Ohio’s Commercial Activity Tax Applies to Out of State Retailer
Kegler Brown Business Tax Alert September 21, 2010
The Ohio Department of Taxation has informed L. L. Bean, Inc., the retail clothing and outdoor goods retailer, that it owes Commercial Activity Tax (CAT) to the State of Ohio on its Ohio sales. L. L. Bean, Inc. has no physical presence in Ohio but ships goods into the State of at least $500,000 per year. In a final determination issued by the Ohio Department of Taxation on August 10th, the Department rejected applying Quill Corp. v. North Dakota, 504 U.S. 298 (1992), which stated that the substantial nexus requirement to apply a state’s taxes can be satisfied only through a physical presence within the taxing state. The Department of Taxation noted that Quill has not been applied to any taxes other than sales taxes and that last year’s ruling by the Ohio Supreme Court in Ohio Grocers Ass’n v. Levin held that the CAT was not a sales tax.
The final determination is based on L. L. Bean, Inc.’s admission that it delivered goods by common carrier to destinations in Ohio and that such sales were in excess of $500,000. Accordingly, the “bright line” presence was created. Therefore, the Department of Taxation concluded, the goods were “received in this state” and the sales amounts were “taxable gross receipts” within the meaning of the CAT.
For non-Ohio retailers shipping into Ohio, this determination, if unchallenged, will subject the amount of Ohio sales to CAT calculations.
For questions or comments on this article, contact Kenneth Cookson at (614) 462-5445.