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Ohio Supreme Court Upholds Business Tax on Internet Business

Tax Development Nov 18, 2016

In Crutchfield Corp. v. Testa, Slip Opinion No. 2016-Ohio-7760, issued November 17, 2016, the Ohio Supreme Court held that a taxpayer without a physical presence in the state may be required to pay the state’s Commercial Activity Tax (CAT) based on the state’s bright-line presence standard. Ohio’s “bright-line presence” for imposing its CAT is similar to the Multistate Tax Commission’s Factor Presence Standard. If a business has any one of the following in Ohio during a calendar year, the business owes the CAT at least $50,000 of property, or payroll of at least $50,000, or Ohio receipts of at least $500,000.   

The taxpayer, Crutchfield Corp. (“Crutchfield”), sold consumer electronics through the Internet from locations outside of Ohio and shipped its products via common carrier. Crutchfield argued that because it had no physical presence in the state, Ohio could not require it to pay the CAT. 

The Court held that the physical presence standard set forth in Quill Corp. v. North Dakota, 504 U.S. 298, 112 S.Ct.1904, 119 L.Ed.2d 91 (1992) did not apply to a business-privilege tax if the imposition statute ensured that the taxpayer’s connection with the state was substantial.

Further, the Court found that CAT’s bright-line presence for imposing the tax complied with the substantial-nexus requirement set forth by the United States Supreme Court in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977).


Adina Christian