Ohio Rules Against Owner of Collectible Cars

Date September 20, 2022
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A recent Ohio Board of Tax Appeals (“Board”) ruling (The Auto Place, LLC vs. Jeffrey A. McClain, Tax Commissioner of Ohio) is a cautionary tale for taxpayers seeking to avoid sales tax on expensive purchases such as collectible cars and recreational vehicles. Many of us have seen the Ferrari with the Montana license plate or heard about individuals avoiding tax by shifting the jurisdiction of a sale to a state with no sales tax. This ruling by the Board highlights the risks when tax mitigation strategies are uncovered and determined to be tax avoidance strategies by state tax officials.

Initially, The Ohio Tax Commissioner (“Commissioner”) issued assessments totaling approximately $950,000 in use tax, plus penalties and interest against The Auto Place, LLC, The Auto Museum, LLC and The Beck Group of Oregon, Inc. (“appellants”), all of which were owned by Mr. Harry G. Yeaggy, a Cincinnati businessman. Two of the entities were established in states that do not impose sales taxes, Montana and Oregon, respectively. The third was an Ohio LLC that obtained an Ohio Dealer’s License, presumably so it could claim Ohio’s sale for resale exemption. The entities served to purchase collectible cars on behalf of Mr. Yeaggy.

The appellants put forth several arguments against the assessments, but primarily contested the assessments on the basis that the cars were purchased with the intent to resell them. Ohio statutes provide an exemption for resales by a person engaging in business.

  • 5739.01(E) “Retail sale” and “sales at retail” include all sales, except those in which the purpose of the consumer is to resell the thing transferred or benefit of the service provided, by a person engaging in business, in the form in which the same is, or is to be, received by the person.
  • 5739.01(F) “Business” includes any activity engaged in by any person with the object of gain, benefit, or advantage, either direct or indirect. “Business” does not include the activity of a person in managing and investing the person’s own funds.

Mr. Yeaggy, through his counsel, chief mechanic, and expert witness asserted that his purchase of the collectible cars was a business and was not, as the Commissioner asserted, a hobby. The appellants argued that Mr. Yeaggy established a showroom for the cars and operated as a dealer, in accordance with Ohio’s requirements for vehicle dealers, since the showroom had the requisite signage and business hours posted. The showroom was open to the public during advertised hours (“every Wednesday until noon and by appointment”).

His arguments were not well received by the Board as they countered that “there is far more evidence in the record that he uses the cars to advertise his status as a successful businessman rather than advertising the vehicles for sale to others.” Mr. Yeaggy only sold four of the seventeen cars from the assessments. While great weight was placed on the dealership license, by the appellants, the Board concluded that his showroom was not a dealership based on the facts of the case, including its limited hours, availability to the public, and articles that described the showroom as Mr. Yeaggy’s personalized garage.

The Board ruled that the appellants were not in the business of purchasing cars for resale nor did they operate a legitimate dealership. They reasoned that tax cannot be avoided because one seeks to make a profit on his purchases and has the means to purchase a location and hire personnel to oversee his collection. Finally, the fifteen percent (15%) penalty imposed by the Tax Commissioner was also sustained.

Taxpayers making expensive purchases are advised to understand the sales and use tax implications before implementing tax mitigation strategies. Utilizing Montana registration is a well-known strategy, often promoted by Montana law firms, but it is also familiar to state tax authorities and may result in tax assessments and unwanted attention. While there are valid tax mitigation strategies, they carry risk and often require strict compliance to the details (i.e., property must remain in one state or a specific state). Taxpayers can cost themselves substantial dollars if they veer from the spirit and intent of certain exemptions.

If you have questions on Ohio’s ruling or other SALT matters, please contact the HBK SALT Advisory Group at hbksalt@hbkcpa.com.

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