Opinion
No. 71-463
Decided April 26, 1972.
Taxation — Sales tax — Claimed illegal or erroneous payment — Application for refund — R.C. 5739.07 — 90-day limitation for filing — "Ascertained" means actual knowledge by taxpayer — Not established, when.
1. Under the provisions of R.C. 5739.07, where application is made by a taxpayer for refund of sales taxes illegally or erroneously paid and such application is filed with the Tax Commissioner within four years of the date of payment, the Tax Commissioner is required to determine whether a refund is due, and may not dismiss the application without such a determination unless the application is filed more than 90 days from the date the taxpayer has actually ascertained such illegality or error.
2. Within the purview of R.C. 5739.07, a taxpayer has not ascertained that a sales tax payment is illegal or erroneous until he has actual knowledge of such illegality or error. ( Phoenix Amusement Co. v. Glander, 148 Ohio St. 592, approved and followed.)
3. A taxpayer is not deemed to have actual knowledge that sales taxes have been paid illegally or erroneously, within the purview of the 90-day limitation for filing application for refund contained in R.C. 5739.07, until such time as the illegal or erroneous nature of such tax payments has been acknowledged by the taxing authority and such acknowledgement is known to the taxpayer.
APPEAL from the Board of Tax Appeals.
On August 23, 1967, Dunbar Brothers, Inc., appellee herein, filed with the Tax Commissioner a claim in the amount of $3,600.21 for reimbursement of sales taxes illegally or erroneously paid for construction materials incorporated into the building of the Lake Park Hospital and Health Center owned by Crestview of Ohio, Inc. The claim for refund was based upon the assertion that Crestview was a charitable organization and that the construction materials had been incorporated into a building used exclusively for charitable purposes. On July 22, 1968, the Tax Commissioner denied this claim for refund and no appeal was taken from that decision.
On March 24, 1969, Dunbar again filed with the Tax Commissioner a claim for refund of the same $3,600.21, based upon the same facts as the prior claim. On May 5, 1970, the Tax Commissioner dismissed this second claim for refund upon the basis that it had been filed more than 90 days from the date the taxpayer had "ascertained" that the payment was illegal or erroneous. R.C. 5739.07.
Upon appeal to the Board of Tax Appeals, the decision of the Tax Commissioner was reversed and the cause remanded with instructions to hear and determine the claim "on its merits."
The cause is now before this court pursuant to an appeal by the Tax Commissioner from the decision of the Board of Tax Appeals.
Messrs. Watkins, Watkins Knight and Mr. Harley A. Watkins, for appellee.
Mr. William J. Brown, attorney general, and Mr. Peter A. Stratigos, for appellant.
The basic question involved in this case is whether the prior filing of an application for refund of taxes, claimed to have been illegally or erroneously paid, constitutes proof that the taxpayer has "ascertained that the * * * payment was illegal or erroneous" at the time of such prior application, within the meaning of R.C. 5739.07, so as to preclude a subsequent application for refund made more than 90 days thereafter.
R.C. 5739.07 reads, in part:
"The Treasurer of State shall refund to vendors the amount of taxes paid illegally or erroneously or paid on any illegal or erroneous assessment where the vendor has not reimbursed himself from the consumer. * * * Application shall be filed with the Tax Commissioner on the form prescribed by him, within ninety days from the date it is ascertained that the assessment or payment was illegal or erroneous; provided, however, that in any event such application for refund must be filed with the commissioner within four years from the date of the illegal or erroneous payment of the tax." (Emphasis added.)
No claim has been made by or on behalf of the Tax Commissioner that his decision as to the first claim for refund, such not having been appealed, is res judicata. Thus we express no opinion relative thereto.
The Tax Commissioner contends that by filing the claim for refund in 1967 the taxpayer demonstrated that it had "ascertained" the illegal or erroneous nature of the payment of the sales tax in question.
The taxpayer, while, in effect, conceding that it had been of the opinion that the payment was illegal or erroneous when it filed the application for refund in 1967, asserts that the word "ascertain" in R.C. 5739.07 means actual knowledge of such illegality or error as an undisputed fact. We agree with the taxpayer's position.
Both parties purport to rely upon our opinion in Phoenix Amusement Co. v. Glander (1947), 148 Ohio St. 592, which construed "ascertain," as used in G.C. 5546-8 (now R.C. 5739.07).
The syllabus reads, as follows:
"1. Statutory provisions for the refund of taxes illegally or erroneously paid or paid on an illegal or erroneous assessment should be liberally construed in favor of the taxpayer.
"2. A decision of a court is not notice of the rights established thereby to one who was not a party to the action, until such person has actual knowledge of such decision.
"3. The word, `ascertained,' as used in Section 5546-8, General Code, providing for the refund of sales taxes illegally or erroneously paid or paid on an illegal or erroneous assessment, means actual knowledge obtained by the vendor or taxpayer of such illegality or error.
"4. The 90-day limitation for the filing of applications for the refund of sales taxes illegally or erroneously paid or paid on an illegal or erroneous assessment, as provided by Section 5546-8, General Code, does not begin to run until the vendor or taxpayer has actual knowledge of such illegality or error."
A careful analysis of the rationale followed in Phoenix illustrates that the 90-day limitation does not begin to run merely because the taxpayer has knowledge of the facts giving rise to an assessment or payment; nor does it arise merely from the fact that in his opinion such assessment or payment would be illegal or erroneous. In Phoenix, the 90-day limitation did not begin to run until after a decision by this court establishing the illegal or erroneous nature of the payment, and even then not until the taxpayer had actual knowledge of such decision.
Essentially, Phoenix holds that the 90-day limitation does not begin to run until the taxpayer is "apprised of the existence of an undisputed fact." See page 597 in opinion by Sohngen, J. Where, as here, the question as to whether the tax paid was an illegal or erroneous payment was disputed as between the taxpayer and the taxing authorities, it cannot be said that the taxpayer had "actual knowledge of such illegality or error" within the rationale of this court's holding in Phoenix.
Thus, we conclude that "actual knowledge" that sales taxes have been paid illegally or erroneously is not established merely by the fact that the taxpayer had previously filed an application for the same refund, such prior application having been denied by the Tax Commissioner. "Actual knowledge" requires proof that the illegal or erroneous nature of such tax payments is both acknowledged by the taxing authorities and that such acknowledgment be known to the taxpayer.
We affirm the decision of the Board of Tax Appeals and remand the cause to the Tax Commissioner, with instructions to hear and determine the taxpayer's claim on its merits.
Decision affirmed.
O'NEILL, C.J., SCHNEIDER, CORRIGAN, STERN and BROWN, JJ., concur.
HERBERT, J., concurs in the judgment.