Ohio Supreme Court Rules on Constitutionality of CAT Tax

Briefs and Decisions Filed in the Case

UPDATE SEPTEMBER 17, 2009: The Ohio Supreme Court has upheld the constitutionality of Ohio's commercial activity tax, which had been challenged by state grocers in Ohio Grocers' Assn. v. Levin
Full text of the Court's decision
Ohio Supreme Court News Release and Summary

Ohio Supreme Court Upholds the CAT; It is Not a Tax on the Sale of Food
September 2009 discussion and analysis of the case by Bricker & Eckler partner Mark Engel

UPDATE: The Ohio Supreme Court held the oral argument in Ohio Grocers' Assn. v. Levin, on Tuesday, September 1, 2009. Read a review of the argument . . .

The Ohio Supreme Court has agreed to review the decision of the Franklin County Court of Appeals in Ohio Grocers' v. Levin, 178 Ohio App.3d 145, 2008-Ohio-4420, which held that the Ohio commercial activity tax ("CAT") was a transaction tax that violated the Ohio constitution in so far as it applied to sales of food to be consumed off the premises where sold.

In its memorandum in support of jurisdiction, the Ohio Attorney General, on behalf of the state Tax Commissioner, argued the CAT is not an excise tax imposed upon sales, but rather is a franchise tax imposed upon all business for the privilege of doing business in Ohio.

The memorandum also highlights the financial impact of the decision. Not only will the decision result in a $188 million shortfall when the CAT is fully implemented for fiscal year 2010, but it will also also result in the redirection of about $155 million annually in revenue attributed to the sale of motor fuel from the general revenue fund to funds set aside for public highways. In addition, it is expected that the litigation could result in refund claims of up to $350 million for taxes already paid by the plaintiffs.

The decision also brings into question the validity of the economic nexus standard that applies to businesses located outside Ohio, but who transact sales into Ohio. Under the tax as enacted, businesses doing business in Ohio in excess of $500,000 annually are subject to the tax, even if they don't maintain a place of business, or have employees or property located, in the state. If the tax is a transaction tax, as the court of appeals ruled, then it will be necessary for those out-of-state businesses to have a physical presence in Ohio before they are subject to the tax.

Bricker & Eckler serves as counsel to amici curiae the Ohio Manufacturers' Association, the Ohio Dental Association, the Ohio State Bar Association, The Ohio Society of Certified Public Accountants, the Ohio State Medical Association, and the Ohio Chemistry Technology Council.

For additional information about the case, contact Mark Engel.

Briefs and Decisions Filed in the Ohio Supreme Court

Full text of the Franklin County Court of Appeals Decision
Issued September 2, 2008

Ohio Appellate Court Rules CAT Is Unconstitutional Excise Tax on Sales of Food
September 2008 article by Mark Engel discussing the Court of Appeals decision