Procedural Errors at Ohio Board of Tax Appeals Pollute Multiple Points of Use Refund
The Ohio Board of Tax Appeals (“Board”) recently denied a taxpayer's application for refund of sales tax paid where the taxpayer-appellant's supporting documentation was not properly submitted at a hearing before the Board. Environmental Quality Management Inc. v. McClain, BTA No. 2018-1194 (August 8, 2019). The decision also provides some guidance on the documentation required to substantiate a refund of Ohio sales or use tax based on a multiple points of use (“MPU”) argument. More importantly, the decision describes some important procedural laws that must be followed in order to be successful at the Board.
MPU Criteria and the Lower Level
The refund claim relates to a purchaser's ability to reduce the amount of Ohio sales or use tax paid on software where there are non-Ohio users (i.e., MPU) of the software. A review of the Final Determination issued by the Ohio Department of Taxation ("ODT") provides some insight into the facts. The taxpayer had appealed a refund denial by the ODT audit division to the ODT appeals division, the last step before appeal to the Board. ODT had requested certain supporting information including: 1) the invoices, 2) the software contracts, 3) copies of checks or other proof of payment, 4) a list of employees along with their position at the time the software was purchased, 5) the city and state where the license was used, and 6) descriptions of the purchased software. It is unclear what information was provided but it is clear that the taxpayer did not provide ALL of the requested information to ODT. Even more importantly, the taxpayer did not request a hearing before the ODT appeals division, an important procedural step in any matter. Where a taxpayer does not request a hearing at the ODT appeals division, the hearing examiner can resolve the matter based on the information already provided and is not obligated to request additional information. An unfavorable Final Determination was issued by the ODT appeals division and the taxpayer-appellant was forced to appeal the Tax Commissioner's decision to the Board, a tribunal.
Procedural Issue at the Board
A Notice of Appeal was filed at the Board but the Notice of Appeal did not request a hearing. Documents (including most of the information previously requested by the ODT audit division) were attached to the Notice of Appeal. The Board held that it could not consider any of the documentation attached to the Notice of Appeal or statements in the Notice of Appeal. The Board's decision reiterates the long-standing holding that a taxpayer appealing to the Board has the burden of proving that the Tax Commissioner's findings are incorrect. See e.g., Federated Dept. Stores, Inc. v. Lindley, 5 Ohio St.3d 213 (1983). Because the Appellant elected to waive a hearing before the Board, the Board could only review the documents previously provided to ODT at the audit and appeals division levels contained in the transcript certified by the Tax Commissioner. Pi In The Sky, L.L.C. v. Testa, 155 Ohio St.3d 113, 2018-Ohio-4812, ¶ 25. "Evidence presented at a hearing is accepted only upon conditions designed to insure its reliability. Appellants must first be sworn on oath. Their sworn testimony is then scrutinized and subjected to cross-examination. Documentary evidence is also subject to the scrutiny of the parties and their counsel." Cunagin v. Tracy, BTA No. 1994-P-1083 (March 31, 1995), unreported at 3. Thus, the attachments and statements included with the Notice of Appeal were deemed to not rise to the level of evidence and could not be considered by the Board.
Notice of Appeals Filed by Non-Attorneys
One unclear but interesting aspect of the case is that the firm that represented Appellant, US Tax Recovery Partners, does not appear to be a law firm. Based on the Ohio Supreme Court's attorney directory, the person listed on the Notice of Appeal is not licensed to practice law in Ohio. The person did not file a motion for pro hac vice with the Board, a motion that allows a non-Ohio licensed attorney to practice law in Ohio in a specific case. This may be the reason a hearing before the Board was not requested. Representing an appellant before the Board is the "practice of law" and only an Ohio-licensed attorney or an out-of-state attorney granted pro hac vice status for the matter can represent an appellant at a hearing before the Board.
In NASCAR Holdings, Inc. v. Testa, decided December 21, 2017, the Ohio Supreme Court held that the filing of a Notice of Appeal with the Board by an attorney not licensed in Ohio did not deprive the Board of jurisdiction over the appeal. See our write up in: "NASCAR Holdings v. Testa: A Yellow Flag for Tax Practitioners and Taxpayers." The decision held that a Notice of Appeal filed by a non-Ohio attorney authorized by the taxpayer properly invokes the jurisdiction of the Board over the appeal. It does not hold that a taxpayer can be represented by a non-Ohio attorney in the proceedings before the Board. That would clearly constitute the practice of law, which can be undertaken only by an Ohio-licensed attorney or an out-of-state attorney granted pro hac vice status for the matter. Thus, if a taxpayer desires to pursue its appeal at the Board through the various stages of the proceeding, such as discovery, hearing, and submission of legal arguments, the taxpayer must retain an Ohio-licensed attorney or an out-of-state attorney granted pro hac vice status for the matter.