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Board Issues Significant CAT Guidance in Situsing Sales of Goods

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The state of Ohio has become a popular location for distribution and fulfillment centers (“DCs”) due to the state, and in particular central Ohio, being within 500 miles of over half of the United States population. While the state continues to work hard to be business and taxpayer friendly, the case law applying the commercial activity tax (“CAT”) may result in unintended taxes and, thereby, an increase in the price of goods purchased. This SALT Buzz discusses two newly issued decisions issued by the Ohio Board of Tax Appeals (“Board”) regarding the returning of sales of goods that may be helpful to sellers of goods transported to an Ohio DC or similar warehouse.

Contemporaneous Knowledge at the Time of Sale Unnecessary

In Jones Apparel Group USA, BTA Case No. 2020-53 (September 13, 2023), the goods were shipped to an Ohio customer’s distribution center and then the customer shipped the goods to retail locations in and outside Ohio. There was significant testimony and evidence (based on the customer’s records) presented at hearing that the goods were ultimately destined outside of Ohio. The evidence was not by specific product but described product line and sales by retail store to show that the gross receipts sitused to Ohio was significantly overstated as compared to the goods that were ultimately destined to Ohio retail stores.

First addressing the Tax Commissioner’s argument that the seller had to have knowledge of the ultimate destination at the time of sale, the Board rejected the Tax Commissioner’s reliance on the Board’s prior decision in Mia Shoes, Inc. v. McClain, BTA No. 2016-282 (August 8, 2019), in which it rejected the taxpayer’s use of public information to support situsing the sale of tangible goods outside of Ohio. The Board states: “We found that Mia Shoes did not affirmatively prove that the goods were then ultimately received elsewhere within the meaning of the statute. We did not conclude, however, that it could not have shown that they were ultimately received outside of the State through other evidence. As such, we clarify that the Commissioner has relied on too narrow of a rule. Neither the statute nor the case law have imposed a requirement of contemporaneous knowledge of the ultimate destination at the time of transportation.” (Emphasis added). Thus, the Tax Commissioner’s current position that a seller has to have knowledge of the ultimate destination at the time of sale was rejected.

Despite finding that taxpayer could show that the goods were received outside of Ohio, the Board found that it had not proven that they did so in the case. The evidence was based on data collected from August through October 2018 whereas the refunds were for sales from January 1, 2010 through December 31, 2016. The Board determined that the representative sample was related to a time well after the time period and that the sample was also extremely short in comparison to the audit period. The Board did suggest that the evidence provided might be suitable if provided for the same time period. “While the method used by Nine West may be sufficient in other circumstances, we find that it falls short in this case.” The taxpayer has 30 days from the date of the decision to appeal to the Ohio Supreme Court.

Ultimate Destination May Still Apply Even if Second Sale

In VVF Intervest, LLC, BTA Case No. 2019-1233 (September 13, 2023), the purchaser of the taxpayer’s goods arranged transportation from the taxpayer’s facility via a third-party carrier that delivered the goods to an Ohio DC temporarily for packaging and then by the third-party carrier to purchaser’s customer’s retail locations outside of Ohio. The taxpayer asserts that the products were ultimately received by the purchaser outside of Ohio. Approximately 97% of the goods were ultimately received outside Ohio based upon subsequent shipments from the distribution center to non-Ohio locations.

The decision echoed the same statements described above regarding knowledge at the time of sale not being required. The Board then rejected VVF’s first argument that none of the receipts should be sitused to Ohio pursuant to Ohio Administrative Code 5703-29-17(C)(15)(b) because the ultimate destination was not known. The Board found it “simply untrue” that there was no evidence of the location of the ultimate delivery because of delivery information on the bill of lading consistent with its prior decisions.

As to VVF’s alternative argument that 97% of the goods were ultimately received outside of Ohio due to subsequent shipments from the distribution center to non-Ohio locations, the Board was split. The majority (two Board members) held that the trip to the Ohio distribution center was just one leg in a trip as part of a continuous delivery process and the goods were destined outside of Ohio. The dissent (one Board member) argued that there were two sales, one from VVF to its customer, HRB and a sale from HRB to its customer: “HRB is the purchaser in the VVF transactions and, in my opinion, a plain reading of the statute requires VVF’s receipts to be sitused to the location where delivery was ultimately made to HRB. It should not expand to purchasers further down the supply chain.” Thus, the dissent concluded that the sales should be sitused to the Ohio distribution center.

The question of two separate sales was addressed by the majority. The majority agreed that the situsing of goods must be to the ultimate delivery to HRB, not HRB’s customer. However, the majority did not agree that the Ohio distribution center was the ultimate destination for the sale to HRB. The majority decision in VVF appears to be based on the Board’s former corporation franchise tax situsing decisions. Most notably the majority decision relies on the Board’s prior decision in Loral Corp. v. Limbach, BTA Nos. 85-C-914, et al., (February 23, 1998) where goods were sold to the Department of Defense and temporarily stored at a warehouse at Wright-Patterson before continuing on to another location (likely a location where the parts could be installed by an aircraft manufacturer). “The Loral case was clear that the transactions should not be sourced to Ohio simply because Ohio was one stop in a singular delivery process to a purchaser.” The majority’s statement in closing is probably the most compelling: “VVF manufactures a substantial number of soaps, and the Ohio distribution center temporarily houses all soaps destinated for the entire Eastern United States. If the Commissioner is correct, all of those receipts should be sitused to Ohio simply because Ohio is the first stop. We find R.C. 5751.033(E) does not compel such a result.”


Taken together, the Board’s two decisions make it clear that a seller does not have to have contemporaneous knowledge as to the ultimate destination of the goods. However, the taxpayer must provide data pertinent to the audit period and in a large enough sample to cover the breadth of the audit period. The Board agrees that the statute requires situsing based on the sale to the taxpayer-seller’s customer. However, where the destination is a distribution center from which the taxpayer can show the goods were temporarily stored and clearly going to travel to another location, the decision supports the goods being sitused to that other location.

The unanswered question is whether the VVF decision allows for “look through” situsing for all sales to a distribution center since storage at such locations is inherently “temporary” or whether a taxpayer needs to show evidence (and how much) of the temporary nature. The Tax Commissioner has 30 days from the issuance of the decision to appeal the case to the Ohio Supreme Court.

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