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The Ohio Board of Tax Appeals (Board) recently determined in Epic Aviation, LLC v. Testa (Case No. 2012-1557) that an air transportation operator’s purchases of fuel were not exempt from Ohio sales tax because such company was not using or consuming the fuel “directly in the rendition of a public utility service.”



Epic Aviation, LLC (EPIC), an aviation fuel supplier, appealed a denial by the Ohio Tax Commissioner (Commissioner) on its claim for refund of sales tax paid by its customer, AirNet Systems, Inc. (AirNet). Epic based its application for refund on the exemption provided in Ohio Revised Code Section 5739.02(B)(42)(a) for purchases for use “in the rendition of a public utility service.” AirNet provides cargo air transportation services, specializing in the transport of checks for transfer among financial institutions, radio pharmaceuticals, and sensitive government documents.

The Board analyzed whether AirNet qualifies as a “public utility” under Ohio Revised Code Section 5739.01(P). The Board noted that this statute specifically provides that a "'public utility' includes a citizen of the United States holding, and required to hold, a certificate of public convenience and necessity…” While the Board agreed with AirNet that such certificate is not required in order to be a “public utility,” an Ohio Supreme Court case (Castle Aviation, Inc. v. Wilkins, 109 Ohio St.3d 290 (2006)) analyzing a similar situation required that an entity claiming public utility status show that it is subject to “special regulation and control by a government regulatory agency.”

The Board determined that AirNet was not subject to the degree of “special regulation and control” that Castle Aviation required in order for a company to qualify as a “public utility” under these statutes. In arriving at this determination, the Board explained that AirNet did not hold a certificate of public convenience and necessity and had chosen not to be subject to certain more rigorous FAA safety standards.

The Board did not find persuasive AirNet’s arguments that the nature of its operations distinguish it from Castle Aviation and that “[t]he increased regulation and control arising from the events of September 11, 2001 makes a significant difference in this case compared to the regulatory environment pre-2001 that was relevant to the Castle Aviation case.” The Board explained that the regulations to which AirNet is subject relates to the services it voluntarily provides its customers and that AirNet has undertaken these obligations through contracts with its customers. The Board determined that there is insufficient evidence that AirNet is subject to government regulation that controls its relations between it and the public as its customers.

Consequently, the Board determined that AirNet is not a “public utility” under Ohio Revised Code Section 5739.01(P) and that the application for a refund of sales tax under Ohio Revised Code Section 5739.02(B)(42)(a) (providing for an exemption from sales taxes for purchases used “in the rendition of a public utility services”) was properly denied by the Commissioner.