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Tax Law

Ohio BTA Rules Communications Cabling Installation Exempt from Sales Tax

On October 22, 2019, the Ohio Board of Tax Appeals (BTA) held that an insurance company was entitled to a refund of sales tax paid on its purchase of CAT-5 and CAT-6 communication cabling for internet and Voice over Internet Protocol (“VoIP”) installed in its headquarters office building. The company purchased the cabling as part of a construction contract for the renovation of its headquarters and paid sales tax to the contractor at the time of the purchase. The company then filed a refund claim, asserting that since the cabling was incorporated into the real property, the charges for the cabling and its installation constituted a construction contract under Ohio Rev. Code Ann. § 5739.01(B)(5) and not a retail sale subject to sales tax. The Ohio Tax Commissioner argued that the construction contract rule did not apply because the cabling constituted a “business fixture” under Ohio Rev. Code Ann. § 5701.03(B). In support of its position, the Commissioner cited a 1998 decision where the BTA held that communications cabling was a business fixture because it benefitted the business occupant and was not a communication line common to buildings. Newcome Corp. v. Tracy, Case No. 97-M-320 (Oh. Bd. Tax App. Dec. 11, 1998).

The BTA ruled in favor of the company, finding that the communications lines were not a business fixture, because they were not designed to meet the specific needs of the company’s business, but could be installed in any office building for VoIP and internet communications, “and are as common to commercial property as telephone lines and coaxial cables were in the past.” The BTA also held that Ohio Department of Taxation Information Release ST 1999-01 (Mar. 1999), which applies the Newcome decision and provides that the sale and installation of all computer cabling constitutes a taxable sale of a “business fixture,” is incorrect “given the ubiquitous presence of industry-standard cabling in commercial buildings.” Nationwide Mutual Insurance Co. v. McClain, Case Nos. 2018-313, 2018-315, 2108-316, 2018-317, and 2018-318 (Oh. Bd. Tax App. Oct. 22, 2019).