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On August 8, 2019, the Ohio Board of Tax Appeals ruled in Mia Shoes, Inc. (et. al.) v. McClain, BTA Case No. 2016-282, that shoes shipped from outside the country to nationwide retailers’ distribution centers located in Ohio should be sitused to Ohio for commercial activity tax (CAT) purposes because the taxpayer did not provide evidence that the shoes were further shipped to the retail stores of the nationwide retailers.
Mia Shoes (Mia) is a wholesaler of footwear headquartered in Florida. The footwear is manufactured overseas and is shipped to a port in either California or Florida. Mia then transports the footwear to its customers (nationwide retailers) via common carrier. A portion of the footwear is shipped to distribution centers in Ohio. The Commissioner assessed CAT on the gross receipts from footwear shipped to retailers in Ohio even if the footwear will be ultimately distributed by the customer to its retail stores not located in Ohio.
The Commissioner argued that Mia failed to meet its burden of proof to show that the footwear sent to retailer’s distribution centers in Ohio were ultimately transported by the retailers to locations outside of Ohio. The Commissioner rejected Mia’s argument that the gross receipts should be apportioned based on the percentage of its customers’ retail stores in Ohio. The BTA, relying on Greenscapes Home & Garden Prods., Inc. v. Testa, 10th Dist. Franklin No. 17AP-593, 2019-Ohio-384, agreed that Mia did not meet its burden of proof that the footwear was ultimately received outside Ohio.
Our experience is that the Audit Division is consistently auditing wholesalers that ship product to retailers with distribution centers located in Ohio. Because of Ohio’s location and infrastructure, numerous retailers have distribution centers in Ohio, which means this issue impacts many wholesalers. The Audit Division has been willing to situs gross receipts outside Ohio if the wholesaler knows at the time of purchase (a requirement not contained in the statute or a rule) that the retailer will be further shipping the product received at its distribution center to a specific store located outside Ohio.
Unfortunately, neither Mia nor Greenscapes addresses what information is necessary to prove the product has ultimately been received by the retailers outside Ohio because neither company provided proof of such. As a result, we will still need to wait to see if a case is decided that provides guidance on what proof is necessary to show product is ultimately received at the stores of a retailer when the product is initially shipped to a distribution center in Ohio.
If you would like to discuss the Mia Shoes case or any other CAT issues, please contact John Trippier, Rich Farrin, or any ZHF professional.