Ohio can impose its commercial-activity tax (CAT) on out-of-state companies that sell products and services to Ohioans, but have no physical presence in the state, the Ohio Supreme Court ruled on Thursday, November 17, 2016.
In a 5-2 decision, the Supreme Court determined the U.S. Constitution’s commerce clause does not prevent a state from imposing a “privilege to do business” tax, such as the CAT, on online retailers. Writing for the Court majority, Justice William M. O’Neill determined that while a physical presence in a state may be required to impose the obligation to collect sales taxes and use taxes on an out-of-state seller, that requirement does not apply to a business tax on an interstate company. Ohio’s $500,000 in annual sales threshold for the CAT to apply meets the commerce clause requirement, he concluded.
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