The Ohio Supreme Court, reversing a decision of the Board of Tax Appeals, held that a timber farm’s purchase of a Mercedes Benz vehicle qualified for a use tax exemption. Claugus Family Farm L.P. v. Harris, Slip Op. No. 2025-Ohio-2807 (Ohio Aug. 13, 2025).
The Facts: Claugus Family Farm, L.P. (“CFF”), in business since 1902, operates an 1,100-acre timber farm in Ohio. In 2018, CFF purchased a Mercedes Benz Geländewagen and did not pay tax on the vehicle at the time of purchase, claiming the purchase of the vehicle was exempt from taxation because it would be used in timber farming. Ohio’s Tax Commissioner disagreed with CFF’s claimed exemption, finding that (1) CFF had not sold timber or reported any income since 2011, (2) CFF failed to provide any evidence that the vehicle “was used directly in farming activities,” and (3) the primary use of the vehicle could not be determined because CFF did not quantify the vehicle’s use in terms of a percentage.
The Law: Ohio offers a sales and use tax exemption for property purchased if “the purpose of the purchaser is to… use or consume the thing transferred primarily in producing tangible personal property for sale by farming, agriculture, horticulture or floriculture.” R.C. 5739.02(B)(42)(n). To determine whether the exemption applies, a three-part test must be satisfied. First, the purchaser must be engaged in the business of farming. Second, the property purchased must be used in farming activities. And, third, the farming activities must account for the property’s primary use.
The Decision: Both parties and the Court agreed that the aforementioned three-part test must be satisfied in order for the purchase of the vehicle to qualify for Ohio’s sales tax exemption. However, the Court found that both parties misapplied the three-part test by reading into the test requirements not found in the plain language of the applicable statute.
First, analyzing whether CFF is engaged in the business of farming, the Court found no requirement that CFF “show that it was actively engaged in the harvesting of its timber when it purchased the Mercedes to establish that it is engaged in the business of farming.” Nor did the Court find a requirement that CFF generate a profit from its timber farm in order to be in the business. Instead, the Court looked to the testimony of CFF’s managing general partner who established the decades of work it takes in order to establish a successful timber farm—which he defined as making as much money as possible while “the trees do the work.” Though CFF was not “literally” cutting down timber for sale when it purchased the vehicle, CFF was engaged in long-term activities needed to create a successful timber farm, including removing invasive species from the forest and inspecting for damage caused by wind and lightning strikes. Thus, the Court concluded that these activities proved CFF engages in farming as a business.
Next, the Court turned to the second part of the test to determine whether the Mercedes was used by CFF in farming. Critically, the Court first pointed out to both parties that there is no requirement under the current law that the vehicle be used “directly” in farming. Though prior versions of R.C. 5739.02 contained a direct-use requirement, the legislature amended the law so that the term “directly” was nowhere to be found. As a result, the Court’s view was that the amended law allows property to qualify for the exemption “even though it is used to perform an intermediate step in the process of producing [timber]….” Finding that CFF used the Mercedes to carry people, chemicals, and equipment through the rugged terrain of the forest, the Court concluded that the vehicle was used in farming.
Finally, the Court addressed the third part of the test—whether the vehicle was used primarily in farming. Though the Commissioner argued that CFF needed to provide use or mileage logs to prove how the vehicle was used, the Court found no such requirement under the law. Refusing to “[insert] requirements that the legislature did not prescribe[,]” the Court looked to the only evidence before it which established the primary use of the vehicle. That evidence again was the testimony of CFF’s managing general partner, who testified that 95 percent of the vehicle’s use was farming activities. Relying on that testimony, the Court determined that the vehicle was used primarily in farming.
Finding that CFF satisfied the three-part test, the Court concluded that the Board of Tax Appeal’s decision to deny CFF’s exemption “was neither reasonable nor lawful.”
The Takeaway: In this case, the Court took the time to examine the plain language of the law that both parties seemed to neglect. However, taxpayers should not rely on the good graces of a court in order to establish their entitlement to an exemption. Read the plain language of the statutory exemption as it was enacted during the years at issue and be wary not to read into it requirements that do not exist. Even if a department of revenue or tax commissioner purports to impose a requirement to qualify for an exemption, if the requirement is not based in the law’s plain language, it may not have to be satisfied!
This update is one in a series of updates written for the September 2025 edition of The BR State + Local Tax Spotlight.
© 2025 Blank Rome LLP. All rights reserved. Please contact Blank Rome for permission to reprint. Notice: The purpose of this update is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This update should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.
