In a recent opinion, the Ohio Supreme Court addressed a significant dispute regarding the sourcing of gross receipts under the state’s Commercial Activity Tax (CAT), a tax based on gross receipts. The case, Jones Apparel Group/Nine West Holdings v. Harris (Slip Opinion No. 2026-Ohio-74, Jan. 14, 2026), clarifies the evidentiary standards required for taxpayers seeking refunds for goods shipped to in-state distribution centers that are eventually destined for out-of-state markets.
Summary of Facts
The taxpayer, Jones Apparel, sold wholesale merchandise to DSW, Inc. During the tax years in question (2010–2016), Jones Apparel shipped all merchandise sold to DSW to a single distribution center located in Columbus, Ohio. Although Jones Apparel initially paid Ohio CAT for these sales, it later filed a refund claim, seeking $854,627 for taxes it believed had been overpaid.
The taxpayer’s core argument was that the majority of the goods were “ultimately received” outside Ohio because DSW subsequently redistributed an estimated 80% of the inventory to retail stores outside the state. To support this claim, Jones Apparel provided executive testimony, SEC filings, and an analysis of inventory availability from a period subsequent to the aforementioned audit years.
Applicable Law
The dispute focused on the interpretation of Ohio R.C. § 5751.033(E), which dictates that gross receipts from the sale of tangible personal property are considered sourced to Ohio if the property is received in the state by the purchaser. The statute specifically defines the place of receipt as the location where the property is “ultimately received after all transportation has been completed.” Furthermore, Ohio R.C. § 5751.08(A) governs refund procedures and requires taxpayers to provide the specific amount of the requested refund along with supporting documentation to justify the claim.
Analysis of the Court’s Ruling
The Court’s decision yields a mixed result for taxpayers. First, the Court ruled in favor of taxpayers on a matter of statutory interpretation, rejecting the Tax Commissioner’s argument that a seller must have “contemporaneous knowledge” of the final destination at the time of shipping. The Court clarified that a taxpayer is not legally barred from using evidence acquired after the sale to prove that goods were ultimately received outside Ohio.
However, the Court ultimately affirmed the denial of the refund on evidentiary grounds, determining that Jones Apparel did not meet its evidentiary burden under Ohio R.C. § 5751.08(A). The Court characterized the taxpayer’s 80% estimate as an “educated guess” and noted that the software data provided was unreliable because it covered only a three-month window that post-dated the seven-year refund period. The Court held that “common knowledge” regarding distribution patterns is insufficient to establish the “quantitative showing” required for a tax refund to be issued under these facts. The Court clarified that it could reasonably infer that some portion of the merchandise sold to DSW eventually left Ohio, but that Jones Apparel had not provided documentary evidence to establish the amount of gross receipts that were actually transported out of Ohio and therefore should not have been sourced to Ohio for CAT purposes.
Taxpayer Significance
This ruling clarifies that while the ultimate destination of goods is the deciding factor for CAT sourcing, taxpayers should take care to satisfy the evidentiary burden of proof for sales sourced outside Ohio. The use of estimates and statistical sampling is not sufficient to overcome the taxpayer’s burden of accurately quantifying its Ohio-based gross receipts.
To successfully challenge an Ohio sourcing determination, taxpayers must move beyond reliance on estimates and generalities. This decision highlights that specific, verifiable, and period-accurate documentation is essential for any taxpayer seeking to exclude receipts from the CAT base when goods are initially delivered to an Ohio-based hub or distribution center.
If you have any questions about the effects of Ohio’s Commercial Activity Tax on your business, please contact a CBIZ SALT professional.
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