The Supreme Court of Ohio today upheld the imposition of the Ohio commercial activity tax (CAT) on $108 million of merchandise shipped to DSW’s Columbus distribution center before items were sent to stores both in and out of Ohio.

In a 5-2 decision, the Supreme Court rejected a $854,627 refund request from Jones Apparel Group/Nine West Holdings for merchandise shipped to DSW during tax years 2010 through 2016. The refund request was rejected by the Ohio tax commissioner, and the Ohio Board of Tax Appeals (BTA) upheld the decision in 2023, finding that Jones Apparel failed to prove it was entitled to a refund.

Writing for the Court majority, Justice Jennifer Brunner stated that Jones Apparel witnesses provided estimates to the BTA, insisting that at least 80% of its goods sent to DSW were not subject to Ohio CAT. However, Ohio law requires a business seeking a refund to provide supporting evidence documenting the requested amount, she wrote.

“Simply testifying that one is confident that ‘at least 80 percent’ of the goods ended up outside of Ohio falls well short of the evidentiary showing necessary to prove the amount of the claimed refund,” she stated.

Justices R. Patrick DeWine, Joseph T. Deters, Daniel R. Hawkins, and Megan E. Shanahan joined Justice Brunner’s opinion.

In a dissenting opinion, Chief Justice Sharon L. Kennedy wrote that under Ohio tax law, the vast majority of Jones Apparel’s goods were ultimately received outside of DSW’s Ohio stores and were not subject to the CAT. She added that Jones Apparel’s expert witnesses presented evidence indicating that far more than 80% of its goods were not subject to the tax, and she would have held that the company proved it was entitled to a refund.

Justice Patrick F. Fischer joined the chief justice’s opinion.

Company Seeks Refund After Paying State 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.

Jones Apparel sells shoes and accessories at the wholesale and retail levels. Between 2010 and 2016, Jones Apparel sold merchandise to DSW, which was initially shipped to DSW’s only distribution center at the time, located in Columbus. DSW would then “pick and pull” merchandise from its warehouse to restock its nearly 500 retail stores across the country. At the time, Jones Apparel knew its merchandise was being shipped to Columbus, but did not know how long the shoes would be in the distribution center or to which DSW stores its merchandise was being sent.

Jones Apparel paid the CAT based on the sales to DSW. It later filed for a refund, arguing it should not have paid a tax on the portion of the merchandise that was not sold at DSW stores in Ohio. George Neeman Jr., the company official responsible for filing Jones Apparel’s CAT tax returns, told the BTA that he requested that DSW provide Jones Apparel with shipping labels or other transportation data to identify the ultimate destination of its merchandise, but that DSW declined.

Jones Apparel argued it was entitled to a refund based on evidence it acquired after it sold the merchandise. The tax commissioner rejected the company’s evidence, finding that Jones Apparel’s shipping labels and transportation documents identified only the Ohio distribution center delivery address.

Before the BTA, Neeman stated he was absolutely certain that at least 80% of the company’s items were shipped outside of Ohio. He explained that it would be nearly impossible for DSW to have sold $108 million of Jones Apparel merchandise from its 17 to 18 Ohio stores in business at that time. He argued the 80% figure was a conservative estimate, and it was more likely that 95% of the merchandise was sold outside of Ohio.

In addition, consultant Jonathan Oeler testified that he created a software application to determine the availability of Jones Apparel merchandise at DSW stores. While his sample covered a period between August and October 2018, he estimated that about 4% of the company’s shoes were sold in Ohio, while the rest were available at 447 stores outside of the state.

The board rejected the company’s evidence, and Jones Apparel appealed to the Supreme Court.

Supreme Court Analyzed CAT Appeal Requirements
Justice Brunner explained one point of contention between the tax commissioner and Jones Apparel was whether the company could rely on evidence it collected years after the taxes were paid to claim a refund. The tax commissioner argued R.C. 5751.033(E) creates a “contemporaneous knowledge” requirement, where a company’s documentation and records about its sales need to be produced at or near the time of the transactions.

The Court explained under the tax commissioner’s view, when a business creates a shipping label that lists an Ohio shipping address and is unaware of whether the merchandise will be later delivered outside of Ohio, the state can tax the transaction. That power to tax remains even if the business later acquires evidence showing the merchandise was delivered outside of Ohio, the opinion noted.

The Court rejected the argument, finding there is no contemporaneous knowledge requirement in state law. The opinion noted the law allows CAT refund claims within four years of the date of the alleged tax payment error, and while a refund seeker must present “documentation to support” the claim, the law does not specify the type of documentation that must be furnished.

The opinion stated the refund procedure is provided in R.C. 5751.08 and requires the taxpayer to “provide the amount of the requested refund,” along with documentation to support the request. Jones Apparel needed to provide evidence of the amount of gross receipts that Ohio should not have taxed, the opinion stated. Instead, Neeman presented an educated guess at the amount to be excluded, the Court noted.

The Court found that Oeler’s analysis was more rigorous than Neeman’s but covered a short three-month period in 2018, while the taxes in dispute were paid between 2010 through 2016. While the company claims that most of the Jones Apparel merchandise was sold out of state, the law requires the company to provide supporting documentation to prove how much it should be refunded, the opinion stated.

Because Jones Apparel did not provide adequate evidence, the Court affirmed the BTA’s decision.

Merchandise Not Subject to Ohio Tax, Dissent Maintained
Chief Justice Kennedy pointed to her recent dissent in VVF Intervest LLC v. Harris and wrote that R.C. 5751.033(E) provides that the situs of a sale is determined by looking to the place where the goods are after all transportation is completed. Property accepted by the purchaser in Ohio and then shipped outside of Ohio is not sitused in the state, she wrote.

She noted that the Court majority never questioned that most of the goods passed through Ohio on their way to buyers in other states, yet it concluded that Jones Apparel did not provide documentary evidence establishing that the merchandise was transported outside of Ohio.

The chief justice explained that Neeman was responsible for income- and sales-tax filings and necessarily had to know which Jones Apparel sales were attributable to which states to do his job.

“Consequently, it is more than an educated guess that Neeman would know the percentage of Jones Apparel’s goods that were sold to DSW and shipped to DSW’s retail stores outside of Ohio,” the dissent stated.

The dissent added that Neeman’s 80% estimate was supported by other evidence and that it appeared to be “indisputable” that most of the goods were shipped through Ohio to stores in other states. Jones Apparel’s estimate is “no stretch of the imagination,” the dissent stated, and “Jones Apparel has paid hundreds of thousands of dollars in taxes that it did not owe” the state.

2023-1288. Jones Apparel Group/Nine West Holdings v. Harris, Slip Opinion No. 2026-Ohio-74.

View oral argument video of this case.

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