Ohio commercial activity tax – NASCAR hits Roadblock as broadcast and media revenue sitused to Ohio based upon viewership data

For Ohio commercial activity tax (CAT), gross receipts from certain intellectual property, such as trademarks, trade names, patents and copyrights, are sitused to the location where the purchaser uses or has the right to use the property. R.C. 5751.033(F). NASCAR’s revenue from the broadcast of its races “encompassed territory both inside and outside of Ohio.” Therefore, the Board of Tax Appeals (BTA) ruled that NASCAR’s gross receipts from the use of its intellectual property from broadcasting races was properly sitused to Ohio based upon the ratio of Ohio viewership using Nielsen ratings and U.S. Census data. See NASCAR Holdings, Inc. v. McClain, BTA Case No. 2015-263.

NASCAR’s licensing agreements to broadcast its races permitted purchasers to use the IP nationwide and globally, including in Ohio. NASCAR argued that nearly all of its broadcast and media revenue should be sitused to Florida, where NASCAR is domiciled. But the BTA rejected this argument and affirmed the Tax Commissioner’s use of Neilson data to apportion the revenue to Ohio for Ohio CAT purposes.

The Tax Commissioner considered NASCAR’s revenue from multiple sources, including from granting networks the right to air NASCAR races (Broadcast Revenue), from media sponsors incorporating NASCAR in marketing campaigns (Media Revenue), fees for granting the use of NASCAR IP (License Fees), and fees from corporate sponsors (Sponsor Fees). Then, the Commissioner used the total number of cable televisions inside and outside Ohio to apportion the broadcast revenue and US Census population data to apportion license and sponsor fees. NASCAR objected since this data did not account for international viewership. However, because NASCAR chose not to provide further data that would have improved the accuracy of the audit or otherwise demonstrate its Ohio receipts were overstated, the BTA ruled that the Commissioner was permitted to use the best information available to capture the use of NASCAR’s intellectual property.

This ruling raises significant issues for businesses that generate revenue from license their product throughout the U.S. or receive advertising revenue. If you have questions about situsing gross receipts or disputing revenue apportionment or any other questions pertaining to Ohio’s commercial activity tax, do not hesitate to contact us.

Attorney Steven A. Dimengo is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at [email protected] or 330.258.6460.

Richard B. Fry III is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at [email protected] or 330.258.6423

Nathan M. Fulmer is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at [email protected] or 330.258.6464.

About Buckingham, Doolittle & Burroughs:

Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit bdblaw.com.