Are bobbleheads promotional items that are subject to Use Tax? The Cincinnati Reds fought the Ohio Department of Taxation’s ruling that bobbleheads were subject to Use Tax all the way to the Ohio Supreme Court.
In this case, we are asked to consider how state tax law applies to the purchase of those promotional items by appellant, Cincinnati Reds, L.L.C. (“the Reds”). More specifically, the question before us is whether the sale-for-resale exemption of R.C. 5739.01(E) precludes the Reds from having to pay use tax on those promotional items. For the reasons explained below, we conclude that the exemption applies in this case. Thus, in the familiar words of Marty Brennaman, longtime Reds radio announcer and recipient of the National Baseball Hall of Fame’s Ford C. Frick Award, we determine that “this one belongs to the Reds.” We accordingly reverse the decision of the Board of Tax Appeals (“BTA”).
Now that I’ve spoiled the decision, we need to look at the law. When you purchase items for resale, they’re generally exempt from sales tax. When you sell them to the end-customer, they pay the sales tax. If you end up not reselling the items you purchase for resale, you owe Use Tax on those items.
Consideration, in the contract-law sense, is important here: the question whether the Reds purchased promotional items for resale entails asking whether fans furnished consideration for the Reds’ promise to hand out the promotional items at the games.
The Ohio Board of Tax Appeals ruled that the Reds were giving away the promotional items rather than selling them. The Reds argue that they resell the promotional items by distributing them (or promising to do that). “The Reds argue that this promise creates a contractual expectation on the part of the fans, who purchase tickets and attend the games as consideration for receiving the unique promotional items.”
The Cincinnati Reds’ CFO, Dan Healy, testified at the original hearing. He noted that the Reds distribute promotional items at less desirable games (from an attendance standpoint). That makes complete sense if you think about baseball. The Reds have 81 home dates, and some of those games will be against teams that aren’t very good (not that the Reds have been particularly good) who don’t draw well in Cincinnati–say, the San Diego Padres. Mr. Healy’s testimony is logical and sensible.
In determining that no consideration was given by fans in exchange for the promotional items, the tax commissioner and BTA focused on their findings that fans pay the same price to attend a game regardless of whether a promotional item is offered and that the cost of the promotional item is not included in the ticket price. But 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 promotional items are distributed at less desirable games for which tickets are not expected to be sold out. Thus, rather than offering discounted ticket prices to these less desirable games, it stands to reason that by including the cost of the promotional item in the ticket price, 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. Based on this record, we accordingly conclude that the promotional items constituted things of value in exchange for which fans paid money that was included in the ticket prices.
So the Reds didn’t strike out here (they did plenty of that during the 2018 season), and that portion of the Board of Tax Appeals decision charging the Reds with Use Tax on promotional items was thrown out at home plate.
