Ohio Commercial Activity Tax: Gross receipts from dialysis services are sitused entirely to the location where the treatment is delivered to patients.
Gross receipts from healthcare services delivered to dialysis patients were properly sourced to Ohio where the treatments were performed. Accordingly, the patients received the benefit of the dialysis services at the treatment locations in Ohio. Total Renal Care, Inc. v. Harris, Slip Opinion No. 2024-Ohio-5685. Total Renal Care (“TRC”) provided dialysis treatments to patients with kidney disease and end-stage renal disease to clean their blood. These treatment sessions were performed entirely at dialysis centers in Ohio. TRC asserted it was owed a refund on some of its receipts earned from ancillary services performed outside of Ohio, such as laboratory testing and administrative services. The Ohio Supreme Court held that all gross receipts from Ohio treatments were sitused to Ohio and subject to commercial activity tax since patients received the benefit of the healthcare services entirely in Ohio where they were treated, regardless of ancillary services performed outside the state.
TRC conceded at oral argument that its only service was providing dialysis treatments to its patients and that all dialysis treatments occurred in Ohio. While it also performed laboratory and administrative functions as part of the patients’ treatment, those activities “support and exist solely for its provision of dialysis services to patients in Ohio.” Ohio situses receipts from services to the location where the purchaser receives the benefit of the services. R.C. 5751.033(I). Ohio Adm. Code 5703-29-17(C)(28) specifically provides that healthcare services that are performed in Ohio are sitused to Ohio. If healthcare services are provided partly in Ohio and partly elsewhere, “a reasonable allocation must be made.” Id.
Relying on this administrative rule, TRC filed a commercial activity tax refund claim allocating a portion of its gross receipts to Florida based upon the laboratory and administrative services performed there. However, this rule must be applied consistent with the statute and that “the physical location where the purchase ultimately uses or received the benefit of what was purchased is paramount in determining the proportion of benefit the benefit received in Ohio.” The Court explained that the laboratory and administrative services “do not constitute healthcare services provided in Ohio or received by patients in Ohio.” The services were only provided to support the dialysis treatments delivered in Ohio and were not provided as standalone services. As a result, the purchasers of the services received the benefit of the services in Ohio where they were treated.
This decision interprets Ohio’s market-based sourcing rules for commercial activity tax, which focus on the location where the purchaser ultimately receives the benefit of services, not the location where ancillary services may be performed.
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Attorney Steven A. Dimengo is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reached at [email protected] or 330.258.6460.
Richard B. Fry III is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at [email protected] or 330.258.6423
Nathan M. Fulmer is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at [email protected] or 330.258.6464.
Noah L. Veres is an associate in Buckingham’s Taxation Practice Group. As a CPA with a master’s degree in accountancy, he employs his accounting and legal skills to address business and tax issues his clients face. Noah can be reached at [email protected] or 330.643.0241.