The Final Vacation spot Rule- Retaining Ohio’s CAT In Examine – Tax

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Imagine that you are the chief financial officer of an
aftermarket automotive parts company named SupplyCo. SupplyCo is
headquartered in Missouri and its only facilities are in that
state. Your products are delivered directly to your
customers’ distribution centers in several U.S. states,
including Ohio, via common carrier. SupplyCo’s customer
contracts are all entered into out of state. In each instance,
customers pay for the freight charges and sales are made free on
board origin, meaning that title and risk of loss transfer to your
customer at your warehouse docks in Missouri. You are aware that
your products are primarily delivered to customers’
distribution centers in Ohio, Michigan, Pennsylvania and are later
transported from these distribution centers to your
customers’ retail stores in all 50 states — with only
about 4 percent of the products staying in Ohio.1

For state income tax purposes, you have always treated these
sales as Missouri sales (that is, cost of performance) or sales in
the state of the customer’s contract location (that is,
market-based sourcing). That is why you are surprised to receive an
audit commencement letter from Ohio referencing the commercial
activity tax (CAT). The letter not only suggests that you are
subject to the CAT, but also implies penalties, interest, and an
audit period going back to the CAT’s enactment in 2005. You
have never filed for the CAT before, so this is all new to you.

As an unsuspecting victim of Ohio’s CAT, you are now left

  1. How can Ohio tax SupplyCo given its lack of activities in the
  2. What can I do to reduce this tax?

The first question is what we are asked over and over as
practitioners — often phrased as: “How is this
constitutional?” Based on how Ohio courts have evaluated this
issue in Crutchfield 
and Greenscapes,2 and based on the
U.S. Supreme Court’s decision
in Wayfair,3 Ohio appears to have the
authority to levy a gross-receipts-based tax on goods that have a
physical connection with the state (for example, shipped into the
state), regardless of the taxpayer’s lack of other
connections with the state. Based on this precedent, it appears
that this issue would need to be altered legislatively or ruled
upon by the Court for a meaningful change to occur.4 For example, a
taxpayer may still argue that it has not purposefully availed
itself of the Ohio marketplace, and thus taxation would violate the
fundamental fairness mandated by the Ohio and U.S. due process
clauses. A taxpayer may also argue that the Ohio CAT statutes do
not contain the same taxpayer protections as Wayfair, such as
adherence to uniform standards like the Streamlined Sales and Use
Tax Agreement. However, constitutional law is not typically fast
moving, as evidenced by the time between Wayfair and the prior
Supreme Court cases it overruled, Quill and Bellas Hess.5

Rather than address the constitutionality of the CAT, this
article will help address the second question and provide practical
solutions for mitigating your tax exposure through an analysis of
Ohio’s ultimate destination rule for sourcing sales of
tangible personal property.


The CAT is imposed at a flat 0.26 percent rate on all gross
receipts sourced (or sitused)6 to Ohio beyond a limited exemption
and alternative minimum tax amount. Gross receipts taxes like the
CAT are becoming more common across the United States.7 The CAT is
different from your traditional state corporate income tax for two
main reasons. First, it is imposed on gross receipts, not net
income, and therefore applies even if you are operating at a loss
or at very low margins. Second, because the CAT is not a net income
tax, taxpayers are not afforded the immunity from state and local
taxation offered by Public Law 86-272. In fact, the CAT uses the
following bright-line nexus threshold:

  • property in Ohio with an aggregate value of at least
  • payroll in Ohio of at least $50,000; or
  • taxable gross receipts in Ohio of at least

Notably, this disjunctive nexus test means that taxpayers can
trigger nexus if they only have sufficient sales sourced to Ohio in
excess of $500,000 in any one year.

Despite its low rate of taxation, CAT assessments can add up
quickly because of (i) the lack of deductions (for example, cost of
goods sold), (ii) the penalties of up to 50 percent plus
interest,9 and (iii) a 10-year limitations period
for nonfilers.10

Sourcing Sales of Tangible Personal Property and The Ultimate
Destination Rule

In the earlier hypothetical scenario, SupplyCo sales of
automotive parts would be considered tangible personal property.
Under O.R.C. 5751.033(E), Ohio law requires the following for the
sourcing of tangible personal property:

Gross receipts from the sale of tangible personal property shall
be sitused to this state if the property is received in this state
by the purchaser. In the case of delivery of tangible personal
property by motor carrier or by other means of transportation, the
place at which such property is ultimately
after all
has been completed shall be
considered the place where the purchaser receives the
property. For purposes of this section, the phrase
“delivery of tangible personal property by motor carrier or
by other means of transportation” includes the situation in
which a purchaser accepts the property in this state and then
transports the property directly or by other means to a location
outside this state. Direct delivery in this state, other than for
purposes of transportation, to a person or firm designated by a
purchaser constitutes delivery to the purchaser in this state, and
direct delivery outside this state to a person or firm designated
by a purchaser does not constitute delivery to the purchaser in
this state, regardless of where title passes or other
conditions of sale. [Emphasis added.]

As is often the case in Ohio tax audits, the Department of
Taxation will attempt to simplistically source 100 percent of gross
receipts to the state based on where the taxpayer’s customer
first receives the property in Ohio even if the auditors know that
only a small percentage of the property stays in the state.
However, reading the statute holistically gives rise to the
ultimate destination rule, which states that “the place at
which such property is ultimately received 
after all transportation  has been completed
shall be considered the place where the purchaser receives the
property.” [Emphasis added.] Notably, the relevant situsing
provision neither says nor refers to the “first stop,”
“some transportation,” or “mere
transportation.” Instead, the statute focuses on the location
of the goods after “all transportation” has been
completed. Simply put, the correct analysis should be on the
ultimate destination of the property, not the initial delivery

Moreover, the situsing provision does not say that there cannot
be stops along the way, including repackaging or treatment of
products at those stops. In fact, the final clause of O.R.C.
section 5751.033(E) indicates that the ultimate destination of the
products will be determined without regard to where title passes or
“other conditions of sale.” Couldn’t a condition
of sale be that the purchaser handles part of the manufacturing,
assembly, or other processes? It seems possible, as the intent of
the statute is to tax businesses based on where their products
ultimately end up.

Presumably, because the CAT is relatively new, the Department of
Taxation and General Assembly have offered little guidance and
refinement regarding the sourcing of tangible personal property.
However, Ohio courts and the Board of Tax Appeals (BTA) have
established precedent for the application of the ultimate
destination rule when evaluating a similar rule for purposes of the
corporation franchise tax (CFT).

The CFT was Ohio’s form of corporate income tax that began
to phase out for most taxpayers at the same time the CAT was phased
in (2005 to 2010).

O.R.C. 5733.05(B)(2)(c)(i) provided a similar ultimate
destination rule within the CFT regime:

Receipts from the sale of tangible personal property shall be
sitused to this state if such property is received in this state by
the purchaser. In the case of delivery of tangible personal
property by common carrier or by other means of
transportation, the place at which such property is
ultimately received after all transportation has been completed
shall be considered as the place at which such property is received
by the purchaser. [Emphasis added.]

The Ohio Supreme Court has recognized that the CFT and the CAT
have strong similarities in their purpose and
language.11 In Greenscapes 
(discussed later), the BTA also noted that “the commissioner,
both in the final determination, and again on appeal, cites
to Dupps Co. v. Lindley, 62 Ohio St.2d 305 (1980),
which analyzed a nearly identical statute situsing sales for
purposes of the corporation franchise tax, i.e., R.C.
5733.05(B)(2)(c).”12 Therefore, because the
tax commissioner and the Ohio courts have cited to previous CFT
cases for sourcing authority, prior cases involving the CFT’s
ultimate destination rule clearly have at least some persuasive
value to courts faced with applying the CAT’s similar

Trilogy of CFT Cases Interpreting the Ultimate Destination

Three cases are particularly insightful in determining how sales
of tangible personal property should be sourced under the CAT for
purposes of the ultimate destination rule: House of
Seagram Inc., Dupps Co., and Loral
Corporation v. Limbach.13

In House of Seagram, the Ohio Department of Liquor
Control purchased liquor from House of Seagram at its place of
business in New York. Seagram delivered the liquor in New York to a
common carrier designated by the purchaser, and it was then brought
into Ohio and delivered to a warehouse owned by the purchaser. The
Ohio Supreme Court held that all products ultimately received in
Ohio after all transportation would be treated as “business
done in Ohio” and included in Seagram’s
Ohio-apportioned sales. The court also held, conversely, that when
an Ohio purchaser transports goods through Ohio on their way to
some ultimate destination outside the state, there is no delivery
to the purchaser in Ohio within the meaning of the CFT statute, and
those sales would not be considered business transacted in

Dupps Co.  involved an Ohio corporation that
manufactured heavy machinery and replacement parts for use in meat
processing, which it sold to customers in all 50 states and foreign
countries. Typically, the customer would be responsible for
shipment of the equipment from the Ohio plant. In computing its
franchise tax obligation under O.R.C. section 5733.05(B), Dupps
excluded from the sales factor of the formula its “customer
pick­up” sales — sales to non-Ohio customers, in
which the purchaser either used its own vehicles to transport the
equipment from its Ohio factory or hired private truckers to do the
same. The tax commissioner argued that the equipment should be
deemed “received in this state by the purchaser” if it
was picked up at the Ohio factory. As a result, the commissioner
argued that the customer pickups constituted Ohio sales. On appeal,
the Ohio Supreme Court rejected the tax commissioner’s
argument, holding that “since the equipment herein was
‘ultimately received’ outside of Ohio, such sales
should not have been included in the sales factor as business done
in this state.”14 Importantly for the
taxpayer in Dupps Co., it did not matter whose trucks
were used for transport; the key point was to focus on the
products’ ultimate destination after all transportation was

Loral  involved an out-of-state manufacturer and
vendor of electronic radar equipment for use on aircraft. The U.S.
Department of Defense purchased the equipment — with many of
the purchases passing through the Wright-Patterson Air Force Base
in Dayton, Ohio. Much of the property would later be shipped from
the base to its final destination out of state.
Citing Dupps  and House of
Seagram, the BTA held that Loral was entitled to base its
taxation on the goods’ final destination, not their initial
delivery point in Ohio. The board ruled as follows:

Here, we expressly find that the record before this Board
includes uncontroverted testimony that the assessed property merely
entered Ohio in route to non-Ohio destinations. We cannot
accept [the tax commissioner’s] conclusion that the
transportation of the property was completed at the moment it
arrived at Wright-Patterson. The testimony before this Board
clearly indicates that the property was shipped from
Wright-Patterson to points outside of Ohio. [The commissioner]
did not produce any evidence which would cause this Board to
conclude that the later shipment of the goods from Wright-Patterson
was not a continuation  of the transportation
beginning at appellant’s New York facility. [Emphasis

This ruling explains that products can be held at an Ohio
distribution center for a period before the ultimate destination of
the products is determined. Moreover, if the Ohio distribution
center is a link in the continuous supply chain, then it may not be
appropriate to deem Ohio as the ultimate destination of those

It is unclear based on the BTA’s decision and published
sources as to who exactly testified before it; it could have been
someone from Loral or its purchaser, the Department of Defense.
Nevertheless, it is critical to note that the board accepted and
relied on testimony regarding the ultimate destination of the goods
in rendering its decision in favor of the taxpayer.

The Tax Commissioner’s Position on the Ultimate
Destination Rule

A taxpayer’s ability to provide testimony or evidence (at
a hearing or otherwise) on the final destination of its sales may
contradict the tax commissioner’s position on the ultimate
destination rule. Information Release CAT 2005­17 provides that
the location of the ultimate destination must be known by the
seller at the time of the sale. Despite the information
release’s position, the statute itself does not require that
the ultimate destination be known by the seller of tangible
personal property at the time of the sale. In fact, Ohio courts
have consistently held that information releases are nothing more
than the department’s position on an issue and are not to be
regarded as binding authority.15

The department’s position that the ultimate destination
must be known by the seller at the time of the sale is not only
unfounded in law, but it also creates an unworkable standard that
requires taxpayers to request and obtain records that typically
lack independent business purpose or value for the taxpayer,
frustrate customers, and increase the cost of doing business.
Further, this standard represents poor economic policy in that it
encourages taxpayers that have choices on where to ship their
products to not ship their products into Ohio distribution centers
or locations. This is the opposite of the intent of the Ohio tax
reform under which the CAT was enacted. That reform intended to
provide incentives for businesses to relocate into Ohio by
eliminating taxation of personal property and by repealing property
and payroll factors used for income-based taxes in favor of the
CAT. The authors are aware of a multinational corporation that
moved its Ohio distribution center to another state partially as a
result of Ohio’s position regarding the sourcing of tangible
personal property.

Recent CAT Cases Involving the Ultimate Destination Rule

The department’s position regarding the ultimate
destination rule has been challenged in several recent CAT cases.
But in each case, courts held that taxpayers were unsuccessful in
providing sufficient (or, in some cases, any) evidence regarding
the ultimate destination of their shipments. When insufficient
evidence is provided regarding the ultimate destination of a
shipment, Ohio will tax based on the initial delivery point. It
appears that the Department of Taxation could have cherry-picked
these cases and allowed them to go before the BTA because of the
lack of evidence. Unfortunately for other Ohio taxpayers, bad facts
generate bad precedent.

The recent cases of Greenscapes, Mia
Shoes, Henry, and Electrolux 
are examples of taxpayers providing apparently insufficient
evidence to rebut the department’s default position.

Greenscapes  was a Tenth District case on appeal
from the BTA, in which an out-of-state supplier of tangible
personal property was subject to the CAT despite having only sales
into the state and no physical presence. The taxpayer in this case
based its arguments on the constitutionality of the CAT from a due
process and commerce clause perspective. Relying on the precedents
of Crutchfield  and Wayfair 
together, the Tenth District held that the CAT and its bright-line
nexus standard were constitutional.
While Greenscapes  has been cited frequently for
its constitutional analysis, the factual and statutory issues are
often overlooked. The BTA and Tenth District opinions both
mentioned that Greenscapes had the opportunity to reduce its
Ohio-sourced gross receipts (and corresponding tax) by supplying
evidence regarding the ultimate destination of its goods.
Apparently, the Ohio auditor requested ultimate destination data
during the audit, but the taxpayer never provided it. The lack of
evidence and proof ultimately doomed the taxpayer
in Greenscapes.

Mia Shoes  was similar
to Greenscapes. The BTA affirmed an out-of-state
footwear wholesaler’s CAT assessment, finding that the tax
was properly assessed because the taxpayer failed to prove that the
goods shipped into Ohio warehouses were ultimately received
anywhere other than in Ohio. Citing Greenscapes, the
board found that “the evidence shows that Mia Shoes shipped
its goods to Ohio, knew it was shipping goods to Ohio, and lost
visibility of the goods once they were delivered to the customers
in Ohio.”16 The lack of sufficient evidence
and proof once again doomed this taxpayer.

Henry17 is yet another case of a
taxpayer who argued for a tax reduction by application of the
ultimate destination rule, but unfortunately did not properly
present evidence to rebut the tax commissioner’s audit
findings. This case involved an out-of-state gun manufacturer that
sold guns to distributors, some of which were in Ohio.
Citing Dupps  and Greenscapes, the
taxpayer argued that goods picked up in Ohio for delivery outside
of the state were not Ohio sales (that is, the ultimate destination
rule). In its decision, the BTA compared this case with the
holdings in Greenscapes  and Mia

In all three cases, an out of state producer shipped products
into Ohio, and the three companies knew the products were shipped
into Ohio. All three made the argument
that some  products were destined for locations
shipped outside of Ohio but did not prove how
many  or which  products were
transported outside of Ohio. Accordingly, we find Henry’s
argument meritless in light of Greenscapes 
and Mia Shoes. [Emphasis added.]

The taxpayer in Henry  submitted summaries of
reports as exhibits to its notice of appeal that purportedly
demonstrated an error in the commissioner’s calculation of
the Ohio-sitused receipts. However, as a long-standing rule, these
summaries and exhibits were rejected because they were not properly
authenticated at a BTA hearing. In fact, the taxpayer did not even
request a hearing. Authentication clearly requires more than just
appending exhibits to a notice of appeal. If the taxpayer had
requested a hearing, its summaries could have been authenticated as
evidence through oral testimony verifying the records before the
board and allowing the commissioner to cross-examine the witness
attempting to authenticate the records. However, the taxpayer did
not give itself that opportunity.

The taxpayer in Henry  also argued that some
of the information proving its case was in the statutory transcript
from the audit and the administrative hearing before the Ohio
Department of Taxation. The BTA refused to consider this
information, stating: “It is incumbent on Henry to establish
its right to the relief requested. Westlake Polymers v.
McClain  (May 29, 2020), BTA No. 2019-830, unreported
(‘It is not the duty of this board to comb through the audit
work papers to determine if they actually support the
appellant’s arguments.’)” While the taxpayer
in Henry  claimed to have proof of the ultimate
destination, none of it counted at the BTA level or was reviewed by
the board because of procedural missteps. Again, the lack of
evidence ruined the taxpayer’s position.

A final determination (April 23, 2020) and notice of appeal to
the BTA (June 18, 2020) involving Electrolux Home Products Inc.
provides further insight into the Ohio Department of
Taxation’s position on reconciling the holdings in the older
CFT cases with the more recent decisions
in Greenscapes  and Mia Shoes.
Based on the final determination in Electrolux, it appears that the
department will apply (or at least mention) the principles set
forth in Dupps  and House of
Seagram  in CAT audits. However, in
citing Greenscapes  and Mia Shoes,
and similar to the holdings in both cases, the department
determined that the taxpayer did not meet its affirmative burden of
proof to demonstrate that its products sold into Ohio were
immediately (or at any later point) shipped out of state. The
taxpayer argued in its notice of appeal that it maintained
sufficient customer records regarding the final (out-of-state)
destination of its shipments. But based on the information in the
notice of appeal and final determination, the detail and
specificity of that customer information is unclear. Evidently, the
tax commissioner did not find the information to be sufficient
during the audit process. It is critical to note that the
Electrolux final determination is merely an administrative holding.
This case will be important to monitor at the BTA and (possibly)

While none of these recent CAT cases has resulted in a favorable
ruling for the taxpayers (yet), they underscore the importance of
properly introduced evidence — which was nonexistent in all
of them. We know from these decisions that evidence must be either
stipulated by the parties or properly authenticated at a BTA
hearing. As evidenced by the discord between the taxpayers and its
positions in these cases, the department is unlikely to stipulate.
Thus, this begs the question: What types of evidence would be

The Question of Sufficient Evidence

Based on scant guidance from Ohio courts, the General Assembly,
and the Department of Taxation, it is not abundantly clear as to
what evidence would be sufficient regarding the final destination
of a company’s shipments. Clearly, however, taxpayers
desiring to accurately report their underlying CAT liability should
keep track of their products’ ultimate destinations to
support their Ohio situsing methods. Otherwise, they could end up
in the same position as Greenscapes 
and Mia Shoes, with no evidence and a
larger-than-necessary CAT assessment. Returning to the earlier
hypothetical example, how could SupplyCo use the final destination
rule to reduce the amount of underlying CAT it may owe?

The best evidence would likely be a paper trail of invoices or
bills of lading showing that specific tangible personal property
eventually left Ohio before reaching its ultimate destination out
of state. However, this level of detail may not be available and is
likely too voluminous and cumbersome to work through. Further,
customers may push back on these requests because of competitive
business concerns, privacy laws, or the cost of complying with the
requests. There may be ways to work through these concerns,
however, such as redacting sensitive business information and
customer names. To obtain sufficient, credible information that is
also practical, taxpayers could begin to work with their customers
to obtain spreadsheets or summary data on the products’
ultimate destinations.

While written records may be the preferred standard of proof,
they may not be the only way to prove the ultimate destination.
Without written records, taxpayers could seek written or oral
testimony from a customer that the shipments into Ohio are later
shipped out of state. Based on the BTA’s holding
in Loral, it seems that testimony that the property
was merely passing through Ohio before reaching its ultimate
destination would satisfy the taxpayer’s burden of proving
that the ultimate destination was outside Ohio. The recent Ohio
Second Appellate District Court case of Riverside v.
Patino, 2020-Ohio-4486, which involved tax deficiencies and
penalties, used and relied on an employee’s affidavit as
evidence. Hence, it appears that employee affidavits can be
accepted as evidence by the BTA and other Ohio courts, with the
level of credibility afforded to the affidavits decided by those

In the recent Defender Security Company 
case, the Ohio Supreme Court held that a combination of summary
internal corporate documentation and employee testimony would be
sufficient evidence to determine the location of sales for purposes
of the CAT. On the topic of sufficient evidence, the court ruled as

Defender presented summary documents showing its CAT payments
relating to the receipts at issue and then, at the BTA hearing,
presented the testimony of its corporate controller to verify the
summary documents in light of underlying records. Given
this, we see no reason why the absence of primary 
documentation should deter us from reaching the legal issues
when it did not deter the commissioner himself, in his
final  determination, from doing so without any
suggestion of a defect in the evidence. Thus, we conclude that
dismissal on evidentiary grounds would be inappropriate under these
circumstances.18 [Emphasis added.]

While Defender Security involved the sourcing of sales of
intangible property, the standards of evidence should remain
constant. This appears to be a much more relaxed standard than the
final determination in Electrolux, in which the tax
commissioner appears to be unwilling to accept the taxpayer’s
corporate sales records.

Taxpayers may also suggest a form of sampling or estimation
methods for determining the ultimate destination of gross receipts.
In fact, there is a judicial basis for accepting sampling methods
and estimates when absolute certainty is impossible. This is known
as the Cohan  rule. Cohan v.
Commissioner of Internal Revenue  is a federal tax case
regarding the deductibility of certain expense. In that case, the
Second Circuit ruled as follows:

Absolute certainty in such matters is usually impossible and is
not necessary; the Board should make as close an approximation as
it can, bearing heavily if it chooses upon the taxpayer whose
inexactitude is of his own making. But to allow nothing at all
appears to us inconsistent with saying that something was

The Cohan  rule supports the position that
estimates are acceptable when they are reasonable, and allowing for
no form of estimate (even a conservative estimate) would certainly
be inaccurate.

Could the Cohan  rule apply to the sourcing
of tangible personal property under the
CAT?20 While the taxpayers in Mia
Shoes  and Greenscapes  were
apparently unable to provide the information requested by the
commissioner, it is uncertain whether the commissioner would have
accepted an estimate in lieu of other items of evidence.

In fact, the commissioner already does permit estimation when it
comes to sourcing receipts to qualified distribution centers
(QDCs).21 In Ohio, some large distribution centers
meeting the statutory requirement of at least $500 million in
qualified property costs are granted the benefit of an estimation
method. There is a high cost of entry to obtain QDC status: QDC
holders must pay a $100,000 annual fee to the Ohio Treasurer of

QDC certificate holders use an estimation method to establish an
Ohio delivery percentage for their warehouses, which allows their
suppliers to obtain a reduced CAT on their Ohio shipments. The
theory behind this is the ultimate destination rule: The Ohio
delivery percentage equals the percentage of the cost of qualified
property shipped out of the QDC to purchasers in Ohio. This QDC
arrangement ultimately benefits the owners of the QDC certificates
because they (theoretically) receive better pricing from their
suppliers, which are subject to less taxation on their sales. This
all begs the question: Why should this benefit only apply to large
corporations that are willing to pay a significant annual fee to
the state? It seems that such a selective benefit could contradict
the equal protection clauses of the U.S. and Ohio constitutions
— which stand for the premise that substantially similar
taxpayers must be treated the same.

Take Action Now to Mitigate Tax and Penalty Risk

Most of this article deals with what businesses like SupplyCo
can do during an audit or appeal process. However, there are
proactive steps that companies can take to potentially reduce CAT
and associated penalties. For one, they can collect records from
their customers regarding the ultimate destination of their
products after all transportation is complete. Further, companies
could amend their contracts to require customers to provide
information on products’ ultimate destination.

If a company believes it may have overpaid CAT in past periods
based on its sourcing method, it may be entitled to a refund claim.
Taxpayers must file a refund claim within four years of the payment
of CAT on which the refund claim is based.22

Alternatively, if you determine that you have underpaid CAT in
prior periods, it may be beneficial to consult with a licensed Ohio
tax attorney to discuss a confidential voluntary disclosure.
Because of attorney-client privilege and the design of these
programs, a taxpayer’s identity can be kept anonymous until
proper guidelines are agreed upon. Further, a voluntary disclosure
is typically helpful in mitigating potential penalties and limiting
the number of years that the department seeks to go back. If a
taxpayer’s liability does not warrant or qualify for a
voluntary disclosure, then it should consider filing CAT returns
(even during audit) before any assessment is made to avoid
nonfiling penalties. The returns can be filed using the
taxpayer’s good-faith position and are not required to follow
the department’s position. If a taxpayer wants to avoid the
risk for underpayment penalties inherent in filings in
contravention of the department’s position, the taxpayer can
file and pay taxes based on the department’s position and
file a refund claim for the difference. However, note that doing
that can tilt the negotiation leverage in the department’s
favor if a settlement is the goal — because the agency has
the tax revenues in its coffers and the road to a contested refund
can be long.

If you are dealing with a pending case, consider the application
of prior CFT cases or the more relaxed proof standards expressed
in Defender Security. Moreover, if you do not have
access to precise records, consider applying
the Cohan  rule and prepare estimates of the
products’ ultimate destination.


1 This tracks with Ohio’s percentage of the U.S.
population, approximately 4 percent.

2 See infra notes 11 and 12.

3 South Dakota v. Wayfair Inc., 585 U.S._ , 138 S. Ct.
2080, 2089 (2018).

4 See Great Lakes Minerals LLC v. Ohio, No.
2018-SC-000161-TG (Ky. Sup. Ct. 2019), cert.
denied  2020 WL 5883297 (2020).

5 National Bellas Hess Inc. v. Department of Revenue
of Illinois, 386 U.S. 753 (1967); and Quill Corp. v.
North Dakota, 504 U.S. 298 (1992).

6 The more common term “sourcing” is used
interchangeably with the Ohio statutory term “situsing”
throughout the article.

7 Delaware, Nevada, Ohio, Oregon, Tennessee, Texas, and
Washington use some form of gross receipts
tax. See  Janelle Camenga, “Does Your
State Have a Gross Receipts Tax?” Tax Foundation, Apr. 22,

8 O.R.C. section 5751.01(I).

9 O.R.C. section 5751.06.
10O.R.C. section 5703.58.

11 See Crutchfield Corp. v. Testa, 151 Ohio St.
3d 278, 88 N.E.3d 900 (2016).

12 Greenscapes Home and Garden Products Inc. v.
Testa, BTA Case No. 2016-350 (2017).

13 House of Seagram Inc. v. Porterfield, 27 Ohio
St. 2d 97, 271 N.E.2d 827, 828 (1971); Dupps Co. v.
Lindley, 62 Ohio St. 2d 305, 405 N.E.2d 716 (1980);
and Loral Corporation v. Limbach, BTA Case Nos.
85-C-914, 85-B-915 (1988).

14 Dupps Co. v. Lindley, 62 Ohio St. 2d 305,
308, 405 N.E.2d 716, 718

15 See Renacci v. Testa, 148 Ohio St. 3d 470, 71
N.E.3d 962 (2016).

16 Mia Shoes Inc. v. McClain, BTA Case No.
2016-282 (2019).

17 Henry Rac Holding Corporation v. McClain, BTA
Case No. 2019-787 (2020).

18 Defender Security Co. v. McClain,
2020-Ohio-4594, 2020 WL 5776005.

19 Cohan v. Commissioner of Internal Revenue, 39
F.2d 540 (2d Cir. 1930).

20 It is noted that the CAT is intended to use the
principles and definitions of federal tax law unless a different
meaning is clearly required. See  O.R.C. section

21 Ohio Admin. Code 5703-29-16; O.R.C. section

22 O.R.C. section 5751.08(A).

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