For tax purposes, when the generator of garbage tells the hauler where to take the trash the waste remains “personal property belonging to others” and not the property of the haulers, the Ohio Supreme Court ruled today.

In a 5-2 decision, the Supreme Court granted sales tax exemptions for two trucks that a Wood County waste hauler uses to take away commercial, industrial, and school trash in large containers to landfills. However, the Court affirmed a Board of Tax Appeals (BTA) decision to impose the tax on the $273,000 purchase of a traditional garbage truck that N.A.T. Transportation uses to haul away residential garbage for about 7,000 customers.

The Court’s a per curiam opinion applies to vehicle owners that hold Public Utilities Commission of Ohio (PUCO) certificates for “highway transportation for hire.” N.A.T. maintained that hauling garbage is “transporting personal property belonging to others.” The BTA and the Ohio tax commissioner cited the Court’s 2002 Rumpke Container Serv. Inc. v. Zaino decision and determined the trash belonged to N.A.T. once the company picked it up and N.A.T. vehicles were not carrying property belonging to others.

Chief Justice Maureen O’Connor and Justices Patrick F. Fischer, R. Patrick DeWine, Michael P. Donnelly, and Jennifer Brunner formed the majority that granted exemptions for two of the three vehicles.

In a separate opinion, Justice Sharon L. Kennedy agreed with the majority’s decision to grant the exemption for the two trucks, but she maintained N.A.T. is entitled to an exemption for the purchase of the residential garbage hauler, too, because government regulations and resolutions dictate where the trash must go. Justice Melody J. Stewart joined Justice Kennedy’s partially concurring and dissenting opinion.

Hauler Sought Exemption for Truck Purchases
N.A.T. serves about 1,000 residential customers through contracts with local governments, including three small villages in Wood County, and another 6,000 residential customers through subscriptions. The local government contracts require the refuse to be hauled to the Wood County Landfill. The company has about 700 commercial and industrial customers, and about 10 institutional customers, such as schools. The commercial, industrial, and institutional customers designate the destination for the disposal of their waste.

The company purchased a 2013 Lodal truck, which its owner described as a traditional garbage truck designed for disposing of residential waste. It also purchased two Peterbilt trucks, described as typical vehicles suited for transporting various types of large containers. N.A.T. used the two Peterbilt trucks to pick up and haul the commercial, industrial, and institutional waste.

In records submitted to the BTA, N.A.T. indicated it paid about $273,000 for the Lodal truck and about $255,00 total for the two Peterbilts. The records indicate the Ohio tax commissioner assessed the company about $17,000 for the two Peterbilt trucks

N.A.T. maintained that because it was certified by the PUCO as a “for-hire motor carrier,” it was entitled to a tax exemption on the purchases of the trucks under R.C. 5739.01 and R.C. 5739.02. The tax commissioner denied the exemption, and N.A.T. appealed to the BTA. Citing Rumpke, the BTA maintained the customers relinquished control of their trash when N.A.T. picked it up and the company was not transporting property belonging to others in its vehicles.

N.A.T. appealed the decision to the Supreme Court which was required to hear the case.

Supreme Court Considered Control of Property
The Court’s opinion stated the BTA improperly relied on the Rumpke case to determine the outcome. The opinion noted that the Rumpke companies not only owned the trucks and hauled the trash but also owned the landfills to which it was taken. Rumpke also did not have a PUCO certificate to be a transportation for-hire hauler. Because transporting the waste was simply a component of Rumpke’s business of waste disposal, Rumpke was not in the business of the transporting personal belongings of others.

The Court noted that, although “waste” may not be “property” under certain utility regulations, for tax purposes waste is considered “personal property.” While the BTA stated that “control of destination” factors into the determination of the ownership of waste disposal, the Court found that N.A.T. had not shown a primary exempt use because most of N.A.T.’s customers did not designate the destination of the waste.

The Court agreed that control of destination is significant under R.C. 5739.02(B)(32). The Court concluded that waste remains the personal property of the generator, when the generator specifies where the waste is to be taken for disposal. The Court departed from the BTA’s decision by noting that N.A.T. proved the commercial, industrial, and institutional waste customers had to instructed the company where to take the waste, and that the Peterbilt trucks served primarily those customers. The Court concluded that the Peterbilt trucks were used to carry property belonging to others and were exempt from the sales and use tax.

By contrast, because the company chief executive officer testified that most of the residential subscription customers do not designate the destination of their waste, the company is not entitled to an exemption for the garbage truck purchase because it hauls primarily residential waste, the Court concluded.

Residential Garbage Not Hauler’s Property, Concurring and Dissenting Opinion Maintained
In her concurring and dissenting opinion, Justice Kennedy wrote that N.A.T. has no control over the destination of the residential trash it hauls for subscribers. Government regulations and resolutions require that N.A.T. dispose of the residential waste at specified facilities.

The opinion noted the legislature chose the phrase “belonging to others” to use in R.C. 5739.02(B)(32). To qualify for the exemption, the trash being transported must belong to a party or entity different than N.A.T. The opinion recognized that N.A.T. has physical possession of the waste, which raises a presumption of ownership. However, the presumption may be rebutted by proof that another party has control over the destination of the waste.

The record showed that ownership is not transferred to N.A.T. because either the customer or government regulations or resolutions control the destination of the waste. The opinion stated that the majority’s narrow reading of “others” effectively adds words to the statute, which is contrary to the court’s duty to give effect to the words used in a statute. All three trucks were entitled to an exemption, the concurring and dissenting opinion concluded.

2020-0110. N.A.T. Transp. Inc. v. McClain, Slip Opinion No. 2021-Ohio-1374.

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