Jason Walker - Tax Manager (Non-Attorney Professional)
Ohio Supreme Court Revisits Highway Transportation for Hire in N.A.T. Transp., Inc. v. McClain
On April 22, 2021, the Ohio Supreme Court issued its opinion in N.A.T. Transp., Inc. v. McClain, Slip Opinion No. 2021-Ohio-1374, ruling on when trucks used to haul waste qualify for the highway transportation for hire sales tax exemption contained in R.C. 5739.02(B)(32). At issue in the case was whether three trucks purchased by N.A.T. Transportation (N.A.T.) to haul waste for N.A.T.’s customers qualified for the transportation for hire sales tax exemption. The Ohio Board of Tax Appeals (BTA) had affirmed the Tax Commissioner’s tax assessment against N.A.T. relating to the three trucks: two trucks used primarily to haul trash for commercial and industrial customers, and one truck designed and used exclusively for residential trash collection. The BTA relied on the Court’s opinion in Rumpke Container Serv., Inc. v. Zaino, 94 Ohio St.3d 304, 762 N.E.2d 995 (2002), in which the Court affirmed that the trash transported by Rumpke was not considered to be “tangible personal property belonging to others.” In N.A.T., the Court distinguished N.A.T.’s facts from those found in Rumpke and reversed the BTA’s holding for the two trucks primarily used to haul trash from commercial and industrial customers. The Court upheld the assessment on the truck designed and used exclusively for residential trash collection. Distinguishing N.A.T. from Rumpke In Rumpke, the Court decided against Rumpke because Rumpke did not hold the required permit or certificate to qualify as a person engaged in “highway transportation for hire.” Alternatively, in Rumpke, the Court also ruled that even if Rumpke did have the required permit, Rumpke was not transporting “personal property belonging to others.” The Court considered that Rumpke’s customers did not specify where the waste was taken, and that Rumpke’s customers had relinquished control of the property once the waste was picked up by Rumpke. Further, Rumpke owned the landfill where the trash was deposited and was transporting the waste as a person engaged in the business of waste disposal, and not highway transportation for hire. In N.A.T., the Court determined there were two crucial differences between Rumpke and N.A.T. Unlike Rumpke, N.A.T. did hold a certificate issued by the Public Utilities Commission of Ohio authorizing it to engage in transportation for hire. Also, N.A.T. (unlike Rumpke) did not own the landfills to which it was hauling its customers’ waste and was operating a business of for-hire carriage. With these two differences, the Court determined that Rumpke was not controlling and then looked at whether N.A.T. was transporting “tangible personal property belonging to others for consideration.” Is trash tangible personal property? The Tax Commissioner’s position was that Rumpke supported the determination that waste does not constitute personal property because it is not “subject to ownership.” While Rumpke briefly discussed this issue, the Court in N.A.T. concluded that the waste in Rumpke was not tangible personal property but only as it related to Rumpke’s facts. The Court in Rumpke did not hold that waste generally could not be personal property. The Court also pointed out that the Commissioner’s opinion contradicted its own position in Refuse Transfer Sys., Inc. v. Levin, BTA No. 2009-1710, 2013 WL 6833199, in which the Tax Commissioner held in certain cases that solid waste could be the subject of ownership and that it did qualify as personal property for purposes of the transportation-for-hire exemption. Ultimately, the Court in N.A.T. relied on a plain reading of R.C. 5739.01(YY) (and not the non-tax administrative code relied on in Rumpke) in determining that waste can constitute personal property for purposes of the transportation-for-hire exemption. To whom did the trash being transported belong? The Court in N.A.T. agreed with the basic premise that waste is “personal property belonging to others” when the person generating the waste has an agreement with the hauler that specifies where the waste is to be taken for disposal. For N.A.T., residential customers had no knowledge of where the waste would be disposed and neither the customer nor N.A.T. were bound by a contract specifying where the property was to be disposed. On the other hand, N.A.T.’s commercial and industrial customers were receiving trash/refuse collection services pursuant to a contract with N.A.T. that specified which disposal site the waste was to be delivered. As a result, waste was personal property belonging to others for N.A.T.’s commercial and industrial customers and was not personal property belonging to others for N.A.T.’s residential customers. Conclusion The Court in N.A.T., determined that the BTA had erred in its findings because the BTA did not look at the distinct primary use of the three trucks at issue. The Court ruled that because the two trucks used primarily for trash collection from commercial and industrial customers were used to transport personal property belonging to others for consideration, they qualified for the transportation for hire exemption. The Court affirmed the BTA for the one truck designed and used exclusively for residential trash collection because that truck did not transport personal property belonging to others for consideration. ZHF Observation The Court’s clarification of the highway transportation for hire sales tax exemption in N.A.T. could present refund opportunities for companies who transport property belonging to others. Haulers of trash, waste, and other items that may not have previously been thought of as “property” should take a closer look at whether this exemption can apply to them. If you have any questions regarding sales and use tax exemptions, or any other state or local tax issue, please contact Jason Walker, John Trippier, Rich Farrin, or any other ZHF professional.
 5739.01(Z) "Highway transportation for hire" means the transportation of personal property belonging to others for consideration by any of the following: (1) The holder of a permit or certificate issued by this state or the United States authorizing the holder to engage in transportation of personal property belonging to others for consideration over or on highways, roadways, streets, or any similar public thoroughfare; ***  "Tangible personal property" means personal property that can be seen, weighed, measured, felt, or touched, or that is in any other manner perceptible to the senses. For purposes of this chapter and Chapter 5741. of the Revised Code, "tangible personal property" includes motor vehicles, electricity, water, gas, steam, and prewritten computer software.