Ohio Supreme Court Hearing Arguments on CAT Constitutionality

During the week of May 6, the Ohio Supreme Court heard the oral argument for three combined commercial activity tax (CAT) cases (Crutchfield, Inc., Mason Companies, Inc., and Newegg, Inc.). The three companies have challenged the state’s authority to collect CAT because they do not have a physical presence in Ohio; the three companies in question do sell their products in Ohio.  By the end of the case, the Supreme Court of Ohio should determine, with greater clarification, the constitutionality of the Ohio CAT.

Background - Beginning July 1, 2005, Ohio enacted the Commercial Activity Tax (CAT) on a majority of taxpayers conducting business within the state in Ohio.  The Ohio CAT law is calculated based on the amount of taxable gross receipt a company generates.  The regulation also contains bright-line nexus provisions which subject anyone with at least $50,000 in payroll, $50,000 in property, or $500,000 in taxable gross receipts during a calendar year to CAT.  This means that a person or their entity might be subject to the CAT under the Ohio Revised Code, even if they have no physical presence in the Buckeye state.

We will provide more information as it becomes available on any potential changes to the CAT or any opportunities arising from these oral arguments.

About the Author(s)
Nick is a Principal in the Youngstown, Ohio office of HBK CPAs & Consultants. He is a member of the HBK Tax Advisory Group with a focus on Federal flow-through entities, C corporations, M&A activity and associated transaction and compliance. Nick focuses efforts in the manufacturing and construction industries within HBK.
Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.