Tuesday, April 1, 2025
Jones Apparel Group/Nine West Holdings et al. v. Patricia Harris, tax commissioner of Ohio,
Case No. 2023-1288
Ohio Board of Tax Appeals
VVF Intervest LLC v. Patricia Harris, tax commissioner of Ohio, Case No. 2023-1296
Ohio Board of Tax Appeals
E.A.K.M. v. M.A.M. [Peter S. Kirner], Case No. 2024-0587
Eighth District Court of Appeals (Cuyahoga County)
State of Ohio v. [T.W.C.], Case No. 2024-0265
Tenth District Court of Appeals (Franklin County)
Can Shoe Seller Avoid Commercial Activity Tax Using Buyer’s Reports of Out-of-State Sales?
Jones Apparel Group/Nine West Holdings et al. v. Patricia Harris, tax commissioner of Ohio,
Case No. 2023-1288
Ohio Board of Tax Appeals
ISSUES:
- Is a company obligated to pay Ohio commercial activity tax on goods received in Ohio and then ultimately transported to customers outside of Ohio if the out-of-state transfer isn’t specified in sales documentation?
- To avoid paying commercial activity tax, must a company have proof at the time of sale that its products will be transported to Ohio temporarily and then distributed out of state?
OVERVIEW:
Jones Apparel Group/Nine West Holdings is a wholesaler of shoes and apparel to various retailers. Nine West sells its products to major retailers, including Macy’s, Kohl’s, Sears, and DSW. These companies have distribution centers in Ohio. Some retailers require Nine West to provide shipping labels that indicate the ultimate retail store where the products are going. Those labels include a “mark for” address, which shows the shoes were originally shipped to Ohio and then sent to stores in other states. DSW is one of Nine West’s largest customers, and it operates a single distribution center in Ohio to serve its 468 retail stores throughout the United States.
Nine West sells about six million pairs of shoes annually to DSW, totaling more than $108 million in sales. DSW receives all the Nine West shoes at its Ohio warehouse, but DSW doesn’t share the ultimate location where the shoes will be sold with Nine West. DSW doesn’t ask Nine West for a “mark for” shipping label to indicate where the shoes will be sold. For each tax year, Nine West paid CAT on 100% of the products shipped to Ohio. It then applied for about $3.8 million in tax refunds for tax years 2010 through 2016. The Ohio tax commissioner issued a partial refund of about $840,000 to Nine West for the shipments to retailers with “mark for” labels indicating the shoes were received out of state and just passed through an Ohio warehouse.
The tax commissioner denied Nine West’s tax refunds for its shipments to DSW. Nine West appealed to the BTA and presented information indicating that only 19 of DSW’s 468 stores were in Ohio. While DSW wouldn’t share its sales data with Nine West, the shoe company could make some assessments about DSW sales from publicly available data. The company noted during the six-year period only about 4.35% of DSW’s locations were in Ohio. In 2015, DSW launched a “Get It Today” feature on its website, informing consumers which shoes were in stock in each store location in the country. Nine West hired a firm to produce a program to track the number of Nine West shoes available in each store. The company tracked a three-month period during 2018 and concluded that only 3.85% of Nine West shoes were in DSW’s Ohio stores. Nine West maintained it was entitled to a refund of at least 80% of the CAT it paid and up to 96% after showing that the shoes sold to DSW were briefly stored in an Ohio warehouse and then shipped out of state.
The tax commissioner argued that under R.C. 5751.033(E), Nine West sales to DSW are “sitused” to Ohio for tax purposes because that is where all the products were received. Nine West had no other records indicating where its products would go. Any further distribution by DSW of the Nine West shoes represents DSW’s sales to its customers, not Nine West’s, the tax commissioner found.
The BTA disagreed with the tax commissioner’s position, finding that a taxpayer like Nine West could provide additional evidence other than its own sales records to prove where its products were received. However, the board didn’t find Nine West’s evidence credible and rejected the refund.
Nine West appealed the BTA’s refund rejection to the Supreme Court, which must hear this type of case. The tax commissioner also appealed, arguing the BTA wrongly ruled records that didn’t indicate the destination of products at the time of sale could be used to calculate CAT.
Shoes Not Received in Ohio, Seller Argues
Nine West argues the plain language of R.C. 5751.033(E) indicates that most of its DSW sales aren’t subjected to CAT. The law says property is taxed in the state where the purchaser receives it. The law further states that when property is transported, the location of the property is considered “received” at the location “after all transportation has been completed.” The company indicates it’s clear from DSW’s business model and what consumers can see online that the vast majority of Nine West shoes aren’t received in Ohio. The shoes were shipped to other states by DSW, and those states are where the transportation was completed under R.C. 5751.033(E), Nine West argues. The company notes the tax department doesn’t dispute that DSW sold most of the Nine West shoes out of state, and it would be absurd to conclude all the Nine West shoes were destined for only the 19 Ohio DSW stores.
Nine West maintains it shouldn’t pay CAT on all shoes sold to DSW because it initially warehoused them in Ohio when it is clear from DSW’s records that the sales were made elsewhere. Nine West agrees the law requires the company to bear the burden of proving were ultimately received out of state. Nine West also agrees with the BTA’s decision that “contemporaneous knowledge” of the ultimate destination at the time of the sale wasn’t required to prove its products weren’t received in Ohio and that other evidence obtained later could be used. However, Nine West disagrees with the BTA’s conclusion that the evidence it presented wasn’t sufficient to earn a refund. The company argues the tax department didn’t dispute its estimates that as much as 95% of its goods sold by DSW were sold outside of Ohio, and its expert witness testified with absolute certainty that at least 80% were sold out of state.
Wholesaler Sold All Its Shoes in Ohio, Tax Commissioner Maintains
The tax commissioner maintains that Nine West equates “ultimate destination” with the law’s language of “ultimately received.” When Nine West includes a “mark for” shipping label that indicates the product is initially being shipped to Ohio and then sent to an out-of-state store, that label shows the product was ultimately received out of state and is not subject to Ohio CAT, the commissioner argues. CAT doesn’t measure the “ultimate destination” of a product. But without the “mark for” labels, Nine West’s own records show it sold all its shoes to DSW, which ultimately received them in Ohio. That is the end of Nine West’s commercial activities in Ohio, and why it must pay CAT on all sales to DSW, the commissioner argues. DSW’s shipment and sales of Nine West shoes in other states are DSW sales and are part of DSW’s tax liability, the commissioner maintains.
The tax commissioner points to prior BTA rulings that found once an out-of-state supplier ships products to Ohio and has no other records of where its products will go, it loses visibility of those goods. The supplier is unable to show where those goods were ultimately received. The commissioner argues in those cases, Ohio law allows records of other companies to be used if a taxpayer’s records cannot show the product destination. However, Nine West’s records clearly indicate the shoes it sold to DSW were received in Ohio. Nine West’s assessment of where DSW sold the shoes may be accurate, the commissioner notes, but it isn’t relevant. Those assessments explain DSW’s activities, not Nine West’s, the commissioner concludes.
While R.C. 5751.033(E) doesn’t state that a taxpayer must have business records at the time of sale to show where the product will ultimately be received, the structure of the law contemplates it, the commissioner argues. CAT is paid quarterly by companies doing business in Ohio, and taxpayers must regularly determine the destination of the goods they sell in order to file accurate tax returns, the commissioner maintains. The law isn’t designed for a taxpayer to pay CAT in Ohio, wait days or years to learn where its product was ultimately sold, and then file for a refund. It is not practical for a company to estimate how much to pay in Ohio CAT if it doesn’t know how much of its product will be sold in the state, the commissioner maintains. The BTA should require some form of business record close to the time of sale by a company asserting that the product shipped to Ohio isn’t going to be ultimately received by the purchaser in Ohio, the commissioner argues.
Friend-of-the-Court Briefs Submitted
An amicus curiae brief supporting Nine West’s position was submitted by the Ohio Chamber of Commerce.
– Dan Trevas
Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.
Contacts
Representing Jones Apparel Group/Nine West Holdings et al. : Paul Melniczak, pmelniczak@reedsmith.com
Representing the Ohio tax commissioner from the Ohio Attorney General’s Office: Daniel Kim, daniel.kim@ohioago.gov
Does Commercial Activity Tax Apply to Soap Bars Warehoused in Ohio?
VVF Intervest LLC v. Patricia Harris, tax commissioner of Ohio, Case No. 2023-1296
Ohio Board of Tax Appeals
ISSUES:
- Is a company obligated to pay Ohio commercial activity tax on goods transported to Ohio and then ultimately transported to customers outside Ohio if the out-of-state transfer isn’t specified in sales documentation?
- To avoid paying commercial activity tax, must a company have proof at the time of sale that its products will be transported to Ohio temporarily and then distributed out of state?
BACKGROUND:
VVF Intervest manufactures bar soap and other personal care products from a facility in Kansas that it acquired from Colgate-Palmolive. VVF manufactures products for multinational companies, such as Proctor & Gamble, Colgate, and High Ridge Brands (HRB). HRB produces popular soap products, including Zest, Coast, and White Rain, and it contracted with VVF. HRB provides specifications to VVF, which then makes the products in Kansas and stores them there until HRB picks them up. HRB has three distribution centers in the United States, including one in Ohio, which covers the eastern states and Canada.
Once HRB picks up the soap, VVF does not know when and where HRB will sell the products. VVF records the sales through shipping labels indicating the products going to the Ohio warehouse. VVF pays Ohio commercial activity tax (CAT) for the products sent to Ohio. VVF requested a tax refund of $327,000 for the 2010 through 2014 tax years for the products sold to HRB. VVF determined from HRB records that only 3.16% of the soap sent to HRB was sold in Ohio, and the rest was transported by HRB to retailers, such as Walmart and CVS, in other states. Citing R.C. 5751.033(E), VVF argued it should only pay CAT on products received in Ohio after all transportation is completed.
The tax commissioner rejected the refund, and VVF appealed to the Ohio Board of Tax Appeals (BTA). In a 2-1 decision, the BTA granted the refund and ruled that even though VVF didn’t have records at the time of shipping that the products were destined for someplace other than Ohio, it could provide reliable evidence from other sources, such as HRB, to demonstrate the goods were sold out of state.
The tax commissioner appealed the decision to the Ohio Supreme Court, which must hear this type of case.
Soap Maker Sales Received Only in Ohio, Commissioner Asserts
R.C. 5751.033(E) explains how CAT applies to products transported to Ohio. The law says property is taxed in the state where the purchaser receives the property. It further states that when property is transported, the location of the property is considered “received” at the location “after all transportation has been completed.” The commissioner maintains VVF is equating “ultimate destination” with the law’s language of “ultimately received.” VVF admitted it has no knowledge or control of the products it produces for HRB. It only has shipping labels that indicate how much of the product is going to Ohio. The tax commissioner maintains this is VVF’s only involvement in the sale of soap, and HRB received those products in Ohio. HRB then determines the “ultimate destination” of the soap by sending it to retailers both in and outside of Ohio. HRB’s soap sales aren’t relevant to VVF’s sales, the commissioner argues, and the only sale for CAT purposes is the amount VVF sold to HRB that was transported to the Ohio warehouse.
Further, the BTA wrongly concluded that VVF didn’t need “contemporaneous knowledge” of the ultimate destination for a product at the time of transportation and can revise its CAT payments once it receives evidence that the product was sold out of state, the commissioner asserts. The intent of CAT is for a business to make payment on the gross receipts of the amount of sales made in Ohio. If the company doesn’t know the sales amount at the time of transportation, it may be months or years before a business could know it paid the appropriate amount of CAT, the commissioner notes. The law isn’t set up for a constant cycle of amended CAT returns and refunds based on knowledge gained long after the sale, the commissioner maintains.
Evidence from other companies is to be used when a company itself doesn’t have accurate records of the products it transported to Ohio, the commissioner notes, but that isn’t the case with VVF. VVF records indicate exactly how much product it sold to HRB that HRB transported to Ohio. This reflects VVF’s sales and CAT obligation, as HRB is the purchaser of VVF products, the commissioner concludes.
Manufacturer Has No Connection to Ohio, Soap Maker Argues
VVF argues the tax commissioner wrongly applies the CAT law and also asserts that the law is unconstitutionally being applied to an out-of-state company that does no business in Ohio. VVF maintains it is a “contract manufacturer” that only produces a product for an owner, which for bar soap was HRB. VVF completed all its obligations to HRB in Kansas and notes it has no operations in Ohio, doesn’t own any Ohio property, and doesn’t offer products for retail sales. VVF is aware of HRB’s plan to distribute the soaps from Ohio to eastern states and parts of Canada. The BTA properly found the shipment of VVF products to Ohio was the first leg of a trip for the soap, not where the product was ultimately received. More than 96% of the products were received outside of Ohio when HRB shipped them from the warehouse to the retailers, and VVF does not owe CAT for those sales, the company asserts.
VVF also contends that under Ohio law, when the location where the product will ultimately be received is unknown, the place where the product was produced will be used to determine CAT. VVF produced the products in Kansas, and HRB picked them up there. The company argues it shouldn’t be subjected to Ohio CAT.
In addition, the company argues that knowledge of the final destination at the time of sale isn’t required, as the BTA ruled, and notes several tax laws are based on information that isn’t known until after the fact. The commissioner is correct that knowledge at the time of the sale is relevant, but the most important information for tax purposes is reliable evidence concerning the taxpayer’s true business activity in Ohio, the company asserts. VVF maintains HRB records accurately reflect where VVF goods were sold.
Friend-of-the-Court Briefs Submitted
An amicus curiae brief supporting VVF Intervest’s position was submitted by the Ohio Chamber of Commerce.
– Dan Trevas
Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.
Contacts
Representing the Ohio tax commissioner from the Ohio Attorney General’s Office: Daniel Kim, daniel.kim@ohioago.gov
Representing VVF Intervest LLC: Richard Fry, rfry@bdblaw.com
Could Guardian ad Litem Ask for Fees From Earlier Divorce Case in Refiled Case?
E.A.K.M. v. M.A.M. [Peter S. Kirner], Case No. 2024-0587
Eighth District Court of Appeals (Cuyahoga County)
ISSUES:
- Is a court order to pay guardian ad litem fees a final appealable order if child custody hasn’t been decided in the case?
- Does a trial court retain jurisdiction to order payment of guardian ad litem fees after the case is dismissed?
BACKGROUND:
During their marriage, husband E.A.K.M. and wife M.A.M. had four children. In 2019, M.A.M. filed for divorce in Cuyahoga County Domestic Relations Court. Peter Kirner was appointed by the court as the guardian ad litem (GAL) for the children.
Before the case was scheduled for trial in 2022, Kirner filed a motion for fees for 363 hours of services as the GAL. In December of that year, at M.A.M.’s request, the magistrate dismissed the divorce case without prejudice. The magistrate noted that all pending motions were dismissed as moot. In January 2023, the domestic relations court adopted the magistrate’s dismissal of the case.
M.A.M. refiled for divorce the same month. E.A.K.M. also filed for legal separation a few weeks later. The court consolidated the cases. In April 2023, Kirner again filed a request seeking compensation of $17,791.44 for his work in the case from July 2019 to the time of the filing. The costs would be paid by the parents. In May, the court reappointed Kirner as the GAL. The court granted his request for fees.
E.A.K.M. appealed the approval of the fees to the Eighth District Court of Appeals. The Eighth District first dismissed the appeal, finding that an order to pay GAL fees isn’t final and appealable
when there wasn’t yet a final decision on the custody of the children in the case. E.A.K.M. requested reconsideration, arguing the domestic relations court had no jurisdiction to approve fees for the 2019 case because that case had been dismissed. In March 2024, the Eighth District agreed and vacated the domestic relations court’s approval of the GAL fees.
Kirner appealed the decision to the Ohio Supreme Court, which accepted the case.
Trial Court Could Approve Fees in Refiled Case, GAL Argues
Kirner maintains that the husband appealed the domestic relations court’s approval of the fees too early because the case wasn’t yet decided. R.C. 2505.02 describes what qualifies as a final order, and payment of GAL fees doesn’t fall within any of the categories, Kirner argues. If the Supreme Court rules an order to pay GAL fees is final and appealable, then there will be an appealable issue every time a trial court orders GALs to be paid, undermining the efficient administration of justice in these cases, he asserts.
He contends that it is “inconsequential” whether the court approved the fees in the 2019 case or the refiled 2023 case. The parties are the same, the court and the judge are the same, the GAL is the same, and the work performed was necessary and had as much value to the 2023 case as to the 2019 case, he argues.
Kirner notes that trial courts possess ongoing, though limited, jurisdiction to address requests for certain attorney fees after a case is dismissed voluntarily. He argues courts logically then retain jurisdiction to also order approval of fees for GALs appointed by the court after a case dismissal. “To rule otherwise could lead to the unjust result of nonpayment of fees to guardians ad litem who have duly earned them,” his brief concludes.
Trial Court Approval of Fees After First Case Dismissed Was Improper, Husband Responds
E.A.K.M. contends that Kirner, who is an attorney, could have filed objection when the magistrate in December 2022 dismissed the case and all the pending motions, or could have appealed from the trial court dismissal of the 2019 case. Instead, Kirner improperly requested fees in the newly filed 2023 case, E.A.K.M. argues.
He also points to the Eighth District’s reasoning when it found that the domestic relations court’s approval of the GAL fees was final and appealable. The Eighth District stated, “A dismissal without prejudice relieved the [domestic relations] court of all jurisdiction over the matter, and the action is treated as though it had never been commenced.” The 2019 case was over, E.A.K.M. argues. He also maintains that the Eighth District had the authority to vacate the order because the trial court acted without proper jurisdiction.
He asserts that if the order to pay the fees wasn’t immediately appealable, he wouldn’t have a meaningful ability to have the issue addressed later.
Though a party in the case, M.A.M. didn’t file a brief and has waived participation in oral argument .
– Kathleen Maloney
Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.
Contacts
Representing Peter S. Kirner: Patrick Milligan, p_j_milligan@yahoo.com
Representing E.A.K.M.: Nicole Cruz, nac@stafford-stafford.com
Could Offender Ordered To Pay Back Thousands to Credit Union Have Criminal Record Sealed?
State of Ohio v. [T.W.C.], Case No. 2024-0265
Tenth District Court of Appeals (Franklin County)
ISSUES:
- Does the requirement for “final discharge” of a sentence before requesting sealing or expungement of a criminal record require that restitution ordered as a “civil judgment” be paid?
- Does state law require the offender to pay restitution even if the victim doesn’t pursue civil collection processes?
BACKGROUND:
In June 2004, T.W.C. pled guilty to two counts of forgery. T.W.C. had deposited counterfeit checks for $6,762.70 with his credit union and withdrew $2,663 in cash. The court sentenced T.W.C. to nine months in prison and ordered him to pay $2,663 in restitution. The court’s judgment entry stated that “[r]estitution in the amount of … ($2,633.00) is entered as a civil judgment against Defendant and in favor of victim.”
Eighteen years later, in December 2022, T.W.C. applied to the Franklin County Common Pleas Court requesting that the records of his felony convictions be sealed. The prosecutor’s office objected, contending that T.W.C. hadn’t paid any of the court-ordered restitution, hadn’t reached final discharge of the sentence, and hadn’t waited the required time period after final discharge before applying to seal his records.
At a hearing in March 2023, T.W.C. testified that he is 60 years old, disabled, and impoverished. He explained his finances, noting that he had recently started receiving $914 per month in Social Security disability payments. He pays part of his $625-per-month rent. The trial court considered T.W.C.’s inability to pay the restitution and sealed the records.
The prosecutor appealed to the Tenth District Court of Appeals, which upheld the sealing. The Tenth District found restitution was imposed as a separate civil judgment, not as a criminal sanction. It also concluded that civil judgments become dormant after five years and must be revived by the creditor within 10 years after that. The credit union did nothing to revive the civil judgment of restitution between 2009 and 2019, so the judgment can no longer be enforced, the appeals court determined.
The prosecutor appealed to the Ohio Supreme Court, which agreed to review the issues.
State Asserts That Offender Must Pay Restitution Before Records Can Be Sealed
The Franklin County Prosecutor’s Office argues restitution is both a criminal sanction that is part of the defendant’s sentence and a civil judgment. The trial court’s reference in its entry to a “civil judgment” simply acknowledged the victim’s ability to privately collect restitution through civil debt collection procedures, the prosecutor maintains. Calling it a civil judgment didn’t mean the restitution wasn’t also a criminal sanction, the prosecutor contends.
In State v. Aguirre (2014), the Ohio Supreme Court ruled that final discharge of a sentence occurs only after an offender has served all aspects of the sentence, including paying restitution. To qualify to have a record sealed, the prosecutor asserts that T.W.C. must pay restitution in full for a final discharge, and only then can he ask to seal the records of his convictions, the prosecutor asserts.
The office also rejects the claim that the restitution order went dormant over time. A defendant’s obligation to pay restitution doesn’t depend on the victim’s action or inaction, the office argues. The defendant’s obligation also doesn’t expire with the passage of time, the office concludes.
Offender Contends Order To Pay Wasn’t Part of Criminal Sanction
T.W.C. counters that the trial court’s June 2004 sentencing entry imposed $2,663 as a civil judgment only. If viewed only as a civil judgment, then the monetary amount is no longer part of his criminal sanction, and he has completed all aspects of his sentence, T.W.C. argues. If the state believed that the trial court incorrectly imposed restitution as a civil judgment rather than a criminal sanction in 2004, then the state was obligated to, but didn’t, appeal the ruling, T.W.C. maintains.
T.W.C. also raises constitutional concerns. Because he is poor and disabled, it is impossible for him to pay the judgment and obtain final discharge in order to request the sealing of his records, he notes. He maintains that depriving him of the opportunity to be an offender eligible to seal his records, while allowing someone else with better health and financial means to meet the requirements, violates his constitutional rights. There is no rational basis for this distinction, he asserts. Without an alternative way for him to satisfy the judgment, his rights to equal protection and due process/due course of law under the U.S. and Ohio constitutions have been deprived.
His brief adds that if the civil judgment is ruled to be a criminal sanction, then R.C. 2929.18(D) explains that “the offender shall be considered for purposes of collection as the judgment debtor.” Creditor-debtor laws then apply, the brief argues. As in other civil judgments, the credit union was required to take steps to ensure that the judgment didn’t become dormant, the brief maintains. It also notes that Aguirre doesn’t apply because it didn’t address whether creditor-debtor laws apply when restitution is entered as a civil judgment. T.W.C. concludes that when a creditor doesn’t take the necessary steps, the judgment becomes unenforceable, as it did in his case.
Victims Group Submits Brief
An amicus curiae brief supporting the Franklin County prosecutor’s position was filed by the Ohio Crime Victim Justice Center.
– Kathleen Maloney
Docket entries, memoranda, briefs (including amicus briefs), and other information about this case may be accessed through the case docket.
Contacts
Representing the State of Ohio from the Franklin County Prosecutor’s Office: Darren Burgess, dburgess@franklincountyohio.gov
Representing T.W.C. from the Franklin County Public Defender’s Office: Timothy Pierce, tepierce@franklincountyohio.gov
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