Ohio Commercial Activity Tax Declared Unconstitutional

September 2008

On September 2, 2008, the Ohio Tenth District Court of Appeals reversed the decision of the Franklin County Common Pleas Court in Ohio Grocers Association et al. v. Wilkins and held that the Ohio Commercial Activity Tax (CAT) is unconstitutional when levied on receipts from certain food sales. The state has filed a motion requesting the Tenth District stay its decision pending the state’s appeal to the Ohio Supreme Court for discretionary review. Given the amount of tax revenue involved, it is expected that the Ohio Supreme Court will grant discretionary review.

If review is granted, FBT clients may wish to consider filing an amicus curiae brief with the Ohio Supreme Court to voice their concerns with the CAT. An amicus curiae brief is a brief filed in a case by a non-party who feels it has a substantial stake in the outcome of the case and wants to be heard by the court. This ultimate outcome of the Ohio Grocers Association case may have significant implications on the tax landscape in Ohio for several reasons. First, if the CAT is found unconstitutional as applied to certain food sales, it may force the state to raise the CAT tax rate to compensate for the lost revenue. This action would seriously undermine the purpose of the CAT—to minimally tax a very broad base of taxpayers. Second, a holding that the CAT is unconstitutional may also inspire and expose the CAT to a litany of constitutional and statutory attacks from taxpayers in all industries.


The CAT is imposed on Ohio-sourced gross receipts in excess of $150,000 per year. Generally, the term gross receipts means the total amount realized on goods sold without any deductions. In February of 2006, several plaintiffs, led by the Ohio Grocers Association, challenged the constitutional validity of the CAT as applied to food sales. Sections 3 and 13 of Article XII of the Ohio Constitution expressly forbid the imposition of excise taxes on certain retail and wholesale food sales. The Ohio Grocers Association argued that the CAT is essentially a sales or excise tax on food sales and thus violates the Ohio Constitution. In contrast, the state argued that the CAT is a franchise tax imposed on the privilege of doing business in Ohio and that franchise taxes, even if measured by gross receipts that include food sales, are permitted by the Ohio Constitution. Initially, the Franklin County Common Pleas Court ruled against the Ohio Grocers Association concluding that the CAT is a franchise tax, not a sales or excise tax prohibited by the Constitution. The Ohio Grocers Association subsequently appealed the decision of the Franklin County Common Pleas Court to the Tenth District Court of Appeals, where the appellate court reversed the decision of the trial court.

If you have any questions on the CAT or would like to file an amicus curiae brief in this case, please contact Frost Brown Todd’s Tax Law Group at (513) 651-6800.

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