Ohio CAT: BTA Predictably Upholds Ohio’s Bright-Line Nexus Standard in Two Cases Despite Lack of Physical Presence
The Ohio BTA has released two nearly identical opinions upholding commercial activity tax (CAT) assessments on retailers lacking an Ohio physical presence. In Newegg Inc. v. Testa, Ohio BTA, No. 2012-234 (2/26/2015) and Crutchfield, Inc. v. Testa, Ohio BTA, No. 2012-926, 2012-3068, and 2013-2021 (2/26/2015), the retailers met the bright-line presence standard by having more than $500,000 in Ohio taxable gross receipts. R.C. 5751.01(I). These cases are now the lead cases in the CAT bright-line nexus dispute, replacing L.L. Bean, Inc. v. Levin, Ohio BTA, No. 2010-2853 (3/6/2014) which has been settled. Information about the L.L. Bean case can be found here.
Both taxpayers, Newegg, Inc. and Crutchfield, Inc., are remote retailers that sell products to customers across the United States, including in Ohio. Each taxpayer contends it lacks substantial nexus with Ohio since it does not own or lease property in Ohio, and exclusively sold its products online and via catalog. Since the taxpayers met the statutory bright-line nexus standard, and the BTA lacks jurisdiction to determine constitutional challenges, the BTA was obligated to uphold the Tax Commissioner’s assessments. The determination as to whether the $500,000 gross receipts standard violates the Constitution must be determined by the Ohio Supreme Court, where both companies are expected to file appeals. The BTA’s purpose in these cases was simply to create the factual record for the Supreme Court to consider in its determination.
Even if the CAT can be imposed on businesses without an Ohio physical presence, questions still remain, such as whether the business must take affirmative acts to develop the Ohio market, or is merely making sales into the state sufficient. Stay tuned as the Ohio Supreme Court’s ruling on this issue will be much more important. On March 6, 2015, Crutchfield filed a notice of appeal to the Ohio Supreme Court. Yesterday, March 24, 2015, the Court referred the case to mediation. If you have any questions about your CAT obligations, please contact Steve Dimengo, Rich Fry, or Casey Davis.