Promotional items given away at baseball games qualify for Ohio’s sale for resale exemption, the state supreme court has ruled.
In a rare win for the Cincinnati Reds, the Ohio Supreme Court ruled 5 to 2 that bobbleheads given away by the team as an incentive for fans to attend less desirable games “were transferred with the purpose to ‘resell’ them for consideration.”
The court warned, however, that the ruling is applicable only to the specific facts of the case. “If the General Assembly prefers that sports organizations pay use tax on promotional items under the circumstances presented here, it can amend the Revised Code to require them to do so,” the majority opinion said.
But Cincinnati Reds attorney Steven Dimengo of Buckingham, Doolittle & Burroughs LLC said the decision is a big win for taxpayers. “The decision certainly extends to many other circumstances for Ohio businesses where they are entitled to an exemption — even beyond the resale exemption — and may not be taking advantage of it,” Dimengo told Tax Notes November 21. “This includes the transportation for hire exemption.”
Paul Melniczak of Reed Smith LLP agreed. “I think the decision is taxpayer-friendly in its view of the resale exemption and whether consideration was given,” he said. “I think it is a win for taxpayers generally.”
The majority found that the bobbleheads given to fans that bought tickets to specific games were indeed included in the ticket price and not given away for free.
“The key question, in the way the court framed it, was whether consideration was given by the fans in exchange for the items,” Melniczak said. Besides arguing that the team doesn’t qualify for the resale exemption because the team doesn't sell the bobbleheads to fans, the Ohio Department of Taxation also argued that by giving away the promotional items for free, consideration wasn’t part of the transaction.
The Board of Tax Appeals (BTA) agreed with the tax department in its 2017 decision, relying on the fact that tickets to games at which the bobbleheads were handed out did not cost more than those at which no promotional items were given away. The BTA concluded that the baseball organization’s intent was to give away promotional items for free, which the board said was further bolstered by the fact that not every fan received a bobblehead during games for which they were advertised.
The court's majority opinion, however, found that the BTA’s conclusion was contradicted by the testimony given by Reds CFO Doug Healy. Melniczak said it was an important reminder to taxpayers that the court doesn't have to rely on the BTA’s interpretation of the facts. “Even though the factual record was set at the BTA, the supreme court can still reverse the BTA’s interpretation of the facts if it finds that it is not supported by the reliable and probative evidence,” he said.
Pushing back against the tax department’s argument that ticket prices, regardless of promotional items, were the same throughout the season, Justice Patrick Fischer, writing for the majority, looked to Healy’s testimony.
Fischer wrote that Healy "specifically testified that the costs of promotional items are included in ticket prices when they are set before the start of a season” and that the promotional items are usually distributed at less desirable games that are not expected to sell out the stadium.
The majority further agreed that promotional items were offered instead of discounted ticket prices, saying that “one portion of the ticket price accounts for the right to attend the less desirable game and a separate portion of the ticket price accounts for the right to receive the promotional item.”
The opinion also went to great lengths to distinguish promotional items that are heavily advertised, such as bobbleheads, from items fans unexpectedly receive while in the stadium, such as a foul ball or a t-shirt tossed into the stands. “In the present case, fans did not receive the promotional items unexpectedly or by chance,” the majority said. “Instead, the unique promotional items were an explicit part of the bargain, along with the right to attend the game, that the fans obtained in exchange for paying the ticket fee.”
The court took into consideration Healy’s statement that if the team reneged on handing out the advertised promotional items, it would be a “public relations nightmare” for the team. If the team ran out of the promotional items, it would "make it right" by giving those fans who didn't receive the advertised item a different promotional item or complimentary tickets to another game, according to Healy.
The majority concluded its decision by saying that the “transfer of promotional items to fans thus constitutes a ‘sale’" and the “promotional items are subject to the sale-for-resale exemption.”
But not all justices agreed that the Reds should slide without paying a use tax. Justice Mary DeGenaro, in her dissent, focused less on baseball history and more on the fact that the team will not be subject to any sales or use tax obligation since ticket sales are also not taxed.
DeGenaro said the majority should have afforded the BTA’s factual findings more deference. She pointed to the fact that “game tickets contained no written guarantees” regarding the promotional items, adding, “Evidence in the record shows that on most promotional-item-giveaway days, thousands of fans ― sometimes more than 10,000 ― did not receive the promotional item.”