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2007-0328. Marc Glassman, Inc. v. Levin, Slip Opinion No. 2008-Ohio-3819.
Cuyahoga App. No. 87766, 2006-Ohio-6591. Judgment affirmed.
Moyer, C.J., and Lundberg Stratton, O'Connor, O'Donnell, and Lanzinger, JJ., concur.
Pfeifer and Cupp, JJ., dissent.
Opinion: http://www.supremecourtofohio.gov/rod/docs/pdf/0/2008/2008-Ohio-3819.pdf
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(Aug. 5, 2008) The Supreme Court of Ohio ruled today that a retail pharmacy’s purchase of a service that provides computer verification and approval of customers’ insurance coverage for prescriptions is not the purchase of “electronic information services” as that term is defined by Ohio’s tax laws, and therefore is not subject to state use tax. The Court’s 5-2 majority opinion, which affirmed a ruling of the 8th District Court of Appeals, was authored by Chief Justice Thomas J. Moyer.
Marc Glassman Inc. operates several pharmacies in northeast Ohio. Glassman’s pharmacies use a computerized service provided by a third-party contractor, National Data Corporation (NDC), that instantly transmits the identification information of a customer seeking to fill a prescription to the customer’s insurance provider, obtains an electronic verification from the insurance company’s computer of the customer’s eligibility, copay amount and coverage limits, and transmits that information back to the pharmacy.
The state tax commissioner assessed liability against Glassman for failure to pay Ohio business use tax on the amounts it had paid to NDC, ruling that the service NDC provides meets the legal definition of an “electronic information service” that is subject to state use tax. Glassman appealed to the Ohio Board of Tax Appeals (BTA), which affirmed the decision of the commissioner. Glassman then exercised his right to appeal to the 8th District Court of Appeals, which reversed the rulings of the tax commissioner and BTA. The court of appeals held that because the NDC service does not enable client businesses to directly access or conduct their own searches of insurance company databases, it does not qualify as a taxable electronic information service.
Attorneys for the tax commissioner sought and were granted Supreme Court review of the 8th District’s decision.
In today’s decision affirming the holding of the court of appeals, Chief Justice Moyer wrote: “Although the Board of Tax Appeals’ finding of basic fact accords with the evidence, the Board of Tax Appeals erred in its ultimate conclusion that Marc Glassman purchased electronic information service. What Marc Glassman received from the insurance companies through its provider was not access to the data maintained by the insurance companies, but rather a conclusion formulated by the insurer in response to a routine request. This conclusion did not consist of pure data, but rather a preliminary determination that the purchase was covered by insurance – a determination that was even documented with an ‘authorization number.’”
The Chief Justice observed: “It is easy to imagine a different set of facts under which the Tax Commissioner could appropriately assess the tax. If, for example, the pharmacy’s inquiry led to a list of insured persons appearing on the screen, so that the pharmacy could determine whether the customer’s name was on the list – that would involve accessing the database. In this case, the insurer accessed its own data and then gave a formulated answer to the provider, which relayed the answer to the pharmacy. Because the service Marc Glassman purchased did not involve its obtaining access to computer equipment for the purpose of ‘examining or acquiring’ the insurance data, that service was not an electronic information service.”
The majority opinion was joined by Justices Evelyn Lundberg Stratton, Maureen O’Connor, Terrence O’Donnell and Judith Ann Lanzinger.
Justice Paul E. Pfeifer entered a dissent, joined by Justice Robert R. Cupp, noting that the transactions at issue in this case are “quite similar” to transactions that the Court held to be taxable in a 1992 decision, Quotron Systems Inc. v. Limbach. In this case, Justice Pfeifer wrote “The Tax Commissioner concluded that Marc Glassman Inc.’s ‘description of the services provided by NDC or Envoy are quite similar to internet access services [which are taxable when used in business], in that NDC and Envoy provided an electronic conduit through which information flowed from computers that they had access to by way of telecommunications equipment.’ Nothing in the record convinces me otherwise. I would reverse the judgment of the court of appeals.”
Contacts
David W. Hilkert, 330.376.5300, for Marc Glassman Inc.
Elise Porter, 614.466.2872, for State Tax Commissioner Richard A. Levin.