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SUPREME COURT DECIDES CASES ON CAT TAX FOR ONLINE RETAILERS

Article: December 31, 2016  |  Malpractice Alerts

Online activity is in focus on many fronts. In an opinion decided November 17, 2016, CrutchfieldCorp. v. TestaSlip Opinion No. 2016-Ohio- 7760, the Ohio Supreme Court affirmed the decision of the Board of Tax Appeals upholding the imposition of the commercial activity tax (CAT) by the Tax Commissioner of Ohio on the Virginia-based Crutchfield Corporation. The Tax Commissioner determined that orders of goods initiated by Ohio consumers via computer and transported into Ohio by an  out-of-state company make the company’s sales “taxable gross receipts.”

The Commercial Activity Tax (CAT) in Chapter5751 of the Ohio Revised Code was adopted by the Ohio General Assembly in 2005 as part of the overhaul of Ohio’s state tax system. Pursuant to 5751.02 of the Ohio Revised Code, a commercial activity tax is levied on each person    with  taxable  gross  receipts   for   the privilege of doing business in this state.

The Court found that the $500,000 in annual sales-receipts threshold to apply the CAT meets the commerce clause requirement for a “substantial nexus” with the state and that a physical presence is not required. This is an important decision for lawyers advising any out- of-state companies that meet the threshold requirement selling goods online from out-of- state.

Click here to view the entire Malpractice Alert Nov/Dec 2016.

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