The Ohio Board of Tax Appeals recently overturned precedent and held that the installation of standard internet cable lines constituted nontaxable real property improvements rather than taxable business fixtures. Nationwide Mutual Insurance Co. v. McClain, Ohio BTA Case No. 2018-313 (October 22, 2019). Despite a previous ruling that the same cabling was a business fixture, the court found the cabling at issue no longer fit within the meaning of a business fixture under R.C. 5701.03(B). The ruling supports refund opportunities for taxpayers who have paid tax on cable installation projects.

This case illustrates that certain improvements once taxable as business fixtures have evolved into nontaxable real property improvements. In the 1990s, the BTA held internet cable installations were taxable business fixtures because they were not common in every building and primarily benefited the business-occupant instead of the property. See Newcome Corp. v. Tracy (Dec. 11, 1998), BTA No. 97-M-320. Now, computer cabling is so commonplace that any subsequent occupant could use the installed cables for their own benefit. Further, as certain technologies and installations become more common, past decisions involving business fixtures could be overturned in favor of classifying them as nontaxable real property improvements.

The issue in this case arose out of refund claims filed by Nationwide Insurance asserting that its installation of standard internet cabling constituted nontaxable real property improvements performed under a construction contract. The Tax Commissioner, citing Newcome, held that the cabling was a business fixture.

However, the BTA noted that when Newcome was decided, internet cable installations were tailored to the individual customers’ business, as the existing cabling was rarely used when systems were upgraded, and internet cabling was not found in every commercial building nor usable by other building occupants. But here, the parties stipulated that if Nationwide abandoned the buildings where the cabling was installed, any business could use the cabling for its voice and internet communications. Thus, it was clear that the cabling at issue, and all industry standard communication cabling, is incorporated into real property. Although there might be some specialized cable installations that constitute business fixtures, that was not the case here where only industry standard cabling was installed.

This pro-taxpayer ruling creates refund opportunities for taxpayers assessed sales tax on cable installation projects.