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On July 1, 2005, Ohio began to impose the Commercial Activity Tax ("CAT") for the privilege of doing business in Ohio. The CAT is measured on the amount of taxable gross receipts in Ohio. The CAT law includes bright-line nexus provisions which subject a person to the CAT if that person has at least $50,000 in payroll, $50,000 in property, or $500,000 in taxable gross receipts during a calendar year. Thus, a person could be subject to the CAT under the Ohio Revised Code and have no physical presence in Ohio.
The constitutionality of this provision has been frequently challenged by taxpayers undergoing audits and on appeals. Initially, it appeared that the Supreme Court of Ohio would determine the constitutionality in the L.L. Bean, Inc. case. However, prior to oral arguments in 2014, L.L. Bean, Inc. and the Ohio Tax Commissioner agreed to jointly remand the Supreme Court case and the case was resolved without a definitive answer. Interestingly, L.L. Bean, Inc. opened retail locations in Ohio soon after resolving the case.
So, after years of the CAT bright-line nexus provisions avoiding judicial scrutiny and taxpayer challenges on audit and administrative appeals, on May 3, 2016, the Supreme Court of Ohio will finally hear oral arguments from three companies, Crutchfield Corporation, Newegg Inc., and Mason Companies, Inc., fighting the constitutionally of the imposition of the CAT on a person that does not have a physical presence in Ohio. Each of these companies lost its appeal at the Ohio Board of Tax Appeals. Oral arguments are open to the public and begin at 9 A.M. The arguments are also streamed live through the Ohio Channel website. The Supreme Court of Ohio will now have the opportunity to determine if the Ohio CAT truly does have nine lives.
If you would like to discuss Ohio tax issues, please contact any of our professionals.