Crutchfield Corp. v. Testa (Slip Opinion)
2016 Ohio 7760
| Ohio | 2016Background
- Crutchfield Corporation, a Virginia-based internet retailer with no employees, agents, or facilities in Ohio, sold and shipped tangible goods into Ohio via mail/common carriers.
- Ohio assessed CAT (commercial-activity tax) on Crutchfield’s Ohio-sitused gross receipts for periods July 2005–2012; assessments included tax, interest, and penalties totaling six-figure amounts across consolidated BTA appeals.
- Ohio’s CAT statute treats persons with at least $500,000 in taxable Ohio gross receipts in a calendar year as having a “bright-line presence” (substantial nexus) for imposition of the tax.
- Crutchfield argued the dormant Commerce Clause bars CAT on its receipts because it lacks the required “substantial nexus,” which it equated to a physical-presence requirement (no in‑state property, agents, or employees).
- The Tax Commissioner defended the assessments by (1) arguing Quill’s physical-presence rule does not apply to business-privilege/gross-receipts taxes and the $500,000 threshold satisfies substantial nexus, and (2) alternatively claiming Crutchfield’s online/order processing created physical presence via in‑state computing resources (not reached by the Court).
- The Ohio Supreme Court affirmed the BTA: physical presence is sufficient but not necessary for business-privilege taxes, and the CAT’s $500,000 receipts threshold satisfies the dormant Commerce Clause substantial-nexus requirement.
Issues
| Issue | Plaintiff's Argument (Crutchfield) | Defendant's Argument (Testa) | Held |
|---|---|---|---|
| Whether CAT may be applied to an out-of-state seller that lacks physical presence in Ohio | A substantial nexus under the Commerce Clause requires physical presence; without it Ohio cannot tax gross receipts from remote sales | Quill’s physical-presence rule applies to sales/use tax collection, not to business-privilege/gross-receipts taxes; Ohio’s $500,000 receipts bright-line satisfies substantial nexus | Physical presence is sufficient but not necessary; Quill’s rule does not extend to privilege taxes; $500,000 threshold confers substantial nexus |
| Whether statutory text of the CAT requires in‑state activity or physical presence before taxing | "Doing business" and other provisions should be narrowly construed to avoid constitutional application absent physical presence | Statute plainly defines persons with substantial nexus to include the $500,000 receipts bright line; no in‑state-activity or physical-presence requirement appears in the statute | Statute unambiguously incorporates $500,000 receipts bright-line; no judicial narrowing required or available to supply a physical-presence limitation |
| Whether the CAT’s $500,000 receipts threshold satisfies the substantial-nexus prong of Complete Auto | Threshold is arbitrary and cannot substitute for the constitutional physical-presence requirement | The quantitative threshold ensures the nexus is substantial and prevents clearly excessive burdens on interstate commerce | The $500,000 threshold adequately guarantees substantial nexus; burdens on interstate commerce are not clearly excessive in relation to Ohio’s legitimate interests |
| Whether the BTA lacked jurisdiction to decide Crutchfield’s as-applied Commerce Clause challenge | (implied) BTA lacked authority to adjudicate constitutionality if not properly pleaded | Crutchfield properly raised Commerce Clause challenge in notices of appeal | Court finds the constitutional challenge was properly pleaded and may be addressed on the merits |
Key Cases Cited
- Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977) (articulates four-prong test for state taxation under the dormant Commerce Clause)
- Quill Corp. v. North Dakota, 504 U.S. 298 (1992) (physical-presence rule for imposition of sales/use tax collection duties)
- Tyler Pipe Indus., Inc. v. Washington State Dept. of Revenue, 483 U.S. 232 (1987) (physical presence through in-state agents suffices to uphold a gross-receipts/privilege tax)
- Oklahoma Tax Comm'n v. Jefferson Lines, Inc., 514 U.S. 175 (1995) (distinguishes seller gross-receipts taxation from purchaser sales tax; treats gross-receipts tax like income tax for apportionment concerns)
- Norton Co. v. Department of Revenue, 340 U.S. 534 (1951) (pre-Complete Auto decision invoking local-incident concept for taxing vendors)
- Scripto, Inc. v. Carson, 362 U.S. 207 (1960) (local agents can create sufficient in-state presence to require tax collection)
- Comptroller of the Treasury of Maryland v. Wynne, 135 S. Ct. 1787 (2015) (reiterates dormant Commerce Clause purpose of preventing excessive burdens and discrimination on interstate commerce)