In a unanimous decision,1 the Ohio Supreme Court (“the Court”) found that the broadcast fees, online marketing revenue, and sponsorship fees NASCAR Holdings Inc. (“NASCAR”) earned were not subject to the Ohio Commercial Activity Tax (CAT). The Court was split 5-4 as to whether the licensing fees NASCAR receives from banks, insurance companies, and other companies should be subject to the CAT.
As reported previously, the Court considered the issue of taxing receipts from licensing intellectual property earned by third parties. The Ohio Board of Tax Appeals (BTA) addressed the issue of whether a company not located in Ohio, which licenses its intellectual property to other out-of-state companies that use the property rights to generate revenue in Ohio, is subject to the state’s CAT. NASCAR is a Florida company that sells broadcast rights to auto races it conducts across the country. These broadcast rights are sold to third parties, such as Fox Broadcasting Company (“FOX”), for a one-time flat rate. FOX then sells the broadcast to third-party cable and satellite television providers. Approximately 67% of NASCAR’s revenue at issue was comprised of these broadcast rights.
In the appeal, NASCAR contested the bulk of the assessment claiming that the Department of Taxation ignored a key provision of R.C. 5751.033(F), which states that when a buyer purchases intellectual property, CAT is based on receipts “to the extent the receipts are based on the right to use the property in this state.” The Court concluded that none of the contracts reviewed contained any reference to use within Ohio, and the tax commissioner could only assert tax on the right to use NASCAR’s property if it was used in Ohio. Based on that position, none of the revenue from broadcast fees, licensing fees, and sponsorship fees was taxable in Ohio. The only income subject to the CAT was the revenue generated by the seven races sanctioned by NASCAR in Ohio during the years under audit. The Court declined to address the constitutional challenges.
1 NASCAR Holdings, Inc. v. McClain, Slip Opinion No. 2022-Ohio-4131.
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- Mark L. Nachbar
- Transaction Tax