MIB, Inc. v. Tracy - Ohio Supreme Court Opinion - Ohio Supreme Court Decision

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MIB, INC., APPELLANT, v. TRACY, TAX COMMR., APPELLEE.
[Cite as MIB, Inc. v. Tracy (1998), ___ Ohio St.3d ___.]
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.

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.

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.

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.

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.

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.

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.

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The Tax Commissioner made a use-tax assessment against MIB for charges
made to Ohio companies for the audit period January 1, 1989 through December
31, 1991. The charges being appealed are those made by MIB for receiving and
responding to inquiries for information on applicants.

The Board of Tax Appeals affirmed the Tax Commissioner's assessment.

This cause is now before the court upon an appeal as of right.
__________________

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.
__________________

Per Curiam. 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.

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.

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

"(B) `Sale' * * * include[s] all of the following transactions for a
consideration * * *:

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" * * *

"(3) All transactions by which:

" * * *

"(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."

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."

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.
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.

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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 does not require that the members have direct access to search MIB's host
computer before their transactions can be taxed.

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.

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.

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."

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

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because they had the ability to communicate with and enter and make use of
MIB's computer equipment to retrieve the data stored therein.

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 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.

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.

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

6

525. MIB contends that its activities are similar to those granted exemption in
these three cases. We disagree with MIB's analysis.

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
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.

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.

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

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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).

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.
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.)

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.

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.

8

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.

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 information
was used. TRW does not establish a definition of "credit information" for
purposes of R.C. 5739.01(Y)(2)(i).

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.)

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

9

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 * * *."

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
(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.
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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).

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.
__________________

LUNDBERG STRATTON, J., dissenting. I respectfully dissent. I would find
that MIB is exempt from taxation on information that it provides to its members.

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
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.

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
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furnishing consumer reports to third parties." (Emphasis added.) Section
1681a(f), Title 15, U.S.Code.

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.

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.

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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