Commercial Activity Tax

The taxpayer, a designer, marketer, and wholesaler of apparel, footwear, jeans, and other fashion accessories, shipped products to Ohio-based distribution centers of major retailers and paid the commercial activity tax for all items shipped to the distribution centers, even those that were ultimately received by customers outside of Ohio. The taxpayer applied for a refund

Apple recently appealed an Ohio Commercial Activity Tax (CAT) assessment, alleging that the Department of Taxation improperly treated receipts from sales made through its app store as Apple’s receipts for purposes of determining its tax base under the CAT.  Ohio law allows agents to exclude gross receipts (other than commission) from the agent’s CAT base.

The Ohio Supreme Court held that under the Commercial Activity Tax (“CAT”), Defender Security Company’s (“Taxpayer”) gross receipts from selling alarm monitoring service contracts to ADT Security Services, Inc. (“ADT”) should be sourced to the location where ADT itself receives the benefit from purchasing these contracts, rather than the location of the ultimate consumer of

On February 6, 2020, the Ohio Board of Tax Appeals held that a captive automobile financing company was not subject to commercial activity tax (CAT) on receipts that it earned in connection with three types of revenue streams:

  1. receipts from sales of retired leased vehicles,
  2. receipts from securitization transactions, and
  3. interest subvention payments.

Background:

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

On August 10, the Ohio Department of Taxation issued a decision upholding the Commercial Activities Tax’s (CAT) statutory “bright-line presence” nexus test and concluded that L.L. Bean had substantial nexus with the state solely based upon the volume of its sales to Ohio customers. This is the first known ruling addressing a taxpayer’s challenge to the constitutionality of Ohio’s statutory bright-line imposition.

The CAT’s bright-line test is similar to the model rule adopted by the Multistate Tax Commission and provides that taxpayers are subject to the CAT if they meet any one of the following thresholds:

  1. At least $50,000 of property in the state
  2. At least $50,000 of payroll in the state
  3. At least $500,000 of sales to customers in the state
  4. 25% or more of its total property, payroll and receipts in the state
  5. The taxpayer is domiciled in the state

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