Key Takeaways
Who this affects: Ohio businesses—particularly manufacturers and distributors—that sell products ultimately shipped outside the state.
What changed: The Ohio Supreme Court rejected the Tax Commissioner’s long-standing requirement that sellers must know a product’s ultimate destination at the time of sale to claim a CAT exemption.
Why it matters: Businesses may now be entitled to CAT refunds for prior years if they can demonstrate products were ultimately received outside Ohio—even if that destination wasn’t known when the sale occurred.
Action required: Contact your trusted tax advisor. Our state and local tax team at Rea is ready to help you navigate this opportunity and the traps for the unwary.
A Significant Win for Ohio Businesses
On January 16, 2026, the Ohio Supreme Court issued a ruling that could put money back in the pockets of many Ohio businesses. In Jones Apparel Group/Nine West Holdings v. Harris (Slip Opinion No. 2026-Ohio-74), the Court struck down the Tax Commissioner’s policy of requiring taxpayers to know the ultimate destination of goods “at the time of sale” to claim a Commercial Activity Tax (CAT) exemption.
This ruling removes a significant barrier that has long prevented some businesses from properly situsing their sales for CAT purposes. A common fact pattern is where you obtain destination shipping information AFTER the point of sale – such as where your customer arranges shipping from your facility. If you obtain destination shipping information from your customer days, weeks, or months after the original shipping, then this decision may open the door to substantial refund opportunities.
What the Court Decided
The case involved Jones Apparel, which sold shoes to DSW and delivered them to DSW’s sole distribution warehouse in Ohio. From there, DSW shipped the shoes to retail stores throughout the United States. At the time of the sale, Jones Apparel didn’t know which specific retail locations would ultimately receive the products.
Jones Apparel initially filed CAT returns situsing all DSW sales to Ohio, then later filed a refund claim arguing that a large portion of those shoes were ultimately transported to stores outside Ohio. The Tax Commissioner denied the claim, asserting that because the shipping documentation showed Ohio addresses and Jones Apparel didn’t know the ultimate destination at the time of sale, the receipts must be sitused to Ohio.
The Court disagreed. In a clear rebuke of the Commissioner’s position, the Court stated that the “contemporaneous-knowledge requirement” the Commissioner claimed exists in the statute simply isn’t there. The Court noted that adopting such a requirement would mean exceeding its constitutional role by effectively amending the statute’s words.
Understanding CAT Situsing Rules
Ohio’s Commercial Activity Tax is imposed at a rate of 0.26% on gross receipts sitused to Ohio. For sales of tangible personal property, R.C. 5751.033(E) provides that receipts are sitused to Ohio if the property is “ultimately received” by the purchaser in Ohio “after all transportation has been completed.”
The key phrase here is “ultimately received.” The statute focuses on where the goods end up—not where they’re first delivered. This distinction matters significantly for businesses that ship to Ohio distribution centers or warehouses, where products are temporarily stored before being shipped to their final destinations across the country.
For nearly two decades, the Ohio Department of Taxation required sellers to know the ultimate destination at the time of sale to claim that sales were sitused outside Ohio. This interpretation, codified in Information Release 2005-17, effectively forced many businesses to situs receipts to Ohio based solely on initial delivery addresses—even when products clearly didn’t stay in Ohio.
What This Means for Your Business
The Court’s decision opens the door for businesses to use after-the-fact evidence to demonstrate where products were ultimately received. There are some limitations to this opportunity. While the records do not have to be contemporaneous with the sale, they must still be reliable. There also cannot be an intervening sale between when your product comes to its “final“ resting place. Consider this common scenario: A manufacturer ships products to a major retailer’s Ohio distribution center. That retailer then distributes those products to stores in 30 different states. Under the Tax Commissioner’s old interpretation, the manufacturer would have to situs 100% of those receipts to Ohio because Ohio was the “ship to” address on the bill of lading—even though the vast majority of products ultimately ended up outside Ohio.
Now, that manufacturer can potentially claim a CAT refund by demonstrating the products’ actual ultimate destinations.
BUT, consider this modification to the scenario above. After shipping product to your client’s Ohio distribution center, the products wait for a subsequent sale before they are shipped out of Ohio (your customer waits till they sell to their customer). In this situation, the shipment to the Ohio distribution center is the final location for the product you sold. No refund, this case would not change that result.
Important Considerations: Documentation Is Critical
While the Court’s ruling is favorable, it comes with an important caveat: you must be able to prove where products were ultimately received. The Court affirmed that Jones Apparel failed to meet its evidentiary burden in this particular case.
Specifically, the Court noted that “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.”
In other words, educated guesses won’t cut it. You’ll need solid documentation—such as your customer’s shipping records, inventory data, or point-of-sale information—to substantiate where products ultimately ended up.
Next Steps
If your business sells products that are initially delivered to Ohio but ultimately end up outside the state, consider the utility of filing a refund claim. Consider the following:
Contact your trusted tax advisor. They can help you quantify potential refunds and confirm your fact pattern (sales were sitused to Ohio due to not having more data at time of sale, but you have this data now or could get it).
Do you have/can you get documentation? Consider your ability to work with your customers to obtain records showing where products were ultimately shipped after leaving Ohio facilities, if you don’t already have these. Would this be too distruptive of your relationship/is the refund worth the effort?
Evaluate refund opportunities. Ohio’s refund statute generally allows claims for up to four years. Depending on your situation, this could represent significant tax savings. As with any refund claim, you may draw an audit of your account – make sure the size of the potential refund is large enough to warrant this attention.
Implement processes for the future. Consider establishing systems to track and document ultimate destinations on an ongoing basis. Being contemporaneous is one factor that tends to support the validity of documentation, even though it is no longer a strict requirement.
This ruling represents a meaningful opportunity for Ohio businesses, but navigating the evidentiary requirements can be complex. If you believe this decision could apply to your company, we’re here to help you evaluate your situation and determine the best path forward.
Questions? Let’s Talk.
If you think this ruling could apply to your business, or if you have questions about Ohio’s CAT situsing rules, contact your Rea advisor or Joe Popp at joe.popp@reacpa.com or 614.923.6577.
About the Author
Joe Popp, JD, LLM, is a principal at Rea specializing in tax law, with particular expertise in state and local taxation. Since joining the firm in 2005, Joe has served clients across the construction, manufacturing, and not-for-profit sectors. He holds a JD from The Ohio State University’s Moritz School of Law, an LLM in Taxation from Capital Law School, and a BA from Ohio State. Joe is known for his ability to simplify complex tax matters through relatable examples.
