An Ohio district court of appeals recently affirmed an Ohio Board of Tax Appeals decision holding that a taxpayer’s receipts should be sitused to Ohio when goods were picked up in Georgia and subsequently transported to Ohio. The taxpayer at issue was a Georgia-based wholesaler of lawn and garden products. The taxpayer’s retail customers (national retailers of home, garden and other products) arranged transportation of purchased products from the taxpayer’s Georgia facility to distribution centers, including centers in Ohio. Ownership of the purchased product was transferred in Georgia when the goods were loaded onto the trucks arranged for by the taxpayer’s customers. The taxpayer provided the customer-arranged truck drivers with a bill of lading that indicated the ultimate “ship to” address. The Ohio Department of Taxation, on audit, asserted that all of the receipts from sales of goods with a ship to address in Ohio were Ohio-sitused receipts. This meant that the taxpayer met the Commercial Activity Tax or CAT economic nexus threshold and had an Ohio CAT filing requirement. After the Board of Tax Appeals affirmed the audit assessment, the taxpayer appealed.
Before the Board, the taxpayer had argued that the Department incorrectly sitused its receipts to Ohio and that it also lacked the requisite connections under the Due Process and Commerce Clauses to be subject to the CAT. The Board was precluded from addressing the taxpayer’s constitutional claims, but ruled in favor of the Department on the situsing issue. In its brief to the court, the taxpayer did not address the situsing holding; rather, it focused on the constitutional claims. As such, the court addressed only whether the imposition of the CAT violated the Commerce Clause or Due Process Clauses. In the interim between the Board’s decision and the court’s ruling, the U.S. Supreme Court issued its Wayfair decision, which overruled the physical presence standard it had previously required for nexus under the Commerce Clause. As such, the taxpayer conceded that its lack of a physical presence in Ohio was not a barrier to establishing substantial nexus in the state. Rather, the taxpayer argued that because its transactions with customers occurred entirely outside Ohio, it lacked nexus. The court, however, disagreed in a discussion that blended sourcing case law with nexus principles. The court concluded that Ohio’s sourcing statute created “a nexus with Ohio by situsing gross receipts to this state because the tangible personal property involved was ultimately received in” Ohio. Next, citing to Wayfair and the U.S. Supreme Court’s holding that the $100,000 in receipts or 200 transactions requirement was sufficient to create nexus, the court concluded that there was no dispute the taxpayer had satisfied the CAT $500,000 sales threshold and had substantial nexus with Ohio. The court also rejected the taxpayer’s Due Process Clause claims concluding that there was a definite link between the taxpayer and Ohio based on the systemic sale of tangible personal property delivered to Ohio. In the court’s view, the taxpayer had purposefully taken advantage of the distribution ability of national retailers and knew that its products were shipped to Ohio. Please contact Dave Perry at 513-763-2401 with questions on Greenscapes Home and Garden Products, Inc. v. Testa.