Ohio Commercial Activity Tax: Board of Tax Appeals takes first stab at situsing receipts from tangible personal property sales – Finally!
Gross receipts from sales of tangible personal property are sitused to Ohio if the goods are received by the purchaser in Ohio. R.C. 5751.033(E). The statute provides that the property is sitused to the place where it “is ultimately received after all transportation has been completed”. In Greenscapes Home and Garden Products, Inc. v. Testa, Ohio BTA Case No. 2016-350 (July 19, 2017), the taxpayer was a Georgia based wholesaler of lawn and garden products selling primarily to big box retailers. The taxpayer delivered the products to its customers at its dock in Georgia, loading it onto to the customer’s pre-arranged mode of transportation. Title to the products transferred to the customers at this juncture. The taxpayer did not track the products’ location after leaving its docks. But the taxpayer knew the products were to be shipped to Ohio based upon the “ship to” address on the customer’s orders and bills of lading.
The Board of Tax Appeals held that the taxpayer’s sales were sitused to Ohio since the only evidence produced reflected delivery to Ohio addresses. The Board relied upon cases decided under Ohio’s old franchise tax statute which has almost identical language to R.C. 5751.033(E). Further, the sales were sitused to Ohio despite many of the products being ultimately shipped to the customers’ retail locations outside Ohio – although there was no evidence submitted of these subsequent shipments.
While it may be true that the goods appellant sells may be removed from Ohio, after being shipped … to Ohio, for ultimate sale in of its customers’ retail locations, the lack of information about any such further transportation forecloses appellant’s argument. At the time appellant sold products to its customers, it knew their ultimate destination to be Ohio … Our inquiry ends here, as did the commissioner’s, in the absence of any evidence indicating that goods were ultimately received elsewhere.
Greenscapes Home and Garden Products, at p. 3. Even though the Board made no mention of the Tax Commissioner’s Information Release CAT 2005-17, this decision is consistent with position set forth therein that subsequent delivery by a customer is only relevant if the vendor is aware of the ultimate destination at the time of the sale.
This decision is helpful since it is the first CAT sourcing case decided by the Board. Since it was decided based upon a lack of evidence, it appears to support a position that sales are not sitused in Ohio if the vendor can prove that the customer did, in fact, ship the goods outside of Ohio (i.e., ultimate non-Ohio destination after all transportation has been completed). But, if this means that tangible personal property sales are sitused based upon the information the vendor is aware of, vendors may take steps to ensure they only have helpful information. For instance, perhaps the taxpayer does not want to know where the products are being shipped to after it loads them onto the customer’s truck in Georgia. Or when products are shipped to Ohio distribution centers, maybe vendors require their customers to submit more information about where the products will ultimately be shipped.
Lastly, we question the continued reliance on Ohio franchise tax cases. Is the statutory language nearly identical? Yes. But the purpose of sourcing sales for franchise taxes, as one factor used to apportion one’s income, is significantly different from situsing the entire tax base for a gross receipts based tax. This could create situations where Ohio application of the CAT violates the U.S. Constitutiony by taxing activities and value earned outside the state.
Certainly there is much more to come regarding sourcing gross receipts for CAT purposes. Please contact us if you have questions regarding the situs of your business’ gross receipts.