The Ohio Board of Tax Appeals held that a manufacturer that delivered its products to a distribution center/warehouse in Ohio successfully demonstrated that a large percentage of those products were subsequently shipped outside of Ohio. Consequently, gross receipts from those sales were not sitused to Ohio under the Ohio Commercial Activity Tax (“CAT”). VVF Intervest LLC v. Harris, Case No. 2019-1233 (Ohio Bd. Tax App. Sept. 13, 2023). The decision demonstrates the importance of witness testimony along with documentary support.

The Facts: VVF Intervest, LLC (“VVF”) is a contract manufacturer of oleochemicals and personal care products. As relevant here, it manufactured soap for a customer, High Ridge Brands (“HRB”), which was shipped to a third-party distribution center/warehouse in Ohio where it was stored until HRB sold the soap and delivered it to its customers.

VVF initially sourced its gross receipts from these sales to Ohio and, subsequently, filed refund claims asserting that since the majority of the soap was ultimately delivered outside of Ohio, that the gross receipts from those sales should not be sourced to Ohio. The Tax Commissioner denied the refund claim and this appeal followed.

The statute at issue provides that gross receipts from the sale of tangible personal property are sitused to Ohio if the property is received by the purchaser in Ohio. “In the case of delivery of tangible personal property by motor carrier or by other means of transportation, the place at which such property is ultimately received after all transportation has been completed shall be considered the place where the purchaser receives the property.” R.C. 5751.033(E) (emphasis added).

The Decision: The Board first reviewed sourcing cases under the former corporate franchise tax due to the similarities between the sourcing statues under that tax and the CAT. It concluded that under the franchise tax it was clear that a transaction should not be sourced to Ohio simply because Ohio was one stop in a singular delivery process to a purchaser.

The Board then considered three sourcing cases under the CAT. In each case, the Board found that the taxpayer had lost because it had “failed to show Ohio was merely a pit stop not the place where property was ultimately delivered after all transportation has been completed.”

The Board concluded that in this case, VVF had established through the testimony of its witnesses, which testimony was corroborated by reports created for management for operations purposes, that the majority of the soap sold to HRB would be shipped from the Ohio facility to HRB’s customers outside of Ohio. “Ohio does not become the ultimate delivery point simply because the bars are temporarily held here in a distribution center owned by an entirely unrelated third party.” Consequently, ultimate delivery of these bars of soap did not occur in Ohio.