The Supreme Court of Ohio upheld the denial of Total Renal Care, Inc.’s (“TRC”) refund claim of Ohio Commercial Activity Tax (“CAT”) that it paid on services that it performed outside of Ohio. Total Renal Care Inc. v. Harris, Slip Op. No. 2024-Ohio-5685 (Ohio Dec. 9, 2024).

The Facts: TRC, a subsidiary of DaVita, Inc., provides dialysis to patients with kidney disease and end-stage renal disease. Dialysis treatments are administered at locations throughout the United States, including in Ohio. In addition to dialysis services, TRC provides laboratory testing services and administrative services, such as back-office support, data processing, and procuring medical equipment and supplies. TRC conducts these services in a number of states outside of Ohio. 

For the years at issue, TRC originally paid CAT on all gross receipts it received from locations in Ohio where dialysis was provided. TRC subsequently filed refund claims and asserted that a portion of those gross receipts were related to its laboratory and administrative services, which were performed outside of Ohio. 

The Ohio Tax Commissioner denied TRC’s refund claims, and the Ohio Board of Tax Appeals (the “Board”) affirmed. TRC appealed the Board’s decision to the Supreme Court of Ohio. 

The Law: The CAT is imposed on “each person with taxable gross receipts for the privilege of doing business in [Ohio].” The statute defines “taxable gross receipts” as receipts with an Ohio situs and provides that receipts from services are sitused to Ohio in the proportion that the purchaser received the benefit of the service in Ohio.

Ohio’s Administrative Code governing situsing receipts provides “the physical location where the purchaser ultimately uses or receives the benefit of what was purchased is paramount in determining the proportion of the benefit received in Ohio.” The Administrative Code lays out a standard specific to healthcare services, which indicates that gross receipts from healthcare services are sitused to Ohio if the healthcare services are performed there.

The Decision: The Supreme Court of Ohio ultimately affirmed the Board’s decision, concluding that patients who received TRC’s dialysis treatment in Ohio received the benefits of such treatment there. The court focused its analysis on TRC’s provision of dialysis because TRC conceded that "the only service it provides to its patients is dialysis[.]" And it admitted that the laboratory and administrative functions "exist solely for its provision of dialysis services to patients in Ohio." The court found that TRC’s laboratory and administrative services were not provided on a stand-alone basis and were only ancillary to providing dialysis treatment. Thus, the court concluded that the gross receipts at issue were from the provision of dialysis services, not the provision of dialysis, laboratory, and administrative services. 

The court analyzed the facts under both the statutory language and the administrative rules and concluded, under either application, the result was the same. In applying the statute, the court stated “[w]hen determining the location to which gross receipts should be sitused, the taxing authority must look at the location where the purchaser benefited from the purchased service,” and indicated that the purchaser’s physical location is “paramount” to this inquiry. Applying this interpretation to TRC’s facts, the court held that patients who received dialysis in Ohio benefited from such treatment there. In applying the administrative rules, the court stated “if a healthcare service is provided entirely in Ohio, then the entirety of the receipts for that service are sitused to Ohio.” Applying this interpretation to TRC’s facts, the court held that the healthcare service TRC provided was dialysis and such service was provided entirely in Ohio. 

Accordingly, the court held that TRC’s gross receipts it received from locations in Ohio where it provided dialysis should be sitused entirely to Ohio.