In July 2024, a settlement was reached in Chicken Soup for the Soul Publishing LLC’s appeal of a $143,000 Ohio commercial activity tax (CAT) assessment, and the Ohio Board of Tax Appeals issued an order remanding the dispute to the Ohio Department of Taxation. Neither the Ohio Board of Tax Appeals nor representatives for the parties provided details about the settlement.
The company contested the initial assessment in 2023, claiming the Interstate Income Act of 1959 (commonly known as P.L. 86-272), a federal law which limits state income taxes on businesses, protected certain gross receipts from Ohio’s CAT. Although P.L. 86-272 primarily applies to income taxes, Chicken Soup argued that it still prevented the state from taxing certain gross receipts. The company also contended that it lacked nexus in Ohio, and that the state incorrectly calculated its taxable receipts and its business group’s members. Chicken Soup further argued that the Ohio Department of Taxation had delayed its hearing by 46 months, violating its due process rights. During an audit, the department estimated the company’s taxable receipts at $5 million after Chicken Soup failed to provide requested information. The department also determined that some of the company’s related entities may have generated taxable receipts, despite the company providing insufficient state-by-state sales information.
This case highlights a few key things for taxpayers to be aware of since many factors were raised in this case including the interpretation of P.L. 86-272, a qualification of gross receipts vs income taxes, nexus issues, related entities, audit compliance, and due process. Though this case ended in a private settlement and many of the questions remain, taxpayers can see how many avenues they may be able to pursue to seek relief. Also, like the taxpayer in this case, other taxpayers will need to decide if settling the issues may be more beneficial than pursuing disputes.
(Chicken Soup for the Soul Publishing LLC v. Patricia Harris, case number 2023-1507, in the Ohio Board of Tax Appeals, closing order entered 23 July, 2024)