Ohio can tax out-of-state online retailers, court rules

Ohio can impose a business tax on out-of-state companies with no physical presence in the state, according to a 5-2 ruling from the Ohio Supreme Court on Thursday.

The ruling means out-of-state companies, including online retailers, that do more than $500,000 in annual sales in Ohio must pay the Commercial Activities Tax, also known as the CAT.

The Supreme Court decided cases involving Virginia-based Crutchfield Corp., Wisconsin-based Mason Companies, and Newegg Inc., the nation’s second largest online retailer.

In 2005, Ohio lawmakers passed tax reforms that revamped business taxes and created the CAT, which is based on company gross receipts. The state tax commissioner determined that the CAT should apply when consumers order goods online from Ohio and those items are transported in-state for delivery.

Crutchfield, which is a direct marketer of consumer electronics, refused to pay the CAT. The state tax commissioner audited and assessed fines to the company, which appealed to the Board of Tax Appeals. The Supreme Court ruling Thursday upheld the Board of Tax Appeals’ decision.

In the majority opinion, Justice William M. O’Neill wrote that while a physical presence may be required to collect sales taxes, that requirement does not apply to a business tax on an interstate company. The ruling said that the U.S. Constitution’s commerce clause doesn’t prevent Ohio from imposing a “privilege to do business” tax, such as the CAT.

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