Ohio Supreme Court throws the brakes on the state’s attempt to collect more taxes from NASCAR

COLUMBUS, Ohio – The revenue NASCAR makes from selling the rights to broadcast stock car races and merchandise to Ohio fans is not subject to the state’s commercial activities tax, according to an Ohio Supreme Court ruling Tuesday morning.

The unanimous court waived a red flag at the Ohio Tax Commissioner, who had ordered NASCAR to pay the state nearly $550,000 for money it earned through broadcasting races, online marketing and sponsorship fees. The court was split, 4-3, on whether the state could tax licensing fees that NASCAR grants to banks, insurance companies and manufacturers – including the maker of NASCAR-branded mugs and fuzzy dice, according to Ohio Court Newsa service of the Ohio Supreme Court.

On Jan. 25, Daytona Beach, Florida-based NASCAR Holdings Inc. argued before the court that Ohio’s commercial activity tax, also known by its acronym “CAT,” is unlawful. The commercial activity tax is assessed on almost all companies with gross receipts of over $150,000 in the state, regardless of whether they are located in Ohio.

The case ended up before Ohio’s high court because the Ohio Tax Commissioner’s Office audited NASCAR in 2011 for business activity it said occurred in the state, mainly through the broadcasting of races in Ohio, from July 1, 2005, to December. 31, 2010. It determined NASCAR owed taxes on $186 million in revenues in Ohio. The Ohio Board of Tax Appeals upheld the commissioner’s decision.

Fox, Speed ​​Channel Inc. and other media outlets acquired the rights to broadcast NASCAR’s intellectual property in specified territories, including in Ohio, the state had argued before the court in January. NASCAR received money for the broadcast licenses. The tax commissioner argued that state law required the revenue to be treated as gross receipts, subject to the CAT, the state said.

But Justice Pat DeWine, writing for the majority, analyzed how the dispute centers on the intellectual property being used in the state. He determined NASCAR’s contracts granted the rights to use its trademarks and logos across the country and the world. None of the contracts tied payments to NASCAR on the right to use its property specifically in Ohio. The revenue streams were not based on NASCAR’s intellectual property in Ohio, DeWine wrote.

NASCAR said it conducts races at more than 100 racetracks across 39 states and Canada and broadcasts races in over 150 countries.

The decision will reduce NASCAR’s tax bill to the state considerably. It will no longer have to pay taxes on $186 million in revenue, but on revenue that is less than $500,000, Court News Ohio reports.

The Ohio Supreme Court remanded the case to the Ohio Board of Tax Appeals to determine what, if any, tax NASCAR owes for hosting seven races in Ohio in a smaller racing series that occurred between 2005 and 2010.

All the Republican justices on the court – Chief Justice Maureen O’Connor, and Justices Sharon Kennedy and Patrick Fischer joined the opinion of DeWine, also a Republican.

In a concurring opinion, Justice Melody Stewart, a Democrat, wrote that NASCAR’s licensing contracts, unlike its broadcasting deals, allow the company to collect additional revenue on the sales made by using its trademarks. She wrote that the state has a right to estimate a portion of those sales that occurred in Ohio and tax them.

Fellow Democratic Justices Michael P. Donnelly and Jennifer Brunner joined Stewart’s opinion.

The case drew interest from the business community. The Ohio Chamber of Commerce submitted an amicus brief supporting NASCARarguing against the CAT in this case.

Laura Hancock covers politics and policy in Columbus. Read more of her stories here.

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