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Daily Court Reporter - News Reds score tax exemption for bobbleheads, giveaways


Reds score tax exemption for bobbleheads, giveaways

Dan Trevas, Supreme Court of Ohio

In a dispute between state tax officials and Cincinnati’s professional baseball team, the Ohio Supreme Court today quoted the team’s longtime radio announcer by declaring, “This one belongs to the Reds.”

A divided Supreme Court determined the Cincinnati Reds were exempt from paying “use” tax on bobbleheads and other promotional items given to attendees at selected home games. The Court concluded the team successfully demonstrated that the cost of the items were factored into the cost of game tickets and counted as a tax-exempt “resale” of the items to fans.

Justice Patrick F. Fischer cited Reds announcer Marty Brennaman and several other sports figures as he delved deeply into the rich history of Ohio’s influence on professional baseball in the Court’s lead opinion. Because of the unique and undisputed evidence in the record, Justice Fischer cautioned that the ruling may not be applicable to other professional sports teams and organizations that sponsor promotional item giveaways. The Reds argued that rather than discount the ticket price to less-desirable games, the team factored a portion of ticket price to cover the costs of giveaways as a means to boost attendance.

“While our conclusion may be viewed as exposing a ‘loophole’ by which sports organizations can avoid paying the use tax on promotional items, we emphasize that our interpretation is compelled by the application of R.C. Chapter 5739 to the specifics facts in the record in this case,” he wrote.

Justice Judith L. French joined Justice Fischer’s opinion. Chief Justice Maureen O’Connor and Justices Terrence O’Donnell and Sharon L. Kennedy concurred in judgment only without a written opinion.

In a dissenting opinion, Justice Mary DeGenaro wrote that the Ohio Board of Tax Appeals (BTA) was justified in concluding the Reds were giving away the items for free as a way of “incentivizing paid attendance,” but that does not mean the team was reselling the items. She noted that because ticket sales themselves are not taxed, then the Reds escape paying sales tax or use tax on promotional items that generally apply to similar purchases in Ohio.

Sixth District Court of Appeals Judge Christine Mayle joined Justice DeGenaro’s opinion. Judge Mayle sat on the case for Justice R. Patrick DeWine, who did not participate.

Items Now Part of Game, Team Maintains

Justice Fischer wrote that professional baseball in Ohio has transformed over the years, enticing fans to attend games, turning stadiums into “mini theme parks” and offering the public the opportunity to receive unique merchandise, such as bobbleheads, shirts, bats, and other items, that can only be obtained by attending the game.

The Ohio tax commissioner conducted an audit of the Reds that included team purchases from 2008 through 2010, and found the team determined it was exempt from paying use tax on the promotional items it purchased. The tax commissioner ruled the team had to pay use tax on the items, which businesses pay as a form of sales tax on goods used to conduct their operations. R.C. 5739.01(E) contains a “sale-for-resale” exemption to the use tax for businesses that buy items that they intend to sell. When the item is resold to a consumer, the customer typically pays state sales tax.

The Reds appealed the tax commissioner’s decision to the BTA. Doug Healy, the Red’s chief financial officer, testified before the BTA that the team distributes promotional items to drive ticket revenue at games that would otherwise be attended by fewer fans. The Reds decide before the season which games would likely have low attendance and offer promotional items for them.

The cost of the promotional items are not stated separately from the ticket price and they are advertised as “free.” But the ticket price is set to cover the cost of the items and then those costs are spread out over the costs for all ticket prices throughout the year, Healy stated.

The BTA sided with the tax commissioner, finding the items were given away for free, and that patrons paid the same price for tickets for games with no giveaways, and also paid the same price even if they did not receive a promotional item because the supply ran out. The BTA determined the Reds must pay use tax on the items.

The Reds appealed the decision to the Ohio Supreme Court, which at the time was required to hear the case.

Club Intended to Sell Items

The lead opinion stated the resell exemption can apply only if the Reds intended to sell the items. Referencing the definition of “sale” in R.C. 5739.01(E), Justice Fischer explained that the definition contains the legal concept of “consideration,” which means the receiver of the items has to provide something in exchange for it. The Reds argued the fans provided consideration in the form of the ticket purchase, meaning they paid for the both right to attend the game and to receive an item.

While not all ticket buyers are guaranteed to receive an item, the Reds maintained, without contradiction, that they created a contractual expectation with the fans that attendees would receive the giveaway or a suitable substitute if the club ran out. Healy testified that in some cases, the team refunded money to ticket purchasers who insisted on receiving the giveaway but were unable to attain it.

“Healy’s unrefuted testimony indicates that in the specific circumstances here, fans gave consideration in exchange for promotional items,” the lead opinion stated.

The opinion contrasted the “expected” giveaway with the unexpected free items a fan might receive while attending a game, such as a foul ball hit into the stands or a T-shirt tossed to fans.

“In these instances the fan had no expectation of receiving the item and did not purchase a ticket under the assumption that the item would be provided by the team,” the opinion stated.

The opinion indicated that if the Reds’ argument exposes a “loophole” in the law, the Ohio General Assembly can amend the Revised Code to require the team to pay use tax on promotional items.

The decision reversed the BTA’s ruling and remanded the matter to the BTA for further proceedings.

Dissent Maintains BTA Findings Appropriate

In her dissent, Justice DeGenaro wrote that her principal disagreement with the lead opinion is its conclusion that the BTA’s decision was not “supported by any reliable and probative evidence found in the record.”

At the BTA proceedings, the burden was on the Reds to prove they intended to resell the items. The evidence at the hearing demonstrated that the Reds advertised the items were free and in limited quantity, and the club provided no written guarantee that a ticket buyer would receive a giveaway.

Healy’s testimony indicated the Reds were in the business of selling tickets and not reselling promotional items, and the BTA concluded the Reds built the price of items — like any other business overhead cost — into the price of the ticket. The dissent maintained the BTA was “justified in concluding that the purchase of a game ticket constituted consideration for nothing more than the right to attend the baseball game,” and the Reds were using the free items to drive ticket sales, not reselling the items.

Because all ticket purchasers at every game helped pay for the giveaways whether they received one or not, those “circumstances breaks the link” between buying a ticket and being offered a giveaway, the dissent stated. That indicated the BTA was justified in concluding the items were not being resold, the dissent concluded.

2017-0854. Cincinnati Reds LLC v. Testa, Slip Opinion No. 2018-Ohio-4669.

The opinion can be found online at:

Please note: Opinion summaries are prepared by the Office of Public Information for the general public and news media. Opinion summaries are not prepared for every opinion, but only for noteworthy cases. Opinion summaries are not to be considered as official headnotes or syllabi of court opinions. The full text of this and other court opinions are available online.

About the Supreme Court of Ohio

The Supreme Court is established by Article IV, Section 1 of the Ohio Constitution. Article IV, Section 2 of the Constitution sets the size of the Court and outlines its jurisdiction. Article IV, Section 5 of the Constitution grants rule making and other authority to the Court.

The Supreme Court is the court of last resort in Ohio. Most of its cases are appeals from the 12 district courts of appeals. The Court may grant leave to appeal felony cases from the courts of appeals and may direct a court of appeals to certify its record in any civil or misdemeanor case that the Court finds to be "of public or great general interest."

The Supreme Court also has appellate jurisdiction in cases involving questions arising under the Ohio or United States Constitutions, cases originating in the courts of appeals, and cases in which there have been conflicting opinions on the same question from two or more courts of appeals. The Supreme Court hears all cases in which the death penalty has been imposed. These cases currently include both appeals from courts of appeals affirming imposition of the death penalty by a trial court and, for capital crimes committed on or after Jan. 1, 1995, appeals taken directly from the trial courts. Finally, the Supreme Court's appellate jurisdiction extends to review of the actions of certain administrative agencies, including the Public Utilities Commission.

The Supreme Court has original jurisdiction to issue extraordinary writs. These include writs of habeas corpus (inquiring into the cause of an allegedly unlawful imprisonment or deprivation of custody), writs of mandamus (ordering a public official to perform a required act), writs of procedendo (compelling a lower court to proceed to judgment in a case), writs of prohibition (ordering a lower court to stop abusing or usurping judicial functions), and writs of quo warranto (issued against a person or corporation for usurpation, misuse, or abuse of public office or corporate office or franchise).

The Constitution grants the Supreme Court exclusive authority to regulate admission to the practice of law, the discipline of attorneys admitted to practice, and all other matters relating to the practice of law. In connection with this grant of authority, the Supreme Court has promulgated the Supreme Court Rules for the Government of the Bar of Ohio. These rules address, among other things, admission to practice, attorney discipline, attorney registration, continuing legal education, and unauthorized practice of law.

The Constitution also gives the Supreme Court authority to prescribe rules governing practice and procedure in all courts of the state and to exercise general superintendence over all state courts. Procedural rules promulgated by the Supreme Court become effective unless both houses of the General Assembly adopt a concurrent resolution of disapproval. Rules of superintendence over state courts set minimum standards for court administration. Unlike procedural rules, rules of superintendence do not have to be submitted to the General Assembly to become effective.

In connection with all of the rules for which it has responsibility, the Supreme Court generally solicits public comment before adopting new rules or amendments in final form. The Court first publishes its rules and amendments in proposed form. These proposals appear in both the Ohio State Bar Association Reports and the Ohio Official Advance Sheets and indicate the period open for comment and the staff member to whom comments should be directed. The Court reviews all comments submitted before it decides whether to adopt or amend a rule.

Pursuant to the Constitution, the Chief Justice or a Justice designated by the Chief Justice is responsible for ruling on the disqualification of appellate and common pleas court judges. The procedure for obtaining review of a claim of disqualification against an appellate or common pleas judge is commenced by the filing of an affidavit of disqualification with the Clerk of the Supreme Court. The Revised Code contains specific requirements governing the filing of affidavits of disqualification.

Article IV, Section 2 of the Constitution sets the size of the Court at seven -- a Chief Justice and six Justices, who are elected to six-year terms on a nonpartisan ballot. Two Justices are chosen at the general election in even-numbered years. In the year when the Chief Justice runs, voters pick three members of the Court.

A person must be an attorney with at least six years experience in the practice of law to be elected or appointed to the Supreme Court. Appointments are made by the Governor for vacancies that may occur between elections.

Date Published: December 18, 2018


Supreme Court of Ohio


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