Hoffman Properties, L.P. v. Testa

[Cite as Hoffman Properties, L.P. v. Testa, 2015-Ohio-3931.]

STATE OF OHIO ) IN THE COURT OF APPEALS
)ss: NINTH JUDICIAL DISTRICT
COUNTY OF MEDINA )

HOFFMAN PROPERTIES LIMITED C.A. No. 14CA0041-M
PARTNERSHIP

Appellant
APPEAL FROM JUDGMENT
v. ENTERED IN THE
OHIO BOARD OF TAX APPEALS
JOSEPH W. TESTA, TAX COUNTY OF MEDINA, OHIO
COMMISSIONER OF OHIO CASE No. 2011-1372

Appellee

DECISION AND JOURNAL ENTRY

Dated: September 28, 2015

CARR, Judge.

{¶1} Appellant, Hoffman Properties Ltd. Partnership (“Hoffman”), appeals the

decision of the Ohio Board of Tax Appeals. This Court affirms.

I.

{¶2} In 2003, Hoffman set out to build a new golf course, known as Blue Heron Golf

Club, in Medina, Ohio. In furtherance of this endeavor, Hoffman hired the Wadsworth Golf

Construction Co. (“Wadsworth”) to handle the construction of the course. Hoffman also hired

the Steve Weber Golf Company (“Weber”) to construct and install an irrigation system. The

material for the irrigation system was supplied by Century Equipment.

{¶3} On August 6, 2009, a notice of assessment was sent to Hoffman, asserting that all

amounts paid to Wadsworth and Weber were subject to use tax. Century Equipment paid all

applicable sales tax and was removed from the Tax Commissioner’s audit list. In regard to
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Wadsworth and Weber, Hoffman objected to the assessment and the matter proceeded to a

hearing in 2010, before a representative from the office of chief counsel. On May 19, 2011, a

final determination was issued by the Tax Commissioner, whereby the objection pertaining to

Wadsworth was allowed; and those transactions were removed from the tax assessment. With

respect to Weber and the installation of the irrigation system, however, Hoffman’s objection was

denied.

{¶4} Hoffman appealed the final determination of the Tax Commissioner to the Ohio

Board of Tax Appeals (“BTA”). On April 29, 2014, the BTA issued its decision and order

affirming the Tax Commissioner’s final determination on the basis that the irrigation system was

considered a business fixture pursuant to R.C. 5701.03(B). Hoffman appealed the Board’s

decision to this Court.

{¶5} On appeal, Hoffman raises one assignment of error.

II.

ASSIGNMENT OF ERROR

THE OHIO BOARD OF TAX APPEALS ERRED IN AFFIRMING THE FINAL
DETERMINATION OF THE TAX COMMISSIONER.

{¶6} In its assignment of error, Hoffman argues that the Ohio Board of Tax Appeals

erred in affirming the Tax Commissioner’s determination that the irrigation system installed at

Blue Heron constituted a business fixture. This Court disagrees.

{¶7} Hoffman argues on appeal that the monies expended to Weber for the installation

of the irrigation system in conjunction with the construction of Blue Heron Golf Club are not

taxable. Hoffman maintains that the irrigation system should be considered real property for tax

purposes because it has become affixed to the land pursuant R.C. 5701.02(A), and that the BTA

erred in concluding that the irrigation system is a business fixture as defined by R.C. 5701.03(B).
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{¶8} Hoffman acknowledges that the facts of this case are not in dispute. Our review

of a decision and order by the BTA is governed by R.C. 5717.04, which states, in relevant part:

The proceeding to obtain a reversal, vacation, or modification of a decision of the
board of tax appeals shall be by appeal to the supreme court or the court of
appeals for the county in which the property taxed is situate[.] * * * If upon
hearing and consideration of such record and evidence the court decides that the
decision of the board appealed from is reasonable and lawful it shall affirm the
same, but if the court decides that such decision of the board is unreasonable or
unlawful, the court shall reverse and vacate the decision or modify it and enter
final judgment in accordance with such modification.

{¶9} The Supreme Court recently addressed the distinction between business fixtures

and fixtures on real property in Metamora Elevator Co. v. Fulton Cty. Bd. of Revision, Slip

Opinion No. 2015-Ohio-2807. The distinction is significant because business fixtures are

classified as personal property and are not subsumed within the real property tax assessment.

Metamora at ¶ 18. “R.C. 5701.02, relating to real property, defines real property in section (A)

to include ‘land itself * * * and, unless otherwise specified in this section or section 5701.03 of

the Revised Code, all buildings, structures, improvements, and fixtures of whatever kind on the

land.’ (Emphasis added.)” Metamora at ¶ 22. A “fixture” on real property is defined as “an

item of tangible personal property that has become permanently attached or affixed to the land or

to a building, structure, or improvement, and that primarily benefits the realty and not the

business, if any, conducted by the occupant on the premises.” R.C. 5701.02(C). The two

categories of property that are “otherwise specified” for taxation purposes are personal property

and business fixtures. R.C. 5701.03. A “business fixture” is defined by R.C. 5701.03(B) as “an

item of tangible personal property that has become permanently attached or affixed to the land *

* * and that primarily benefits the business conducted by the occupant on the premises and not

the realty.” In reconciling this statutory scheme, the Supreme Court recognized that “[i]t is
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apparent that the General Assembly has expressed its intent that fixtures are real property and

that business fixtures are personal property[.]” Metamora at ¶ 23.

{¶10} Prior to its decision in Metamora, the Supreme Court of Ohio addressed the

interaction between R.C. 5701.02 and R.C. 5701.03 in Funtime, Inc. v. Wilkins, 105 Ohio St.3d

74, 2004-Ohio-6890, ¶ 33, stating:

Reading the two statutes in pari materia and harmonizing them to give effect to
the language of both statutes, we find that the correct order of application is as
follows: first, determine whether the item meets the requirements of one of the
definitions of real property set forth in R.C. 5701.02. If the item does not, then it
is personal property. If the item fits a definition of real property in R.C. 5701.02,
it is real property unless “otherwise specified” in R.C. 5701.03. If an item is
“otherwise specified” under R.C. 5701.03, it is personal property.

{¶11} In Metamora, however, the Supreme Court clarified its Funtime decision and

noted that the question of whether an item constitutes real property or a business fixture “does

not necessarily require a two-step analysis with initial consideration given to the definition of

‘real property’ in all instances.” Metamora at ¶ 24. The high court underscored that even in

Funtime, it recognized that the primary use of the amusement park station house at issue was to

provide patrons with a way to enter and exit the roller coaster, and that no use independent of the

amusement park business was shown for the station house. Metamora at ¶ 24, quoting Funtime

at ¶ 46. The Supreme Court went on to conclude that “even if we assume that the [roller coaster]

station house is a building as defined in R.C. 5701.02(B), it is ‘otherwise specified’ in R.C.

5701.03(B) and must be classified as a business fixture.” Metamora at ¶ 24, quoting Funtime at

¶ 46. Thus, the Supreme Court acknowledged in Metamora that “in Funtime we did not strictly

apply the two-step analysis that we announced in paragraph 33” due to the fact that the item in

question was “otherwise specified” because it fit the definition of business fixture. Id.
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{¶12} Here, the BTA determined that the irrigation system at Blue Heron did not

constitute real property because it was “otherwise specified” as a business fixture as defined by

R.C. 5701.03(B). In reaching this conclusion, the Board stated, “[c]learly, such specialized

irrigation system was designed and installed to address the unique needs associated with the

operation of a golf course and to primarily benefit the ongoing business conducted on the land,

i.e. the golf course.” The BTA also found that Hoffman separately purchased the irrigation pipes

and materials, lending support to its determination that the contract with Weber could not be

construed as a construction contract because it dealt squarely with the installation of business

fixtures.

{¶13} In his merit brief, Hoffman’s argument is predicated on the BTA’s decision in

Inverness Club v. Wilkens, BTA No. 2004-R-338, 2007 WL 1453730 (May 11, 2007). Hoffman

asserts that the Inverness decision stands for the proposition that a golf course irrigation system

is not a business fixture as defined by R.C. 5701.03(B), but instead is a fixture that has become

affixed to the land under R.C. 5701.02, and is thus considered to be realty and non-taxable.1

Hoffman further cites Inverness for the proposition that golf course renovations are

improvements to the land for the purposes of Section 2, Article XII of the Ohio Constitution,

necessitating that they be considered part of the land for tax purposes.

{¶14} A review of the BTA’s decision in Inverness reveals several key distinctions from

the case at bar. While this case deals with the installation of an irrigation system in conjunction

with the construction of a new golf course, the Inverness case dealt with modernizing and

1
The appellee relies on SSN II, Ltd. v. Warren Cty. Bd. of Revision, 12th Dist. Warren
No. CA2012-04-037, 2013-Ohio-1112, in support of the proposition that golf course sprinkler
systems are considered business fixtures. While the Twelfth District noted that the common pleas
court in that case reached that conclusion, the court did not ultimately reach the issue because the
appellants did not include a separate valuation for the sprinkler systems in the record.
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improving a golf course that was founded in 1903 and had hosted six major championships at the

time the club undertook renovations in the late 1990s. Inverness at *1. After consulting the

United States Golf Association, Inverness retained “a noted golf course architect” who sought

“to improve playability, to improve drainage, and to change the difficulty level.” Id. The club

then hired a construction company to implement the plan. The extensive renovations featured

excavation of thousands of tons of dirt and entirely relocating a hill, reconstructing tee boxes,

installing tee drainage, realigning fairways, relocating and reshaping numerous bunkers,

completely reconstructing one hole, and installing new irrigation on fifteen holes. The question

addressed by the BTA in Inverness was “whether the reconstruction of a golf course equates to

landscaping and lawn care services” for tax purposes. Inverness at *4. The BTA ultimately

resolved this question in the negative, concluding that the services supplied to Inverness by the

construction company should be characterized as construction, not landscaping. Id.

{¶15} Hoffman’s reliance on Inverness in support of his statutory and constitutional

arguments is misguided. As the BTA explicitly stated in its decision in this case, its prior

decision in Inverness “made no conclusions with regard to whether the irrigation system

constituted a business fixture, pursuant to R.C. 5701.03.” While the BTA in Inverness

determined that the renovation project constituted “site improvements” to the real estate, it

considered the renovations in their entirety and did not specifically analyze the irrigation system.

Id. at *6. Instead, the BTA observed that the “changes to the land in renovating this golf course

have no physical existence separate and apart from the land itself” and concluded that “it is

unnecessary to consider whether or not the renovations ‘primarily benefit the business

conducted’ on the property because these items fail to constitute an item of personal property[.]”

Inverness at *6. Thus, as the BTA recognized in this case, the Inverness decision is not
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controlling because that case did not involve a specific determination regarding whether an

irrigation system constitutes a business fixture as defined in R.C. 5701.03(B).

{¶16} Our review of the evidence before the BTA lends further support to the

conclusion that its decision was reasonable and lawful. While Hoffman argues that removing the

irrigation system would cause injury to the land, we draw a distinction between the damage

caused by the removal of an irrigation system and undoing “permanent fabrication and

construction to the property” as was discussed in Inverness. Inverness at *6. Though removing

an irrigation system would undoubtedly result in temporary damage, such damage could be

repaired. Furthermore, it is apparent from the record that the installation of the irrigation system

was separate from the construction of the golf course with the primary intent of benefitting the

business. As noted by the Tax Commissioner, “[g]olf course irrigation systems are specialized

and sophisticated irrigation systems” and are “not [akin to] more extensive residential sprinkler

systems.” The irrigation installation agreement indicates that Weber was “knowledgeable and

experienced in the construction of and installation of automated irrigation systems for golf

courses.” Golf course irrigation systems are designed for the specific purpose of enhancing

playability and are aimed at meeting the varying water and fertilization needs of the different

types of turf found on a golf course. The Tax Commissioner further found that a sophisticated

irrigation system decreases the need for spot watering and manual turf care, thereby improving

business by minimizing player inconvenience and increasing customer satisfaction.

Significantly, Hoffman has not identified an independent use of the irrigation system distinct

from the golf course business, meaning that even if we assume that the irrigation system could fit

within a definition of real property set forth R.C. 5701.02(B), it is “otherwise specified” in R.C.

5701.03(B) and must be classified as a business fixture. Funtime at ¶ 46.
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{¶17} Hoffman’s assignment of error is overruled.

III.

{¶18} Hoffman’s assignment of error is overruled. The decision of the Ohio Board of

Tax Appeals is affirmed.

Judgment affirmed.

There were reasonable grounds for this appeal.

We order that a special mandate issue out of this Court, directing the Ohio Board of Tax

Appeals, County of Medina, State of Ohio, to carry this judgment into execution. A certified

copy of this journal entry shall constitute the mandate, pursuant to App.R. 27.

Immediately upon the filing hereof, this document shall constitute the journal entry of

judgment, and it shall be file stamped by the Clerk of the Court of Appeals at which time the

period for review shall begin to run. App.R. 22(C). The Clerk of the Court of Appeals is

instructed to mail a notice of entry of this judgment to the parties and to make a notation of the

mailing in the docket, pursuant to App.R. 30.

Costs taxed to Appellant.

DONNA J. CARR
FOR THE COURT

HENSAL, P. J.
MOORE, J.
CONCUR.
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APPEARANCES:

DENNIS A. ROTMAN, Attorney at Law, for Appellant.

MICHAEL DEWINE, Attorney General, and SOPHIA HUSSAIN, Assosicate Assistant
Attorney General, for Appellee.