State tax laws sometimes do not make sense to Ohio business owners. But NASCAR is taking its business tax disagreement to the Ohio Supreme Court.
It may seem pretty routine—watching NASCAR races on television and purchasing NASCAR branded products for yourself or friends. The Ohio Department of Taxation would very much like to tax NASCAR for that television viewing provided to Ohio residents. After an audit by the Ohio State Tax Commission of NASCAR Holdings between the years 2005 and 2010, the tax agency figures it is owed about $549,520 in taxes, plus penalties and interest.
But wait, other than television and bling, what does Daytona-beach based NASCAR have to do with Ohio? The tax controversy stems from an alleged failure to file and pay Commercial Activity Tax (CAT) in Ohio. Because of that failure, NASCAR became the focus of the Ohio tax audit. Basically, the Tax Commission alleges that NASCAR is subject to the CAT because citizens of Ohio can watch NASCAR on their television and buy NASCAR branded goods. When NASCAR appealed the finding to the Ohio Board of Tax Appeals, the Board ruled in April of this year that the Tax Commissioner did not abuse his discretion and supported the audit.
As any Ohio business owner knows, the annual CAT is based on gross commercial receipts of those doing business in Ohio. The more revenue earned each year, the more CAT a company will pay.
In August, 2021, NASCAR appealed to the Ohio Supreme Court. NASCAR argues that the commercial activities on which Ohio seeks CAT are conducted by parties that license content from NASCAR and then choose to do business in Ohio. As such, NASCAR argues it is not conducting business activities in Ohio, but rather the businesses who use its content and products conduct business in Ohio and pay CAT accordingly.
In its appeal, NASCAR outlines its business model. The company does not broadcast or create video of its races. Nor is it engaged in selling branded products. In return for the permission to film and broadcast its races, or market NASCAR apparel, licensees pay a flat fee to the company at its headquarters in Florida. NASCAR does not participate in agreements between its licensees and third parties that ultimately supply and distribute NASCAR content in approximately 150 countries worldwide.
It will be interesting to see how this one turns out. Regardless, you have to admire the argument of the tax attorney for NASCAR Holdings who sums it up by saying “The Court should reject the BTA’s [Board of Tax Appeals] limitless interpretation of R.C. 5751.033 that was created simply because the Tax Commissioner can sit on his couch, in Ohio, and watch NASCAR races.”
Speak with experienced Ohio tax attorneys regarding state and federal tax litigation
The tax group at Robert J. Fedor, Esq. LLC offers strategic representation to clients throughout the country and abroad from offices located in Cleveland and Chicago. From business compliance and payroll tax issues to allegations of tax fraud, we can help. Schedule a free consultation by calling 800-579-0997 or contact us today.