COURT OF APPEALS OF OHIO, EIGHTH DISTRICT COUNTY OF CUYAHOGA NOS. 70848/70849/70850 CINEMA PLAYHOUSE OF STRONGSVILLE, : INC. : : Plaintiff-appellant : : JOURNAL ENTRY vs. : and : OPINION ROGER W. TRACY, TAX COMMISSIONER : : Defendant-appellee : : : DATE OF ANNOUNCEMENT OF DECISION : APRIL 17, 1997 CHARACTER OF PROCEEDING : Civil appeal from : Ohio Board of Tax Appeals : Case Nos. 94-A-1377, : 94-A-1378 & 94-A-1379 JUDGMENT : AFFIRMED DATE OF JOURNALIZATION : _______________________ APPEARANCES: For plaintiff-appellant: JOHN P. CALANDRA Attorney at Law Baran, Piper, Tarkowsky & Fitzgerald 10800 Pearl Road, Suite B-1 Strongsville, Ohio 44136 For defendant-appellee: BETTY D. MONTGOMERY Attorney General of Ohio THELMA THOMAS PRICE, Assistant State Office Tower, 16th Floor 30 East Broad Street Columbus, Ohio 43215 PRYATEL, J.: In this consolidated appeal, taxpayer-appellant, Cinema Playhouse of Strongsville, Inc., appeals the decision and order of the Board of Tax Appeals affirming three final determinations of appellee, Roger W. Tracy, Tax Commissioner of Ohio, who assessed an increase in personal property tax liability against appellant for the years 1988, 1989 and 1990. For the reasons that follow, we affirm. During the relevant tax years, appellant owned and operated a movie theater located in the Strongsville Plaza, a shopping center situated in the city of Strongsville. The record reflects that the builder and developer of the Strongsville Plaza, Angelo Gousios ("Gousios"), completed construction of the shopping center sometime in 1980 and that he originally owned and operated the cinema, using, in part, equipment acquired from the old Jerry Lewis Cinema in Wickliffe, Ohio. Finding that his ownership of the Strongsville cinema complicated his relationship with a film projectionists' union, in 1982, Gousios sold the cinema to a John Griffith for a sale price, including interest, of $300,000.00. Of this purchase price, $228,000 represented a promissory note from Griffith to Gousios. The latter remained involved in the operation of the cinema with the intent of eventually regaining ownership. - 3 - When Griffith left the city and joined the Air Force, Griffith, through his attorney-in-fact, sold the cinema to Louis Calvalho in 1983. The purchase agreement listed the sale price as $244,000, of which $210,000 was allocated as personal property, $24,000 as leasehold improvements and $10,000 as goodwill. Calvalho also assumed repayment of the promissory note owed to Gousios. Calvalho, in turn, transferred the assets of the busi- ness to the appellant/corporation via an Internal Revenue Code Section 351 tax-free exchange. Calvalho and attorney David Harbarger were the only shareholders of the corporation. Gousios remained peripherally involved in the cinema and eventually regained ownership in 1991. For several of the years that appellant owned the cinema, it utilized the services of an accounting firm for purposes of filing its tax returns. Upon discharging the firm, appellant discovered what it considered to be several errors in how the prior accoun- tants had prepared its returns. Relying upon the advice of another accountant, Harbarger, as president and counsel of the appellant/corporation, prepared and filed returns as recommended but filed all the returns for the tax years at issue in 1991. Conceding that the returns were filed untimely, Harbarger testi- fied that the lack of timeliness was not intentional but rather excusable because he believed that no tax was due. Pursuant to an audit of these returns, the examining agent, following the "302 Computation" directive assigned to appellant's - 4 - machinery and equipment a true value of $102,743 for 1988, $84,189 for 1989 and $72,419 for 1989, which resulted in preliminary assessments for each of the tax years at issue. Including penal- ties and interest, appellant's tax liability increased by $2,404.37 for 1988, $1,879.74 for 1989 and $1,477.11 for 1990. Upon review by the Tax Commissioner, these assessments were found to be correct, and a final determination was issued to that effect. Appellant appealed this decision to the Board of Tax Appeals, asserting several errors. Succinctly, appellant challenged the Tax Commissioner's use of the 302 true-value computation claiming that the commissioner (1) used an incorrect class life in deter-mining useful life, (2) failed to take into consideration that the assigned true value included real property as well as personal property, and (3) failed to take into consideration disposals of much of the personal property. Additionally, appellant challenged the denial of his request for penalty abatement. Finding that appellant had failed to present sufficient evidence both to support (1) a deviation from the Tax Commission- er's assigned true value as well as (2) that the Commissioner abused his discretion in failing to abate the penalties at issue, the board affirmed the assessment. Appellant timely appeals this decision, asserting the follow- ing errors for our review: - 5 - I. THE BOARD OF TAX APPEALS ERRED AND ABUSED ITS DISCRETION IN FAILING TO APPLY THE DEPRECIATION SCHEDULE SELECTED BY THE TAXPAYER AND USED UNCHALLENGED BY THE TAXPAYER IN ITS FIRST FIVE PERSONAL PROPERTY TAX RETURNS. THE COMMISSIONER'S APPLICATION OF RULE 302 TO RECLASSIGY [SIC] THE TAXPAYER'S PROPERTY IS IMPROPER AND AGAINST THE MANIFEST WEIGHT OF THE EVIDENCE. II. THE BOARD ERRED AND ABUSED IT'S [SIC] DISCRETION BY FAILING FIND [SIC] THAT THE USEFUL LIFE OF THE PROPERTY WAS FIVE YEARS AND THAT THE INVENTORY ACTUALLY USED IN THE BUSINESS AS ESTABLISHED BY THE TAXPAYER DEMONSTRATED THAT THE VALUATION USED FOR THE RETURNS IN QUESTION WAS CORRECT. III. THE BOARD ERRED AND ABUSED IT'S [SIC] DISCRETION BY FAILING TO REMOVE FROM THE VALUATION OF THE TAXPAYER'S PROPERTY THE ITEMS OF REAL PROPERTY INCORRECTLY IN- CLUDED IN TAXPAYER'S ORIGINAL VALUATION FOR PERSONAL PROPERTY TAX PURPOSES, WHICH HAVE BEEN CONSISTENTLY TAXED AS REALTY. SUCH TREATMENT CONSTITUTED AN UNLAWFUL DOUBLE TAXATION OF THE PROPERTY IN QUESTION. IV. THE BOARD ERRED AND ABUSED IT'S [SIC] DISCRETION BY FAILING TO FIND THAT THE TAXPAYER DEMONSTRATED GOOD CAUSE IN ITS FAILURE TO FILE THE RETURNS IN A TIMELY MANNER AND WAS ENTITLED TO RELIEF FROM STATUTORY PENALTIES AND INTEREST. I. Before discussing appellant's assignments of error, appellee maintains that, pursuant to R.C. 5717.04, appellant is confined to the assignments of error as stated on its notice of appeal to this - 6 - court, rather than those errors assigned in its brief to this 1 court. It is true that a taxpayer may not broaden the scope of re- view of this court by raising for the first time errors not pres- ented to the Board of Tax Appeals. Leakas Furriers, Inc. v. Bowe- rs (1954), 98 Ohio App. 357, 340; see, also, Lomaz Financial Corp. v. Limbach (1991), 77 Ohio App.3d 568, 571. Although appellant's assignments of error are articulated more succinctly in its brief on appeal than as stated in its notice of appeal to this court, a review of the errors as argued in its brief does not indicate that appellant is attempting to broaden the scope of our review. On the contrary, the scope of our review is reduced by the appel-lant's decision to limit its arguments to those contained in its brief. See Leakas Furriers, supra. Consequently, we will address appellant's errors as argued in its brief on appeal to this court. In reviewing a decision and order of the Board of Tax Appeals, we are mindful that the role of this court "is to review the board's decision to determine if it is reasonable and lawful. *** As long as there is evidence which reasonably supports the conclusion reached by the board, the decision must stand." High- lights for Children, Inc. v. Collins (1977), 50 Ohio St.2d 186, 187-188; see, also, Kubicki v. Limbach (1991), 62 Ohio St.3d 320, 321-322. A reviewing court is not to substitute its judgment for 1 This section provides, inter alia, that a "notice of appeal shall set forth the decision of the board appealed from and the errors therein complained of." - 7 - that of the board on factual issues, including determinations of true value, unless it is clear from the record that such a deci- sion is unreasonable or unlawful. Texas E. Transm. Corp. v. Tracy (1997), 78 Ohio St.3d 83, 86. Moreover, the board is vested with discretion in determining the weight to be given the evidence and the credibility of the witnesses. Id. II. Appellant's first three assignments of error will be dis- cussed together as they all relate to the propriety of the Tax Commissioner's use of the "302 Computation" directive in valuating appellant's personal property. Under R.C. 5711.03, each taxpayer who engages in business in this state must "list all his taxable property *** as to value, ownership and taxing districts as of the date he engages in busi- ness *** ." R.C. 5711.18 defines value: In the case of personal property used in business, the book value thereof less book depreciation at such time shall be listed, and such depreciated book value shall be taken as the true value of such property, unless the assessor finds that such depreciated book value is greater or less than the then true value of such property in money. For personal property tax purposes, computing depreciation according to the "302 Computation" method has been upheld by the Ohio Supreme Court as a practical, reasonable and lawful method of valuating machinery and equipment. PPG Industries v. Kosydar (1981), 65 Ohio St.2d 80, 83. By using annual depreciation rates - 8 - in lieu of book depreciation, this method is prima facie neither unreasonable nor arbitrary. Wheeling Steel Corp. v. Evatt (1944), 143 Ohio St. 71, paragraph five of the syllabus. Nonetheless, if a taxpayer alleges that this method of computing depreciation does not reflect the true value of the property at issue, it is incum- bent upon the Board of Tax Appeals to apply a two-prong test to determine whether the use of this method is appropriate. Towmotor Corp. v. Lindley (1981), 66 Ohio St.2d 53, 54. First, it must determine whether special and unusual circumstances exist which would make use of this method inappropriate. If such circumstances are found to exist, then it must determine whether the rigid application of the "302 Computation" directive creates an unjust or unreasonable result. If so, use of the directive is inappropriate. Id. The burden is on the taxpayer, however, to show that the rate of depreciation arrived at under the "302 Computation" directive does not reflect the true value of its personal property. Gahanna Heights, Inc. v. Porterfield (1968), 15 Ohio St.2d 189, 190. The taxpayer must present competent and probative evidence to show that the commissioner's determination of value is factually incorrect. Hatchadorian v. Lindley (1986), 21 Ohio St.3d 66, paragraph two of the syllabus In this regard, appellant proposes that use of this method is unreasonable and fails to take into account the inclusion of real property and equipment disposals. First, appellant contends that the commissioner erred in failing to use the method of depreciation - 9 - used by appellant in filing its previous property tax returns. Appellant cites no authority in support of this argument. Its unsupported assertion that it is entitled to use the depreciation method it had used in the past without objection by the Tax Commissioner is unavailing. As discussed herein, appellant must demonstrate that use of the "302 Computation" directive produces an unjust and unreasonable result. Appellant has not met its burden in so demonstrating. Consequently, the board's decision to uphold the commissioner's use of the directive as a method of computing depreciation is neither unreasonable nor unlawful. Secondly, appellant maintains that the true value assigned by the examiner did not take into consideration that the $210,000 personal property value as allocated in the purchase agreement between Calvalho and Griffith included real property as well as personal property. In support of its argument, appellant sub- mitted evidence of construction costs in an attempt to demonstrate that much of the allocated personal property value is, in reality, real property. Gousios, testifying for appellant, prepared a summary of these costs in anticipation of the hearing before the board. When personal property used in business is sold to another, the best method of determining the "true value in money" of tangi- ble personal property is the actual sale of such property in the open market and at arm's-length, between one who is willing to sell, but not compelled to do so, and one who is willing to buy, - 10 - but not compelled to do so. Grabler Mfg. Co. v. Kosydar (1975), 43 Ohio St.2d 75, 77; see, also, Buckeye Internatl., Inc. v. Limbach (1992), 64 Ohio St.3d 264, 266. In this case, the purchase agreement allocated $210,000 of the $244,000 purchase price as personal property. The examiner then took this figure and, without explanation, reduced it by $10,500 as a result of disposals and other transfers. The $199,500 resulting therefrom was then depreciated accordingly for each of the tax years in question. The testimony before the board supported that the sale of the business was an arm's-length transaction between Calvalho and Griffith and that neither party was unwilling or under any compul- sion to buy or sell. The summary of construction costs prepared by the builder and submitted several years after construction does not support appellant's position that use of the "302 Computation" directive would lead to an unjust or unreasonable result. Appel- lant's arguments notwithstanding, the board's decision to adopt the personal property allocation of $210,000 as delineated in the parties' purchase agreement is neither unreasonable nor unlawful. Lastly, appellant contends that the examiner did not take into consideration that much of the machinery and equipment was disposed of during its years of ownership. Specifically, it maintains that when it acquired the machinery and equipment from the old Jerry Lewis Cinema, much of the equipment was several years old and/or disposed of during the term of its ownership, thus rendering the value assigned by the examiner as an inaccurate portrayal of true - 11 - value for valuation purposes. Appellant again relies on the testimony of Gousios for the age, value and continued existence of the machinery and equipment. Gousios, however, admittedly was unable to clearly recall the details of the disposals, including what equipment was disposed of and when. Without an accurate record reflecting these events, the board's refusal to account for these undocumented disposals was neither unreasonable nor unlawful. Accordingly, appellant's first, second and third assignments of error are not well taken. III. In its fourth assignment of error, appellant contends that the Tax Commissioner erred in failing to abate the penalties applied to the assessments at issue. When the commissioner determines that a personal property tax return is untimely filed, the commissioner is required by statute to impose certain penalties. Specifically, one-half of the $10,000 exemption allowed by R.C. 5711.01(C)(3) is denied, and up to fifty percent of the assessment can be added as a penalty. R.C. 5711.27(A) and (B). While these penalties are mandatory, the commissioner has the power to wholly or partially abate either or both of the penalties if the taxpayer's failure to timely file the return is due to reasonable cause and not willful neglect. R.C. 5711.27; see, also, R.C. 5711.28. The abatement of these statu- tory penalties, however, is completely within the discretion of the - 12 - Tax Commissioner. Coleman Young Motors, Inc. v. Limbach (1988), 51 Ohio App.3d 117, 121. Consequently, a reviewing court will not disturb a decision of the commissioner denying abatement absent an abuse of that discretion. Id. An abuse of discretion connotes that a decision is unreasonable, arbitrary or uncon-scionable. Jennings & Churella Constr. Co. v. Lindley (1984), 10 Ohio St.3d 67, 70. Here, appellant contends that its failure to timely file its personal property tax returns was reasonable because once it determined that the earlier returns were prepared incorrectly, it needed time to ascertain the proper course of action. Moreover, appellant argues, it was the understanding of its president that no tax was due. Consequently, appellant maintains that the lack of timeliness was not due to willful neglect. The Tax Commissioner heard the testimony and reviewed the evidence presented by appellant on this issue. We find no abuse of discretion on the part of the commissioner in refusing to abate the penalties assessed. Accordingly, appellant's fourth assignment of error is not well taken. We affirm. - 13 - It is ordered that appellee recover of appellant its costs herein taxed. The Court finds there were reasonable grounds for this appeal. It is ordered that a special mandate issue out of this Court directing the Ohio Board of Tax Appeals to carry this judgment into execution. A certified copy of this entry shall constitute the mandate pursuant to Rule 27 of the Rules of Appellate Procedure. JAMES D. SWEENEY, C.J. and KENNETH A. ROCCO, J. CONCUR JUDGE *AUGUST PRYATEL *SITTING BY ASSIGNMENT: August Pryatel, retired judge of the Eighth District Court of Appeals, sitting by assignment of the Supreme Court of Ohio. N.B. This entry is an announcement of the court's decision. See App.R. 22(B), 22(D) and 26(A); Loc.App.R. 27. This decision will be journalized and will become the judgment and order of the court pursuant to App.R. 22(E), unless a motion for reconsideration with supporting brief, per App.R. 26(A), is filed within ten (10) days of the announcement of the court's decision. The time period for review by the Supreme Court of Ohio shall begin to run upon the journalization of this court's announcement of decision by the .