Ohio Sales / Use Tax: Who controls your trash? Critical contractual distinction determines tax exemption for waste haulers, creating potential refund opportunities.

The Ohio Supreme Court recently ruled that a waste-hauler was entitled to Ohio’s transportation-for-hire exemption from sales / use tax on trucks used to haul trash to customer-designated locations. In N.A.T. Transportation, Inc. v. McClain, the Court determined the waste had not been abandoned, distinguishing from a previous case, since these customers controlled the destination of the waste and continued to be responsible for disposal after the waste was picked up. The ruling highlights critical contracting and business strategies trash haulers can use to maximize tax exemption and create possible refund opportunities.

Transportation-for-hire Exemption

In Ohio, a person engaged in highway transportation-for-hire can purchase, sell, and repair its motor vehicles tax-free if the vehicles are primarily used to transport property belonging to others. R.C. 5739.02(B)(32). To qualify for the exemption, a licensed taxpayer must transport property belonging to others for consideration. R.C. 5739.01(Z).

In this case, the taxpayer held the proper permit. Accordingly, the issue was whether its trucks were used to haul waste belonging to others. In a prior case, the Ohio Supreme Court denied the exemption claimed by a trash collection business since its customers relinquished control over and thereby abandoned the waste when it was picked up and transported to a landfill. See Rumpke Container Serv., Inc. v. Zaino, 94 Ohio St.3d 304, 762 N.E.2d 995 (2002). Since the customer abandoned the waste, the trash hauler was not transporting property owned by another party. The crucial difference in N.A.T. Transportation was that its customers did not relinquish control or ownership of the waste since it specified the destination where the waste was to be taken and controlled its disposal. Therefore, the taxpayer was exempt from tax on vehicles primarily used in transporting waste to customer-designated locations, but not for vehicles primarily used in transactions where the customer had no knowledge or control over where the waste was disposed.

The case highlights how subtle contractual differences can influence a business’ sales / use tax obligations and the importance of understanding these critical distinctions when agreements are formed. If you have any questions about the transportation-for-hire exemption or other Ohio tax exemptions, please contact us.

Attorney Steven A. Dimengo is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at [email protected] or 330.258.6460.

Richard B. Fry III is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at [email protected] or 330.258.6423

Nathan M. Fulmer is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at [email protected] or 330.258.6464.

About Buckingham, Doolittle & Burroughs:

Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit bdblaw.com.