In a recent Board of Tax Appeals case (Case No. 2022-422, Ohio Bd. Of Tax App. (10/23/24)), the Ohio Board of Tax Appeals (“BTA”) vacated an Ohio Commercial Activity Tax (“CAT”) assessment, holding that because vehicle sales transactions occurred outside of Ohio, the gross receipts from these sales were not sitused to Ohio and were not subject to Ohio’s CAT, even though the purchaser subsequently brought the automobile into Ohio.
Background and Decision
From its Wheeling, West Virginia dealership, Straub Nissan, LLC (“Straub”) sold vehicles to Ohio resident customers who took possession of the vehicles in West Virginia and subsequently took them back to Ohio. Straub sourced the gross receipts from these transactions to West Virginia, arguing both that this is where the goods were received and all transportation was completed, and because the receipts were already subject to West Virginia income tax, subjecting the receipts to CAT would result in double taxation. The Tax Commissioner argued the sales should be sitused to Ohio because Straub knew that is where they were ultimately destined.
Finding the sales to Ohio residents were not subject to the CAT, the BTA noted that each transaction was entirely consummated in West Virginia, as the Ohio customers drove to West Virginia to receive their vehicles, and it was in West Virginia that they made the first possessory use of the vehicles. The BTA concluded that the Ohio Department of Taxation had misapplied the “transportation clause” of Ohio Rev. Code section 5751.033(E), as there was no transportation of the vehicles into Ohio by common carrier
Our Thoughts On
The Straub decision reverses a long-standing Ohio Department of Taxation position, clarifying that out-of-state automobile dealers that sell automobiles to Ohio resident customers who receive the vehicle out of state and ultimately take the vehicle to Ohio are not to be included in Ohio CAT gross receipts. It is important to note the BTA’s decision relied heavily on the fact the vehicles were transported by the customer to Ohio. It is likely that vehicles delivered to Ohio via the dealer or common carrier would still be sitused to Ohio.
Conversely, Ohio dealers selling to out-of-state customers should be aware that these receipts should likely be included as Ohio CAT receipts to the extent the customer takes possession of the vehicle in Ohio (i.e., the vehicle is not delivered out of state by the dealer or common carrier).
In light of this decision, automobile dealerships should analyze their out-of-state sales to determine if they properly reflect these changes to CAT receipts situsing.
The Schneider Downs State and Local Tax (SALT) practice is equipped to help you evaluate the impact of these revenue situsing changes on your Ohio CAT filings. Please direct inquiries to Stephen Worth, Schneider Downs State & Local Tax Practice Leader at [email protected].
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