2019 Ohio 725
Ohio Ct. App.2019Background
- Defender Security Company (Defender Direct) sold ADT Alarm Services Contracts it originated from Ohio consumers to ADT and received fees from ADT for those sales (2011–2013 refund claims).
- ADT receives contracts in Colorado and provides monitoring from centers outside Ohio; ADT has no property or employees in Ohio. Defender installs equipment in Ohio and obtains customer signatures before sending contracts to ADT.
- Defender paid Ohio Commercial Activity Tax (CAT) on the fees it received from ADT and sought a refund arguing those receipts are sitused to where ADT (the purchaser) receives benefit — outside Ohio — under R.C. 5751.033(I).
- The Tax Commissioner denied the refund, ruling ADT’s benefit occurs in Ohio because the contracts protect Ohio persons/property and the customer relationship was created/used in Ohio; the commissioner also found Defender was not ADT’s agent.
- The Ohio Board of Tax Appeals affirmed; the court of appeals reviews the legal issues de novo and affirms the BTA, holding the receipts are sitused to Ohio and the CAT application is constitutional as applied.
Issues
| Issue | Plaintiff's Argument (Defender) | Defendant's Argument (Commissioner) | Held |
|---|---|---|---|
| Proper situs for receipts from sale of Alarm Services Contracts under R.C. 5751.033(I) | Receipts are from sale of intangibles and must be sitused where the purchaser (ADT) receives benefit — ADT receives benefit outside Ohio, so receipts should be sitused outside Ohio | ADT’s benefit is realized in Ohio because the contracts protect Ohio persons/property and the customer relationship was created/maintained in Ohio; Defender is not ADT’s agent | Held: Receipts are properly sitused to Ohio; Defender not an agent; Ohio tax applies |
| Applicability of O.A.C. 5703-29-17(C)(4)(c) (agency-election to situs to purchaser’s principal place of business) | If Defender were ADT’s agent, it could elect to situs receipts to ADT’s principal place of business (outside Ohio) | Defender is not an agent; even if it were, R.C. 5751.033(I) governs because Defender’s records show the purchaser’s benefit location | Held: Rule inapplicable because Defender is not ADT’s agent and benefit is in Ohio |
| Sufficiency of Defender’s documentation to use an alternative situsing method | Defender argued alternative sourcing methods could apply because ADT receives benefit outside Ohio | Commissioner found no need for alternative method because the physical location of benefit was determinable and was Ohio | Held: No alternative method needed; sitused to Ohio |
| Constitutional challenge (Commerce Clause / Due Process / fair apportionment) | Commissioner’s inconsistent application of situsing law causes risk of double taxation and violates fair apportionment under Commerce and Due Process Clauses | Statute and its application are rational and meet internal/external consistency; Defender bears heavy burden to prove unconstitutionality | Held: Application of R.C. 5751.033(I) here does not violate Commerce or Due Process; challenge fails |
Key Cases Cited
- Lafarge N. Am., Inc. v. Testa, 153 Ohio St.3d 245 (Ohio 2018) (standard for reviewing BTA decisions; defer to BTA facts, review legal issues de novo)
- Satullo v. Wilkins, 111 Ohio St.3d 399 (Ohio 2006) (agency findings entitled to deference when supported by record)
- Am. Nat'l Can Co. v. Tracy, 72 Ohio St.3d 150 (Ohio 1995) (administrative findings presumptively valid)
- Constellation New Energy, Inc. v. Pub. Utils. Comm., 104 Ohio St.3d 530 (Ohio 2004) (deference to agency statutory interpretation)
- Northwestern Ohio Bldg. & Constr. Trades Council v. Conrad, 92 Ohio St.3d 282 (Ohio 2001) (agency reasonable construction of ambiguous statute)
- Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (U.S. 1984) (deference to reasonable agency interpretation where statute ambiguous)
- Columbia Gas Transmission Corp. v. Levin, 117 Ohio St.3d 122 (Ohio 2008) (heavy burden to invalidate tax statute; strong presumption of constitutionality)
- Container Corp. of America v. Franchise Tax Bd., 463 U.S. 159 (U.S. 1983) (internal consistency test for apportionment under Commerce Clause)
- Moorman Mfg. Co. v. Blair, 437 U.S. 267 (U.S. 1978) (apportionment principles for state taxation)
- Goldberg v. Sweet, 488 U.S. 252 (U.S. 1989) (internal/external consistency framework for state tax apportionment)
- Trinova Corp. v. Michigan Dept. of Treasury, 498 U.S. 358 (U.S. 1991) (external consistency burden to show grossly distorted allocation)