In a 5-2 decision, the Ohio Supreme Court found that the $500,000 gross receipts in Ohio standard for creating substantial nexus for the commercial activity tax (CAT) is constitutional. “We hold that given the $500,000 sales-receipts threshold, the burdens imposed by the CAT on interstate commerce are not ‘clearly excessive’ in relation to the legitimate interest of the state of Ohio in imposing the tax evenhandedly on the sales receipts of in-state and out-of-state sellers. As a result, the tax satisfies the substantial-nexus standard under the dormant Commerce Clause…” Crutchfield Corp. v. Testa, 2016-Ohio-7760, ¶56.

The holding that the physical presence standard for sales/use tax collection set forth in Quill does not apply to the gross receipts tax on Ohio business activity creates significant uncertainty for state taxes, both in Ohio and other states. Several other states have enacted similar factor presence nexus standards and this opinion invites more states to follow. See Multistate Tax Commission, Factor Presence Standard for Business Activity Taxes (approved Oct. 17, 2002). More analysis and commentary to come on this topic.