Tales from the Tax Court: An Ohio sales tax curveball

A recent decision by the Ohio Supreme Court demonstrates how bobblehead dolls led to a pickle of a court case.

By: Kevin Martin  /  January 08, 2019

For most baseball fans, the “extras” one might receive during a night at the ballpark might not seem like a big deal. However, freebies like apparel, seat cushions, sunglasses, and bobbleheads have long been the source of disagreements over whether teams giving away these items should pay sales tax.

Such is the case with the Cincinnati Reds who received a tax bill for $88,000 for unpaid sales tax. While the amount may seem small for a professional baseball team, it created a tax controversy that wound up getting argued all the way to the Ohio Supreme Court. The decision by the court strengthens both the power of the sales tax resale exception as well as (potentially) the contractual rights of baseball fans at the ballpark on giveaway days.

Controversy over whether giveaway items are “resold”

The Ohio Board of Taxation issued a bill to the Cincinnati Reds for $88,000 in unpaid sales tax. The dispute concerned sales tax, which consumers usually pay when buying items retail. However, like most states, Ohio exempts buyers from paying sales tax when the purpose is to resell items they’ve purchased. From 2008 to 2010, the Reds purchased promotional items to be given to paid game attendees, including bobblehead dolls. The giveaways were advertised in advance when the Reds released their season schedule. The team did not pay sales tax when purchasing these items, and upon a later audit, the Board of Taxation assessed the team for the unpaid amount.

In assessing this tax, the Board of Taxation made it clear that they did not feel that the Reds qualified under the resale exception. Ohio’s Tax Commissioner pointed out that there was no evidence these items were resold. The Board of Tax Appeals (BTA) agreed, saying further that these promotional items were not included in the purchase price of the tickets for the games, and instead were given away for free. After all, there’s not much interest in a “giveaway” item if it comes with a separate fee to receive it.

The team argued that the price of these promotional items was built into ticket prices

The Reds countered by saying that the price of these items was built into the ticket prices throughout the year, rather than with price increases for the specific games. Further, the giveaways were targeted toward games where they believed attendance would be lower without including the promotional item. Fans purchased tickets, they claimed, with the clear expectation that they would receive the item along with the right to attend the game. In other words, if you purchase a ticket to Bobblehead Day at Great American Ballpark, you’ve done so with the expectation that you will receive that bobblehead upon entry, along with the right to watch Joey Votto walk.

Ohio Supreme Court sides with the Reds’ arguments supporting resale

In its majority opinion, the Ohio Supreme Court sided with the Reds. It said that the evidence supported the team’s view that the cost of these items was included in the ticket price, despite the lack of a specific price hike for those games. They also agreed with the Reds’ reasoning that providing these items was necessary to boost attendance on these promotional dates to levels comparable with other, more popular games. The Court differentiated the items from truly “unexpected, gratuitous items” such as foul balls or t-shirts from a mascot’s pneumatic cannon, which are not factored into the ticket price or something that an attendee would expect to receive. They reversed the BTA’s decision and absolved the Reds from $88,000 in sales tax.

The ruling in this case shows that what constitutes a resale within the meaning of the sales tax exception generally depends on the facts and circumstances. It also potentially raises the issue (one the dissent points out) of the rights of ticket buyers who do not receive a promotional item. After all, only a certain amount of bobbleheads and other giveaway items are actually purchased and handed out on a first-come, first-served basis. The Reds’ CFO stated that the team in those situations would “make it right” by providing an item of equal value, and indeed, the Court’s opinion would suggest that the team has a duty to do so for anyone who did not receive the advertised promotion.

 

For sports fans who look forward to giveaway days each year, but don’t snag a coveted bobblehead for themselves, this court decision shows that the team might be obligated to give them a consolation prize or end up catching a sales tax bill.

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Kevin Martin

Kevin Martin, JD, LLM, is a lead tax research analyst at The Tax Institute. Kevin leads research teams focused on estate, trust, gift, retirement, IRS procedures and state and local tax issues.

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