Continental Cablevision of ) CASE NOS. 96-K-6 Ohio, Inc., ) 96-K-518 ) Appellant, ) (SALES AND USE TAX) vs. ) DECISION AND ORDER )

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1 Continental Cablevision of ) CASE NOS. 96-K-6 Ohio, Inc., ) 96-K-518 ) Appellant, ) (SALES AND USE TAX) ) vs. ) DECISION AND ORDER ) Roger W. Tracy, Tax ) Commissioner of Ohio, )Dismissed and Remanded APPEARANCES: )on Appeal - Aug. 21, 1998 Appellee. ) For the Appellant - Raymond D. Anderson Anthony L. Ehler Kevin M. Czerwonka Vorys, Sater, Seymour and Pease 52 East Gay Street P.O. Box 1008 Columbus, Ohio For the Appellee - Betty D. Montgomery Attorney General of Ohio By: Janyce C. Katz Assistant Attorney General State Office Tower-16th Floor 30 East Broad Street Columbus, Ohio Entered July I0, 1998 Mr. Johnson, Ms. Jackson and Mr. Manoranjan concur. This matter is before the Board of Tax Appeals as a result of two notices of appeal filed on behalf of appellant, Continental Cablevision of Ohio, Inc., on January 5 and May 15, 1996, respectively. Through these appeals, appellant challenges two final determinations of the Tax Commissioner. In the first of his determinations, the Tax Commissioner granted in part and denied in part appellant's application for sales and use tax refund. _ In _In the underlying refund application which had been filed with the Tax Commissioner in B.T.A. No. 96-K-6, appellant referenced the period of December i, 1987 to January 31, S.T. at 4. However, the monies claimed by appellant to have been illegally or

2 the second of the final determinations involved herein, the Tax Commissioner allowed in part and denied in part appellant's objections to a use tax assessment. 2 Although these appeals have a slightly different procedural posture, given the factual and legal questions common to both, by Order dated June 14, 1996, they were consolidated for purposes of hearing and final disposition. The record upon which these appeals are considered consists of appellant's notices of appeal, the statutory transcripts certified by the Tax Commissioner, the evidence presented at the hearing conducted before this Board and the posthearing briefs of counsel. At this Board's evidentiary hearing, appellant presented the testimony of Harold J. Moore, appellant's former vice president and controller, William J. O'Brien, appellant's present vice president and controller, and Leigh Ann Webb, the office services manger of appellant's northern Ohio region. During the period at issue, i.e., January i, 1988 through December 31, 1993, appellant operated approximately twentyfive cable television systems within Ohio. These cable systems correspond with the geographic areas in which appellant has entered into franchise agreements with various local municipalities. The erroneously paid arose out of an assessment issued for the period of January i, 1988 through December 31, S.T. Supp. at 100. It is therefore this latter period which is considered at issue in B.T.A. No. 96-K-6. 2In the underlying assessment in B.T.A. No. 96-K-518, appellant was assessed use tax for the period of January i, 1991 through December 31, S.T. 73.

3 franchise agreements not only granted appellant a non-exclusive permit to operate a cable communication system within the territory governed by the municipality, but also prescribed the maximum fee which appellant could charge its subscribers, imposed certain requirements upon appellant regarding the delivery of its cable services and set the franchise fee which appellant would pay the municipality for the right to deliver its services within that geographic location. See, e.g., Ex. 2. Appellant explained that each of its cable systems operate in the same general manner. Local broadcasts and satellite signals are received at a reception facility where they are processed and transmitted throughout the system over hard-line cables. The signals are carried from the distribution system to the subscriber locations via a cable "drop," a portion of which includes a "trap" enabling appellant to prevent unauthorized signals from being received by the subscriber. From the drop, authorized signals are transmitted over internal wiring within the residence to a converter, a device attached to the subscriber's television, which then unscrambles the signals for viewing. Appellant indicated that Parallex Corporation ("Parallex"), an unrelated entity, contacted it in the early 1970's with a proposal for creating a subscriber management system which would allow appellant to more efficiently operate its cable television systems. Due to the rapid expansion generally experienced within the cable television industry, as well as the growth which was anticipated within its own subscriber base, appellant determined that it needed to replace the manual system

4 then being used with a more sophisticated and comprehensive subscriber management system. Appellant and Parallex then began working together to develop such a system, with both parties agreeing to forego any fees until such a system was created. When the system was ultimately placed into service, appellant and Parallex formalized their respective obligations in two documents, both entitled "Parallex Master Agreement." Exs. 5, 6. The initial agreement covered the period from November I, 1985 through September Ii, A second agreement between appellant and Parallex covered the period of September 12, 1989 through late 1993 when appellant terminated the relationship and returned to an "in-house" subscriber management system. Although there existed modest differences between these agreements, they were in large measure alike. Pursuant to these agreements, the following information and data exchange was to occur: "I0. FURNISHING SOURCE DATA "Customer [appellant] agrees to provide the data and input material as required to enable Parallex to perform the services under this Agreement. Such data and material will be furnished in amounts and sequences as specified by Parallex. "If the data and input material submitted by Customer is incorrect, incomplete or not in the form agreed to for processing, then Parallex may adjust its charges in accordance with its prevailing rates to reflect the additional work necessary to correct, complete or prepare such data for processing. *** "II. FURNISHING OUTPUT MATERIAL & RETURN OF SOURCE DATA "Parallex agrees to furnish output material with diligence and reasonable promptness of 4

5 processing results to the Customer and to return Customer's source documents (if applicable). All delays in delivery of output material caused by Customer's submission of incorrect, incomplete or data not in the form to which agreed shall extend the time for the provision of output material by Parallex." These agreements indicated that Parallex would provide a variety of services to appellant, including: requisite modifications and enhancements to the subscriber management system; periodic maintenance and trouble-shooting; training of and technical assistance to employees; development and generation of various subscriber data reports; and preparation, printing and distribution of quarterly post-card bills to appellant's subscribers. Appellant has elaborated upon these services, describing the variety of ways that the Parallex system allowed it to more efficiently operate its business. For example, installation requests, as well as requests for changes to existing service, e.g., additional channels or outlets, remote control capability, parental lock-out, etc., would be entered into the system when a new or existing subscriber contacted one of appellant's customer service representatives ("CSR's"). The CSR would use the Parallex system to determine whether the service address was located within appellant's franchise areas, whether appellant's cable system existed in the area of the service address or whether the system could be extended to that location and whether the service address had been or was currently being serviced by appellant. The CSR would also obtain certain information from the new or existing subscriber relating to

6 the service request and enter such information into the Parallex system. Assuming that the location was within one of appellant's franchise areas, a work order would then be generated to a service technician setting forth a variety of information enabling the technician to perform the work required. Depending upon whether a new installation or change in service was required, the work order would reflect: the date the work was to be performed; the service address and telephone number; the type of work to be performed; the type of equipment and materials required to perform the work; the estimated time required to complete the work; and the "tag number" identifying the cable drop assigned to the service address. Once the work was completed, the service technician would return the work order to one of appellant's local offices where a CSR would enter pertinent information regarding the service call into the system and "close out" the work order. Another function served by the Parallex system related to the billing of appellant's subscribers. On a quarterly basis, the system generated "post-card" bills, with "coupons" attached, which were to be remitted by the subscriber with payment for each of the following three months. Payments were to be submitted directly to appellant which would enter their receipt into the Parallex system. If a subscriber's payment was not timely received, either for monthly cable services or for any other charges, the system automatically initiated various steps intended to bring the delinquent account current. Ultimately, if payment was not forthcoming, the system would generate either an

7 involuntary disconnect work order, containing much of the same information previously described, or a delinquent payment report which would be provided to a third-party collection agency. In addition, the Parallex system allowed appellant to coordinate terminations and installations of cable service at a subscriber address, thereby curtailing the number of service calls to a single location. The system also summarized subscriber data in ways meaningful to management. Appellant indicated that it utilized information available from the Parallex system as a means by which to monitor its cable system on a system-wide basis, allowing it to more efficiently detect unauthorized usage, perform necessary repairs and maintenance, and to periodically replace outdated equipment. Under the Parallex Master Agreements, appellant agreed to pay Parallex periodic fees for the continued use of the subscriber management system and for the above-described services which Parallex was to provide throughout the period covered by the agreements. These fees were calculated with reference to appellant's monthly subscriber base rate and varied between and cents per subscriber, depending upon the type of system in use within a particular cable system. During the periods in issue in these appeals, the fees paid to Parallex totalled approximately $3,500,000. The fees which appellant paid to Parallex are those whose taxable status is at issue in the present appeals. 3 3In its notice of appeal in B.T.A. No. 96-K-518, quoted infra, as well as in its initial post-hearing brief, see, e.g., Brief of Appellant at 4, fn. 2, appellant referenced other transactions 7

8 Concluding that appellant's purchases from Parallex were for the purpose of acquiring automatic data processing services ("ADP"), the Tax Commissioner concluded that such transactions were appropriately taxed: "The claimant contends that purchases of computer processing of its subscriber billings from Parallex were erroneously included in the assessment. The claimant alleges that it is receiving a personal service from Parallex rather than taxable automatic data processing services. Pursuant to R.C (B) (3) (e), automatic data processing and computer services are sales subject to tax. The term 'automatic data processing' is defined in R.C (Y) (I) (a) to include the processing of others' data. In the present matter, the evidence shows that the claimant transmits billing information by phone lines to Parallex's office where the information is then processed to produce customer billing statements. The master agreement between the claimant and Parallex refers to the services provided as 'data processing services'. Additionally, an affidavit provided from the president and Chief Executive Officer of Parallex states that Parallex processes the information received from the claimant. It seems clear that the processing of information at the claimant's request fits into the definition of automatic data processing. The claimant's contention is denied." B.T.A. No. 96-K-6, S.T. at 1-2. See, also, B.T.A. No. 96-K-518, S.T. at I. whose taxable status was at issue. However, in its reply brief, appellant stated: "As for the remaining transactions at issue -- i.e., all transactions other than those involving Parallex -- Continental hereby withdraws all of its remaining objections for purposes of the present cases. However, Continental expressly reserves the right to contest these types of issues for transactions and uses occurring after December 31, 1993, i.e., with respect to periods of time after the audit periods in controversy." Reply Brief of Appellant at 2. (Emphasis supplied.) Accordingly, we will limit our review to the Parallex transactions as periods after December 31, 1993 are not involved within the present appeals.

9 From these decisions, appellant filed the two notices of appeal, essentially identical, which are now under consideration by this Board. In its appeal docketed as B.T.A. Case No. 96-K-6, 4 appellant specified the following as error: "I. The Commissioner erred in determining that various purchases made from Parallex represent taxable automatic data processing or computer services pursuant to R.C (B) (3) (e). Such purchases do not fall within the statutory definition of 'automatic data processing' or 'computer services' and, in any event, are exempt from taxation as personal or professional services and/or personal or professional services to which automatic data processing or computer services are incidental or supplemental. R.C (B) (3) (e), (B) (5), (Y) and ; Ohio Admin. Code and ; Genuine Parts Co. v. Limbach (1991), 62 Ohio St. 3d 93. 4The only differences existing in appellant's notice of appeal docketed in B.T.A. No. 96-K-518 are as follows: "2. The Commissioner erred in failing to determine that various purchases made from Parallex and others are exempt from taxation as items used directly in the rendition of a public utility service or as installation charges for such items. R.C (B) (3) (b), (E) (2), (P) and ; Warner Cable Communications, Inc. v. Limbach (1990), 67 Ohio App. 3d 458. "II. The Commissioner's failure to remit the statutory penalty constitutes an abuse of discretion. Assessing any penalty was unreasonable and arbitrary. Frankelite Co. v. Lindley (1986), 28 Ohio St. 3d 29; Jenninqs & Churella Constr. Co. v. Lindley (1984), I0 Ohio St. 3d 67."

10 "2. The Commissioner erred in failing to determine that various purchases made from Parallex are exempt from taxation as items used directly in the rendition of a public utility service. R.C (E) (2), (P) and ; Warner Cable Communications, Inc. v. Limbach (1990), 67 Ohio App. 3d 458. "3. The Commissioner erred in failing to determine that various purchases made from Parallex are exempt from taxation because such purchases represent payments for a license to use intangible personal property. R.C (B) and "4. The Commissioner erred in failing to determine that Continental's purchases of cable guides are exempt from taxation as magazines distributed as controlled circulation publications or magazine subscriptions shipped to consumers by secondclass mail. R.C (E) (7), (CC), (B) (4) and ; Ohio Admin. Code "5. The Commissioner erred in failing to determine that Continental's purchases of cable guides are exempt from taxation as items used directly in the rendition of a public utility service. R.C (E) (2), (P) and ; Warner Cable Communications, Inc. v. Limbach (1990), 67 Ohio App. 3d 458. "6. The Commissioner erred in failing to determine that Continental's purchases of cable guides are exempt from taxation as items purchased for the purpose of resale. R.C (E) (I) and "7. The Commissioner erred in failing to determine that Continental's purchases of certain computer hardware and software listed in account no are exempt from taxation as items used directly in the rendition of a public utility service. R.C (E) (2), (P) and ; Warner Cable Communications, Inc. v. Limbach (1990), 67 Ohio App. 3d 458. "8. The Commissioner erred in failing to determine that Continental's purchases of certain computer hardware and software listed in account no are exempt from taxation I0

11 because they relate to the installation of tangible personal property that was incorporated into and became a part of a production, transmission, transportation or distribution system for the delivery of a public utility service. R.C (B) (3) (b) and "9. The Commissioner erred in failing to determine that Continental's purchases of certain computer software listed in account no are exempt from taxation because such purchases represent payments for intangible personal property or for a license to use same. R.C (B) and ; Compuserve, Inc. v. Lindley (1987), 41 Ohio App. 3d 260. "i0. The Commissioner erred in failing to follow R.C (B), which precludes the issuance of tax assessments that are contrary to administrative rules promulgated by the Commissioner. Youngstown Sheet & Tube Co. v. Lindley (1988), 38 Ohio St. 3d 232." We acknowledge at the outset that the findings of the Tax Commissioner are entitled to a presumption of validity. Alcan Aluminum Corp. v. Limbach (1989), 42 Ohio St.3d 121. It is therefore incumbent upon a taxpayer challenging a finding of the Tax Commissioner to rebut that presumption and establish a right to the relief requested. See Bel_rade Gardens, Inc. v. Kosydar (1974), 38 Ohio St.2d 135. As a result, the taxpayer is assigned the burden of showing in what manner and to what extent the Tax Commissioner's determination is in error. Federated Dept. Stores, Inc. v. Lindley (1983), 5 Ohio St.3d 213. Pursuant to R.C an excise ("sales") tax is levied upon all retail sales made in Ohio. By virtue of R.C , a similar tax is imposed upon the storage, use or consumption in this state of any tangible personal property or the benefit realized in this state of any services provided. R.C. Ii

12 (A). If the transaction is not subject to sales tax, it follows that it is also excepted from the imposition of use tax. R.C (C). Given the similarity of the sales and use tax provisions, and the analysis typically accorded them, we will refer only to the applicable sales tax statutes within the remainder of our decision. The thrust of the first of appellant's arguments is summarized in its initial post-hearing brief: "The Parallex Transactions Are Exempt From Ohio Sales And Use Tax Because The True Object Of Those Transactions Was The Receipt Of Personal Or Professional Services To Which Any Automatic Data Processing Services Were Merely Incidental [O]r Supplemental." Brief of Appellant at I0. Subsumed within the preceding argument are several bases upon which appellant asserts its purchases from Parallex are not subject to taxation. Appellant initially argues that in reaching the conclusion that ADP was being provided, the Tax Commissioner improperly focused upon the billing and collection aspects of the Parallex transactions. Instead, when Parallex's involvement in its billing and collection efforts are considered in context of the multitude of other services which it provided, appellant insists the transactions constitute "personal or professional services" which are beyond the scope of the statutory definition of ADP. Should this Board approve the Tax Commissioner's overly restrictive focus, appellant still maintains that the billing and collection functions performed by Parallex constitute "debt collection services" which are themselves considered personal or professional services. Finally, even if the services provided by Parallex could 12

13 be considered to include some ADP, appellant's "true object" in establishing its relationship with Parallex was to obtain a comprehensive, full-service management system which appellant insists falls within the acquisition of personal and professional services. In considering appellant's arguments, we first refer to that portion of R.C. Chapter which taxes the sale of ADP. In this regard, R.C provided in pertinent part: "(B) 'Sale' and 'selling' include all of the following transactions ***: "(3) All transactions by which: "(e) Automatic data processing and computer services are or are to be provided for use in business when the true object of the transaction is the receipt by the consumer of automatic data processing or computer services rather than the receipt of personal or professional services to which automatic data processing or computer services are incidental or supplemental. ***" R.C (Y) (i) defined "automatic data processing and computer services _ as follows: 5Effective July i, 1993, falling within the period at issue herein, R.C was amended so as to separately define the terms "automatic data processing" and "computer services" as follows: "(Y) (I) (a) 'Automatic data processing' means: processing of others' data, including keypunching or similar data entry services, or providing access to computer equipment for the purpose of processing data. "(b) 'Computer services' means providing services consisting of specifying computer hardware configurations and evaluating 13

14 "'Automatic data processing and computer services' means: processing of others' data, including keypunching or similar data entry services together with verification thereof; providing access to computer equipment for the purpose of processing data or examining or acquiring data stored in or accessible to such computer equipment; and services consisting of specifying computer hardware configurations and evaluating technical processing characteristics, computer programming, and training of computer programmers and operators, provided in conjunction with and to support the sale, lease, or operation of taxable computer equipment or systems. 'Automatic data processing and computer services' shall not include personal or professional services." With respect to the latter point of the preceding statute, i.e., that ADP does not encompass personal or professional technical processing characteristics, computer programming, and training of computer programmers and operators, provided in conjunction with and to support the sale, lease, or operation of taxable computer equipment or systems." In addition, the amendment included within the terms "sale" and "selling" as set forth in R.C (B) (3) (e), all transactions by which "electronic information services" are provided, that term being defined in R.C (Y) (I) (c) as follows: "'Electronic information services' means providing access to computer equipment by means of telecommunications equipment for the purpose of either of the following: "(i) Examining or acquiring data stored in or accessible to the computer equipment; "(ii) Placing data into the computer equipment to be retrieved by designated recipients with access to the computer equipment." 14

15 services, the General Assembly set forth a non-exhaustive list of such services in R.C (Y) (2), which provides as follows: "As used in divisions (B) (3)(e) and (Y) (I) of this section, 'personal and professional services' means all services other than automatic data processing and computer services, including but not limited to: "(a) Accounting and legal services such as advice on tax matters, asset management, budgetary matters, quality control, information security, and auditing and any other situation where the service provider receives data or information and studies, alters, analyzes, interprets, or adjusts such material; "(b) Analyzing business policies and procedures; "(c) Identifying management information needs; "(d) Feasibility studies including economic and technical analysis of existing or potential computer hardware or software needs and alternatives; "(e) Designing policies, procedures, and custom software for collecting business information, and determining how data should be summarized, sequenced, formatted, processed, controlled and reported so that it will be meaningful to management; "(f) Developing policies and procedures that document how business events and transactions are to be authorized, executed, and controlled; "(g) Testing of business procedures; "(h) Training personnel in business procedure applications; "(i) Providing credit information to users of such information by a consumer reporting agency, as defined in the 'Fair Credit Reporting Act,' 84 Stat. 1114, 1129 (1970), 15 U.S.C. 1681a(f), or hereafter amended, including but not limited to gathering, organizing, analyzing, recording, and 15

16 furnishing such information by any oral, written, graphic, or electronic medium; "(j) Providing debt collection services by any oral, written, graphic, or electronic means. "The services listed in divisions (Y) (2) (a) to (j) of this section, are not automatic data processing or computer service." Although initially suggesting that no ADP or computer services were performed by Parallex, appellant concedes that a portion of those services constitutes ADP. See, e.g., Reply Brief of Appellant at 8 ("This case involves a mixed transaction -- i.e., part ADP, and part personal or professional service.") Even without such concession, we would likewise find, as subsequently detailed, that both ADP and personal or professional services were being provided by Parallex. Where both types of services are rendered, pursuant to R.C (B) (3) (e), this Board must determine whether the "true object" of appellant was the receipt of ADP or personal or professional services; the former being subject to tax, while the latter is not. Due to the similarity of the tests applied, it is important to acknowledge the distinction which exists between transactions involving a transfer of both personal or professional services and tangible personal property and the present situation where, rather than tangible personal property, the transfer of ADP is involved. In the former, the test to be applied is that enunciated by the Supreme Court in Emery Industries, Inc. v. Limbach (1989), 43 Ohio St.3d 134, in which the basic question revolves around the overriding purpose, or "true object," of the purchaser in entering into the transaction, i.e., was it to obtain 16

17 the personal or professional service or the tangible personal property resulting from the labors of such services. With respect to situations involving the sale of both ADP and personal or professional services, the Supreme Court, in its decision in ComTech Systems, Inc. v. Limbach (1991), 59 Ohio St.3d 96, 98-99, made it clear that the Emery test is inapplicable. See, also, CCH Computax, Inc. v. Tracy (1993), 68 Ohio St.3d 86, 87. Instead, under such circumstances, the applicable test emanates from R.C (Y) rather than the decision in Emery, supra, and its progeny. 6 As this Board has done in prior appeals involving R.C (B) (3) (e) and R.C (Y), in order to accurately frame the test to be applied and to provide a backdrop against which the services at issue may be compared, we consider it appropriate to review those cases which have involved the question of whether ADP is being provided. We begin our review by simply noting our 6As previously indicated, as part of the agreements between appellant and Parallex, Parallex agreed to provide appellant with certain lists and reports which could be generated from the data which appellant entered into the system. See Exs. 5 and 6, attachment B. In the context of the present situation, we agree with appellant that although such reports were provided, the appropriate focus of our analysis remains whether the true object of appellant was to receive ADP or personal or professional services. Cf. Genuine Parts Co. v. Limbach (1991), 62 Ohio St.3d 93 (test applied was that emanating from R.C (Y) even though the service provider generated a variety of financial reports and checks); CCH Computax, Inc. v. Tracy (1993), 68 Ohio St.3d 86 (although service provider prepared tax returns and tax schedules, the court specifically held that test announced in Emery Industries, supra, was inapposite); Amerestate, Inc. v. Tracy (1995), 72 Ohio St.3d 222 (applying the test set forth in Emery Industries, supra, to reports and publications produced and sold by the appellant, while applying analysis of R.C (Y) to that portion of those transactions where access was provided to the same information via computer connection). 17

18 decision in Richfield Properties v. Limbach (June 29, 1990), B.T.A. No. 87-A-271, unreported, which, for the first time following the amendment to R.C levying a tax on the sale of ADP and computer services, affirmed an assessment involving said services. The services at issue in Richfield Properties had been provided by an entity known as Ticketron, a "computerized ticketing distribution service," whose business related to the sale of tickets, via computer terminals, to sporting and entertainment events. Next, in ComTech Systems, supra, the taxpayer sought a refund of taxes it had collected from clients beginning on the effective date of the aforementioned amendment to R.C The Supreme Court described the services rendered by the taxpayer as follows: "ComTech Systems, Inc., appellant, provides consulting services for its clients. It studies clients' systems analysis requirements, issues feasibility studies, and evaluates different information for clients. It provides conceptual detail designs, writes and codes programs, and designs, modifies, and debugs computer software programs. ComTech does not sell hardware or off-the-shelf software, process others' information on its computers, keypunch for its clients, or sell access to its computers." Id. at 96. Although the Supreme Court was not called upon to determine whether the above-described services constituted "automatic data processing or computer services" or "personal or professional services" as those terms were redefined by the General Assembly effective January I0, 1985, see Sub. S.B. No. 112, 140 Ohio Laws, Part I, 225, i.e., R.C (Y), the Tax Commissioner, when the issue 18

19 was pending before her, found that a refund was warranted for taxes collected after this date. In Quotron Systems, Inc. v. Limbach (1992), 62 Ohio St.3d 447, 448, the Supreme Court agreed with this Board's determination that the taxpayer's services constituted ADP or computer services where its subscribers were provided with access to its computer equipment where they could "examine or acquire stock price information stored within or accessible to that computer equipment." In CCH Computax, Inc. v. Tracy (1993), 68 Ohio St.3d 86, the Supreme Court again affirmed this Board's decision that the services of a company which collected information from professional tax preparers, i.e., lawyers and accountants, sorted, classified and rearranged that information, mechanically printed tax returns and schedules which the preparers then sold to their customers, constituted ADP. In reaching this conclusion, the court quoted our finding that the taxpayer "provided '[n]o potentially consequential professional or personal tax advice or tax return preparation services[.]'" Id. at 87. In Genuine Parts Co. v. Limbach (1991), 62 Ohio St.3d 93, the court found the "true object" of the consumers in the transactions at issue was the receipt of personal and professional services to which ADP or computer services were merely incidental or supplemental. These transactions were succinctly described by the court as follows: "Genuine Parts Company, appellant, owns most National Automotive Parts Association ('NAPA') distribution centers in the United States. NAPA is a consortium of independent auto parts stores. Genuine also owns retail stores through which it markets auto parts. 19

20 "The independent stores, also known as jobbers, obtain merchandise from Genuine for resale at retail or wholesale. The independent stores can also engage a division of Genuine, Automotive Management Services ('AMS'), to perform bookkeeping services for them. Those that do so, whose operators usually have no experience or interest in keeping financial records, transmit all their financial data to AMS. Some can transmit data via computer terminals located in their stores. "AMS manually reviews the data to ensure its accuracy, prepares the data for entry into Genuine's computer system, and retrieves the information as needed. With the information, AMS prepares financial statements, balance sheets, profit and loss statements, federal, state and local tax returns, fixed asset ledgers, and other financial records for each customer. It reconciles bank statements and writes checks to pay jobbers' invoices and employees. AMS also informs the jobbers regarding tax law changes and answers individual questions regarding management, bookkeeping, and accounting functions. "AMS generates the financial reports and checks its issues with the computer. AMS charges the jobbers a percentage of gross sales as its fees for performing the services. It does not detail the charges on its billing." In Reuters America, Inc. v. Tracy (Nov. 28, 1994), B.T.A. No. 92-H-1414, unreported, the appellant transmitted news and financial information to its subscribers via computers. This Board held that the true object of the appellant's subscribers was the acquisition of personal or professional services, rather than ADP or computer services. In reaching this conclusion, we focused upon the type of services provided, distinguishing those of the appellant from those involved inquotron System_ supra: "Reuters' media services are far different in terms of 'cognitive thought' from the stock 2O

21 and commodity prices gathered by Quotron's computer and funnelled electronically to its subscribers. There is cognitive thought in what news to gather, there is cognitive thought in gathering it, there is cognitive thought in how it is to be presented, and there is cognitive thought in whether and when it is to be presented." Id. at 23. In NTN Communications, Inc. v. Tracy (May 12, 1995), B.T.A. No. 93-X-353, unreported, we were called upon to determine whether monthly broadcast fees charged by the appellant to its subscribers, i.e., bars and restaurants, for certain entertainment services, i.e., interactive and non-interactive games played by patrons, were subject to tax. Finding that the services provided by the appellant involved both ADP and professional services, we reasoned that a two-step inquiry was required. First, we looked to the appellant's business efforts, framing the question as being "whether the service provider engaged in some cognitive act or analytical thought for the benefit of the purchaser." Id. at 22. This question was answered in the affirmative: "In the instant case, the record establishes appellant conceived of an entertainment package which would be appealing in a sports bar setting. The package is comprised of video tape news, weather, entertainment and sports information, and the broadcast of live sports events. Additionally, the package offers six games patrons can play. Some of the games are interactive, allowing patrons to be 'armchair quarterbacks' and attempt to call the next play of a game being broadcast. Some are noninteractive, allowing patrons to test their answers to trivia questions. Finally, the appellant also provides a special overlay which allows an entertainment provider to create their own in-house advertisements, on the playmaker screens. *** "This appears to be a unique entertainment formula which the appellant has designed to fit a certain niche, and which the appellant 21

22 markets, fine tunes, and supports, so that it continues to serve its customers' needs. ***" Id. at (Citation omitted.) The next question was then what NTN's subscribers sought to acquire: "Our review of the record leads us to believe his or her true object is to purchase an entertainment package, which is designed to attract and entertain customers. One of the package's facets -- the games -- utilizes a computer; however, we do not believe the entertainment providers' [sic] overriding purpose was to obtain an adp or computer service. We find the consumer's true object was to buy a concept -- an entertainment package designed to boost bar and food sales "Just as subscribers rely on Reuters to gather, analyze and format news, the bar owners rely on NTN to design and market an entertainment medium. The skill and cognitive thought involved is correlative to Community Mutual Insurance Company's reliance on skilled researchers for analysis, encoding and interpretation. It is also correlative to the jobbers' desire to obtain professional accounting services in Genuine Parts, supra. To focus a spotlight in appellant's use of computers is to lose sight of the larger picture of what exactly appellant provides its customers." Id. at (Emphasissic.) In Amerestate, Inc. v. Tracy (1995), 72 Ohio St.3d 222, the appellant collected real estate sales data and entered that information into its own computer data base. The information was organized, sorted and made available to customers through published reports or on-line access to the appellant's computer data base. Concluding, as this Board had, that the transactions were taxable as constituting ADP and computer services, the court agreed that the primary objective of the appellant's customers was to obtain 22

23 the objective information not the appellant's interpretation or analysis of that data. In Community Mut. Ins. Co. v. Tracy (1995), 73 Ohio St.3d 371, the appellant had been sued for alleged trademark infringement and antitrust violations. In response to then pending discovery, its attorneys needed to code documents contained within one hundred thirty-five banker boxes of records. Although the appellant's attorneys, paralegals and summer law clerks initially undertook to perform this task, a faster response was required so it engaged Document Automation Corporation ("DAC"). Using a manual prepared by the appellant's attorneys and operating under their supervision, the employees of DAC coded documents by names mentioned, date, author, recipient and the relationship of the author. DAC also coded documents in order to determine whether: (i) an attorney-client privilege applied to the documents; (2) the documents fell into one of twelve legal or factual categories; 3) the documents had any legal or factual significance to the case at issue; and (4) the documents contained supporting or damaglng information. DAC placed the preceding information on a cassette tape. The tape was then provided to the appellant which would download the information into its computer system. The Supreme Court agreed with this Board's finding that the services were not taxable as ADP or computer services: "According to the evidence, DAC's service qualifies as legal services. Its employees received the documents, studied them, analyzed the documents to determine how to code them, and interpreted them for the lawyers. The attorneys relied on DAC to determine whether the document was privileged, whether it pertained to one of twelve legal or factual 23

24 categories, and whether it was significant to that category, and to summarize it for computer retrieval. These are typical actions that lawyers take in preparing a case for trial." Id. at 373. The taxpayer in Burke Marketing Services, Inc. v. Tracy (Sept. 6, 1996), B.T.A. No. 91-J-377, unreported, was a market research company which would conduct telephone interviews and enter and code the data received. On occasion, it would purchase coding, data entry and report processing services from outside companies. Finding the taxpayer's purchases to be taxable, we distinguished Community Mut. Ins., supra, by pointing to the limited, if any, cognitive thought required of the service providers: "The appellant has failed to submit any evidence that the outside firms such as Pine Co. performed anything other than processing data collected by the appellant. The services at issue were only contracted for during peak times when the appellant could not process the information in-house. *** The outside firms processed the raw information into the form previously established by the appellant. Any personal service was performed by the appellant by establishing the form the report should take. Because the appellant failed to submit any evidence showing that the outside firms performed anything other than processing data collected by others, we find no evidence of significant cognitive thought which would constitute a personal service." Id. at (Citation omitted.) In Ticketmaster-Indiana v. Tracy (Mar. 14, 1997), B.T.A. No. 94-A-1324, unreported, the appellant was in the business of providing ticketing services for entertainment and sporting events. Among the services which it provided to its clients were access to its ticket distribution system, marketing and promotional activities, advertising, market research, training of personnel, 24

25 twenty-four hour service on the system and centralized cash control. Although we concluded that our prior decision in Richfield Properties, supra, was not dispositive of the issues then before us, we nevertheless found the appellant's charges for its services to be taxable: "Based upon the foregoing, we find that while, in many instances, Ticketmaster's clients are sold a ticket-selling package, with services tailored to each client's specific needs and designed to maximize such client's ticket sales, they are contracting, primarily, for a computer or adp function from Ticketmaster. Many of Ticketmaster's 'services' that it can offer its clients are driven by or supported by its computer system; in fact, many of the 'services' Ticketmaster provides could not be offered without the use of its computer or adp functions. Clearly, the computer/adp functions form the basic service that Ticketmaster sells, to which other 'extras' are added, based upon the client's needs. These computer functions are an integral and indispensable part of the overall services offered by Ticketmaster and they serve as the catalyst for the remaining services Ticketmaster offers. *** While it has been demonstrated, through testimony and evidence provided by appellant, that Ticketmaster provides marketing and other related functions to its clients (some of which, not incidentally, utilize the computer/adp function, e.g., market surveys), we find that the primary reason for which any client would contract with Ticketmaster is to receive a state-of- the-art computerized ticket-selling service." Id. at Most recently, in MIB, Inc. v. Tracy (June 6, 1997), B.T.A. No, 95-B-I09, unreported, appeal pending, Sup. Ct. No , this Board considered the taxability of services rendered by the appellant which collected medical information on insurance applicants and made that information available to its members, i.e., insurance companies, for the purpose of "'alleviating any 25

26 financial harm that may come about from misrepresentation by the insurance applicant.'" Id. at 7. This Board's conclusion that these services were taxable as ADP or computer services was premised upon our finding that the appellant acted as a depository and information clearinghouse for its members and that the true object of its members was to be able to gain access to the appellant's data base where applicant information was stored. The preceding cases indicate that in order for services to be considered "personal or professional," rather than the mere processing of others' data, some element of "cognitive thought" is required. In the present case, while there were obviously some personal or professional services being rendered by parallex, e.g., training of appellant's personnel, it is incumbent upon this Board to determine the recipient's "true object" in obtaining the services provided. Despite appellant's assertions to the contrary, we must conclude that its true object was to obtain, consistent with the language included within the agreements themselves, ADP. See, e.g., Ex. 5, paragraph 1 ("Parallex agrees to provide to the Customer referred to as Continental Cablevision of Ohio, Inc. *** data processing services ***."); Ex. 5, paragraph 13 ("In recognition of the fact that Parallex's principal business activity is that of providing automated data processing to the cable television industry, Customer agrees that nothing herein shall in any way curtail Parallex's right to render to others services similar to or identical with the services to be performed in accordance with this Agreement.") 26

27 The services provided by Parallex primarily involved the processing and reorganization of raw data, e.g., subscriber's name, location, work required and billing information. This information was entered into the system by appellant's employees and, by virtue of the computerized system itself, subscriber information, work orders, billing information and summary reports could be generated and used by appellant in the course of its business. No "analysis" of the underlying information was requested or desired. Instead, it was the raw data, in a slightly different format, to which appellant wished to have access. Unlike those situations in which "cognitive thought" was clearly required, see, e.g., Genuine Parts, supra, Community Mut. Ins., supra, we consider the services rendered by Parallex to be much more like those at issue in cases such as Quotron Systems, supra, CCH Computax, supra, and Amerestate, supra, where obtaining objective information is the true object of the recipient. While appellant argues that the fees charged by Parallex were an attempt by it to recoup costs incurred during the system's development when no such fees were charged, appellant did not present the testimony of any individual from Parallex to support this contention. 7 A review of the agreements between appellant and 7We acknowledge that included within one of the statutory transcripts certified to this Board by the Tax Commissioner is an affidavit of the president and chief executive officer of Parallex. B.T.A. No. 96-K-6, Supp. S.T. at 74. Although considered by the Tax Commissioner and therefore properly included within the statutory transcript, the weight to be given an affidavit of an individual who does not appear before this Board and who is not available for examination by opposing counsel or this Board falls, at a minimum, within our discretion. Cf. American District Telegraph Co. v. Porterfield (1968), 15 Ohio St.2d 92 (finding it neither unreasonable nor unlawful for this Board to exclude 27

28 Parallex instead reflect that the fees charged by Parallex were for the services rendered by Parallex during the term of the agreements rather than for the collaborative creation of the "Parallex system." Once the system was created and in place, apparent from the parties' agreements, it was capable of being used generally by the cable television industry with little modification required. Thus, any "cognitive thought" involved in the creation of this system occurred prior to the time that the fees at issue were charged. Appellant also posits that even if focus is placed upon the billing aspect of the Parallex agreements, such services constitute "debt collection services," as set forth in R.C (Y) (2) (j), which expressly fall within "personal or professional services, s We disagree. Appellant's employees entered evidence offered in the form of affidavits). Nevertheless, assuming that this document would be properly considered by this Board, it does not purport to address the objective of Parallex in structuring its fee arrangement in the manner which it did. Rather, the affiant focuses upon the subscriber billing aspects of the system. Moreover, the determination to be made in this instance is what appellant's true object was in obtaining such services. SThe Tax Commissioner asserts, relying upon CNG Dev. Co. v. Limbach (1992), 63 Ohio St.3d 28, that appellant is precluded from advancing this argument on appeal for the reason that it was neither raised before the Tax Commissioner nor in appellant's notices of appeal. However, in its petition for reassessment, its application for refund and its subsequent notices of appeal, appellant claimed that the fees upon which taxes were assessed were for "personal or professional services." Given appellant's clarity in the claims advanced and its citations to corresponding statutes, as well as this Board's disposition to avoid a hypertechnical review of either a notice of appeal or a petition for reassessment, see Goodyear Tire & Rubber Co. v. Limbach (1991), 61 Ohio St.3d 381, Buckeye International, Inc. v. Limbach (1992), 64 Ohio St.3d 28

29 into the system all information from which standardized bills were generated quarterly to its subscribers. While the Parallex system generated periodic reports advising appellant of delinquent payments, Parallex itself did not undertake to actually collect payment itself. Rather, such services were turned over to a thirdparty collection agency by appellant. Accordingly, we do not find the services rendered by Parallex, an entity whose primary business activity was providing "automated data processing to the cable television industry," to constitute debt collections services as contemplated by R.C (Y) (2) (j). Irrespective of whether the services rendered by Parallex are found to constitute ADP, appellant advances a second primary argument, again summarized by reference to its post-hearing brief: "The Parallex Transactions Are Not Subject To Ohio Sales And Use Tax Because They Relate To The Parallex Subscriber Management System That Was Used By Continental Directly In The Rendition Of Its Public Utility Service." Brief of Appellant at 25. Before we may consider the merits of this argument, however, we must address the Tax Commissioner's contention that this Board is deprived of jurisdiction by virtue of the Supreme Court's pronouncement in CNG Dev. Co. v. Limbach (1992), 63 Ohio St.3d 28, in which the court concluded that a taxpayer's failure to raise issues in its petition for reassessment precludes that taxpayer from later raising those issues on appeal. Alternatively, 264, we find the Tax Commissioner's reliance upon CNG Dev. to be misplaced. 29