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Skip the Cookies, CAT Bites Off the Main Course

Ohio Supreme Court rejects Quill physical presence, relies solely on economic substantial-nexus.

Gary M. Harden

Cat licking paw.    In a decision perhaps destined for the US Supreme Court, Thursday morning the Ohio Supreme Court affirmed a lower court decision in Crutchfield Corp. v. Tesa regarding Ohio's commercial activity tax (CAT).  The Court found nexus sufficient to reach the Virginia electronics distributor’s sales into Ohio with mere crumbs of physical nexus, the cookies it left behind on Ohio customers’ computers from internet sales. The decision skipped the cookies and went right to the main course: economic nexus. Wholly unnecessary to affirm the lower court, the majority decision accepted US Supreme Court Justice Anthony Kennedy’s challenge to send him a case to reconsider the physical presence test set forth in Quill Corp. v. North Dakota.

    Physical presence is "a sufficient basis to impose a business-privilege tax," (i.e. CAT) but "it is unwarranted to leap from the principle that physical presence is a sufficient condition . . . to the logically distinct proposition that physical presence is a necessary condition . . . ." Nevertheless, this decision makes its own leap, failing to rely upon any precedent without similar crumbs of physical presence nexus. 

    In a considered dissent, Judge Sharon Kennedy preferred to "chew on the cookies" a bit more, and consider their merit as physical presence nexus, for now.

    Should you have any questions regarding this decision, or any other questions on the commercial activity tax (CAT), please contact Gary M. Harden.


    Disclaimer:  The article in this publication has been prepared by Eastman & Smith Ltd. for informational purposes only and should not be considered legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney/client relationship.