.O.2d 391, 272
N.E.2d 893; State v. Hollenbacher (1920), 101 Ohio St. 478, 129
N.E. 702. This court in the interpretation of related and
co-existing statutes must harmonize and give full application
to all such statutes unless they are irreconcilable and in
hopeless conflict. Couts v. Rose (1950), 152 Ohio St. 458, 40
O.O. 482, 90 N.E.2d 139." Johnson's Markets, Inc. v. New
Carlisle Dept. of Health (1991), 58 Ohio St.3d 28, at 35, 567
N.E.2d 1018, 1025.
Applying these principles to the case at bar, we note that
former R.C. 5727.06 does not expressly exempt public utilities
from the mandate of R.C. 5709.01 ("Except as *** otherwise
expressly exempted from taxation, [a]ll personal property
located and used in business in this state, *** [is] subject to
taxation." [Emphasis added.]). Nor does former R.C. 5727.06
describe tangible property owned by a utility and located as
"subject to taxation" as does R.C. 5709.01. The legislature's
expressed purpose in enacting Am.Sub. H.B. No. 201 was to amend
existing law so as "to require county auditors, instead of the
Tax Commissioner, to assess the real property of all public
utilities except railroads." (139 Ohio Laws 2043.)1
Consistent with these rules of statutory interpretation, we
conclude that the General Assembly removed the phrase "used in
connection with *** the operation of" a public utility in
amending R.C. 5727.06 in 1982 because it found that language
superfluous in light of the "used in business" requirement set
forth in R.C. 5709.01. Our conclusion is reinforced by the
legislature's inclusion of the introductory phrase "except as
otherwise provided by law" in the amended version of R.C.
5727.06. We thus do not read former R.C. 5727.06 as removing
the "used in business" requirement established in R.C.
5709.01. This construction harmonizes and gives effect to both
sections, as we are bound to do when possible. United
Telephone was not required to pay personal property tax on
property not "used in business." We therefore hold that
tangible personal property owned by a public utility telephone
company which is not "used in business" is not subject to
personal property tax.
Having determined that personal property not "used in
business" by the taxpayer is not taxable, the decision of the
BTA is unreasonable and unlawful, and we reverse and remand
this cause to the BTA for further proceedings to determine
whether the dead and bad pairs and fiber at issue were "used in
business." In so doing, the BTA should apply R.C. 5701.08 in
accordance with the principles set forth in Hatchadorian,
supra, and Dayton Press, Inc. v. Limbach (1989), 42 Ohio St.3d
101, 537 N.E.2d 219, which we today affirm.
Decision reversed
and cause remanded.
Moyer, C.J., Douglas, Wright, F.E. Sweeney and Pfeifer,
JJ., concur.

Resnick, J., concurs in the syllabus and judgment only.

FOOTNOTE:
1 Prior to these 1982 amendments, the county auditor was
the designated assessor of all real estate in the county except
that owned by public utilities (both railroads and other
utilities). See former R.C. 5713.01. (138 Ohio Laws, Part II,
2910.)