A generic drugmaker paid the appropriate amount of Ohio commercial activity tax (CAT) based on the amount distributors actually paid for the drugs rather than the typically higher list prices, the Supreme Court of Ohio ruled today.

In a unanimous opinion, the Supreme Court upheld the Ohio Board of Tax Appeals (BTA) ruling that Perrigo Sales Corporation did not owe additional taxes on its drug and supplies sales. The Ohio Department of Taxation conducted an audit of Perrigo in 2019 and determined that it had underreported its gross receipts by failing to pay CAT based on the list prices.

Writing for the Court, Justice R. Patrick DeWine noted that Perrigo follows a common pricing practice in the pharmaceutical industry by providing its distributors with a list price higher than the actual price that retailers like CVS and Walmart pay distributors to obtain generic drugs from Perrigo. Justice DeWine wrote that the CAT taxes gross receipts based on the “amount realized” from a sales transaction, and Perrigo owed taxes only on what customers paid for goods.

“A straightforward application of ‘amount realized’ shows that the amount realized by Perrigo is not the list price amount invoiced to distributors but rather the amount Perrigo receives from the sale of its prescription drugs to retailers,” he stated.

Tax Commissioner Questioned Drugmaker’s Payments  
Under R.C. 5751.02(A), the CAT is a tax levied “on each person with taxable gross receipts for the privilege of doing business in the state.” Perrigo, a generic drug manufacturer, conducts business in Ohio and sells its products wholesale to distributors. The distributors then, in turn, sell to retail pharmacies.

When drugs are sold by Perrigo to distributors, Perrigo bills distributors based on what it refers to as the wholesale acquisition cost, or the “list price.” Perrigo also has separate contracts with the retailers that buy their drugs from the distributors. The retailers are provided with a specific price that is generally lower than the list price.

The distributors honor the agreement between Perrigo and the retailers, so when drugs are actually supplied to the pharmacies, the retailers pay the distributors the price quoted by Perrigo to the retailer. Perrigo honors the agreement by allowing the distributors to claim a “chargeback.” Perrigo agrees to accept payment from distributors based on the list price it billed, minus the chargeback. This results in Perrigo receiving payment from the distributors for the amount the drugs were actually sold to pharmacies rather than the list price.

The tax department audited Perrigo’s CAT payments for 2016 through 2018. It determined the company underreported its gross receipts by not paying tax based on the full list price of the drugs it sold. Perrigo challenged the assessment of additional taxes to the Ohio tax commissioner, who agreed with the department that the CAT must be paid based on the list price.

Perrigo appealed the decision to the BTA. In 2025, the BTA reversed the tax commissioner’s decision and agreed with Perrigo that the list price minus the chargeback indicated the amount of gross receipts for CAT purposes. The BTA emphasized the “CAT is a tax on receipts realized by the taxpayer” and is not based on a theoretical invoiced amount.

The tax commissioner appealed the decision to the Supreme Court, which must consider such appeals.

Supreme Court Analyzed Tax Law
The disagreement between Perrigo and the tax commissioner on what constitutes the company’s gross receipts turns on the phrase “amount realized” in the state tax code, Justice DeWine explained. The tax code does not define “amount realized,” he noted; however, the law gives examples of gross receipts. From the examples, it is evident that a gross receipt is the amount received from a person in exchange for the sale of property, such as prescription drugs, the opinion stated.

“So here, the amount realized is the amount that is received by Perrigo from its distributors in exchange for its prescription drugs,” the Court stated.

The Court agreed with the BTA that Perrigo never received the full list price. It noted that 97% of its transactions included a chargeback by distributors, who agreed to accept payment at the discounted price quoted to retailers.

The tax commissioner made six separate arguments in its challenge to the BTA’s decision. Those arguments included the claim that the law does not allow for the deduction of business expenses when calculating the amount of CAT owed, the opinion explained. The tax commissioner maintained that the chargeback is a business expense and that Perrigo cannot deduct it from the list price.

The Court stated that it found “none of the tax commissioner’s arguments are persuasive.” It noted that Perrigo did not deduct the chargebacks from the list prices because it had never paid the list prices.

“What it received was the list price minus the chargeback – that is, the amount actually paid to it by the distributors,” the opinion stated.

The Court concluded that the BTA’s determination of the CAT owed by Perrigo was reasonable and lawful.

2025-1477. Perrigo Sales Corp. v. Harris, Slip Opinion No. 2026-Ohio-3648.

View oral argument video of this case.

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