Chrysler Corp. v. Tracy - Ohio Supreme Court Opinion - Ohio Supreme Court Decision

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OPINIONS OF THE SUPREME COURT OF OHIO
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Chrysler Corporation, Appellant, v. Tracy, Tax Commr., Appellee.
[Cite as Chrysler Corp. v. Tracy (1995), Ohio St.3d .]
Taxation -- Sales and use taxes -- Natural gas companies which
merely market natural gas not included within definition
of "natural gas company" in R.C. 5739.02(B)(7) and are not
exempt from sales tax.
(No. 94-380 -- Submitted April 18, 1995 -- Decided August
9, 1995.)
Appeal from the Board of Tax Appeals, No. 91-K-1523.
During the natural gas shortages beginning in 1973, the
Public Utilities Commission of Ohio encouraged large industrial
consumers to purchase natural gas through independent natural
gas marketers. This program expanded to states neighboring
Ohio. Ultimately, the Federal Power Commission, predecessor to
the Federal Energy Regulatory Commission, adopted a national
program. Under the program, independent marketers obtained
natural gas from producers and arranged to transport it over
the national pipeline network to customers. After the
shortages in the seventies abated, the program continued
because the independent marketers were able to sell the natural
gas for less than the regulated public utility companies.
Chrysler purchased natural gas from Yankee Resources, Inc.,
later renamed Access Energy Corporation ("Access"). Under
their agreement, Access supplied Chrysler with whatever natural
gas Chrysler needed in addition to Chrysler's purchases from
East Ohio Gas Company. Chrysler heated its plant and offices
with the disputed natural gas.
Access purchases natural gas from producers located in
Ohio and other states and arranges to transport the natural gas
through pipeline company facilities and local distribution
companies, for which it pays a fee. The local distribution
company, East Ohio Gas Co. in this case, then delivers natural
gas to Chrysler. Chrysler does not receive the exact natural
gas that Access puts in the system. Access's president likened
the process, which he called displacement sales, to depositing
$100 in an automatic teller machine and withdrawing the same
amount of money, but not the same $100, at another location.
According to the contract, title to the natural gas passes to

Chrysler at the delivery point, i.e., "the point or points of
interconnection between [Access's] supply of natural gas and
the pipeline facilities of East Ohio [Gas Co.] for ultimate
delivery to [Chrysler]."
Moreover, Access does not hold itself out to an indefinite
public to sell natural gas; it negotiates contracts with
customers to provide the natural gas. It does not own any
facilities to produce, transport, or distribute natural gas.
Access does not pay any public utility tax, and no government
unit has granted Access any rights or franchises to operate a
public utility.
Furthermore, Access, when known as Yankee Resources, Inc.,
obtained relief from regulation from the Public Utilities
Commission. In In the Matter of the Application of Yankee
Resources, Inc., (Sept. 9, 1982), PUCO No. 82-1086-GA-ARJ,
unreported, the commission determined that Access's activities
were "not the type which fall under the definition of a natural
gas company or pipe-line company." The commission described
Access's activities as marketing or brokering gas and found
that Access was "not a public utility."
The commissioner assessed sales and use taxes against
Chrysler on its purchases of natural gas from Access during the
audit period January 1, 1987 through June 30, 1990. He found
that Access was not a natural gas company under R.C. 5727.01.
On appeal, the Board of Tax Appeals ("BTA") affirmed. The BTA
concluded that Access was a natural gas marketer that only
temporarily acquired title to the natural gas to facilitate
transportation and distribution of natural gas to the
customer. It concluded that the General Assembly did not
intend "to include within the definition of natural gas
companies those entities which merely market natural gas."
Thus, according to the BTA, the disputed purchases are not
exempt under R.C. 5739.02(B)(7).
The cause is now before this court upon an appeal as of
right.

Teaford, Rich, Coffman & Wheeler and Robert J. Kosydar,
for appellant.
Betty D. Montgomery, Attorney General, and Barton A.
Hubbard, Assistant Attorney General, for appellee.
Emens, Kegler, Brown, Hill & Ritter, Paul D. Ritter Co.,
L.P.A., and Holly R. Fischer, urging affirmance for amicus
curiae, Enron Access Corp.
Emens, Kegler, Brown, Hill & Ritter Co., L.P.A., Thomas W.
Hill and O. Judson Scheaf III, urging affirmance for amicus
curiae, Ohio Gas and Oil Association, Inc.

Per Curiam. R.C. 5739.02(B)(7) states:
"(B) The [sales] tax does not apply to the following:
"* * *
"(7) Sales of natural gas by a natural gas company * * *,
if in each case the thing sold is delivered to consumers
through * * * pipes, * * * all terms as defined in section
5727.01 of the Revised Code[.]"
Former R.C. 5727.01(E)(4), now (D)(4), states:
"Any person:
"* * *

"(4) Is a natural gas company when engaged in the
business of supplying natural gas for lighting, power, or
heating purposes to consumers within this state[.]"
Chrysler argues that Access supplies it with natural gas
because it purchases the natural gas and sells it to Chrysler.
Accordingly, Chrysler contends that Access is a natural gas
company and its sales to Chrysler are exempt. The commissioner
responds that Access is an unregulated natural gas marketer and
does not own or control any physical assets to produce,
transport, or distribute natural gas. Thus, the commissioner
reasons that Access is not "supplying" natural gas and is not a
natural gas company.
This case turns on whether Access is "supplying" Chrysler
with natural gas. According to R.C. 1.42:
"Words 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."
We conclude that the Public Utility Commission's decision
in In the Matter of the Application of Yankee Resources, Inc.,
supra, provides a technical or particular meaning to the term
"supplying." In that matter, the commission held that Yankee,
Access's predecessor, was not a natural gas company and, hence,
not a public utility. Yankee operated then exactly as Access
does now in this case. It purchased natural gas, taking title
to it as in the instant case, arranged to transport it through
pipelines, and sold it to contract customers
Accordingly, Access is a not natural gas company because
it is not engaged in the business of supplying natural gas to
Chrysler, and its sales of natural gas to Chrysler are taxable.
Consequently, we affirm the BTA's decision because it is
reasonable and lawful.
Decision affirmed.
Moyer, C.J., Douglas, Wright, Resnick, F.E. Sweeney,
Pfeifer and Cook, JJ., concur.