Bar soap manufactured in Kansas on behalf of the owner of Zest and other brands, and sent to a warehouse in Columbus before being sold to retailers can be taxed in Ohio, the Supreme Court of Ohio ruled today.

In a 6-1 decision, the Supreme Court affirmed the Ohio Tax Commissioner’s $327,000 imposition of commercial activity tax (CAT) on bar soap shipped to Ohio between 2010 to 2014. The soap maker, VVF Intervest, had requested a refund, arguing its products were not subject to Ohio tax as they were just passing through a warehouse on their way to customers in other states.

Although the tax commissioner rejected VVF’s refund request, the Ohio Board of Tax Appeals (BTA) granted the refund. Today, the Court reversed the BTA’s decision.

Writing for the Court majority, Justice Megan E. Shanahan stated the BTA conflated VVF’s sales to the purchaser, High Ridge Brands (HRB), with HRB’s sale of products in its Ohio warehouse to retailers around the country. Under R.C. 5751.033(E), the CAT applies to property received in Ohio by the purchaser, she noted.

“However, R.C. 5751.033(E) directs attention to where the purchaser receives the property from the seller – not where the purchaser may subsequently send it as a result of a subsequent sale,” she wrote.

Justices Patrick F. Fischer, R. Patrick DeWine, Jennifer Brunner, Joseph T. Deters, and Daniel R. Hawkins joined Justice Shanahan’s opinion.

In a dissenting opinion, Chief Justice Sharon L. Kennedy noted that VVF made the products in Kansas and HRB contracted with trucking firms to pick up the soap and bring it to Ohio. Delivery of the goods occurred in Kansas, not Ohio, she wrote, and the sales are not subject to Ohio tax.

Soap Maker Challenged Tax
The CAT is levied on taxable gross receipts of products and services sold in Ohio. Because goods and services cross multiple state lines and countries, the CAT applies to a business' gross receipts that are “sitused” in Ohio and can be taxed by the state. R.C. 5751.033(E) instructs when the CAT can be applied to products shipped in and out of Ohio.

VVF acquired a manufacturing facility in Kansas City, Kansas, and acts as a contract manufacturer of personal care products for various brands. VVF receives a fee from the brand owner for making the products for them.

HRB is considered an “asset light” company, meaning it owns the rights and formulas to several brands but does not have manufacturing facilities. HRB, which owns Zest and other personal care brands, contracted with VVF to make bar soap on its behalf.

VVF produced soap in Kansas. It then directed HRB to send a commercial carrier to pick it up. VVF labeled the shipments to direct them to HRB’s Columbus warehouse. From there, HRB contracted with retailers, namely Walmart and Target, to purchase the soap. HRB then sent about 96% of the soap to stores in other states to sell to consumers.

VVF paid Ohio CAT for the sales. VVF later requested a refund, arguing that while the soap was initially transported to a warehouse HRB contracted to use in Columbus, the soap was sent to out-of-state retailers, and the location where it could be taxed was not in Ohio. The tax commissioner maintained the shipment from the warehouse to retailers was a “second sale” by HRB to its customers and not one long single sale of VVF-made products to retailers.

In its appeal to the BTA, VVF indicated it knew from the shipping labels how much soap was sent to Columbus. It was only learned later, with the assistance of HRB, how much soap was sent out of state. Using those figures, it estimated how much Ohio tax should be refunded. In a 2-1 decision, the BTA ruled the shipment to the warehouse was “one leg” of HRB’s transportation of the soap from Kansas to its final destinations outside of Ohio, and that the products could not be taxed in Ohio.

The tax commissioner appealed to the Supreme Court.

Supreme Court Analyzed Taxation Law
Justice Shanahan wrote the Court agreed with the tax commissioner’s “second sale” theory and rejected the BTA’s position.

Under R.C. 5751.033(E), property received in Ohio “by the purchaser” is a sale that allows Ohio to tax the seller. Because property might travel in many ways before being received, the statute indicates that receipt takes place when all transportation is completed. The law states if the property is “accepted” in Ohio, and then transported out of state, it is not subject to Ohio CAT.

The law focuses on where the property is received, not where a purchaser may subsequently send it as a result of a subsequent sale, the Court stated.

The BTA based its conclusion on where the buyer, HRB, ultimately sent the property sent by VVF. However, the law concentrates on where the purchaser ultimately received the property, the opinion noted.

“After HRB received the goods in Columbus, it assumed full control over the property, including the responsibility for directing subsequent deliveries to third parties. At that point, HRB ceased to act in the capacity of purchaser in relation to VVF and began acting as a seller in a second transaction,” the opinion stated.

VVF also claimed that imposing the Ohio CAT violated its federal constitutional rights. The Court rejected the claims.

Majority Ignored Key Provision of Law, Dissent Maintained
In her dissent, Chief Justice Kennedy noted that there were two reasons why the sales were not subject to taxation in Ohio. First, R.C. 5751.033(E) indicates that the “direct delivery outside of this state to a person of a firm designated by the purchaser does not constitute delivery” in Ohio, regardless of other conditions of the sale.

VVF delivered its products to a carrier designated by HRB to pick them up in Kansas. The goods were deemed to have been received in Kansas, so the situs is not Ohio and the sale cannot be subject to Ohio tax, she wrote.

Second, she pointed out that the CAT does not apply to the sale of goods when the goods are shipped to a purchaser at a location in Ohio before being transported out of state.  The law places no time limits on how long the property may remain in Ohio before it is deemed to be at its final destination, the chief justice noted. When VVF’s products were delivered to their final destination out-of-state after sitting in a Columbus warehouse, the sales were completed outside of Ohio and were not subject to the Ohio CAT, the dissent concluded.

2023-1296. VVF Intervest LLC v. Harris, Slip Opinion No. 2025-Ohio-5680.

View oral argument video of this case.

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