In a January 14, 2026 opinion, the Ohio Supreme Court denied an apparel company’s $855,000 refund claim for Ohio’s commercial activity tax (CAT) for tax years 2010 through 2016. Jones Apparel argued that its receipts were improperly sitused to Ohio and therefore not subject to the tax. The court disagreed, concluding that the company failed to satisfy its burden of proof on the proper situsing of its receipts.
With its decision in Jones Apparel and its December decision in VVF Intervest, the Ohio Supreme Court’s has now recently denied two taxpayers’ bids to obtain CAT refunds from goods temporarily kept in Ohio for ultimate sale outside the state. We previewed both cases in July 2024.
Despite Jones Apparel’s failure to prevail, the court’s decision offers a roadmap for companies to satisfy the Ohio CAT’s burden of proof for demonstrating that receipts are sitused outside Ohio. The Ohio Supreme Court’s decision presents both tax planning and refund claim opportunities for companies subject to the Ohio CAT.
Jones Apparel’s Business Model and CAT Sourcing Dispute
During the tax years at issue, Jones Apparel sold its merchandise to DSW Inc. All of Jones Apparel’s sales were initially shipped to DSW’s single Ohio distribution center, where DSW would then send apparel to DSW’s retail stores across the country. Initially, Jones Apparel paid the CAT on the gross receipts it earned from selling its merchandise to DSW, situsing its gross receipts to Ohio.
Jones Apparel then filed its refund claim, asserting that it should not have paid the CAT on a majority of the gross receipts it earned because most of the receipts from sales to DSW lacked an Ohio situs. Jones Apparel argued that although the merchandise it sold to DSW was initially shipped to DSW’s Ohio distribution center, at least 80% of that merchandise eventually left the distribution center for placement in DSW’s retail stores located outside Ohio.
The Tax Commissioner’s “Contemporaneous Knowledge” Requirement
Jones Apparel based its refund claim on evidence it acquired after selling the merchandise to DSW, rather than on shipping labels and bills of lading corresponding to those sales. The Ohio tax commissioner rejected this evidence, taking the position that under the Ohio CAT’s situs statute (Ohio Rev. Code Ann. § 5751.033(E)), a taxpayer must have “contemporaneous knowledge” of an item’s destination at the time of transportation to establish where receipts from the sale of the items should be sitused. According to the tax commissioner, this “contemporaneous knowledge” standard could be satisfied only by records such as shipping labels and bills of lading.
The Court’s Rejection of a “Contemporaneous Knowledge” Requirement
Significantly for other taxpayers, the Ohio Supreme Court unanimously rejected the tax commissioner’s position that a taxpayer, to prove the situs of the receipts, must have contemporaneous knowledge, because Ohio Rev. Code Ann. § 5751.033(E) does not expressly require it. However, a court majority concluded that Jones Apparel failed to provide “documentary evidence that establishes the amount of gross receipts for the merchandise that was actually transported out of Ohio.” As emphasized in the dissenting opinion, the statute sources goods sold to the location where “all transportation of the goods has ended,” which, in the dissent’s view, occurred when the merchandise was received at DSW stores outside Ohio.
Why Jones Apparel Still Lost
The court was not convinced by the testimony provided by Jones Apparel’s witnesses during the hearing that a majority of the receipts should be sitused outside Ohio. The court determined that the first witness’s conclusion that 80% of the goods sold to DSW were ultimately shipped outside Ohio “was little more than an educated guess,” because the witness “failed to identify … any quantitative evidence showing how that … figure was calculated.”
The court then determined that the second witness’s conclusion that 4% of DSW’s inventory attributable to Jones Apparel’s merchandise was available for retail sale in Ohio was unreliable, because it was computed from data taken from “a period that postdates the tax years at issue” and spanned only a three-month period even though the taxpayer sought a refund for a seven-year period.
Takeaways for Ohio CAT Taxpayers
Ultimately, the Ohio Supreme Court affirmed the Board of Tax Appeals’ decision and denied Jones Apparel’s refund claim. While Jones Apparel’s refund claim failed, the court’s decision provides a roadmap for companies selling goods to distribution centers in Ohio on how to satisfy their burden of proof for purposes of the Ohio CAT’s situsing requirements.
First, when possible, companies should obtain shipping labels or other transportation records showing the ultimate destination of items shipped through Ohio. While the court rejected the contemporaneous knowledge standard, the availability of such records can help satisfy companies’ burden of proof without requiring additional “quantitative evidence.”
Second, the court made clear that the burden of proof must be met with evidence showing the ultimate destination of sales to Ohio distribution centers. When shipping labels or other transportation records are unavailable, companies should begin gathering and maintaining alternative documentation, including customer contracts, invoices, purchase orders, and workpapers, that demonstrate where their products ultimately are shipped. When this information is not currently available, companies may consider implementing processes to collect and retain it.
Additionally, as companies gather such quantitative evidence, they should do so for the periods during which they seek to situs receipts. The Ohio Supreme Court made clear that sample data form outside the refund claim period does not satisfy the burden of proof.
Given the roadmap provided by the Ohio Supreme Court, we foresee companies engaging in strategic tax planning for future CAT periods or pursuing refund claims after gathering adequate quantitative evidence.
If you have any questions, or would like additional information, please contact one of the attorneys on our State & Local Tax team.
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