In a recent Ohio supreme court decision, the state’s top justices ruled that a company does not need a physical presence in the state of Ohio in order to be taxed by the state. Though the decision is new, it does make an immediate impact on the state’s tax structure and its commercial infrastructure and the decision has been watched closely by Ohio business owners and national business leaders for its larger implications due to Ohio’s importance in the national manufacturing infrastructure. The Ohio supreme court was deeply divided on the issue, but the decision was ultimately ruled in favor of the Ohio tax commissioner Joe Testa.
The ruling has determined that Ohio’s tax on commercial activity, a tax law that’s been in place for a number of years now, and its associated bright line test, is constitutional under the state’s founding documents. The court has accepted that the state’s legitimate interest in apply its general business taxes evenly to both in state and out of state businesses. The taxes apply only to businesses that make over 500,00 USD in the state of Ohio, now applies to out of state businesses who make over half a million dollars in gross receipts from sales made in the state. The state’s tax commissioner hailed this as a victory for the people of Ohio, as well as an equalizing measure for businesses both in and out of the state.
The opposing side, represented by Martin Eisenstein of Brann and Isaacson, a Maine law firm, was three out of state companies who’s cases were combined into one by the state’s supreme court as similar enough to warrant being the same influence on all three. In all three cases, each company claimed that they should not be taxed by the Ohio commercial activity tax due to their physical presence being outside the state of Ohio. Eisenstein expressed disappointment with the ruling, which decided the United States supreme court ruling in the Quill case did not apply to gross receipts taxes.
The three companies, Crutchfield Corp., Newegg Inc. and Mason Cos., argued that the state’s commercial activity tax (CAT) did not apply to their businesses because they did not have a physical presence in the state. The Ohio supreme court ruled that the physical presence requirement the US supreme court requires be recognized, did not extend to business privilege taxes such as the state’s CAT. Most observers feel that a federal supreme court review of the Quill decision is unlikely, however.