Ohio CAT situsing: avoiding the hot tin roof with recent guidance
Recently, the Ohio Board of Tax Appeals issued a decision addressing the situsing of sales under the state’s Commercial Activity Tax (CAT). In Greenscapes Home and Garden Products, Inc. v. Testa, the board found that an “ultimate destination” test is the key inquiry in determining whether sales of tangible personal property should be sitused to the state.
The taxpayer, an out-of-state wholesaler of lawn and garden products located in Georgia, sold goods directly to big box retailers including various home improvement stores. The sales were made through its Georgia location by providing the product directly to the customer’s selected mode of transportation, and including a bill of lading to the truck driver indicating the ultimate “ship to” address. Regardless of the “ship to” location, the taxpayer’s customers may later transport the product to other locations.
In determining whether the taxpayer’s sales should be sitused to Ohio when provided to a transporter outside of Ohio, the board looked to two decisions from the Ohio Supreme Court that addressed similar facts under the state’s former corporate franchise tax. Both of those decisions found that the “ultimate reception” of the property was controlling in whether a sale should be sitused to Ohio. Additionally, Ohio Rev. Code section 5751.033(E) situses property to Ohio when the property is delivered by motor carrier or other transportation at the location the property is “ultimately received” after all transportation has been completed. Accordingly, regardless of whether the taxpayer’s customers could later transport product outside of Ohio for sale to a final purchaser, the taxpayer’s bill of lading indicated an Ohio address and therefore the sales should be sitused to Ohio.
Ohio taxpayers should consider a few takeaways from the decision. First, Greenscapes Home and Garden Products demonstrates that the board is willing to apply case law under the corporate franchise tax in interrupting the CAT. This may provide opportunities for taxpayers to consider corporate franchise tax decisions in situsing and other CAT-related issues. Additionally, the decision results in unanswered questions:
- Would it have made a difference if the taxpayer had knowledge that product delivered to Ohio was intended for further shipment outside of Ohio by the customer? If so, what would the taxpayer’s burden be in proving that additional transportation?
- Does “ultimate reception” only apply to a taxpayer’s customers, or does it look through the customer to the ultimate and final purchaser?
What should be clear is that situsing in these types of cases is an evolving area of Ohio CAT law and taxpayers, both inside and outside of Ohio, should consider how situsing may impact their CAT exposure.