By Stephanie Do and Madison Barnett
The Ohio Board of Tax Appeals determined that two out-of-state online retailers with no physical presence in Ohio were subject to Ohio’s Commercial Activity Tax (CAT). The Board, declining to rule on the taxpayers’ constitutional arguments, found that the online retailers met Ohio’s statutory bright-line presence nexus test based solely on their volume of taxable sales to Ohio customers. The retailers sold tangible personal property to consumers across the United States, including in Ohio, through their Internet websites hosted on servers outside of Ohio. The retailers’ warehouses and distribution centers were also located outside of Ohio. Although the retailers had no physical presence in Ohio, they did have at least $500,000 in taxable sales to Ohio customers. The retailers argued that they were not subject to the CAT because the Commerce Clause of the U.S. Constitution forbids Ohio from imposing the tax on non-residents with no physical presence in Ohio. The Board declined to review the retailers’ constitutional arguments on the basis that, as an administrative body, it did not have jurisdiction over such arguments. The Board held instead that Ohio statutes do not contain an in-state physical presence requirement. With the initial L.L. Bean constitutional challenge having been settled, these cases may present the vehicle through which the constitutionality of Ohio’s bright-line presence nexus test is finally determined by a court. Crutchfield, Inc., et al. v. Testa, Case Nos. 2012-926; 2012-3068; 2013-2021 (Ohio Bd. Tax App. Feb. 26, 2015); Newegg, Inc., et al. v. Testa, Case No. 2012-234 (Ohio Bd. Tax App. Feb. 26, 2015).