Ohio Supreme Court Decision Clarifies the Rules on Appeals Before the Tax Commissioner and Board of Tax Appeals
In a unanimous decision, the Ohio Supreme Court distinguished between the jurisdiction of the Board of Tax Appeals (BTA) over an appeal generally, and its authority with respect to specific issues. It clarified the requirements regarding the contents of a notice of appeal that are sufficient to vest jurisdiction over an appeal in the BTA. Moreover, it rejected the argument of the Tax Commissioner that the BTA lacked jurisdiction to consider any evidence that had not first been presented to the Tax Commissioner. In doing so, the Court remanded the case back to the BTA for a hearing on the merits. WCI Steel, Inc. v. Testa, Slip Opinion No. 2011-Ohio-3280 (July 7, 2011).
Background: WCI Steel is a specialty steel maker located in northeast Ohio. Following two financially-challenging years, WCI claimed a reduction from book value on its personal property tax return for 2003 and filed for final assessment for 2002 and 2001. Initially, WCI supported its claims for a reduced value on a study based primarily on comparable sales, although the study also considered obsolescence. At that time, WCI did not recognize an impairment to value on its books; indeed, under financial accounting standards, it was not permitted to do so.
Thereafter, WCI filed a petition in bankruptcy. WCI commissioned an appraisal report and, based upon the results of that appraisal, recognized an impairment in the value of its assets on its books. The appraisal considered all three approaches to value, but placed primary reliance upon the market comparison approach. The Tax Commissioner rejected this evidence of value and issued final assessment certificates for all three years that upheld that official’s determination of value based upon the 302 Computation.
BTA Proceedings: WCI appealed to the BTA. In its notice of appeal, WCI (1) identified the categories of property at issue: (2) reiterated that the value it reported was correct; (3) stated that the Tax Commissioner, in relying up the prescribed 302 Computation, overstated the value of the property; and (4) cited pertinent statutes and rules that supported its efforts to obtain a lower value. At the BTA’s hearing WCI presented an appraisal prepared by a different appraisal firm. This appraisal arrived at an opinion of value based primarily upon a replacement cost new less depreciation approach, which is similar to the approach taken under the 302 Computation.
Purporting to follow the Court’s decision in Ohio Bell Tel. Co. v. Levin, 124 Ohio St. 3d 211, 2009 Ohio 6189, the BTA determined that the new appraisal represented an “alternate valuation method” that had not been presented to the Tax Commissioner, or raised in the notice of appeal. The BTA, therefore, dismissed the appeal and WCI appealed to the Supreme Court.
Supreme Court Analysis: First, the Court distinguished the situation where a notice of appeal was so general as to fail to raise any error, from the situation where a taxpayer attempts to raise an issue in addition to that set forth in the notice of appeal. In the former case, dismissal of the appeal is proper. However, in the latter, the BTA retains jurisdiction of the case; it simply has no jurisdiction to consider the new issue.
In Ohio Bell, the taxpayer had sufficiently specified an issue in its notice of appeal, and the question was whether that issue was sufficient to permit the taxpayer to pursue an “alternate valuation method.” Noting that Ohio Bell fell into the second category described in the prior paragraph, the Court held that the BTA erred when it dismissed WCI’s appeal as if no error had been set forth in the notice of appeal.
The Court then addressed the requirements to preserve an issue in a notice of appeal. Looking to a number of prior cases, the Court held that it was sufficient if the notice of appeal (i) identified the property in question; (ii) identified the tax commissioner’s action with which it disagreed; and (iii) identified the treatment the tax commissioner should have accorded.
The Court next turned to the question of whether the BTA had jurisdiction to consider the new appraisal report presented by WCI. The Tax Commissioner argued that because the appraisal had not been presented to that official, the BTA had no authority to consider it. The Court rejected that argument for two reasons. First, R.C. 5717.02 and many previous cases clearly provide that the BTA may accept new evidence at its hearings. Second, the Court held that a notice of appeal must be considered within the context of the appeal.
In this case, the context of the appeal was that the value determined by the tax commissioner was excessive. An administrative rule, O.A.C. 5703-3-10, provided a number of examples of the types of evidence that a taxpayer could present to contest a determination of value. The Court characterized the new appraisal as merely a different type of evidence by which value could be contested, rather than a new claim for relief. In doing so, the Court limited the concept of an “alternate valuation method,” which served as the underpinning of the Ohio Bell case, to the arena of the public utility property tax.
The second appraisal presented by WCI was not “fundamentally dissimilar” to the earlier evidence it had presented. Therefore, WCI could present the appraisal in the first instance to the BTA.
Comments: This decision is refreshing for taxpayers. In recent years, the Tax Commissioner has aggressively asserted a lack of jurisdiction in many contexts against taxpayers. In many cases, the BTA has accepted those arguments and denied to taxpayers a hearing or a decision on the merits of their appeals. This case represents a thoughtful discussion of the issue. It clearly sets forth the standard for the contents of a notice of appeal.
Moreover, the Court specifically rejected the argument that evidence that was not previously submitted to the Tax Commissioner may not be submitted to, or considered by, the Board of Tax Appeals. This is important because at times, taxpayers are not represented by counsel before the Tax Commissioner, and other times a taxpayer may attempt to remedy perceived defects in what was submitted that only come to light in the Tax Commissioner’s final determination or action.