The situsing of gross receipts from the sale of tangible personal property for purposes of the Ohio Commercial Activity Tax ("CAT") can be a complex exercise. A recent decision by the Ohio Board of Tax Appeals ("BTA") highlights several issues that may further complicate this exercise. However, depending on their specific facts and circumstances, taxpayers may be presented with an opportunity to reduce their CAT liability.
In Greenscapes Home and Garden Products, Inc. v. Testa, the taxpayer was a Georgia corporation that engages in the wholesale of lawn and garden products to large retailers. Greenscapes Home and Garden Products, Inc. (“Greenscapes”) does not sell to any Ohio companies nor does it sell directly to any Ohio residents. However, some of the products Greenscapes sells to retailers end up at the retailers' Ohio distribution centers. When a retailer purchases products from Greenscapes for its Ohio distribution center, the retailer or its agents accept the product in Georgia at Greenscapes' facility. Greenscapes will load the product onto the customers' selected mode of transportation and provide a bill of lading to the driver indicating the "ship to" address. The product becomes the property of Greenscapes' customers as it is loaded onto the trucks.
Ohio Revised Code ("ORC") Section 5751.033(E) governs the situsing of gross receipts and provides that gross receipts from the sale of tangible personal property are sitused to Ohio if the property is received in the state by the purchaser. It goes on to state that "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 received after all transportation has been completed shall be considered the place where the purchaser receives the property." On audit of Greenscapes, the Ohio Department of Taxation asserted that all gross receipts from the sales of goods with a "ship to" address in Ohio on the bill of lading should be sitused in Ohio. Greenscapes objected to this situsing position because (1) ownership of the product transferred prior to the shipment of the product, (2) Greenscapes did not arrange for or pay for the shipment of the product, (3) the product went to a distribution center in Ohio for further shipment and (4) Greenscapes cannot know how much of the product ultimately stayed in Ohio and how much product was shipped out of state.
The BTA concluded that the gross receipts from the sale of tangible personal property should be sitused to Ohio if“[a]t the time the appellant sold products to its customers, it knew their ultimate destination to be Ohio, based on its customer’s orders and the bills of lading it provided to the drivers transporting the products.” In making its decision, the BTA relied on a court case decided under Ohio's old franchise tax law. The case of Dupps Co. v. Lindley had similar facts overall but was the opposite of the Greenscapes case; Dupps was an Ohio-based manufacturer that successfully argued that sales picked up at its Ohio facility by customers and then transported outside of Ohio should be sitused outside of Ohio. The BTA held that the inverse of the Dupps case is also true and, therefore, the retailers' acceptance of the goods at Greenscapes' Georgia facility and subsequent shipment of the goods to an Ohio distribution center caused Greenscapes' gross receipts to be sitused in Ohio. The BTA acknowledged that some of Greenscapes' goods may ultimately be shipped to a final customer destination outside of Ohio; however, the BTA clearly stated that its inquiry did not address this because Greenscapes did not have any evidence to show that its goods were ultimately received outside of Ohio.
While the BTA's decision in the Greenscapes appeal was not favorable for the taxpayer, it should be noted that there are some key takeaways from this case that could be beneficial for taxpayers. An out-off-state business with a fact pattern similar to Greenscapes' should give consideration to the ultimate destination of its products. If the taxpayer is able to provide sufficient documentation at the time of the sale that the ultimate destination of tangible personal property is outside the state of Ohio, the taxpayer can potentially situs these receipts outside the state, and therefore exclude the receipts from the Ohio CAT. Meanwhile, Ohio companies should consider the BTA's reliance on the Dupps case, which provides taxpayers with the same opportunity to exclude gross receipts from the sale of products received out of state. For example, if an Ohio auto dealer sells a car to a Pennsylvania resident and knows at the time of the sale that the vehicle will be titled and driven to Pennsylvania, that sale is not subject to Ohio CAT.