When a sports fan goes to a game and gets a free promotional item like a bobblehead, does the team have to pay taxes on that freebie? That was the question before the Ohio Supreme Court.
“Thank you for agreeing to hear this oral argument for a fun yet serious issue involving novelty items – bobbleheads.”
That was lawyer Steven Dimengo’s first pitch before the Ohio Supreme Court, arguing for his team, the Cincinnati Reds. The state says the Reds owe $88,000 in use tax on promotional items handed out at games between 2008 and 2010. The law says taxable gifts are defined as those that are given away without charge.
Kody Teaford argued for the state tax commissioner, said the team can’t have it both ways – not paying taxes when buying the items or when using them to sell tickets, which aren’t taxed. “Any purchase of tangible personal property is presumed to be taxable, and anytime someone purchases tangible personal property like the Reds did with these giveaways and it’s not purchased for purposes of resale, then sales tax or use tax is going to be due,” Teaford said.
But the Reds say those bobbleheads, caps and other items are in fact resold to encourage fans to come to games – just as restaurants buy toys they put in kids’ meals. And Ohio law exempts companies from paying tax on items that will be resold. Dimengo said when a fan buys a ticket to a promo item game, it’s a contract, which requires consideration – where something is given in exchange for something else. Justice Terrance O’Donnell asked, “Is it your view that the consideration is built into the ticket price, or are you saying that this is more akin to straws and napkins that are given away to those who purchase hot dogs and pop?”
Dimengo said that fans who come to those games will walk home with bobbleheads: “It’s built into the ticket price – that’s the core of the issue. Because that’s one of the acts that you have to do – you have to purchase a ticket.”
Dimengo argued scheduled giveaways are different from games where surprises that he called “goodwill” items are handed out – for instance, rally towels on the seats at Cavs home games during the NBA championship. Teaford seized on that. “All those other businesses that give away those promotional items, if the Reds rule is correct, should be collecting sales tax.”
Justice Pat Fischer asked, “So if somebody during the game shoots a t-shirt up into the stands, they’re going to pay tax on that?”
“That’s exactly what the Reds’ argument is,” answered Teaford.
Teaford noted the Cleveland Indians charge higher prices for tickets to promo giveaway games. And the state also argued that the Reds say promo items are limited, so that’s no guarantee, which means no consideration.
But Dimengo said 30,000 bobbleheads are bought for each giveaway game, which is more than enough. And Dimengo said the way they’re used, they’re not subject to tax. “If anything, it’s a flaw in the statute. The statute defines a sale as simply a transfer of title for consideration. So all we have to prove is there’s consideration here. And if the General Assembly wants to change that to make these types of items taxable, so be it,” said Dimengo.
Other states have also looked into the issue. The Milwaukee Brewers and the Minnesota Twins lost their cases with similar arguments, but the Kansas City Royals won in court and overturned a ruling that required them to pay state sales taxes on those giveaways.