Ohio: Board of Tax Appeals Addresses Sourcing of Intellectual Property

The Ohio Board of Tax Appeals recently determined that certain receipts related to the use of intellectual property should be sitused to Ohio for CAT purposes. The taxpayer at issue was the reporting member of a combined group that included the National Association for Stock Car Auto Racing (NASCAR), which held NASCAR-sanctioned events in Ohio and broadcast races in all fifty states and other countries. NASCAR did not file CAT returns for the tax years at issue and was subsequently audited.  On audit, the Commissioner sitused NASCAR’s broadcast and media revenue to Ohio based on number of cable televisions in Ohio. This was intended to measure the Ohio audience for its programs.  Revenues from license fees and sponsor fees related to the events were sitused to Ohio based U.S. Census population data, applying the percentage of population in Ohio as compared to the national population. The sanction fees, membership revenue, and competition revenue were sitused based on the location of the race event for which they were paid. NASCAR protested the Commissioner’s adjustments, arguing that nearly all its relevant revenue should be sitused to its headquarters in Florida where it received the benefit of its agreements with the purchasers of the intellectual property rights.

 Under Ohio law, CAT is levied on taxpayers with substantial nexus for the privilege of doing business in Ohio. The Board first determined that the receipts at issue should have been sitused by applying the provisions for intellectual property, rather than a catch-all provision that addressed all other receipts not specifically sitused, including service receipts. However, the fact that the Commissioner did not cite to the correct portion of the situsing statute did not change the result.  The Board determined that the intellectual property rights at issue should be sitused based on the location where the purchaser of the right to use the property used or gained the right to use the property. In the Board’s view, the Commissioner’s method reflected this standard. NASCAR’s proposed methodology was not reasonable because it focused on the location of the benefit that it received, but ignored the location of the purchaser’s use or right to use an intangible asset. Additionally, the Board addressed NASCAR’s position that the Commissioner’s situsing methodology was inaccurate because it did not capture international receipts. NASCAR, the Board observed, chose not to provide information that would have added to the accuracy of the Commissioner’s calculation, and NASCAR’s chosen methodology— with all receipts sitused to Florida— also disregarded the use of the broadcast rights abroad. For more information on NASCAR Holdings Inc., please contact Dave Perry.