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Physical presence not required for CAT; Court upholds bright-line nexus

Written on Jul 31, 2020

By Greg Saul, Esq., CAE, OSCPA tax policy director

The Ohio Supreme Court today issued its much-anticipated rulings in three commercial-activity tax (CAT) cases. The out-of-state companies had separately challenged Ohio’s “bright-line presence” standards for substantial nexus established in R.C. 5751.01(I), specifically the statutory sales threshold of at least $500,000 per year in taxable gross receipts.

Today the court ruled Ohio can impose its CAT on these out-of-state companies for selling products and services to Ohioans, even though they have no physical presence in the state.

The court held that Ohio’s $500,000 sales-receipts threshold complies with the substantial-nexus requirement of the Complete Auto test. Because the three cases involve interstate commerce, it is anticipated that today’s ruling will be appealed to the U.S. Supreme Court.

The Ohio Society of CPAs’ Tax Reform Task Force has said that an adverse ruling could have created “a big hole in the CAT revenues from out-of-state businesses.”

Learn more: Ohio can impose commercial activity tax on online retailers