United States

Ohio: Board Addresses Where Benefit Received for CAT Sourcing Purposes

Mar 12, 2018
From KPMG TaxWatch

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Recently, the Ohio Board of Tax Appeals addressed where the benefit of a service was received for purposes of the state’s Commercial Activity Tax or CAT. The taxpayer at issue sold security services contracts to customers in Ohio and then resold those contracts to, ADT, an out-of-state company. ADT, the taxpayer’s customer in the second transaction, then performed the security monitoring services. The taxpayer filed amended returns seeking a refund of CAT paid on sales of the security monitoring service contracts to ADT. In the taxpayer’s view, ADT received the benefit of the contracts outside Ohio at its principal place of business and so the receipts should have been sitused out-of-state. The Commissioner, in contrast, argued that the benefit from the sale of the security monitoring contracts was wholly-received in Ohio, where the ultimate security monitoring services were provided to protect individuals and property located in Ohio.

Under Ohio law, “gross receipts from the sale of services are sitused to Ohio in the proportion that the purchaser’s benefit in Ohio with respect to what was purchased bears to the purchaser’s benefit everywhere with respect to what was purchased.” The physical location where the purchaser ultimately uses or receives the benefit of what was purchased is paramount in determining the proportion of the benefit in Ohio to the benefit everywhere. There were no examples directly on point in the regulations. The taxpayer cited to an example situsing “agency services” to the purchaser’s principal place of business, while the Commissioner relied on examples situsing receipts from sales of services related to property to the location of where the property is located. The Board concluded that the receipts from the sales of the service contracts to ADT were properly sitused to Ohio. In the Board’s view, it “belies logic to argue that the purchaser (ADT) received no benefit in Ohio from the contracts it purchased. The contracts would not exist without property in Ohio to be monitored and equipment located within such property in Ohio by which the monitoring is performed.” For more information on Defender Security Company v. Testa, please contact Dave Perry at 513-763-2402.


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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.