workshop s ohio tax - mec seminars & conferences ... s ohio cat, nexus, reporting/filing &...

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Workshop S

Ohio CAT, Nexus, Reporting/Filing &

Sourcing Issues

Thursday, January 27, 2011 4:15 p.m. to 5:15 p.m.

Biographical Information

John R. Trippier, CPA, Administrator, Audit Division, Ohio Department of Taxation 30 E. Broad Street, 20th Floor, PO Box 530, Columbus, Ohio 43216

[email protected] 614.995.0724 John rejoined the Ohio Department of Taxation in October 2003 as an Administrator in the Audit Division. John is involved with Sales and Use Tax, Personal Property Tax and Commercial Activity Tax. John worked with the Department for 2½ years as a sales and use tax agent and a corporate franchise tax agent in the Chicago office starting in 1989.

John has worked over 11 years in public accounting as a state and local tax consultant for Coopers & Lybrand, KPMG Peat Marwick and most recently at RSM McGladrey, Inc. As a consultant, John assisted clients with sales/use, income/franchise, personal/real property, intangible and unclaimed property tax audits and appeals. John also assisted clients with refund reviews, corporate restructuring, compliance studies, nexus studies, voluntary disclosure and sales tax software implementation.

John also worked 2 years with a long distance telecommunications provider in Dublin, Ohio as a state and local tax manager responsible for audits, appeals and state and local sales/use, personal/real property and income/franchise tax compliance.

B.S., Otterbein College

Paul R. Caja, Vice President Taxation, MTD Products, Inc.

P.O. Box 368022, Cleveland, Ohio 44136-9722 [email protected] 330.558.3304

Paul has over twenty years of tax experience, most of which were with the public accounting firms of Ernst & Young, LLC and PricewaterhouseCoopers, LLC. Paul managed a variety of SEC and privately held accounts. His experience ranges from running a significant outsource engagement to overseeing the financial provisions on large SEC clients. Paul has significant experience in compliance, planning and financial reporting as it relates to state and local, federal and international taxes. Paul has also served as the Federal Tax Manager for American Greetings, Inc. and in his current position at MTD Products, Inc. is responsible for all tax related duties of the Ohio-based corporation. Paul is a certified public accountant and a member of American Institute of Certified Public Accountants as well as the Cleveland chapter of the Tax Executives Institute. Paul received his Bachelors of Science in Accounting from Indiana University and he received his Masters of Taxation from Akron University.

David L. Cook, Director – State & Local Taxes, PricewaterhouseCoopers, LLP

200 Public Square, 18th Floor, Cleveland, Ohio 44114 [email protected] 216.875.3027

David is a Director in PwC’s Cleveland tax practice and is responsible for SALT consulting activities in Cleveland and northern Ohio, as well as the Pittsburgh, Buffalo and Rochester markets. He has 18 years of experience serving publicly traded and privately held companies in the manufacturing, service, retail and distribution industries. David specializes in multi-state strategic income and franchise tax planning and restructuring, and also has significant experience with merger and acquisition planning, audit and appeal resolution, and property tax services. He also has extensive project management experience on large-scale SALT restructuring projects.

David has a Bachelors of Business Administration degree from the University of Michigan and is a CPA. He has been a speaker at local tax conferences and seminars sponsored by the Ohio Society of Certified Public Accountants, the Tax Executives Institute, and the Manufacturers’ Education Council. He is a member of the American Institute of Certified Public Accountants and the Ohio Society of Certified Public Accountants.

Biographical Information Laura M. Stanley, Mgmt. Analyst Supervisor, CAT Div., Ohio Department of Taxation

P.O. Box 530, Columbus, OH 43216 [email protected] 614.644.5764

Laura Stanley is a Management Analyst Supervisor in the Commercial Activity Tax (CAT) Division, and assists Sarah O’Leary in her capacity as Legal Counsel of the CAT, Motor Fuel, and Excise Tax Divisions for the Ohio Department of Taxation. Laura’s career with the Ohio Department of Taxation began just four years ago which is why this biography is very short. As a Management Analyst Supervisor, Laura is instrumental in several projects in the CAT Division. Laura graduated from The University of Akron in Akron, Ohio with a Bachelors of Science in Political Science & Criminal Justice and an Associate of Applied Science in Criminal Justice Technology. In May of 2009, Laura earned her J.D. from Capital University School of Law in Columbus, Ohio.

Michael R. Baker, SALT Director, RSM McGladrey Inc. 1001 Lakeside Ave. E. Ste. 1400, Cleveland, Ohio 44114 [email protected] 216.798.3265

Mike has eighteen years of focused experience in state and local tax issues. Prior to joining RSM McGladrey Inc., Mike was with Plante & Moran serving as their Ohio State & Local Tax Leader. Previous to that Mike spent six years as an attorney with the Ohio Department of Taxation. While there, he specialized in sales, use, and corporation franchise tax issues. Mike currently serves a variety RSM McGladrey Inc. clients focusing on manufacturing, consumer products and the financial services industries. His experience has given him a thorough knowledge of Ohio taxation and multi-state corporate income taxation and planning. Mike has authored numerous articles and is a frequent speaker on state and local taxation topics. Mike is admitted to the Ohio Bar and is a member of the American and Ohio Bar Association Taxation Committees. As well, Mike is a member of the taxation committee of the Ohio Chamber of Commerce. Mike received his Bachelors of Science from Bowling Green University and he received his J.D. from Capital University Law School.

Ohio CATN R i /Fili & S i INexus, Reporting/Filing, & Sourcing Issues

Ohio Tax ConferenceOhio Tax ConferenceSession SJanuary 27 2011January 27, 2011

1

PresentersPresentersMichael Baker

State & Local Tax Director - RSM McGladrey, Inc.

Paul CajaVice President – Taxation - MTD Products, Inc.

David CookState & Local Tax Director - PricewaterhouseCoopers LLP

Laura StanleyyLegal Counsel – Commercial Activity, Motor Fuel, & Excise Tax Divisions - Ohio Department of Taxation

John TrippierAdministrator, Audit Division - Ohio Department of Taxation

2

AgendaAgenda

LL Bean Case – Constitutional NexusLL Bean Case Constitutional Nexus ChallengesFiling Group Issuesg pReceipts IssuesSourcing IssuesSourcing IssuesMiscellaneous

Voluntary Disclosure ProgramVoluntary Disclosure ProgramPenalty Provisions

3

LL Bean Case / Constitutional Nexus Challenges

4


Bright Line Nexus – ORC Section 5751.01(I)Bright Line Nexus ORC Section 5751.01(I)Property with an aggregate value of $50,000 during the year;Payroll during the year of at least $50,000;T bl i t f t l t $500 000 d i thTaxable gross receipts of at least $500,000 during the year;At least 25% of the person's total property, total payroll, or total sales in the state during the year; orIs domiciled in this state as an individual or for corporate, commercial, or other business purposes.

5


Bright Line Nexus – ORC Section 5751.01(I)g ( )

Note: Owned property is valued at original cost and rented property is valued at eight times the net annual rental charge g g

Note: Payroll includes: (a) Any amount subject to withholding by the person under ( ) y j g y psection 5747.06 of the Revised Code;(b) Any other amount the person pays as compensation to an individual under the supervision or control of the person for

k d i thi t t dwork done in this state; and(c) Any amount the person pays for services performed in this state on its behalf by another

6


L.L. Bean, Inc. – Certificate of Final DeterminationIssued August 10, 2010L.L. Bean acknowledged receipts in excess of $500,000 annually to customers located in OhioL L Bean argued that it did not have a physical presence and the impositionL.L. Bean argued that it did not have a physical presence and the imposition of the CAT violated the Commerce ClauseCommissioner determined that substantial nexus existed as a result of the “continuous, systematic, and significant exploitation of the economic

k t l i Ohi ”marketplace in Ohio”Commissioner reserved ruling on the assertion that the company lacked physical presence, and will render findings on this issue if an adverse ruling is issued by the BTA and the case is remandedL.L. Bean has appealed to Board of Tax AppealsFirst case challenging the constitutionality of the CAT nexus standardAnticipated 4-5 year time frame for BTA decision

7


What are the implications of the L.L. Bean case to person’s in similar situations that meet the $500,000 receipts Bright Line nexus threshold but don’t have physical presence?

Persons identified by the state – audit & assessment processNo abeyance procedures

Audits and assessments are not being held in abeyancePetitions for Reassessment required to protestCertificates of Final Determination are not being held in abeyanceCertificates of Final Determination are not being held in abeyanceAppeal to the BTA may be requiredLikely held in abeyance at BTA level

T O tiTaxpayer OptionsRegistration and payment – may be followed by protective refund claimsRegistration and filing (with actual receipts) but no payment (protest) –immediate assessments issued with 20% penalties for failure to file and failure to pay

8

failure to payNo registration (full protest) – additional 35% failure to register penalties imposed



Persons not identified by the stateTaxpayer Options

Voluntary Disclosure Agreement processRegistration, payment, and protective refund claimsWait and see

Be aware of Nexus Unit and Audit Division!Completed 31 nexus audits in 20102010 CAT revenues generated of approximately $2 1 million2010 CAT revenues generated of approximately $2.1 million12 additional nexus audits currently in progress

9



Protective Refund Claim ProcessProcedures will be established similar to Grocer’s case claimsFile claims and identify as L.L. Bean / constitutional nexus issuesRequest holding in abeyance pending L.L. Bean decisionDepartment will hold at CAT Division pending L L Bean rulingDepartment will hold at CAT Division pending L.L. Bean rulingQuery: What about physical presence factual determinations?

Other IssuesCaution – In general, Department’s position is that statute is not running for any person not registered even though the person would be a member of a group that is registered and filingWhy was L L Bean sent to the BTA rather than the Ohio Supreme Court?

10

Why was L.L. Bean sent to the BTA rather than the Ohio Supreme Court?

Administrative Update – CAT Division’s New Nexus Unit

Hired employees to focus on CAT bright-line nexus to discover persons not registered1 supervisor and 8 agentsBegan November 2009g

Letters Sent: 8,600Registered Taxpayers: 3,308Nexus Assessments Issued: 6 394Nexus Assessments Issued: 6,394Collected $13MWill issue estimated assessments

Includes 60% penalty$1,000 penalty for failure to register

* Statistics as of October 31, 2010

11

,

Filing Group IssuesFiling Group Issues

12


Retroactive ConsolidationsRetroactive ConsolidationsConsolidated filing elections are always available when made prior to the filing of the current quarterly returnDepartment will consider retroactive consolidation elections on a case by case basiselections on a case by case basis

Generally, if request is made when discovered by the Nexus Unit or when under audit, the request has been deniedIf taxpayer comes forward voluntarily Department has typicallyIf taxpayer comes forward voluntarily, Department has typically allowed retroactive consolidation

13


Changes in Taxpayer GroupChanges in Taxpayer GroupMust report changes due to acquisitions / divestitures of entities and adjust registered group by the filing date of the current quarterly returnSuccessor Liability Issues

ORC Section 5751.10 contains special rules related to a taxpayer thatORC Section 5751.10 contains special rules related to a taxpayer that sells a business, sells 75% or more of the business assets, or quits the businessCAT liability becomes due and payable immediately, and a return must be filed within 15 daysbe filed within 15 daysSuccessor of the business must withhold a sufficient amount of the purchase money to cover the amount due, until seller produces proof of payment and/or no outstanding liability

14

If purchaser fails to withhold, successor liability applies and purchaser is personally liable for up to amount of purchase price


Common OwnershipCommon OwnershipVertical ownership and control testA person is a member of a group if:p g p

A specified portion (i.e., 50% or 80%) of the value of person’s ownership interest is owned and controlled by common owners; and by co o o e s; a dThe higher-tiered entity has the ability through its voting rights to control the operations of the lower-tiered entities at each level of the vertical chaintiered entities at each level of the vertical chain

15


Comparison of Consolidated v. Combined FilingCombined Taxpayer

More than 50% common

Comparison of Consolidated v. Combined FilingConsolidated Elected

At least 50% or 80% ownershipCombined only required to include entities with Ohio nexus

common ownershipMust include all entities regardless of nexus with Ohio nexus

Non-US entities included if Ohio nexusGross receipts resulting from

OhioOption to include or exclude non-US entitiesGross receipts between Gross receipts resulting from

payments between members are subject to the CAT

Gross receipts between members are excluded

16


Complex Filing GroupsComplex Filing GroupsAudit Process – Identifying the “Taxpayer”

17


Complex Filing Groups (continued)Complex Filing Groups (continued)Private Equity / Venture Capital Structures

Taxpayer group can be very large and tied together by “controlling” interests (funds that are the GP in complex structures) that have only minimal financial interests in investee companies“Supergroup” conceptCritical Issues

Practicality of filing a single return for the SupergroupPracticality of filing a single return for the Supergroup$1 million tax bracketConsolidated filing election availability

Request to File Separately approach – practical

18

Request to File Separately approach practical solution?


Complex Filing Groups (continued)Complex Filing Groups (continued)Separate Filing Election for Combined Group Member (CAT Form RTFS)

Member of combined group can request permission to file separatelyRequires Tax Commissioner approvalq ppDoes not relieve tax liability of member or groupCommissioner may allow breakout of separate entities and/or sub groups (on a combined basis only)and/or sub-groups (on a combined basis only)See ORC Section 5751.012 and OAC 5703-29-08

19Query – Why not allow consolidated sub-groups?


Complex Filing Groups – ExamplesComplex Filing Groups Examples(See Appendix A for more details)

Example O-1Example O 1 Example MG-1

20

Example O-1Example O 1

Taxpayer initially filed four separate combined groups and one separate filer:

XYZ(Non-Nexus

Common Owner)

Group 1: ABC groupGroup 2: DEF groupGroup 3: GHI groupGroup 4: MNO groupSeparate Filer: JKL LLC

ABC DEF GHI MNO

ABC's Subs DEFs Subs GHI's Subs MNO's Subs

JKL LLC

Department upon audit adjusted to one filing group:

Group 1: ABC, DEF, GHI, JKL LLC MNO

(26) (8) (14) (3)

JKL LLC, MNOFour $1 million exclusions were eliminated

21

Example MG-1Example MG 1

JK

100%100%75%25%

Taxpayer initially filed three separate consolidated groups at 80%

MEY

100% 100%

Group 1: J, E, M, TGroup 2: S, OGroup 3: Y, Z, A

Department upon audit dj t d t t fili

Z

100%

T75%

25%

adjusted to two filing groups:

Consolidated Group 1: J, E, M, T, S, OCombined Group 2: J Y Z A

A S

100%

Combined Group 2: J, Y, Z, AInter-member receipts exclusion among Y, Z, A was eliminated

22

O

Receipts IssuesReceipts Issues

23

Types of Gross Receipts(See Appendix A for further discussion)

Sales Construction allowanceSalesRentsRoyalties

Construction allowanceRecycling receipts / creditsFreight Damage Claims

Sublease incomeSales to federal governmentAdvertising co-op income

Freight Charges / Pass-throughPayroll reimbursement for managed propertyg p

Management fees/inter-company chargesSale of inventory as part of

Advertising barteringProfit splitClient reimbursementsSale of inventory as part of

asset saleSale and leaseback of inventoryTrade-ins

Client reimbursementsWarranty reimbursementGift card income

24

Trade-ins

Troublesome Receipts Issues(See Appendix A for further discussion)

Miscellaneous Receipts – not in “normal” receipts p paccounts, contra revenue or contra asset accounts, negative expense accountsE lExamples:

Cooperative advertising revenues (#2)Freight pass-through revenue (#4)Freight pass-through revenue (#4)Client reimbursable expenses (#31)Intercompany reimbursements (#29)p y ( )“Allowances” - warranties, advertising, construction, etc. (#1, #12) – contrast with

l i f “ t d ll ”25

exclusion for “returns and allowances”

Sourcing IssuesSourcing Issues

26


IntangiblesIntangiblesServicesTangible Personal PropertyTangible Personal Property

27


Intangibles – ORC 5751.033(F)Intangibles ORC 5751.033(F)Trademark/TradenamePatentPatentCopyright“Similar Intellectual Property”p y

“Right to use” or “use of”No mention of a benefits testNo mention of a benefits test

28


IntangiblesIntangiblesActual information identifying right to use or use of

Is it available?How hard is it to get?

Other means to apportion/situsVaries by type of intangible

Nielson ratingsNielson ratingsPopulation

29


Services – ORC 5751.033(I)Services ORC 5751.033(I)…gross receipts from services are sitused to Ohio in the proportion that the purchaser’s benefit in Ohio with respect to what was purchased bears to the purchaser’s benefit everywhere with respect to what waseverywhere with respect to what was purchased

30


Three things you need to know aboutThree things you need to know about services:

Who is the purchaser?pWhat is the purchaser’s benefit?Where is the benefit received (to determine (situs)?

Reasonable, consistent and uniformOAC 5703-29-17

31


Tangible Personal Property – ORCTangible Personal Property ORC 5751.033(E)

Sitused to Ohio if the purchaser ultimately p yreceives the tangible personal property in Ohio after all transportation has been completed

Ti l f h iTitle transfer has no impactTransportation by the purchaser (or designee) is considered for ultimate destinationco s de ed o u a e des a oUltimate destination must be known at the time of sale (Information Release 2005-17)

32


Tangible Personal Property –Tangible Personal Property

Sale

IndianaMfg

CompanyA

KentuckyRetail

CompanyB

$100

A B

Shipment di tl t

SaleOhio

Company C

directly to Company C $150

33


Tangible Personal Property –Tangible Personal Property

SaleYesYes

IndianaMfg

CompanyA

KentuckyRetail

CompanyB

$100

A B

Shipment directl to

Sale YesYesOhio

Company C

directly to Company C $150

YesYes

34


Can the Qualified Distribution Center (QDC)Can the Qualified Distribution Center (QDC) look-through concept be used in non-QDC situations?

35

Miscellaneous IssuesMiscellaneous Issues

36

Miscellaneous IssuesMiscellaneous Issues

Voluntary Disclosure ProgramVoluntary Disclosure ProgramPenalty Provisions

37

Administrative Update – Voluntary Disclosure Agreements (VDAs)

Information Release CAT 2008-01 – Revised September 2010Allows VDA for CAT

Interest only – no penalties (as long as taxpayer never contacted via audit/compliance)Beginning January 1, 2011, a look back period of 3 g g y , , pyears plus current year will go in effect

Steps for VDA:S d t f VDA i iti t CAT Di i iSend request for VDA in writing to CAT DivisionODT sends letter, contract, and registration/returnsRegister, file returns, pay tax

38

eg ste , e etu s, pay taODT bills for interest

Administrative Update –VDAs (cont )Administrative Update VDAs (cont.)

VDA Stats:VDA Stats:Total Requests Received: 246

Total Requests Cancelled: 38Total Requests Cancelled: 38Total Requests Completed: 118Total Amount Collected: $3 361 364Total Amount Collected: $3,361,364* Statistics as of October 31, 2010

Contact Information:Contact Information:Jack Durham614.387.1298

39

[email protected]

Administrative Update – PenaltiesAdministrative Update Penalties

Leniency PolicyLeniency PolicyNexus Unit discoveryAuditsAuditsAssessments

40

Questions?Questions?

41

Contact InformationContact InformationMichael Baker, State & Local Tax Director - RSM McGladrey, Inc.

1001 Lakeside Ave, E., Ste. 1400, Cleveland, OH 44114Phone 216-522-1365 Fax 216-875-1620 Mobile 216-798-3265Michael Baker@mcgladrey [email protected]

Paul Caja, Vice President - MTD Products, Inc.5903 Grafton Road Valley City Ohio 442805903 Grafton Road, Valley City, Ohio 44280Phone 330-558-3304 Fax 330-558-3300 Mobile [email protected]

David Cook, Director - PricewaterhouseCoopers LLP200 Public Square, Suite 1800, Cleveland, Ohio 44114q , , ,Phone 216-875-3027 Fax 813-329-8922 Mobile [email protected] 42

Contact Information (continued)Contact Information (continued)Laura Stanley, Legal Counsel

Commercial Activity, Motor Fuel, & Excise Tax Divisions, Ohio Department of TaxationPhone [email protected]

John Trippier AdministratorJohn Trippier, AdministratorAudit Division, Ohio Department of TaxationPhone [email protected]

43

2011 Ohio Tax Conference Ohio Commercial Activity Tax (CAT) Audit Experiences

Appendix A

1

OWNERSHIP Combined Adding the Common Owner: the Department has instructed the auditors to determine who the common owner is for each taxpayer group. This approach requires the auditor to research for owners even if they are not part of the registration. Example O-1. Initially, ABC, DEF, GHI and MNO all registered as different combined groups. JKL, LLC registered as a separate taxpayer. The Department (as part of its selection process) selected DEF for audit. When completing its research, the Department identified that the common owner was not part of the registration for any of the combined groups. Further, the Department determined that ABC, DEF, GHI, MNO and JKL, LLC (and all of their subsidiaries) should be part of one combined group. Because XYZ is a non-nexus common owner, it is not required to register per OAC 5703-29-02(F). By creating one combined taxpayer, the Department eliminated the $1,000,000 exclusion for ABC, GHI, MNO and JKL, LLC. Diagram O-1.

XYZ(Non-nexus

Common Owner)

ABC DEF GHI MNOJKL, LLC

100%

ABC’s Subs(26)

DEF’s Subs(8)

GHI’s Subs(14)

MNO’s Subs(3)

100% 100% 100% 100%


Appendix A

2

Example O-2. Initially the taxpayer only registered MCT Sales as a separate taxpayer. Upon audit, the Department identified that MCT, EVT and MCT Sales should have filed as a combined group. JAT and JST did not meet the nexus requirements, so they do not need to be part of the combined group. The taxpayer has requested that we allow a retroactive consolidated elected group. The Department has denied the request for a retroactive consolidation, but the taxpayer is free to change its filing at any time for future reporting purposes. Diagram O-2.

Consolidated Adding the Common Owner—Individual: the Department has instructed the auditors to determine who the common owner is for each taxpayer group. This approach requires the auditor to research for owners even if they are not part of the registration. There have been numerous examples of audits where a consolidated elected group (50% or 80%) has registered without including its individual common owner. Under audit, we determine whether the individual meets the de minimis test ($4,500 in taxable gross receipts) and include the individual if the individual has more than $4,500 in taxable gross receipts.

MCT

EVT JAT JST MCT Sales

100%


Appendix A

3

Joint Venture Example JV-1. Initially taxpayer filed a consolidated elected group at 50% including ABC, DEF, GHI and JKL. Upon review, the Department determined that although it is permissible to show ABC as the primary filer on the CAT registration, it is improper to classify it as the “common owner” for the 50% consolidated elected group. ABC does not have a 50% controlling interest in the other members of the 50% consolidated elected group. However, Mr. X and Mr. Y, the two individual shareholders, who have a 50% ownership interest in each of the entities listed as members of the 50% consolidated elected group meet the common ownership test. Therefore, either of them could elect to be the common owner of the 50% consolidated elected group. Under review, the taxpayer agreed that Mr. X would be the “common owner” for all the entities listed as members of the ABC 50% consolidated elected group. Mr. X will be jointly and severally liable for 100% of the consolidated elected group’s tax liability. It should be noted that under review, the Department also determined that Mr. X and Mr. Y, in spite of their common owner status, were not required to file as a part of the consolidated elected group since neither shareholder has $4,500 in taxable gross receipts and therefore met the de minimis test for exclusion from the consolidated group. Diagram JV-1.

Mr. X Mr. Y

DEF Inc. GHI, Inc.

Mr. Z

50%50% 50%

25%

25%

ABC, Inc. JKL, LLC MNO, LLC


Appendix A

4

Example JV-2. The Department was conducting an audit of RS who had filed as a consolidated elected group at 50%. Neither 50% owner (Mr. R or Mr. S) was included in the group nor chose to have a consolidated elected group at 50%. Upon audit, the Department determined that neither Mr. R nor Mr. S had more than $4,500 in taxable gross receipts. The question arose — could RS choose a 50% consolidated group when neither of its common owners elected 50% consolidation? The Department determined that RS could make the election. Diagram JV-2.

Mr. R Mr. S

RS

FGH

TUV

LMN

RST

OPQ

SJW

IJK

CDE

ZAB

WXY

PAFLLC 1 LLC 2

50%50%

100%

82% <80%

18%

5%95%


Appendix A

5

Example JV-3. The Department was conducting an audit of DEF and identified the joint venture (LLC) between DEF and XYZ. DEF filed as part of a combined taxpayer group and XYZ filed as part of a 50% consolidated elected group. Upon audit, the Department determined that XYZ would be required to pick up 100% of LLC’s taxable gross receipts because it constructively owns 50% of LLC. Diagram JV-3.

DEF

LLC

BA

XYZ

50%

49%1%

100% 100%

Multiple Groups Example MG-1. Taxpayer initially filed three separate consolidated elected groups at 80%: Group 1: J, E, M and T (black shaded) Group 2: S and O (diagonal lines) Group 3: Y, Z and A (grey shaded) Under review, the Department determined that E constructively owned 100% of S and O and as a result the Department included S and O in the consolidated elected group of J, E, M and T. Further, the Department determined that a taxpayer cannot have more than one consolidated elected group within the same corporate structure. As a result, we eliminated the consolidated group of Y, Z and A. Y, Z and A was forced into a combined return with J, their common owner. (Note: J’s gross receipts would be reported with the consolidated elected group and not the combined group.) Based on the changes, S and O’s $1,000,000 exclusion was eliminated and the inter-member exclusion between Y, Z and A was eliminated.


Appendix A

6

Diagram MG-1.

Voting Rights A taxpayer owned 20% of the Common B stock of XYZ Company. The Common B stock provided 10 votes for each share owned. The Common A stock only provided for 1 vote for each share owned. As a result of its 20% ownership of the Common B stock, the taxpayer actually controlled 54% of the voting rights. The Department determined that the taxpayer was the common owner of XYZ Company. Member Managed LLC A managing member of a member managed LLC had all the rights to control the LLC per the LLC agreement. The Department determined that the managing member was the common owner as it controlled the LLC (and the LLC’s subsidiaries) the same as a general partner controls a limited partnership. See Ohio Administrative Code 5703-29-02(D)(3) for general partner guidance.

J

ME

K

Y

Z

100%100%75%25%

A

100%

100%

S

T

100%

75%

25%

O

100%


Appendix A

7

GROSS RECEIPTS 1. Warranty allowance Taxpayer received an allowance for handling warranty repairs for the manufacturer. The taxpayer accounted for the receipts in its warranty expense account. The Department determined that the receipts were taxable and picked up 100% of the allowance (no deduction for expenses). 2. Co/op advertising Taxpayer received cash from manufacturers for placing the manufacturer’s products in the taxpayer’s weekly advertisements. The taxpayer accounted for the receipts as offsets in its advertising expense account. The Department determined that the receipts were taxable and picked up all amounts received from the manufacturers (no deduction for expense). 3. Recycling receipts Taxpayer recycled the cardboard boxes that it received when purchasing products from its manufacturers/suppliers. The taxpayer accounted for the receipts received from the recycler as other income. The Department picked up the entire amount of recycling receipts. 4. Pass-through of Freight The taxpayer sold and delivered stone to its customers charging separately for the stone and the delivery. The taxpayer hired third parties to deliver the stone. The taxpayer used the following accounting entries:

Account Debit Credit Time of sale: A/R 105 Sales 100 A/P (Delivery) 5 Payment from customer: Cash 105 A/R 105 Payment to delivery vendor: A/P (Deliver) 5 Cash 5 The taxpayer argued that the amount for freight was just a pass-through to the delivery vendor. The Department determined that the taxpayer did not have an agency relationship with either the


Appendix A

8

customer or the delivery vendor. As a result, the freight was a gross receipt even if the amounts were not reflected in sales. The Department also did not allow for a deduction related to the amount paid to the delivery vendor. 5. Internet advertising receipts The taxpayer (a retailer) charged customers for advertising on the taxpayer’s website. The taxpayer accounted for the receipts in other income. The Department picked up the receipts as taxable gross receipts. 6. Mandatory product recall The taxpayer (a retailer) charged vendors a mandatory product recall fee for the costs of removing the recalled inventory from the shelves and warehouse. The taxpayer accounted for the receipts in other income. The Department picked up the receipts as taxable gross receipts. 7. Sale of inventory from asset sale The taxpayer sold a division as part of an asset sale. The sale included inventory and fixed assets. The taxpayer accounted for the receipts in other income. The Department picked up the sale of the inventory as a taxable gross receipt. Note: the sale of the fixed assets was excluded under R.C. 5751.01(F)(2)(c). 8. Sale and leaseback of inventory The taxpayer sold railroad freight cars as well as leased railroad freight cars. The taxpayer would sometimes take a railroad freight car from inventory and sell it to a bank and lease it back to use in its leasing business. The Department determined that the sale to the bank was a taxable gross receipt. 9. Business Interruption insurance The taxpayer had a fire destroy a part of its manufacturing facility. The taxpayer had purchased business interruption insurance for just such an occurrence. The Department determined that the insurance proceeds were taxable gross receipts. 10. Trade-ins The taxpayer accepts trade-ins when selling its product. The taxpayer deducted the trade-ins from its taxable gross receipts. The Department denied the deduction as trade-ins are not allowable as deductions.


Appendix A

9

11. Government contracts The taxpayer sold its services to the federal government and excluded those gross receipts from its CAT return. The Department denied the exclusion of these gross receipts as there is no deduction for gross receipts received from the federal government (or any state or local governmental jurisdiction). 12. Construction allowance The taxpayer (a retailer) leased several of its retail locations. In some situations, the taxpayer will want to make improvements to the leased property. When the lessor agrees with the improvements, the lessor will pay (or credit future rents) the taxpayer for making the necessary leasehold improvements. The Department determined that the amounts received were taxable gross receipts for the taxpayer. 13. Freight claims The taxpayer hired XYZ to handle all of its shipping needs. XYZ owns the tractors and provides the driver while the taxpayer owns the trailers and lets XYZ use them. During the shipment, inventory that XYZ has picked up for the taxpayer may be damaged (as a result of XYZ’s services). If damaged, the taxpayer will file a freight claim with XYZ to recoup the amount of the damage. The Department determined that the amounts received by the taxpayer from XYZ are taxable gross receipts. 14. Back-haul credits The facts are the same as stated in the Freight claims example above. XYZ may arrange to provide shipping services for unrelated companies on the return trip instead of returning with an empty trailer (i.e., backhauling). The taxpayer will receive a portion of the revenue that XYZ has earned because XYZ has used the taxpayer’s trailers. The taxpayer accounted for the amount in its Other Income account. The Department determined that the amount received by the taxpayer was a taxable gross receipt. 15. Uniform reimbursement The taxpayer purchased uniforms for sale to its employees. The employees pay for the uniforms through payroll reimbursement. The Department determined that the amounts received from the taxpayer’s employees were taxable gross receipts. [EXCLUDED AS OF 7/1/2009] 16. Rewards Points Program The taxpayer (a hotel) has a rewards program, which is operated by a subsidiary of the hotel, DEF. The hotel filed as a combined group for CAT purposes. Rewards points are earned by the hotel’s customers when staying at its hotel or at a franchised hotel. The hotel or the franchisee pays DEF for the points earned. When the hotel’s customer redeems the points on another hotel


Appendix A

10

stay, DEF pays the hotel or the franchisee. The amounts received by DEF were determined to be taxable gross receipts (without reduction for the amounts paid out by DEF). 17. Payroll cost reimbursement for managed property The taxpayer (a hotel franchisor) franchises hotels to third parties. As part of the franchise agreement the taxpayer can provide hotel management services (including providing employees to manage the hotel) to the franchisee. The taxpayer bills for the management services and separately states the employees’ payroll costs as part of the charge. The Department determined that the amounts received by the taxpayer for the payroll costs were taxable gross receipts. 18. Warranty repair The taxpayer purchases trucks that it uses in its business. The taxpayer needs to have the trucks on the road as much as possible and purchases spare parts that it anticipates will break. The taxpayer has worked out a deal with the truck manufacturer to repair the trucks when the trucks are under warranty. The taxpayer bills the manufacturer for the labor it incurred to make the repair and for the part it uses to repair the truck. The manufacturer sends cash back to the taxpayer for the labor charge and a replacement part for the spare part used in the repair. The Department determined that the amounts received for the labor are taxable gross receipts. Because the part was under warranty, the value of the part was not determined to be a taxable gross receipt. 19. Chargeback There is a process in the pharmaceutical industry called the chargeback. The parties involved in this are the manufacturer, the wholesaler, a group purchasing organization (also known as a buying group), and the buyer. The buyer, such as a hospital or a drugstore, may join a group purchasing organization (GPO) to negotiate a better price for purchasing large volumes of drug products. The GPO negotiates with manufacturers to obtain the best contract prices for its members. A typical drug manufacturer may have to negotiate thousands of contracts per year with hundreds of different GPOs. These GPOs may contain over 100,000 individual members. To simplify the distribution of their drug products, manufacturers also negotiate selling drug products in large quantities to wholesalers at specified catalog prices. The wholesalers then stock their multiple distribution centers with the drug products. Buyers purchase the drug products from wholesalers at the agreed GPO contract prices. The chargebacks occur when the wholesaler sells the drug products at a contract price lower than what it paid. The chargeback is the difference between the manufacturer's price to the wholesaler and the contract price to the customer. The wholesaler will submit a chargeback request to the manufacturer on a regular basis (daily or weekly). Each chargeback request may contain thousands of line items for review.


Appendix A

11

Under audit, a manufacturer has deducted the amounts paid as chargebacks from its gross receipts. The Department has determined that the chargebacks are allowable deductions for the manufacturer. 20. Sale of rental car inventory The taxpayer (a rental car company) sold its rental cars to wholesalers. The taxpayer did not include the proceeds of the car sales in its gross receipts for CAT purposes. The Department agreed that the sales were excluded under R.C. 5751.01(F)(2)(c) — sale of IRC 1221 or 1231 property. 21. Advertising bartering The taxpayer obtains a discount on future purchases from its vendors for advertising they provide on behalf of their vendors. The taxpayer solicits the arrangement; it is not sought by their customers. The taxpayer accounts for the discount as a contra-expense. The Department determined that the amount of the discount received by the taxpayer was a taxable gross receipt. 22. Profit split - food management The taxpayer hires GHI (an unrelated 3rd party) to manage its food service operations. The taxpayer gets a % of the sales made by GHI. Additionally, the taxpayer shares in the profits/losses made by GHI. The Department determined that the amounts received (% of sales and profits) would be taxable gross receipts. 23. Non-taxable food The taxpayer used its sales tax returns to complete its CAT return. The taxpayer used net taxable sales and did not include non-taxable food in the CAT return. 24. Homeowner construction allowance The taxpayer, a home builder, deducted the construction allowance that it provided to its customers for work that will be performed by the customer instead of the homebuilder (e.g., septic system, drive way, fire place, etc.). The taxpayer receives the entire amount of the home loan ($200,000) from the bank and accounts for it as income. The amounts that it pays to its customers for work the customer will complete (construction allowance) are deducted from income as a contra-revenue. The Department determined that the deduction was not allowable for CAT purposes. 25. Land - developer to homeowner The taxpayer, a home builder, purchases land from a developer and immediately sells it to the home owner (its customer). The taxpayer did not include the proceeds from the sale of the land as


Appendix A

12

a gross receipt. The Department determined that the proceeds from the sale of the land would be a taxable gross receipt. 26. Rent receipts offset in expense The taxpayer sublet real property and offset the rental expense with the amounts received by subletting. The Department picked up the full amount of the sublet income. 27. Concessionaire Expense The taxpayer hires concessionaires to operate its concessions. The contract provides that the taxpayer receives 65% of the sales and the concessionaire gets 35%. The contract also provides that the taxpayer will collect all monies and pay the 35% to the concessionaire. The taxpayer accounts for 100% of the sales as income and offset the 35% as a deduction to the income account. The Department determined that the taxpayer will need to include 100% of the sales as taxable gross receipts. 28. Tooling reimbursements The taxpayer is a manufacturer of sun roofs for motor vehicles. The taxpayer has a part of the sun roof manufactured by another manufacturer (contract manufacturer). The taxpayer develops tooling that will be reimbursed by its customer (auto manufacturer) that it sends to the contract manufacturer. The Department determined that the amounts received for the tooling are taxable gross receipts. 29. Inter-company reimbursements A taxpayer that filed as a combined group did not include inter-company reimbursements received from other members in the group. The Department determined that the reimbursements were taxable gross receipts as there is no deduction or exclusion for inter-member receipts for combined filers. 30. Recovery of bad debts The taxpayer did not include recoveries of bad debts as taxable gross receipts. The taxpayer netted the recoveries in the bad debt expense account. The Department determined that the recoveries were taxable gross receipts and picked up all recoveries. 31. Client reimbursable expenses The taxpayer (a consulting firm) bills for its services and separately states reimbursable expenses. The taxpayer did not include reimbursable expenses in its CAT filing. The Department determined that the amounts received for reimbursable expenses are taxable gross receipts.


Appendix A

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32. Oil Exchanges The taxpayer (an oil company) exchanges oil/gas it owns in Columbus, Ohio for oil/gas another oil company owns in Van Wert, Ohio. The taxpayer then sells the oil/gas it now owns in Van Wert, Ohio to a customer located in Van Wert. The taxpayer included the gross receipts from its sale of the oil/gas to its customer in Van Wert.. The Department determined that the taxpayer also should have included as taxable gross receipts the amount it exchanged with the other oil company. Further, the other oil company would also need to include as taxable gross receipts the amount it exchanged with the taxpayer. 33. Agency The taxpayer argued that the relationship it had with independent contractors the taxpayer contracted with to distribute tangible personal property was an agency relationship. The taxpayer marked up the tangible personal property it purchased by 8% when selling the product to the independent contractors. As a result, the taxpayer argued that only the 8% mark up was subject to CAT. The Department determined that an agency relationship was not created by the taxpayer and the independent contractors and the entire amount the taxpayer received from the independent contractors was subject to CAT. 34. R.C. 5751.013 gross receipts The taxpayer admitted to having the vendor ship widgets to an unoccupied address in Indiana so the vendor could avoid CAT on the gross receipts. The widgets actually never came to rest in Indiana, but instead were transported to Ohio. R.C. 5751.013 provides that the Department may assess CAT against any taxpayer who transfers tangible personal property into this state for the person's own use within one year after the person receives the property outside this state. The Department must prove that the person received the property outside the state to avoid in whole or in part the CAT. SITUSING 35. Management fees for managing leases Taxpayer provides lease management services for banks who lease property to bank customers. The taxpayer manages the billing, mailing, cash receipt, etc for the bank. The Department determined that the services could be sitused based on where the leased property is located/used, the banks’ headquarters or some other reasonable, consistent and uniform method. 36. Airplane lease The taxpayer owns two single member LLCs that own one airplane each. The two planes are leased/rented to a third party (who has the pilots), who in turn, provides flights for the taxpayer.


Appendix A

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The third party can also provide flights to unrelated parties as well using the taxpayer’s airplanes. The airplanes are hangered in Ohio, but are flown throughout the country. The Department determined that 100% of the gross receipts are sitused to Ohio as the airplanes are hangered in Ohio. 37. Trademarks/Royalties Taxpayers have attempted to situs trademarks/royalties using a corporate headquarters test. The Department has not been receptive to this type of situsing and has requested that the taxpayers provide information that indicates where the trademarks/royalties are being used [see R.C. 5751.033(F)]. 38. Situsing of contract manufacturing The taxpayer, which has a division that does contract manufacturing, did not include the contract manufacturing receipts in its CAT filing. The Department attempted to situs the receipts based on the taxpayer’s manufacturing facilities (SC and OH) since the taxpayer indicated it did not know where they were shipping the product. After the taxpayer calculated the amount of tax due based on that situsing approach, the taxpayer found the information as to where the product was shipped. The taxpayer needed to include as taxable gross receipts all products shipped into Ohio from both its Ohio and South Carolina locations. 39. “Shipped from” v. “shipped to” The taxpayer utilized its “shipped from” location when situsing sales of tangible personal property for its CAT filings. Under audit, the Department determined that the “shipped to” location was the proper way to situs the taxpayer’s gross receipts relating to sales of tangible personal property. 40. Sales office v. job site The taxpayer, an employer service provider, utilized its sales office as the means to situs its gross receipts from the sale of employment services. The Department determined that the job site (or post of duty) was the proper method to situs gross receipts from the sale of employment services. 41. Repair receipts The taxpayer installed its product in Ohio for its customer. The product subsequently needed repaired and the taxpayer’s customer sent the product back to the taxpayer to be repaired in Pennsylvania. The taxpayer sent the repaired product back to the customer in Ohio. The taxpayer sitused the repair receipts to Pennsylvania. The Department determined that the benefit of the repair service was received by the customer in Ohio. As a result, the Department picked up the repair services as a taxable gross receipt. [See OAC 5703-29-17(44)]


Appendix A

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42. Rewards points program The facts are the same as in 16 above. The Department determined that the receipts received by the rewards entity should be sitused based upon where the purchaser (hotel/franchisee) is receiving the benefit of the service. The Department determined the location of the rewards program participant (billing address/mailing address) should be how the receipts are sitused. 43. Management fee The taxpayer was filing as a consolidated elected group at 50% and was providing management services to related members as well as to unrelated entities. The management fees were for services primarily performed in Ohio. The related member gross receipts were excluded from the CAT return. The receipts received from the unrelated entities would be taxable if the purchaser received the benefit in Ohio. The unrelated entities did not have any locations in Ohio. As a result the management fees were sitused outside of Ohio. 44. Job postings The taxpayer receives gross receipts from customers (potential employers) who post a job on the taxpayer’s website. How should the gross receipts be sitused? The Department determined that the situsing should be based on the post of duty for the job being posted. The Department felt that the taxpayer would have this information as it is part of the job search data. The Department also felt that the corporate headquarters of the customer would not be as accurate of a reflection of where the customer receives the benefit as the post of duty. 45. Invoicing didn't match “ship to” The taxpayer sold tangible personal property and delivered the property to its customer. When filing its CAT returns, the taxpayer used a “ship to” report from it systems. The Department tested the accuracy of the report with a probe sample of approximately 75 receipts. Upon review, the Department determined that the report indicated that for one customer the taxpayer was using the wrong address (bill to) and the Department picked up the additional taxable gross receipts. 46. Document storage The taxpayer provides storage services of tangible personal property (e.g., documents). The taxpayer will pick up the tangible personal property to be stored and take it to one of their storage facilities. When a customer needs to retrieve its tangible personal property, the customer calls the taxpayer and the taxpayer delivers the tangible personal property to its customer. The taxpayer typically tries to store the tangible personal property at one of its storage facilities closest to its customer. The situation could arise where the taxpayer actually stores its Ohio customer's tangible personal property in Pennsylvania, Kentucky, Indiana or Michigan. The Department determined that the receipts should be sitused based on the location of where the records were located in the hands of the customer prior to storage with the taxpayer.


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47. Consulting - benefit of purchaser The taxpayer was a consulting firm related to human resource issues. The taxpayer sitused a portion of the services to Ohio based on a sales office approach. The Department is in the process of identifying the services and the benefits of the services to determine if the taxpayer’s method is reasonable, uniform and consistent. 48. Advertising - OH v. US or OH v. World The taxpayer provides advertising services on it website. The taxpayer sitused the services based on Ohio population to worldwide population. The Department determined that approach was not reasonable and determined that Ohio population to US population was a reasonable method to situs the advertising receipts. 49. Agency The taxpayer argued that the relationship it had with independent contractors the taxpayer contracted with to distribute tangible personal property was an agency relationship. The taxpayer marked up the tangible personal property it purchased by 8% when selling the product to the independent contractors. As a result, the taxpayer argued that only the 8% mark up was subject to CAT. The Department determined that an agency relationship was not created by the taxpayer and the independent contractors and the entire amount the taxpayer received from the independent contractors was subject to CAT. 50. Cigarette Buy-downs Taxpayer, a convenience store retailer, attempted to deduct amounts received from cigarette manufacturers known as cigarette buy-downs from gross receipts. The Department determined that these specific buy-downs are similar to manufacturer coupons and are subject to CAT for the taxpayer. NOTE: cigarette manufacturer buy-downs received by a cigarette wholesaler may not be subject to CAT for the wholesaler. REGISTRATION 51. Foreign election - no A taxpayer registered as consolidated elected at 50%, but elected not to include any foreign entities. However, as part of the registration, the taxpayer registered a foreign entity. What is the appropriate method for the taxpayer to file? The Department determined that the taxpayer needs to either include none of its foreign entities or all of its foreign entities.


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52. Foreign common owner A taxpayer registered as a consolidated elected at 50%, but elected not to include any foreign entities. The common owner of the group was a foreign entity. The Department determined that the common owner must be part of the group even if the election not to include foreign entities has been chosen. OTHER 53. Basis for filing During our reviews and audits, the Department has seen various methods used by taxpayers when filing the CAT return including, but not limited to:

• Sales tax returns • Book balances • Federal income tax • Self generated CAT reports • Vertex (sales tax) reports

The Department has stated that a taxpayer may start with any type of method, but the taxpayer needs to make sure that all receipts required under R.C. 5751 are reported in the CAT return. 54. Probe sample The Department has the ability to use statistical sampling in its CAT audits [See R.C. 5751.09], but to date the only sampling that has been used relates to a probe sample to verify situsing. 55. Manufacturing rebates are not receipts The Department has determined that manufacturing rebates received by the manufacturer’s customer for volume purchase discounts are not gross receipts to the purchaser. Further, the manufacturer does get a deduction (cash discount) for such payments. It should be noted that, not all reductions provided by the manufacturer are allowable deductions from gross receipts [See 19 and 57]. 56. Little cooperation We have several audits/reviews that we received little cooperation from the taxpayer including, but not limited to:

• Not providing organizational charts prior to the field visit • Not providing the chart-of-accounts or trial balance information prior to the field

visit


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• Not providing federal returns for the company or the individual owner • Not providing requested information during field visit • Not providing the $500,000 vendor list

57. Inter-member refund We have had several consolidated elected audits where the taxpayer has forgotten to exclude inter-member gross receipts and the audits have resulted in a minimal assessment or a minimal refund. 58. Estimate too high Some taxpayers have been estimating the amount of CAT and have been very conservative in the estimate creating an obvious refund position for the taxpayer. 59. Factoring company interest receipts The taxpayer had created a factoring company (located in Barbados), which purchased the taxpayer’s accounts receivable at a discount. The taxpayer has a deduction when selling a receivable that has been previously subject to CAT. The Department looked at whether the interest earned on accounts receivables while in the hands of the factoring company would be gross receipts. The Department has made the decision not to pursue this issue at this time. 60. Estimated - true up when 1120 filed Several taxpayers used an estimation method (that was not approved by the CAT Division) when preparing the CAT return. The Department reminds taxpayers that the Department can approve an estimation method (not currently provided by the statute or rule), only if the taxpayer requests such method in writing. 61. Denied rebates not related to OH The taxpayer deducted all rebates related to volume purchasing when filing the CAT return regardless of whether the customers were in Ohio or not. The Department denied the deduction except for those volume purchasing rebates earned in Ohio. 62. Denied negative sale of equipment The taxpayer deducted losses from the sale of equipment used in its business (IRC 1221 or 1231). The Department denied the deduction for losses and also did not pick up any gains relating to the sale of equipment used in business because of the exclusion found in 5751.01(F)(2)(c). [See 20]


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63. Denied manufacturer's coupon deduction The taxpayer deducted all manufacturer coupons provided to end consumers and not the manufacturer’s customer (wholesaler/retailer). The Department denied the deduction for manufacturer coupons in accordance with OAC 5703-29-14(B)(3)(a). 64. Denied fraud deduction The taxpayer is a retailer of tangible personal property and ships its product via United States mail. The taxpayer has identified that in some situations postal employees will open the box and remove the product. Next the postal employees will rewrap the box and forward it empty to the taxpayer’s customer. The taxpayer deducted the costs of fraud from its gross receipts. The Department determined that there is no deduction for fraud and as a result denied the taxpayer’s deduction. 65. Credit card fee The taxpayer deducted the fees it paid to credit card companies for processing its sales transactions. The Department determined that the credit card processing fees are not deductible. 66. Denied cash over/under deduction Department policy is to deny any deduction taken by a taxpayer for cash under. Department policy also includes not including cash over as a gross receipt. 67. Denied 1st period (semi-annual – 7/1/05 to 12/31/05) bad debt deduction Most taxpayers have taken a bad debt deduction for the 1st period (semi-annual period - 7/1/05 through 12/31/05). The Department is denying this deduction as none of the bad debts relate to gross receipts that have been subject to CAT. Additionally, the bad debts have typically not been uncollectible for more than 6 months as required by R.C. 5751.01(F)(4)(c). 68. $500K list not provided Some taxpayers have been resistant to providing a list of vendors selling more than $500,000 of products or services in Ohio. The Department has issued two subpoenas to obtain this information and will continue to issue subpoenas if necessary. 69. Retroactive Consolidation Election When we audit a taxpayer which has not registered, who has registered as a separate taxpayer (but did not register all persons within its group) or a combined taxpayer, the Audit Division has been instructed to audit the taxpayer as if it were a combined taxpayer. The types of taxpayers mentioned above do not have the choice of registering as a consolidated elected taxpayer for the


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audit period. However, the taxpayer can register as a consolidated elected taxpayer for future periods if it so chooses. Several taxpayers who are under audit have requested a retroactive consolidation election and the Department has reviewed each request on a case by case basis when making its determination. In general, the requests will be denied at the Audit Division level. In contrast, taxpayers who voluntarily come forward (not under audit) and request retroactive treatment from the CAT Division typically get retroactive treatment. 70. Non-registered person with nexus that is part of a registered group The Department is taking the position that there is no statute of limitations for assessing an unregistered person that the Department determines has nexus with Ohio even though the person is part of a group (combined/consolidated elected) that is currently registered and filing returns. This position also applies if the person would be part of a combined/consolidated elected group with a person who has registered and is filing returns as a separate taxpayer. 71. Successor Liability The Department contacted a taxpayer for audit and was told that the taxpayer’s assets had been sold to another unrelated company. The Department then contacted the purchaser and inquired if any of the purchase price was set aside to cover the amount of CAT due by the seller. No money was set aside. As a result, the purchaser was assessed the CAT liability as a successor in accordance with R. C. 5751.10.

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