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Ohio Use Tax on Data Center Materials Upheld

Tax Development Sep 15, 2023

Ohio Use Tax on Data Center Materials Upheld

Daimler Group (“Daimler”) constructed a data center for PCM Inc. (“PCM”) in New Albany, Ohio in 2013. During a sales and use tax audit, an Ohio auditor found certain construction items that should have been taxed to PCM, not Daimler, because the items were tangible personal property, not real property. Tax, penalty, and interest assessed totaled close to $700,000 due from PCM related to these findings.

A petition for reassessment with the tax commissioner was filed by a PCM employee in March 2018. The non-attorney employee checked the box on the petition requesting the following: “Please decide this matter based upon the information submitted. No hearing is requested.” The request for reassessment was based in part on Ohio Admin Code 5703-9-14(D)(1), which addresses the operation of the use tax law in the construction process. Additionally, the petition claimed that all taxes required on the materials incorporated into the real property were included in billings and paid by Daimler to each of its vendors. Daimler provided a letter as proof of this claim to be included in the petition.

The tax commissioner upheld the assessment in a final determination issued in January 2020, claiming that PCM did not identify the specific transactions it objected to or provide any rationale explaining why the assessed items were not business fixtures. PCM failed to provide any invoices, receipts, or spreadsheets as proof of Daimler’s tax payments. The petition denial followed the Board of Tax Appeals’ (BTA’s) decision in Meijer, Inc. v. Tracy,1 which held that Ohio’s tax statutes “contain no provision for crediting taxes paid by one consumer to the account of another.”

Following this determination, the non-attorney employee filed a notice of appeal to the BTA but mistakenly did not ask for a hearing. When the employee later requested a hearing, it was denied for lack of good cause in not requesting the hearing in the original filing. The BTA affirmed the tax commissioner’s final determination, which PCM appealed to the Supreme Court of Ohio. In its ruling,2 the court agreed with the tax commissioner, stating that a mere quotation of a statute does not constitute an objection within the meaning of R.C. 5739.13(B) to the assessment of use tax, and PCM failed to identify other objected transactions. The court also concluded that PCM forfeited several arguments because it did not timely raise those arguments during the petition-for-reassessment phase of this case.

Lesson to be learned is to make sure you hire an experienced professional to assist in the filing of a protest. Secondly, make sure you have clear, concise, and contemporaneous documentation of your transactions to enable a well-developed protest of an assessment. Contact our tax experts today for assistance. 

1 BTA No. No. 97-M-1618, 2001 WL 128079 (February 8, 2001).

2 PCM, Inc. v. Harris, Slip Opinion No. 2023-Ohio-2974.


Jim Payerle

Brian Stromen

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