[Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as 

Defender Sec. Co. v. McClain, Slip Opinion No. 2020-Ohio-4594.] 

NOTICE 

This slip opinion is subject to formal revision before it is published in an 

advance sheet of the Ohio Official Reports. Readers are requested to 

promptly notify the Reporter of Decisions, Supreme Court of Ohio, 65 

South Front Street, Columbus, Ohio 43215, of any typographical or other 

formal errors in the opinion, in order that corrections may be made before 

the opinion is published. 

SLIP OPINION NO. 2020-OHIO-4594

DEFENDER SECURITY COMPANY, APPELLANT, v. MCCLAIN, TAX COMMR.,

APPELLEE. 

[Until this opinion appears in the Ohio Official Reports advance sheets, it 

may be cited as Defender Sec. Co. v. McClain, Slip Opinion No. 

2020-Ohio-4594.] 

Taxation—Commercial-activity tax—Gross receipts—R.C. 5751.033(I)—Situs is 

established where intangible contract rights are used or their benefit is 

received—Court of appeals’ judgment reversed and cause remanded to the 

tax commissioner for issuance of refunds.

(No. 2019-0531—Submitted April 28, 2020—Decided September 29, 2020.) 

APPEAL from the Court of Appeals for Franklin County, No. 18AP-238, 

2019-Ohio-725. 

____________________ 

O’CONNOR, C.J. 

{¶ 1} Appellant, Defender Security Co., claims entitlement to a $73,334.82 

refund of the commercial activity tax (“CAT”) that it paid on gross receipts earned 
SUPREME COURT OF OHIO

 2

between January 2011 and December 2013. The CAT is imposed on gross receipts 

derived from income-producing activity in Ohio, and the receipts at issue in this 

case consisted of payments made by ADT Security Services, Inc. to Defender. 

Appellee, tax commissioner, and later the Board of Tax Appeals (“BTA”) and the 

Franklin County Court of Appeals all concluded that the receipts were Ohio-taxable 

receipts under the CAT law. We reverse and remand to the tax commissioner to 

issue refunds. 

I. RELEVANT BACKGROUND 

{¶ 2} ADT provides security services to residential and commercial 

property owners throughout the country. ADT enters into alarm-services contracts 

with its customers and provides remote monitoring services by receiving 

information from security equipment installed at customers’ properties. When an 

alarm is triggered, ADT contacts the customer and the police or fire authorities. 

{¶ 3} Defender is an Indianapolis-based company whose business consists 

of serving as an “authorized dealer” of ADT under an Authorized Dealer 

Agreement (the “master agreement”). Pursuant to the master agreement, Defender 

acts “exclusively” in its relationship to ADT, but it is not an agent of ADT. 

Defender (1) generates leads for new ADT customers through advertising, (2) 

installs equipment at the Ohio property of new customers, for which it collects and 

retains a fee, and (3) at time of installation, signs an alarm-services contract with 

Ohio customers under which ADT provides security-monitoring services to the 

Ohio customer. 

{¶ 4} Within Ohio, Defender operates four branch locations: Cincinnati, 

Columbus, Toledo, and Akron. But executive and administrative staff work is 

performed in Indiana at Defender’s Indianapolis headquarters. ADT interacts with 

both Defender and with Ohio customers from locations outside Ohio. 

{¶ 5} Defender collects new Ohio alarm-services contracts at its 

Indianapolis headquarters and forwards them to ADT’s dealer-support unit in 
January Term, 2020 

3

Aurora, Colorado. ADT decides whether to take assignment of each contract. The 

gross receipts at issue consist of payments ADT makes to Defender when ADT has 

accepted assignment of a customer contract. In 5 to 6 percent of instances, ADT 

rejects assignment of the contract and the customer pays Defender for securitymonitoring services provided by ADT. In all instances, ADT provides securitymonitoring services to Ohio customers from one of six monitoring locations, all 

outside Ohio. 

{¶ 6} These transactions lead to three types of revenue sources for 

Defender: (1) payments made by Ohio customers to Defender for the cost and 

installation of alarm-services equipment, (2) payments made by Ohio customers to 

Defender under the alarm-services contracts that are not accepted by ADT, and (3) 

payments made by ADT to Defender under the master agreement as consideration 

for ADT’s purchase of Ohio alarm-services contracts from Defender. There is no 

dispute as to the first two: Defender pays the CAT on the fees it obtains from Ohio 

customers for installing equipment and for alarm services when ADT does not 

purchase the contract. Only the third category, which we refer to as “ADT 

funding,” is at issue. 

II. COURSE OF PROCEEDINGS 

{¶ 7} Defender’s refund claim seeks the return of $73,334.82 for the 

quarterly tax periods during calendar years 2011, 2012, and 2013. To document 

the amount of refund, Defender submitted two summary documents but did not 

submit the business records underlying those summaries. First, Defender submitted 

a spreadsheet showing, for each quarter, the amount of “ADT funding,” the CAT 

rate of tax, and the resulting amount of refund claimed. Second, Defender 

submitted a spreadsheet showing, for each quarter, the total taxable gross receipts 

reported on Defender’s CAT return, the CAT amount paid, the taxable gross 

receipts “per refund claim,” and the amount of the CAT claimed as refund. 
SUPREME COURT OF OHIO

 4

{¶ 8} The tax commissioner denied the refund claim. He noted that 

Defender “seeks a refund for CAT it paid with respect to the Alarm Services 

Contract-fees it received from ADT,” but he did not question the sufficiency of the 

documentation of the refund amounts. The final determination also stated that 

Defender “obtains customer relationships for ADT” for which “ADT pays 

[Defender] a fee.” The commissioner concluded that Defender’s purchaser, ADT, 

“realizes the benefit of the Ohio-based Alarm Services Contracts in Ohio,” 

reasoning that “[w]ithout Ohio, the Alarm Services Contract-fees at issue would be 

wholly impossible,” with the result that “ADT’s benefit with respect to these Alarm 

Services Contract-fees must occur entirely within Ohio.” 

{¶ 9} The final determination also rejected Defender’s alternative claim that 

it could situs the receipts at ADT’s principal place of business in Colorado under 

Ohio Adm.Code 5703-29-17(C)(4)(c), which authorizes an agent who is a taxpayer 

to elect apportionment to the “principal place of business” of its principal. The 

commissioner found that Defender did not qualify as an “agent” under the CAT 

law, and Defender did not contest that finding on appeal. 

{¶ 10} On appeal, the BTA held a hearing at which Defender’s corporate

controller testified that she verified the claimed refund amounts by reviewing the 

internal business records on which the calculation of the refund amounts was based. 

{¶ 11} The BTA agreed with the tax commissioner’s conclusion that the 

proper situs of ADT funding should be Ohio inasmuch as “[i]t belies logic to argue 

that the purchaser (ADT) receives no benefit in Ohio from the contracts it purchases 

from Defender,” given that both Defender’s obtaining and ADT’s servicing of the 

contracts involves property in Ohio. BTA No. 2016-1030, 2018 WL 1372720 

(Mar. 6, 2018), at *3. In support, the BTA cited provisions of Ohio Adm.Code 

5703-29-17(C) that involve services rendered with respect to property located in 

Ohio, such as appraisal services (division (5)), architecture services (division (6)), 

and engineering services (division (20)). BTA No. 2016-1030, 2018 WL 1372720, 
January Term, 2020 

5

at *3. The BTA also stated that, in light of its ruling on the merits, it did not need 

to “further address the Tax Commissioner’s arguments about the sufficiency of the 

documentation underlying Defender’s refund claim.” Id. at *4. The BTA affirmed 

the commissioner’s denial of the refund claim. Id.

{¶ 12} Defender appealed to the Franklin County Court of Appeals, which 

affirmed the BTA’s decision. 2019-Ohio-725, ¶ 30. The court also held that the 

tax’s imposition did not violate the Commerce Clause. Id. at ¶ 42, 49-51. 

{¶ 13} Defender appealed to this court. We allowed jurisdiction as to three 

propositions of law: 

1. The appellate standard of review for legal questions 

addressed by the Board of Tax Appeals is de novo, without 

deference to the Tax Commissioner’s determination thereof. 

2. Gross receipts from the sale of intangible assets are 

sourced to the purchaser’s physical location(s) that receive and use 

the assets, not the location where the assets were originated. 

Therefore, Defender’s receipts from the sale of Alarm Services 

Contracts to ADT are sitused to ADT’s physical locations outside 

Ohio where it received the Alarm Services Contracts and utilized 

such Contracts by performing monitoring services for consumers.

3. The significant risk of double taxation caused by the Tax 

Commissioner’s conflicting applications of R.C. 5751.033(I) 

violates the fair apportionment requirement of the dormant 

Commerce Clause of the United States Constitution. 

III. SUFFICIENT EVIDENCE SUPPORTS THE REFUND CLAIM 

{¶ 14} Before turning to the propositions of law, we consider the tax 

commissioner’s argument that we should dismiss this appeal as improvidently 
SUPREME COURT OF OHIO

 6

allowed on the grounds that “Defender never offered business records to show what 

it paid on account of its sales of Ohio contracts to ADT.” Our review of the record 

persuades us that the documentation and testimony are sufficient to justify our 

consideration of the substantive issues. 

{¶ 15} Defender presented summary documents showing its CAT payments 

relating to the receipts at issue and then, at the BTA hearing, presented the 

testimony of its corporate controller to verify the summary documents in light of 

underlying records. Given this, we see no reason why the absence of primary 

documentation should deter us from reaching the legal issues when it did not deter 

the commissioner himself, in his final determination, from doing so without any 

suggestion of a defect in the evidence. Thus, we conclude that dismissal on 

evidentiary grounds would be inappropriate under these circumstances. 

IV. ANALYSIS 

A. The court of appeals correctly reviewed the legal issues de novo without 

deference to the tax commissioner 

{¶ 16} Defender’s first proposition of law asserts that the appellate standard 

of review for legal questions addressed by the BTA is de novo, without deference 

to the tax commissioner’s determination. Defender maintains that the court of 

appeals “erred by affording great deference to the Tax Commissioner’s 

determination” regarding the proper situs under R.C. 5751.033(I). See Progressive 

Plastics, Inc. v. Testa, 133 Ohio St.3d 490, 2012-Ohio-4759, 979 N.E.2d 280, ¶ 15 

(“the proper construction and application” of tax statutes “presents a question of 

law, and our review in that regard is not deferential but de novo”). While we do 

not dispute the applicability of the legal rule stated in Progressive Plastics, we 

disagree with the premise of Defender’s argument on this point.

{¶ 17} The court of appeals’ decision shows that the court decided the legal 

issue itself without deference to the tax commissioner’s determination. The court 

of appeals stated as follows: 
January Term, 2020 

7

Based on our de novo review of the record, we find the 

commissioner’s final determination to be reasonable and wellreasoned. We adopt his findings that Defender was not an agent of 

ADT, that the provisions of Ohio Adm.Code 5703-29-17(C)(4)(c) 

are inapplicable to this matter, and that ADT’s benefit with respect 

to the Alarm Services Contract-fees occurred entirely in Ohio. We 

find, as a matter of law, that Defender’s gross receipts from selling 

the Ohio-based contracts to ADT are sitused in Ohio and, therefore, 

subject to Ohio’s CAT. 

(Emphasis added.) 2019-Ohio-725 at ¶ 30. Because the court of appeals, in 

accordance with our case law, did apply a de novo standard of review, we find 

Defender’s argument under the first proposition of law to be without merit. 

B. Under R.C. 5751.033(I), the situs of “ADT funding” receipts is ADT’s 

physical locations outside Ohio 

{¶ 18} Defender’s second proposition of law presents the substantive tax 

issue in this appeal. Ohio’s CAT is “levied * * * on each person with taxable gross 

receipts for the privilege of doing business in this state.” R.C. 5751.02(A). Because 

business is conducted across state and international boundaries, imposing the tax 

often raises the thorny issue of how to properly allocate receipts to Ohio for 

taxation. The CAT law defines “[t]axable gross receipts” as “gross receipts sitused 

to this state under section 5751.033 of the Revised Code.” R.C. 5751.01(G). 

{¶ 19} The parties agree that R.C. 5751.033(I) applies to the gross receipts 

at issue. The statute provides a catch-all situs for “gross receipts not otherwise 

sitused under this section,” and it states that such receipts “shall be sitused to this 

state in the proportion that the purchaser’s benefit in this state with respect to what 

was purchased bears to the purchaser’s benefit everywhere with respect to what 
SUPREME COURT OF OHIO

 8

was purchased.” In determining that ratio, the statute further provides that “[t]he 

physical location where the purchaser ultimately uses or receives the benefit of 

what was purchased shall be paramount in determining the proportion of the benefit 

in this state to the benefit everywhere.” Id.

{¶ 20} Reduced to its essence, Defender’s second proposition of law 

presents the following question: Do Defender’s ADT-funding receipts have their 

situs within Ohio or outside Ohio under R.C. 5751.033(I)? The determination of 

situs under the statutory standard involves an “ ‘inference of an ultimate fact’ ” 

from the basic facts shown by the evidence. Marc Glassman, Inc. v. Levin, 119 

Ohio St.3d 254, 2008-Ohio-3819, 893 N.E.2d 476, ¶ 7, quoting Ace Steel Baling, 

Inc. v. Porterfield, 19 Ohio St.2d 137, 142, 249 N.E.2d 892 (1969). And the 

reasonableness of the inference from basic facts to an ultimate fact is a question of 

law on review. SFZ Transp., Inc. v. Limbach, 66 Ohio St.3d 602, 604-605, 613 

N.E.2d 1037 (1993). 

1. R.C. 5751.033(I) establishes situs at ADT’s physical locations outside Ohio 

{¶ 21} Under R.C. 5751.033(I), the “paramount” consideration when 

determining the proportion of the benefit attributed to Ohio is “[t]he physical 

location where the purchaser [ADT in this case] ultimately uses or receives the 

benefit of what was purchased.” Defender argues that ADT purchased intangible 

contract rights and that ADT’s physical locations outside Ohio are the places where 

ADT actually used and received the benefit of those contractual rights. We agree 

with Defender, and we conclude that the tax commissioner, the BTA, and the court 

of appeals all failed to properly distinguish between the benefit Ohio consumers 

received from ADT and the benefit ADT received by purchasing consumer 

contracts from Defender. 

{¶ 22} What ADT’s customers acquired was the benefit of ADT’s security

services in relation to their Ohio properties, and their payments for those services 

were Ohio taxable receipts under R.C. 5751.033(I). By contrast, what ADT 
January Term, 2020 

9

purchased from Defender consisted of intangible contract rights, and the benefit 

derived from the purchase lay in receiving payments from Ohio customers in 

consideration for ADT providing the contracted-for monitoring services from its 

locations outside Ohio. 

{¶ 23} The contrast of physical locations is stark. On the one hand, the 

physical locations at which ADT’s customers use and receive the benefit of ADT’s 

monitoring services are the Ohio properties protected by ADT. On the other hand, 

the physical locations at which ADT uses and receives the benefit of its contracts 

are ADT’s physical locations where it receives customer payments and performs 

services for Ohio customers—all of which, on this record, are outside Ohio. 

Because ADT uses and receives the benefit of the contracts it purchased from 

Defender outside Ohio, Defender’s receipts from the sale of those contracts are not 

sitused to Ohio under R.C. 5751.033(I). 

2. Ohio Adm.Code 5703-29-17 does not apply, nor does it furnish valuable 

analogies, because ADT purchases contracts rather than services 

{¶ 24} R.C. 5751.033(K) specifically authorizes the tax commissioner to 

“adopt rules to provide additional guidance to the application of this section, and 

provide alternative methods of situsing gross receipts that apply to all persons, or 

subset of persons, that are engaged in similar business or trade activities.” With 

respect to applying division (I) of R.C. 5751.033, the commissioner has exercised 

this power by promulgating Ohio Adm.Code 5703-29-17. 

{¶ 25} By its terms, the administrative rule addresses services, not 

intangible contract rights. Division (A) states a general rule about situsing receipts 

from services, division (B) defines terms and states some general principles 

concerning the situsing of services, and division (C) gives specific examples of how 

to determine the situs of receipts from enumerated services. In light of this, the tax 

commissioner himself categorically states in his brief that “the regulation is 

irrelevant because it relates to services, not intangibles.” This observation accords 
SUPREME COURT OF OHIO

 10 

with Defender’s emphasis on the transactions as sales of intangible assets and, on 

the record before us, we agree. 

{¶ 26} To be sure, Defender engages in the activity of signing up customers 

in Ohio who will mostly become customers of ADT, and that activity could be 

viewed as providing a service for ADT. But that approach runs aground on the 

simple fact that, under the master agreement, ADT does not pay Defender for 

signing up customers; it only pays Defender for those customer contracts that it 

purchases from Defender. Apart from actually selling a contract to ADT, Defender 

receives no “ADT funding” at all. 

{¶ 27} Because the administrative rule is inapplicable, the BTA erred when 

it analogized the present situation to the treatment of receipts of property appraisers, 

architects, and engineers under Ohio Adm.Code 5703-29-17(C)(5), (6), and (20). 

Under the administrative rule, the rendition of such services in relation to property 

in Ohio makes the receipt of fees by the skilled professional an Ohio-taxable 

receipt. But ADT does not pay Defender for performing services in relation to Ohio 

property. Indeed, when Defender installs alarm systems at Ohio properties that 

allow ADT to provide security-monitoring services, it is the Ohio customer who 

pays Defender, and after receiving those payments, Defender pays the CAT on 

them itself. 

3. The term “benefit” in R.C. 5751.033(I) should be interpreted according to its 

common, ordinary meaning, not an acquired meaning 

{¶ 28} The tax commissioner argues that the term “benefit” has acquired a 

special meaning in United States Supreme Court cases involving due-process or 

commerce-clause challenges to the imposition of state excise or income taxes. 

According to the commissioner, “benefit” connotes “government services that 

make business possible and profitable, such as ‘police and fire protection, the use 

of public roads and mass transit, and the other advantages of civilized society.’ ” 

Appellee’s brief at 18, quoting Goldberg v. Sweet, 488 U.S. 252, 267, 109 S.Ct. 
January Term, 2020 

11 

582, 102 L.Ed.2d 607 (1989). The commissioner reasons that the General 

Assembly “imported” this acquired meaning into R.C. 5751.033(I) by using the 

word “benefit” in the language of the statute. 

{¶ 29} As support for his argument, the commissioner cites Davis v. 

Michigan Dept. of Treasury, 489 U.S. 803, 813, 109 S.Ct. 1500, 102 L.Ed.2d 891 

(1989) (“When Congress codifies a judicially defined concept, it is presumed, 

absent an express statement to the contrary, that Congress intended to adopt the 

interpretation placed on that concept by the courts” [emphasis added]) and Case v. 

Los Angeles Lumber Prods. Co., Ltd., 308 U.S. 106, 115-116, 60 S.Ct. 1, 84 L.Ed. 

110 (1939) (interpreting the statutory phrase “fair and equitable” in a bankruptcy 

statute to incorporate a “fixed principle” established in court decisions). We reject 

the commissioner’s argument because, unlike in the cases he cites, “benefit” in R.C. 

5751.033(I) does not involve a “judicially defined” concept or a “fixed principle” 

established by case law. 

{¶ 30} Here “benefit” bears its ordinary meaning: “something that guards, 

aids, or promotes well being: advantage, good.” Webster’s Third New International 

Dictionary 204 (2002). R.C. 5751.033(I) uses the word “benefit” in the phrase 

“benefit of what was purchased,” but Defender did not sell police and fire service 

to ADT when it sold the service contracts. Instead of constituting the benefit 

derived from the bargain, the availability of government services is merely an 

assumption on which the contract is entered into. 

4. R.C. 5751.033(I) establishes situs where ADT uses or receives the benefit of

the contract rights—not where ADT uses the contract rights themselves 

{¶ 31} The tax commissioner also asserts that ADT “uses or receives” the 

intangible contract rights in Ohio to generate income for itself. But that is not the 

correct analysis under the plain language of R.C. 5751.033(I). The statute focuses 

on where ADT “used or received” the benefit of the contract rights it purchased 
SUPREME COURT OF OHIO

 12 

from Defender, not on where ADT “used or received” the contract rights 

themselves. 

{¶ 32} The tax commissioner points to R.C. 5751.033(F), which “allows 

Ohio to tax the ‘right to use’ a trademark in Ohio.” Division (F) does link tax situs 

to the use of intellectual property in Ohio. But this case does not address license 

fees for intellectual property, and all agree that the analysis here is controlled by 

R.C. 5751.033(I), not division (F). Under division (I), situs is determined not by 

looking at where ADT uses the contract rights, but where ADT “uses or receives 

the benefit of” the contract rights. 

{¶ 33} Likewise, the cases cited by the commissioner are inapposite. 

Taking Geoffrey, Inc. v. South Carolina Tax Comm., 313 S.C. 15, 437 S.E.2d 13 

(1993), as the paradigm case, we note that the South Carolina Supreme Court held 

that the state could impose income tax on Geoffrey’s royalty income to the extent 

that Geoffrey purposefully availed itself of the state’s protections by licensing its 

trademarks for use in that state. In Geoffrey, the taxpayer was deemed to have used 

the trademarks themselves in South Carolina but arguably received the benefit of 

its license agreements in its home state, Delaware. Applied to that situation, 

division (I) of R.C. 5751.033 would establish situs at the latter, not the former. 

C. We need not reach Defender’s third proposition of law 

{¶ 34} Because we rule in Defender’s favor on its statutory claim, we need 

not reach the constitutional claim set forth under its third proposition of law. 

V. CONCLUSION 

{¶ 35} For the foregoing reasons, we reverse the judgment of the court of 

appeals. We also remand to the tax commissioner with instructions that he issue 

refunds for 2011, 2012, and 2013 in the amounts set forth in the refund claim, plus 

the amount of any interest that may be provided for by statute. See Corrigan v. 

Testa, 149 Ohio St.3d 18, 2016-Ohio-2805, 73 N.E.3d 381, ¶ 71 (cause remanded 

to the tax commissioner for issuance of refunds).
January Term, 2020 

13 

Judgment reversed 

and cause remanded. 

KENNEDY, SINGER, FISCHER, DEWINE, DONNELLY, and STEWART, JJ., 

concur. 

ARLENE SINGER, J., of the Sixth District Court of Appeals, sitting for 

FRENCH, J. 

_________________ 

 Buckingham, Doolittle & Burroughs, L.L.C., Richard B. Fry III, and Steven 

A. Dimengo, for appellant. 

 Dave Yost, Attorney General, Benjamin M. Flowers, Solicitor General, 

Michael J. Hendershot, Chief Deputy Solicitor General, and Christine Mesirow, 

Assistant Attorney General, for appellee. 

_________________