April 27, 2021
Ohio Supreme Court holds waste hauler could claim sales/use tax exemption for 'highway transportation for hire'
The Supreme Court of Ohio (court) ruled in N.A.T. Transp. Inc. v. McClain1 that a waste hauler could claim the "highway transportation for hire" sales/use tax exemption for the purchase of two trucks used to transport waste to disposal sites designated by the customer. The court concluded that waste remains the customer's personal property when the customer specifies where to dispose of the waste, thereby qualifying the trucks as "highway transportation for hire."
The waste hauler, which was certified by the Ohio Public Utilities Commission as a for-hire motor carrier, serves residential customers through contracts with local governments or through direct subscriptions with residential customers. The residential customers cannot specify where the waste is disposed. The waste hauler also serves commercial, industrial and institutional customers, such as schools. Those customers designate the destination for the disposal of their waste.
At issue was the sales tax treatment of three trucks purchased by the waste hauler. Two trucks were used to pick up and haul the commercial, industrial and institutional waste. The third truck was used to dispose residential waste. The Ohio Department of Taxation (Department) assessed sales and use tax on the purchase of the trucks. The waste hauler argued that it was entitled to a tax exemption on the purchases of the trucks because it was certified as a for-hire motor carrier. The Department denied the exemption, citing the court's 2002 decision in Rumpke Container Serv., Inc. v. Zaino, 94 Ohio St. 3d 304, 762 N.E.2d 995 (2002) (Rumpke). The taxpayer appealed to the Ohio Board of Tax Appeals (BTA), which affirmed the assessment.
Ohio Rev. Code 5739.02(B)(32) exempts from sales/use tax the sale, lease, repair, maintenance or parts of motor vehicles that are primarily used by persons engaged in highway transportation for hire to transport another's tangible personal property. Ohio Rev. Code 5739.01(Z) defines "highway transportation for hire" as the transportation of another's personal property, for consideration, by someone certified to transport that property on highways, roadways, streets or any similar public thoroughfare.
In 2002, the court denied this exemption to a taxpayer in Rumpke, which addressed whether a residential waste hauler could claim the exemption. The BTA had denied the exemption on the grounds the taxpayer did not possess the required statutory certification. On appeal, the court affirmed the BTA's decision but also concluded that the taxpayer did not transport tangible personal property belonging to others because the customers relinquished control over their waste upon pickup by the taxpayer.
In this case, the court held that the waste hauler could claim the exemption for the two trucks used to haul commercial, industrial and institutional customers' waste to landfills. The court based its ruling on the finding that the waste remained the personal property of the customer because the customer told the taxpayer where to dispose of the waste. In so holding, the court distinguished the facts in this case from those in Rumpke, finding that that the waste hauler in Rumpke not only owned the trucks and hauled the waste but also owned the landfills to which it was taken and, as such, was not transporting personal property belonging to others. Conversely, the court determined that the owner could not claim the exemption for the truck used to transport waste for residential customers because those customers did not designate where to dispose of the waste.2
Taxpayers engaged in hauling waste should consider both Rumpke and this new decision in N.A.T. Transp. Inc. in considering whether their operations could qualify for the sales and use tax exemption. For some similarly situated waste haulers, refunds of sales tax may be available. The statute of limitations for refunds is four years from the payment of the tax.
1 N.A.T. Transp. Inc. v. McClain, Slip Opinion No. 2021-Ohio-1374 (Ohio S.Ct. April 22, 2021).
2 A dissenting and concurring opinion would also have granted the exemption for the purchase of the truck hauling residential waste on the grounds the waste hauler had no control over the destination of that waste because government regulations required the waste hauler to dispose of the residential waste at specified facilities.