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

Crutchfield Corp. v. Testa, Slip Opinion No. 2016-Ohio-7760.] 

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. 2016-OHIO-7760

CRUTCHFIELD CORPORATION, APPELLANT AND CROSS-APPELLEE, v. TESTA,

TAX COMMR., APPELLEE AND CROSS-APPELLANT. 

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

may be cited as Crutchfield Corp. v. Testa, Slip Opinion No. 2016-Ohio-7760.] 

Taxation—Commercial-activity tax (“CAT”)—Physical presence is not necessary 

condition for imposing CAT because CAT’s $500,000 sales-receipts 

threshold is adequate quantitative standard that ensures that taxpayer’s 

nexus with Ohio is substantial—Burdens imposed by CAT on interstate 

commerce are not clearly excessive in relation to Ohio’s legitimate 

interest in imposing CAT evenhandedly on sales receipts of in-state and 

out-of-state sellers—Board of Tax Appeals’ decision affirming CAT 

assessments against appellant affirmed. 

(No. 2015-0386—Submitted May 3, 2016—Decided November 17, 2016.) 

APPEAL and CROSS-APPEAL from the Board of Tax Appeals, 

Nos. 2012-926, 2012-3068, and 2013-2021. 

____________________ 
SUPREME COURT OF OHIO

2

O’NEILL, J. 

{¶ 1} Appellant and cross-appellee, Crutchfield Corporation, appeals from 

the imposition of Ohio’s commercial-activity tax (“CAT”) on revenue it has 

earned from sales of electronic products that it ships into the state of Ohio. 

Crutchfield is based outside Ohio, employs no personnel in Ohio, and maintains 

no facilities in Ohio. The business Crutchfield does in this state consists solely of 

shipping goods from outside the state to its consumers in Ohio using the United 

States Postal Service or common-carrier delivery services. In this appeal, 

Crutchfield contests the issuance of CAT assessments against it, arguing that Ohio 

may not impose a tax on the gross receipts associated with its sales to Ohio 

consumers because Crutchfield lacks a “substantial nexus” with Ohio. 

Crutchfield argues that a substantial nexus within a state is a necessary 

prerequisite to imposing the tax under the federal dormant Commerce Clause. 

Further, citing case law interpreting this substantial-nexus requirement, 

Crutchfield argues that its nexus to Ohio is not sufficiently substantial because it 

lacks a “physical presence” in Ohio—i.e., property in the state or agents or 

employees acting in the state in connection with its sales. 

{¶ 2} Appellee and cross-appellant, the tax commissioner, advances a twoprong defense. First, he argues that the Commerce Clause case law does not 

impose a physical-presence requirement and that as a result, the $500,000 salesreceipts threshold set forth in the Ohio CAT statute satisfies the Commerce 

Clause requirement of a substantial nexus. Second, even if the Commerce Clause 

does impose a physical-presence requirement, the tax commissioner argues, 

Crutchfield’s computerized connections with Ohio consumers involve the 

presence of tangible personal property owned either by Crutchfield or by 

contractors acting specifically on Crutchfield’s behalf and the presence of that 

property on computers located in Ohio constitutes physical presence in this state. 
January Term, 2016 

3

{¶ 3} We agree with the first prong of the tax commissioner’s argument, 

and we therefore do not address the second one. Our reading of the case law 

indicates that the physical-presence requirement recognized and preserved by the 

United States Supreme Court for purposes of use-tax collection does not extend to 

business-privilege taxes such as the CAT. We further conclude that the statutory 

threshold of $500,000 of Ohio sales constitutes a sufficient guarantee of the 

substantiality of an Ohio nexus for purposes of the dormant Commerce Clause. 

We therefore affirm the decision of the Board of Tax Appeals (“BTA”) and the 

assessments issued by the tax commissioner against Crutchfield. 

The CAT’s Statutory Bright-Line-Presence Standard

{¶ 4} The CAT is imposed under R.C. 5751.02(A), which levies “a 

commercial activity tax on each person with taxable gross receipts for the 

privilege of doing business in this state.” To determine what constitutes “taxable 

gross receipts,” we look to R.C. 5751.01(G), which defines them as “gross 

receipts sitused to this state under section 5751.033 of the Revised Code.” In the 

case of sales of tangible personal property like those made by Crutchfield, R.C. 

5751.033(E) informs us that the sales are “sitused to this state if the property is 

received in this state by the purchaser.” The statute specifies that when property 

is delivered “by motor carrier or by other means of transportation, the place at 

which such property is ultimately received after all transportation has been 

completed shall be considered the place where the purchaser receives the 

property.” Id. It is the tax commissioner’s position that by filling orders initiated 

on computers in Ohio and arranging for its products to be transported into Ohio, 

the receipts from Crutchfield’s sales qualify as “taxable gross receipts” under this 

provision. 

{¶ 5} Next, we turn back to the imposition of the CAT under R.C. 

5751.02(A) on the “privilege of doing business.” The statute defines “doing 

business” as “engaging in any activity, whether legal or illegal, that is conducted 
SUPREME COURT OF OHIO

4

for, or results in, gain, profit, or income, at any time during a calendar year.” 

Specifically, the statute states that the CAT is imposed on “persons with 

substantial nexus with this state,” id., a phrase defined at R.C. 5751.01(H)(3) to 

include persons having a “bright-line presence in this state.” R.C. 5751.01(I)(3) 

includes within the bright line of taxability those persons having “during the 

calendar year taxable gross receipts of at least five hundred thousand dollars.” 

{¶ 6} There are other statutory bases for imposing the CAT, but the brightline standard of receipts from sales into the state that amount to $500,000 per 

calendar year is the one that is relevant in this appeal. We refer to this basis for 

imposing the CAT as the $500,000 sales-receipts threshold in this opinion. 

Factual Background

{¶ 7} This is an appeal from a decision issued by the BTA on February 26, 

2015, in consolidated case Nos. 2012-926, 2012-3068, and 2013-2021. The three 

BTA cases were appeals from three separate final determinations of the tax 

commissioner: 

 In BTA case No. 2012-926, the tax commissioner issued 19 assessments 

covering audit periods that extended from July 1, 2005 (the inception of the 

CAT) to June 30, 2010. The assessments amounted to $65,689 in tax, 

$5,659.94 in preassessment interest, and $37,128.23 in penalties, for a total 

assessed amount of $106,239.43. 

 In BTA case No. 2012-3068, the tax commissioner issued five assessments for 

five quarterly periods beginning July 2010 and ending September 2011. The 

assessments were based on estimated tax amounts of $10,000 per period; the 

total amount assessed with interest and penalties was $60,988.50. 

 In BTA case No. 2013-2021, the commissioner issued assessments for the last 

quarter of 2011 and the first two quarters of 2012 based on estimated tax 

amounts of $10,000 per quarter. The assessments consisted of tax plus 

interest and penalties for a total amount of $39,703.01. 
January Term, 2016 

5

{¶ 8} In each instance, Crutchfield contested the original assessments, 

advancing statutory and constitutional challenges. The tax commissioner issued 

three final determinations covering all the assessments. 

{¶ 9} The final determinations are substantially the same. Each final 

determination notes that Crutchfield is “a corporation based in Virginia,” that it 

functions as “a direct marketer that sells consumer electronics through the Internet 

from locations entirely outside of Ohio,” and that it “ships its merchandise via the 

U.S. Mail or using common carriers.” The final determinations rejected 

Crutchfield’s objections on the grounds that the taxpayer “has ‘substantial nexus 

with this state,’ as that phrase is defined in R.C. 5751.01(H),” inasmuch as 

Crutchfield “satisfies the third and/or fourth conditions in that division, and 

therefore is a person on whom the tax is levied.”1

{¶ 10} Next, the final determinations found that Crutchfield “sells 

consumer goods through orders received via the Internet and telephone orders,” 

noting that Crutchfield “admits that it has customers in Ohio to which it sells and 

ships these goods.” After further discussion of the relevant statutory provisions, 

the final determinations state that Crutchfield’s “overriding assertion is that the 

Commerce Clause of the United States Constitution precludes the State of Ohio 

from subjecting it to the commercial activity tax” and that Crutchfield maintains 

that “the nexus required is a ‘physical presence’ in the taxing state, which it 

alleges it did not have during the assessed periods.” 

{¶ 11} In all three cases, the tax commissioner found that Crutchfield had 

“more than $500,000 in sales to customers in Ohio” and that Crutchfield “failed to 

file and pay the commercial activity tax.” The commissioner made no factual 

 

1

 The “third condition,” R.C. 5751.01(H)(3), refers to the bright-line-presence provision at 

division (I) of the section, which imposes the tax given $500,000 in sales receipts; the “fourth 

condition” is a catchall at R.C. 5751.01(H)(4) that applies when a taxpayer “[o]therwise has nexus 

with this state to an extent that the person can be required to remit the tax imposed under this 

chapter under the Constitution of the United States.” 
SUPREME COURT OF OHIO

6

finding regarding physical presence but instead noted that he lacked authority to 

“adjudicate the constitutionality of th[e] statutes.” At the BTA, Crutchfield 

stipulated that it did “not contest the amounts of estimated Ohio Commercial 

Activity Tax set forth on the assessments” while reasserting that it was immune 

from the tax. 

Proceedings at the BTA 

{¶ 12} At the BTA, Crutchfield offered the testimony of two company 

employees, its senior vice president of finance and its director of Internet 

marketing. The former testified concerning the company’s active intent to avoid 

nexus anywhere but in its home state of Virginia. The latter testified concerning 

the general character of Crutchfield’s Internet marketing efforts, with the thrust 

being that no specific effort was targeted at Ohio. 

{¶ 13} With respect to the constitutional issues, the parties offered expert 

opinions concerning Crutchfield’s promotion of its products and filling orders in 

conjunction with its customers’ use of computers in Ohio. The tax commissioner 

offered written reports of two marketing experts, Ashkan Soltani and Joseph 

Turow, while Crutchfield offered the written report of its own marketing expert, 

Eric Goldman. The conflicting expert opinions addressed the tax commissioner’s 

theory that interstate sales through the Internet involved “physical presence” 

because of the physical realities of online transactions. 

Crutchfield’s Arguments and the BTA’s Decision

{¶ 14} Before the BTA, Crutchfield argued that its “gross receipts * * * 

cannot be taxed consistent with the Constitution,” inasmuch as Crutchfield “lacks 

the in-state business activity required by the Commerce Clause.” Crutchfield also 

argued that “[i]n addition to violating the Constitution,” the assessments against 
January Term, 2016 

7

Crutchfield violated the provision of the CAT statute that excluded receipts when 

the tax could not constitutionally be applied.2

{¶ 15} In its decision, the BTA rejected Crutchfield’s reading of the 

statutory provisions by relying on the plain meaning of the bright-line $500,000 

sales-receipts threshold and citing its earlier resolution of the issue in L.L. Bean, 

Inc. v. Levin, BTA No. 2010-2853, 2014 Ohio Tax LEXIS 1539 (Mar. 6, 2014). 

BTA Nos. 2012-926, 2012-3068, and 2013-2021, 2015 WL 1048564 or 1048699, 

*4 (Feb. 26, 2015). As for Crutchfield’s constitutional challenge, the board noted 

that it lacked jurisdiction to decline to apply statutes on constitutional grounds. 

Id. at *3. The BTA therefore affirmed the assessments issued by the tax 

commissioner. 

Standard of Review

{¶ 16} This appeal presents questions of statutory construction and the 

constitutional validity of applying the CAT statute. These constitute legal 

questions, which we decide de novo without deference, Akron Centre Plaza, 

L.L.C. v. Summit Cty. Bd. of Revision, 128 Ohio St.3d 145, 2010-Ohio-5035, 942 

N.E.2d 1054, ¶ 10. As for entertaining the Commerce Clause challenge to the 

application of the CAT statute, “the BTA receives evidence at its hearing, but we 

determine the facts necessary to resolve the constitutional question.” MCI 

Telecommunications Corp. v. Limbach, 68 Ohio St.3d 195, 198, 625 N.E.2d 597 

(1994). 

Crutchfield Properly Raised its Constitutional Challenge to the CAT 

Assessments

{¶ 17} In his cross-appeal, the tax commissioner renews an argument that 

we already rejected when we denied the commissioner’s motion to dismiss. See

 

2

 Crutchfield’s BTA brief quoted former R.C. 5751.01(F)(2)(jj) (now (F)(2)(ll)), which excludes 

from the statutory definition of “gross receipts” “[a]ny receipts for which the tax imposed by this 

chapter is prohibited by the constitution or laws of the United States or the constitution of this 

state.” 
SUPREME COURT OF OHIO

8

143 Ohio St.3d 1414, 2015-Ohio-2911, 34 N.E.3d 928. Namely, the 

commissioner contends that “Crutchfield has failed to impart jurisdiction on the 

BTA, and therefore derivatively on this Court, to consider its as-applied 

constitutional challenges.” While the tax commissioner is correct that a failure to 

specify an as-applied challenge in the notice of appeal to the BTA would bar that 

kind of relief, the commissioner is wrong about the content of the notices of 

appeal that Crutchfield filed at the BTA. Each notice of appeal states in the sixth 

assignment of error that “[a]pplication of the CAT to Crutchfield would violate 

the Company’s rights under the Commerce Clause of the United States 

Constitution.” The notices of appeal also state that “Crutchfield is protected from 

imposition of the Commercial Activity Tax (‘CAT’) under the Commerce Clause 

of the United States Constitution” and that “[a]s it applies to gross receipts taxes 

like the CAT, the [Supreme] Court has made clear that the physical presence 

standard is only satisfied through in-state activities by, or on behalf of, the 

taxpayer that are significantly associated with its ability to establish and maintain 

a market in the state.” 

{¶ 18} Taken together, these assertions adequately specify the 

constitutional error. We do not recognize any significance to the distinction 

between a facial or as-applied challenge in the present context; we find that the 

notices of appeal suffice to place both theories at issue, inasmuch as any facial 

challenge under the Commerce Clause nexus standard would necessarily have to 

demonstrate that the statute could not constitutionally be applied to Crutchfield 

itself; that would be a necessary predicate for showing that the statute is 

unconstitutional in all its applications. See Harrold v. Collier, 107 Ohio St.3d 44, 

2005-Ohio-5334, 836 N.E.2d 1165, ¶ 37 (“A facial challenge to a statute is the 

most difficult to bring successfully because the challenger must establish that 

there exists no set of circumstances under which the statute would be valid”).
January Term, 2016 

9

The CAT Statute Manifests Clear Legislative Intent to Impose the CAT 

Based on the $500,000 Sales-Receipts Threshold

{¶ 19} Crutchfield argues that the CAT statute may be construed and 

applied to avoid the constitutional infirmity that it raises here, but these arguments 

do not withstand close scrutiny. 

{¶ 20} First, Crutchfield argues that this court should strictly construe 

“doing business” under R.C. 5751.02(A) to avoid the constitutional infirmity, by 

holding that Crutchfield’s lack of physical presence means that it was not “doing 

business” in Ohio. But “doing business” is defined in R.C. 5751.02(A) solely for 

the purpose of establishing that “privilege of doing business,” the incidence of the 

tax, broadly includes profit-seeking activities. Interpreting the term “doing 

business” to exclude situations in which there is no physical presence simply 

would not be consistent with the broad intent reflected in the language of the 

provision. 

{¶ 21} Moreover, after defining “doing business,” R.C. 5751.02(A) 

proceeds to explicitly impose the tax on “persons with substantial nexus,” which 

includes, under R.C. 5751.01(I)(3), those persons who satisfy the $500,000 salesreceipts threshold. Thus, far from avoiding the constitutional infirmity, the 

“doing business” language of R.C. 5751.02(A) invites the constitutional challenge 

to be considered on its own terms. 

{¶ 22} Crutchfield asserts that the tax commissioner’s interpretation of 

R.C. 5751.02(A) “read[s] out of the statute [its] primary, in-state activities 

requirement.” But the statute speaks of taxing “the privilege of doing business in 

this state” without stating an “in-state activities requirement,” much less any 

reference to the additional requirement of physical presence within the state. Nor 

is there any ambiguity to be interpreted in Crutchfield’s favor in this section; the 

reference to a “physical presence” requirement is unambiguously absent, and the 
SUPREME COURT OF OHIO

10 

insistence that the tax is imposed on persons based on the $500,000 sales-receipts 

threshold is unambiguously incorporated by reference. 

{¶ 23} Second, Crutchfield contends that former R.C. 5751.01(F)(2)(jj) 

(now (F)(2)(ll)) should be construed to preempt imposition of the CAT based on 

the $500,000 sales-receipts threshold. That provision states that “ ‘[g]ross 

receipts’ excludes * * * [a]ny receipts for which the tax imposed by this chapter is 

prohibited by the constitution or laws of the United States or the constitution of 

this state.” According to Crutchfield, the “only reasonable interpretation of the 

exclusion is that the General Assembly wished to avoid conflict with all 

limitations on the State’s authority to impose a tax measured by gross receipts, 

including restrictions arising under the substantial nexus requirement of the 

dormant Commerce Clause.” 

{¶ 24} We disagree. The proposed interpretation is irreconcilable with the 

insistence in R.C. 5751.02(A) that the “[p]ersons on which the commercial 

activity tax is levied include, but are not limited to, persons with substantial nexus 

with this state.” (Emphasis added.) This language invokes by reference the 

$500,000 sales-receipts threshold for imposing the tax as part of the definition of 

“substantial nexus with this state” under R.C. 5751.01(H), but the language then 

proceeds to express legislative intent that the tax not even be bound by that 

expansive definition. This cannot be squared with attributing to the legislature an 

intent to acquiesce in the substantial-nexus/physical-presence test that Crutchfield 

advocates here. 

{¶ 25} Moreover, R.C. 5751.01(F)(2)(ll) excludes receipts from the “gross 

receipts” definition; it does not create an exception to the statute’s substantialnexus definition. The exclusion requires the tax commissioner to disregard any 

receipts that by their character, or the character of the taxpayer itself, are immune 

or exempt from state taxation as a matter of federal constitutional or statutory law. 

See NLO, Inc. v. Limbach, 66 Ohio St.3d 389, 394, 613 N.E.2d 193 (1993) (“The 
January Term, 2016 

11 

federal Supremacy Clause, Clause 2, Article VI, United States Constitution, 

prevents the state from taxing the federal government and its instrumentalities”). 

Under the statute’s definition of “[e]xcluded person,” R.C. 5751.01(E), “the state 

and its agencies, instrumentalities, or political subdivisions” are not subject to the 

CAT, R.C. 5751.01(E)(8), but the definition makes no mention of the federal 

government and its instrumentalities. As a result, it is the gross-receipts exclusion 

at R.C. 5751.01(F)(2)(ll) that removes the federal government and its 

instrumentalities from the operation of the CAT. It is unnecessary to find 

additional legislative purposes for the provision. 

{¶ 26} For the foregoing reasons, we reject Crutchfield’s statutory 

challenges to the CAT assessments. 

“Substantial Nexus” Does Not Require a Taxable “Local Incident”

{¶ 27} Our analysis of this appeal under the Commerce Clause begins 

with a “before and after” view of the case law. The pivot point is Complete Auto 

Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977), which 

altered how the dormant Commerce Clause interacts with a state’s taxing powers. 

{¶ 28} Before Complete Auto, we characterized the United States Supreme 

Court case law as “enigmatic,” embodying “[a]t the opposite ends of the 

conceptual spectrum * * * two competing * * * propositions that (1) a state may 

not levy a tax for the privilege of engaging in interstate commerce * * * and (2) 

interstate commerce must pay its way in relation to the immediate benefits and 

protections afforded it by the state.” United Air Lines, Inc. v. Porterfield, 28 Ohio 

St.2d 97, 102, 276 N.E.2d 629 (1971). Whatever other effect it had, Complete 

Auto abolished the first of these two principles by embracing the doctrine of those 

cases in which the high court had “rejected the proposition that interstate 

commerce is immune from state taxation.” Complete Auto at 288. 

{¶ 29} In place of the old conceptual framework, the high court articulated 

the now familiar four-prong test, under which a state tax is valid if is “applied to 
SUPREME COURT OF OHIO

12 

an activity with a substantial nexus with the taxing State, is fairly apportioned, 

does not discriminate against interstate commerce, and is fairly related to the 

services provided by the State.” Id. at 279. It is, of course, the requirement of a 

substantial nexus that is at issue in this appeal. 

{¶ 30} The main flaw in Crutchfield’s argument lies in its reliance on case 

law that embodies the since-discarded theory of interstate-commerce immunity 

from state taxation. Namely, Crutchfield cites cases in which a taxable “local 

incident” was required as a predicate for state taxation, because the privilege of 

engaging in interstate commerce was regarded as immune from state taxation. 

See also Freeman v. Hewit, 329 U.S. 249, 252, 254, 67 S.Ct. 274, 91 L.Ed. 265 

(1946) (“by its own force,” the dormant Commerce Clause “created an area of 

trade free from interference by the States,” with the result that the Commerce 

Clause barred “a levy upon the very process of commerce across State lines”); 

Spector Motor Serv., Inc. v. O’Connor, 340 U.S. 602, 608, 71 S.Ct. 508, 95 L.Ed. 

573 (1951) (invalidating tax that was “placed unequivocally upon the 

corporation’s franchise for the privilege of carrying on exclusively interstate 

transportation in the state”). Crutchfield then equates the taxable “local incident” 

required in earlier cases with “substantial nexus” under Complete Auto. 

{¶ 31} Crutchfield relies in particular on Norton Co. v. Dept. of Revenue, 

340 U.S. 534, 71 S.Ct. 377, 95 L.Ed. 517 (1951). In Norton, a Massachusetts 

manufacturer had a Chicago office through which it made sales in Illinois; it 

separately engaged in a purely mail-order business in which in-state customers 

mailed an order to Massachusetts that was then filled by mailing the ordered items 

back to Illinois. Illinois assessed a retail-business tax measured by gross receipts 

against the manufacturer, which protested that it was engaged in interstate 

commerce. The manufacturer’s argument was rejected in state court. 

{¶ 32} On appeal, the Supreme Court noted that the state statute exempted 

“ ‘business in interstate commerce’ as required by the Constitution.” Id. at 535-
January Term, 2016 

13 

536. The court vacated the state court judgment and remanded the cause to 

distinguish those transactions involving purely mail-order business; once 

identified, those transactions would be held immune from the state tax. Id. at 539. 

The linchpin of the court’s analysis is instructive: 

Where a corporation chooses to stay at home in all respects 

except to send abroad advertising or drummers to solicit orders 

which are sent directly to the home office for acceptance, filling, 

and delivery back to the buyer, it is obvious that the State of the 

buyer has no local grip on the seller. Unless some local incident 

occurs sufficient to bring the transaction within its taxing power, 

the vendor is not taxable. McLeod v. [J.E.] Dilworth Co., 322 U.S. 

327 [64 S.Ct. 1023, 88 L.Ed. 1304 (1944)]. Of course, a state 

imposing a sales or use tax can more easily meet this burden, 

because the impact of those taxes is on the local buyer or user. 

Cases involving them are not controlling here, for this tax falls on 

the vendor. 

(Emphasis added.) Norton at 537. 

{¶ 33} At first blush, this passage could be mistaken for a statement about 

the substantiality of nexus, and that is precisely the error that Crutchfield makes. 

Read in context, however, the passage does not at all comment on “substantial 

nexus”; instead, it reflects the interstate-commerce-immunity theory, whereby the 

sales made by or through local agents in the state—such as the purchases in Ohio 

of Crutchfield’s products—are taxable as local commerce, but the strictly mailorder transactions are immune as purely interstate commerce. 

{¶ 34} Crutchfield maintains that the local incident in a case like Norton

equates to the substantial-nexus requirement of the Complete Auto test. That is 
SUPREME COURT OF OHIO

14 

wrong. Complete Auto abolished the prohibition against levying a tax on the 

privilege of engaging in interstate commerce, and the Supreme Court’s 

articulation of the substantial-nexus test was not intended to resurrect it. 

{¶ 35} Essentially, the same is true for the other pre-Complete Auto cases 

cited and relied upon by Crutchfield. In Standard Pressed Steel Co. v. 

Washington Dept. of Revenue, 419 U.S. 560, 562-563, 95 S.Ct. 706, 42 L.Ed.2d 

719 (1975), the high court rejected the proposed analogy to Norton on the grounds 

that Norton presented the questions whether the in-state activity related to the 

interstate aspect of the business and whether the taxpayer had to prove the 

absence of such a relationship in order to “establish[ ] its immunity” from state 

taxation; by contrast, Standard Pressed Steel had an employee “with a full-time 

job within the State” that consisted of maintaining the seller’s relationship with its 

in-state customer, Boeing. In Gen. Motors Corp. v. Washington, 377 U.S. 436, 84 

S.Ct. 1564, 12 L.Ed.2d 430 (1964), the high court invoked the proposition as 

“ ‘beyond dispute * * * that a state may not lay a tax on the “privilege” of 

engaging in interstate commerce.’ ” Id. at 446, quoting Northwestern States 

Portland Cement Co. v. Minnesota, 358 U.S. 450, 458, 79 S.Ct. 357, 3 L.Ed.2d 

421 (1959). But the court then distinguished the facts before it as involving 

taxation of the “in-state activities” performed by “out-of-state personnel”; though 

maintaining no office in the state, General Motors employees nonetheless 

regularly performed substantial services within the state to maintain dealer 

contacts. Id. at 447. 

{¶ 36} In Field Ents., Inc. v. Washington, 47 Wash.2d 852, 289 P.2d 1010 

(1955), summarily aff’d, 352 U.S. 806, 77 S.Ct. 55, 1 L.Ed.2d 39 (1956), a 

Delaware corporation published World Book Encyclopedia and Childcraft; it 

maintained a Seattle office, where its representative took orders that were then 

filled outside the state with books mailed directly to the customers. The case was 

decided on the Commerce Clause ground that the in-state activity was sufficient, 
January Term, 2016 

15 

so that Washington’s business tax was not being laid on the privilege of engaging 

in interstate commerce. Although the interstate-commerce-immunity rationale 

does not appear on the face of the decision, it is manifest in its reliance on the 

earlier decision in B.F. Goodrich Co. v. State, 38 Wash.2d 663, 231 P.2d 325 

(1951), which—although not itself explicitly mentioning interstate-commerce 

immunity—exhibits its adherence to the doctrine by its reliance on the United 

States Supreme Court’s decision in Norton. 

Quill Does Not Apply to Business-Privilege Taxes, Whether Measured by 

Income or by Receipts

{¶ 37} The proper focal point of discussion of the physical-presence 

standard in the case law is Quill Corp. v. North Dakota, 504 U.S. 298, 112 S.Ct. 

1904, 119 L.Ed.2d 91 (1992). That is so because Quill explicitly considers the 

substantial-nexus prong of the Commerce Clause test in light of the change in that 

test effected by Complete Auto and finds the need for a physical presence under 

the circumstances presented in Quill. 

{¶ 38} Quill involved a challenge to the typical state-law requirement that 

out-of-state sellers act as agents of the state by charging, collecting, and remitting 

sales or use taxes3 incurred by in-state buyers when they ordered items for 

delivery into the state. In Quill, North Dakota imposed the administrative 

obligation to charge, collect, and remit taxes on persons who “ ‘engage[ ] in 

regular or systematic solicitation of a consumer market in th[e] state.’ ” Id. at 

302-303, quoting N.D.Century Code 57-40.2-01(6). The law thereby swept 

within its ambit mail-order firms that solicited business through advertising within 

the state. Id. at 303. When Quill resisted, a trial court upheld its position against 

 

3

 “As a corollary to its sales tax, North Dakota imposes a use tax upon property purchased for 

storage, use, or consumption within the State.” Quill at 302; accord Proctor & Gamble Co. v. 

Lindley, 17 Ohio St.3d 71, 73, 477 N.E.2d 1109 (1985) (“R.C. 5739.02 imposes an excise tax on 

each retail sale made in Ohio, with R.C. 5741.02 imposing a complementary excise tax on the use 

of tangible personal property in Ohio”). 
SUPREME COURT OF OHIO

16 

the state on the authority of Natl. Bellas Hess, Inc. v. Dept. of Revenue of State of 

Illinois, 386 U.S. 753, 87 S.Ct. 1389, 18 L.Ed.2d 505 (1967), which had held that 

requiring a Missouri mail-order business to collect the Illinois use tax violated 

due-process and Commerce Clause standards. The state supreme court reversed, 

allowing imposition of the collection responsibility on Quill. 

{¶ 39} On appeal, the United States Supreme Court reversed. First, the 

high court rejected the due-process ground of the Bellas Hess holding, concluding 

that the activity by which North Dakota sought to impose the obligation 

constituted purposeful availment of the state’s benefits and protections. Quill at 

307-308. As for the Commerce Clause ground, however, the Quill court 

reaffirmed the holding of Bellas Hess and prohibited North Dakota’s imposition 

of the collection responsibility. Quill at 310-318. 

{¶ 40} With respect to Commerce Clause case law, the court in Quill

discerned that the substantial-nexus test carried forward the limitation, set forth in 

Bellas Hess, that out-of-state sellers could incur use-tax compliance obligations 

based only on physical presence in the state, Bellas Hess at 758 (distinguishing 

“between mail order sellers with retail outlets, solicitors, or property within a 

State, and those who do no more than communicate with customers in the State 

by mail or common carrier as part of a general interstate business”). Quill at 311-

313. 

{¶ 41} The Supreme Court had concluded in Bellas Hess that this 

continued limitation was justified by the burdens imposed on interstate commerce 

by multiple jurisdictions imposing use taxes with differing rates, exemptions, and 

record-keeping requirements. Bellas Hess at 759-760. In Quill, the court noted 

that the “settled expectations” of mail-order sellers arising from Bellas Hess may 

have facilitated such interstate business and that the physical-presence rule was 

therefore worth preserving. 504 U.S. at 316, 112 S.Ct. 1904, 119 L.Ed.2d 91. 
January Term, 2016 

17 

{¶ 42} We hold today that although a physical presence in the state may 

furnish a sufficient basis for finding a substantial nexus, Quill’s holding that 

physical presence is a necessary condition for imposing the tax obligation does 

not apply to a business-privilege tax such as the CAT, as long as the privilege tax 

is imposed with an adequate quantitative standard that ensures that the taxpayer’s 

nexus with the state is substantial. Here, that quantitative standard is the 

$500,000 sales-receipts threshold. 

{¶ 43} We discern the basis for our holding in Quill itself and the related 

United States Supreme Court precedents. First, Quill contains two passages that 

indicate that the physical-presence standard has not been articulated as a nexus 

requirement in the business-privilege-tax situation. In rejecting North Dakota’s 

argument that the court had eschewed such a “bright-line test” as physical 

presence, the Supreme Court conceded that “we have not, in our review of other 

types of taxes, articulated the same physical-presence requirement that Bellas 

Hess established for sales and use taxes”; the court then stated that “that silence 

does not imply repudiation of the Bellas Hess rule.” Quill at 314. The contrast 

was drawn even more trenchantly in the concluding passage of the opinion, in 

which the court noted that “our cases subsequent to Bellas Hess and concerning 

other types of taxes” did not “adopt[ ] a similar bright-line, physical-presence 

requirement”; the court then observed that “our reasoning in those cases does not 

compel that we now reject the rule that Bellas Hess established in the area of 

sales and use taxes.” (Emphasis added.) Quill at 317. 

{¶ 44} Second, the case law post-Complete Auto establishes that for 

purposes of applying the four-prong Commerce Clause test, business-privilege 

taxes should be distinguished from transaction taxes such as the sales and use tax. 

In Oklahoma Tax Comm. v. Jefferson Lines, Inc., 514 U.S. 175, 115 S.Ct. 1331, 

131 L.Ed.2d 261 (1995), a Minnesota bus company had collected and remitted the 

Oklahoma sales tax on transportation services for trips within Oklahoma but not 
SUPREME COURT OF OHIO

18 

for trips originating in Oklahoma and terminating outside the state. In bankruptcy 

proceedings, the state attempted to collect the unremitted tax through a vendor 

assessment; there, the state confronted a Commerce Clause defense. One aspect 

of that defense was that the Commerce Clause required the sales tax to be 

apportioned to apply only to mileage within Oklahoma itself, see Cent. 

Greyhound Lines, Inc. v. Mealey, 334 U.S. 653, 68 S.Ct. 1260, 92 L.Ed. 1633 

(1948) (holding unconstitutional an unapportioned tax on gross receipts of 

company that sold tickets for interstate bus travel). 

{¶ 45} The United States Supreme Court rejected that position, relying 

principally on the different identities of the taxpayer: the interstate seller of the 

bus ticket, on whom a gross-receipts tax is imposed, and the in-state purchaser of 

the ticket, on whom a sales tax is imposed. The high court stated: 

[Central Greyhound and Jefferson Lines] involve the identical 

services, and apportionment by mileage per State is equally 

feasible in each. But the two diverge crucially in the identity of the 

taxpayers and the consequent opportunities that are understood to 

exist for multiple taxation of the same taxpayer. Central 

Greyhound did not rest simply on the mathematical and 

administrative feasibility of a mileage apportionment, but on the 

Court’s express understanding that the seller-taxpayer was exposed 

to taxation by New Jersey and Pennsylvania on portions of the 

same receipts that New York was taxing in their entirety. The 

Court thus understood the gross receipts tax to be simply a variety 

of tax on income, which was required to be apportioned to reflect 

the location of the various interstate activities by which it was 

earned. 
January Term, 2016 

19 

(Emphasis added.) Jefferson Lines at 190. Accord Comptroller of Treasury of 

Maryland v. Wynne, ___ U.S. ___, 135 S.Ct. 1787, 1795, 191 L.Ed.2d 813 (2015) 

(seeing “no reason why the distinction between gross receipts and net income 

should matter” in evaluating Commerce Clause challenge to imposition of a state 

tax). 

{¶ 46} Thus, Jefferson Lines puts the United States Supreme Court on 

record that for purposes of applying the Complete Auto test, a gross-receipts tax 

on the interstate seller should be viewed as occupying the same constitutional 

category as an income tax on that same seller—whereas the sales tax on the instate purchaser occupies a different category. That reasoning tracks the 

background and purpose of Ohio’s CAT, which, enacted to replace the former 

corporate-franchise tax, is imposed on the privilege of engaging in incomeproducing activity but is measured by gross receipts instead of income. See 

Navistar, Inc. v. Testa, 143 Ohio St.3d 460, 2015-Ohio-3283, 39 N.E.3d 509, ¶ 1, 

8; Beaver Excavating Co. v. Testa, 134 Ohio St.3d 565, 2012-Ohio-5776, 983 

N.E.2d 1317, ¶ 23-24. 

{¶ 47} Under these precepts, we follow our own lead along with that of 

most state courts that, post-Quill, have explicitly rejected the extension of the 

Quill physical-presence standard to taxes on, or measured by, income. See

Couchot v. State Lottery Comm., 74 Ohio St.3d 417, 425, 659 N.E.2d 1225 (1996) 

(“There is no indication in Quill that the Supreme Court will extend the physicalpresence requirement to cases involving taxation measured by income derived 

from the state”); Capital One Bank v. Commr. of Revenue, 453 Mass. 1, 13, 899 

N.E.2d 76 (2009) (declining to “expand the [United States Supreme] Court’s 

reasoning [in Quill] beyond its articulated boundaries” and upholding imposition 

of tax on out-of-state banks in relation to in-state servicing of credit cards based 

on the volume of business conducted and profits realized); MBNA Am. Bank, N.A. 

v. Indiana Dept. of State Revenue, 895 N.E.2d 140, 143 (Ind.Tax 2008) (“Based 
SUPREME COURT OF OHIO

20 

on [Quill] and a thorough review of relevant case law, this Court finds that the 

Supreme Court has not extended the physical presence requirement beyond the 

realm of sales and use taxes”); KFC Corp. v. Iowa Dept. of Revenue, 792 N.W.2d 

308, 328 (Iowa 2010) (“We * * * doubt that the United States Supreme Court 

would extend the ‘physical presence’ rule outside the sales and use context of 

Quill”). But see J.C. Penney Natl. Bank v. Johnson, 19 S.W.3d 831, 839 

(Tenn.App.1999), in which an intermediate appellate court, rejecting the state’s 

argument that Quill did not apply, overruled the imposition of the state’s franchise 

and excise taxes on a bank in relation to the servicing of credit cards issued to 

Tennessee residents, on the ground that the bank had no offices or agents in the 

state.4

{¶ 48} We recognize that Crutchfield seeks to take refuge in a handful of 

state court decisions addressing gross-receipts taxes, but we find that those 

decisions are unavailing for reasons we discuss in the next section. 

Under Tyler Pipe, Physical Presence Is a Sufficient but not Necessary 

Condition for Imposing a Business-Privilege Tax

{¶ 49} We are now in a position to fully address Crutchfield’s argument 

that “[f]or more than 50 years, in a series of cases decided both before and after 

Complete Auto, the Supreme Court has made clear that a state’s authority to 

impose a tax measured by gross receipts depends upon the taxpayer conducting 

business activities within the state that assist the company to develop and 

maintain a market there.” At oral argument, although Crutchfield stated that it 

was not arguing that the Quill standard per se applies to a privilege tax, it 

nonetheless invited us to read Tyler Pipe Industries, Inc. v. Washington State 

Dept. of Revenue, 483 U.S. 232, 107 S.Ct. 2810, 97 L.Ed.2d 199 (1987), as 

 

4

 Crutchfield characterizes the Tennessee tax as a gross-receipts tax, but at least one commentator 

has noted that the case involves a net-income tax, Michael T. Fatale, State Tax Jurisdiction and 

the Mythical “Physical Presence” Constitutional Standard, 54 Tax Lawyer 105, 139 (Fall 2000). 
January Term, 2016 

21 

recognizing a “very similar” type of physical-presence standard in the privilegetax context. 

{¶ 50} We disagree. The most accurate characterization of Tyler Pipe, 

and one that is fully consistent with Complete Auto and with the Quill court’s own 

reading of the case law, is that a taxpayer’s physical presence in a state constitutes 

a sufficient basis for the state to impose a business-privilege tax. We conclude 

that in construing Tyler Pipe, it is unwarranted to leap from the principle that 

physical presence is a sufficient condition for imposing a tax to the logically 

distinct proposition that physical presence is a necessary condition to impose the 

tax.5

 And as discussed, although Quill recognized physical presence as a 

necessary condition for imposing the obligation to collect use taxes, that 

requirement does not extend to business-privilege taxes as a general matter. 

{¶ 51} This conclusion derives from not just Tyler Pipe but also the state 

court decisions addressing gross-receipts taxes: in each case, a physical presence 

was found that in turn furnished a sufficient condition for upholding the 

imposition of the state tax. Koch Fuels, Inc. v. Clark, 676 A.2d 330, 334 (R.I. 

1996) (noting that the taxpayer “shipped approximately 25.6 million gallons of oil 

into Rhode Island” over which it “retained title, possession and risk of loss * * * 

up until the point it reached the flange in Providence”); Saudi Refining, Inc. v. 

Dir. of Revenue, 715 A.2d 89, 96 (Del.Super. 1998) (noting that the taxpayer had 

“a significantly greater presence in Delaware than [the taxpayer in Koch Fuels] 

 

5

 Crutchfield seizes upon a passage that the United States Supreme Court quoted from the state 

supreme court decision to bolster its claim: “ ‘[T]he crucial factor governing nexus is whether the 

activities performed in this state on behalf of the taxpayer are significantly associated with the 

taxpayer’s ability to establish and maintain a market in this state for the sales.’ ” Tyler Pipe at 

250, quoting Tyler Pipe Industries, Inc. v. State Dept. of Revenue, 105 Wash.2d 318, 323, 715 

P.2d 123 (1986). But this passage does not, contrary to Crutchfield’s suggestion, articulate a 

constitutional standard for nexus; instead, it states the state-law standard embodied in the pertinent 

state nexus regulation. See Tyler Pipe, 105 Wash.2d at 233, 715 P.2d 123, citing Wash.Adm.Code 

458-20-193B. The constitutional holding is simply that such a connection is sufficient under the 

Commerce Clause. 
SUPREME COURT OF OHIO

22 

did in Rhode Island”); Ariz. Dept. of Revenue v. O’Connor, Cavanagh, Anderson, 

Killingsworth & Beshears, P.A., 192 Ariz. 200, 206, 963 P.2d 279 (App.1997) 

(detailing Arizona contacts of Indiana seller, including installation activity of its 

agents in the state, that would permit imposition of Arizona gross-receipts tax on 

that seller); Short Bros. (USA), Inc. v. Arlington Cty., 244 Va. 520, 526, 423 

S.E.2d 172 (1992) (taxpayer chose the taxing jurisdiction as its place of business 

and conducted all its revenue-generating operations from that office). Given our 

reading of the United States Supreme Court cases, there is no reason for us to 

view those decisions as authority for the proposition that physical presence would 

have been a necessary condition as well. 

The $500,000 Sales-Receipts Threshold Adequately Ensures Substantial 

Nexus for Purposes of Imposing the CAT

{¶ 52} The final point of our analysis has been implicit in some of our 

earlier discussion, but we make it explicit here. We hold that the $500,000 salesreceipts threshold complies with the substantial-nexus requirement of the 

Complete Auto test. 

{¶ 53} In so holding, we express our view that the quantitative standard is 

necessary to make the CAT applicable to a remote seller such as Crutchfield, 

because the Commerce Clause standard does require the nexus to be “substantial.” 

This means that in order to render receipts susceptible to taxation by Ohio, the 

Commerce Clause requires more than the “ ‘definite link’ ” to this state, or the 

“ ‘purpose[ful] avail[ment]’ ” of Ohio’s protections, that would satisfy due 

process, Corrigan v. Testa, __ Ohio St.3d __, 2016-Ohio-2805, __ N.E.3d __, 

¶ 30, 32, quoting Quill, 504 U.S. at 306, 307, 112 S.Ct. 1904, 119 L.Ed.2d 91. 

The United States Supreme Court has recently reiterated: 

By prohibiting States from discriminating against or imposing 

excessive burdens on interstate commerce without congressional 
January Term, 2016 

23 

approval, [the dormant Commerce Clause] strikes at one of the 

chief evils that led to the adoption of the Constitution, namely, 

state tariffs and other laws that burdened interstate commerce. 

(Emphasis added.) Wynne, ___ U.S. ___, 135 S.Ct. at 1794, 191 L.Ed.3d 813. 

{¶ 54} In applying the substantial-nexus standard without Quill’s physicalpresence requirement, we take recourse to more general principles for applying 

the Commerce Clause limitation. As a general matter, when a state statute 

“regulates even-handedly to effectuate a legitimate local public interest, and its 

effects on interstate commerce are only incidental, it will be upheld unless the 

burden imposed on such commerce is clearly excessive in relation to the putative 

local benefits.” Pike v. Bruce Church, 397 U.S. 137, 145-146, 90 S.Ct. 844, 25 

L.Ed.2d 174 (1970). Obviously the imposition of the CAT on remote sellers has 

an effect on interstate commerce, and Ohio must assure that the adverse impact 

does not become “clearly excessive” in relation to the legitimate exercise of its 

taxing authority. Were the state to tax all receipts without any regard for the 

volume of Ohio sales, the CAT could become clearly excessive as to a business 

with a very small amount of such receipts. The General Assembly has sensibly 

attempted to foreclose that possibility by setting a minimum sales-receipts 

threshold. 

{¶ 55} Crutchfield points out that the number chosen by the General 

Assembly, $500,000, can be seen as arbitrary to some degree, but no reason is 

advanced why a higher number ought to have been selected.6

 Instead, Crutchfield 

relies on the physical-presence requirement, which we have determined is not a 

 

6

 The $150,000 threshold, which under R.C. 5751.04(B) is the usual amount that triggers the CAT 

registration requirement, is not at issue in this appeal. Crutchfield has not raised the point, and 

even assuming that the $150,000 threshold might apply to an out-of-state retailer like Crutchfield, 

Crutchfield would have no standing to advance such a claim because it accepts the premise that it 

had receipts in excess of the $500,000 threshold. 
SUPREME COURT OF OHIO

24 

necessary condition here. Although any threshold amount, whether selected by 

the legislature or the courts, may “seem to reasonable and intelligent persons to 

represent the drawing of artificial and arbitrary boundaries or lines,” we have 

recognized that the drawing of such lines is justified for the purpose of defining 

the legal obligations of the taxpaying public. Powhatan Mining Co. v. Peck, 160 

Ohio St. 389, 394, 116 N.E.2d 426 (1953); In re Sears’ Estate, 172 Ohio St. 443, 

448, 178 N.E.2d 240 (1961). 

{¶ 56} We hold that given the $500,000 sales-receipts threshold, the 

burdens imposed by the CAT on interstate commerce are not “clearly excessive” 

in relation to the legitimate interest of the state of Ohio in imposing the tax 

evenhandedly on the sales receipts of in-state and out-of-state sellers. As a result, 

the tax satisfies the substantial-nexus standard under the dormant Commerce 

Clause, and we decline to address the tax commissioner’s alternative argument 

that the physical-presence standard has been satisfied. 

Conclusion

{¶ 57} For the foregoing reasons, we affirm the decision of the BTA and 

uphold the CAT assessments against Crutchfield. 

Decision affirmed. 

O’CONNOR, C.J., and PFEIFER, O’DONNELL, and FRENCH, JJ., concur. 

KENNEDY, J., dissents, with an opinion joined by LANZINGER, J. 

_________________ 

KENNEDY, J., dissenting. 

{¶ 58} This case is not about the wisdom of imposing a business-privilege 

tax on Ohio corporations or the constitutionality of the commercial-activity tax 

(“CAT”) in general. This case is about whether online purchases made by Ohio 

residents—or even a single Ohio resident—from an out-of-state business create a 

substantial nexus between that business and Ohio for purposes of the dormant 

Commerce Clause if the transactions meet the statutory threshold of $500,000 in 
January Term, 2016 

25 

Ohio sales. While I am sympathetic to all Ohio-based businesses that must pay a 

business-privilege tax such as the CAT, this court nevertheless should follow the 

law as it exists today. Therefore, I must dissent. 

{¶ 59} The power to regulate interstate commerce is given to Congress 

under Article I, Section 8, Clause 3 of the United States Constitution. If Congress 

is silent—neither preempting nor consenting to state regulation—and a state 

attempts to regulate in the face of that silence, the United States Supreme Court, 

going back to Gibbons v. Ogden, 22 U.S. 1, 231-32, 238-39, 6 L.Ed. 23 (1824) 

(Johnson, J., concurring), has interpreted the Commerce Clause to limit state 

regulation of interstate commerce through what has come to be known as the 

dormant Commerce Clause. Accordingly, the Commerce Clause is both an 

express grant of power to Congress and an implicit limit on the power of state and 

local government. See Comptroller of the Treasury of Maryland v. Wynne, __ 

U.S. __, 135 S.Ct. 1787, 1794, 191 L.Ed.2d 813 (2015). 

{¶ 60} The majority interprets Congress’s silence as authorizing Ohio to 

tax a corporation based solely on its Internet sales in Ohio when it has no physical 

presence in the state and the only connection it has with Ohio is Ohioans’ 

purchases of its products. This reasoning runs counter to the United States 

Supreme Court’s reasoning in Quill Corp. v. North Dakota, which is the last word 

from that court on this issue. 504 U.S. 298, 112 S.Ct. 1904, 119 L.Ed.2d 91 

(1992). 

{¶ 61} While the shifting seats on the high court might present the 

possibility the court will overturn its past precedents on the dormant Commerce 

Clause and hold that a business-privilege tax does not violate the dormant 

Commerce Clause, until that day, we are bound by the court’s prior holdings and 

by Congress’s inaction on this issue, given its power to regulate interstate 

commerce. See Quill at 298; see also Tyler Pipe Industries, Inc. v. Washington 

State Dept. of Revenue, 483 U.S. 232, 107 S.Ct. 2810, 97 L.Ed.2d 199 (1987). 
SUPREME COURT OF OHIO

26 

Therefore, I would remand this matter to the Board of Tax Appeals (“BTA”) for a 

determination of whether appellant, Crutchfield Corporation, has a physical 

presence in Ohio under Quill. 

I. Analysis 

{¶ 62} Before delving into the specifics of this case, it is worth 

summarizing the constitutional framework at issue. Congress has the power to 

regulate commerce among the states; this includes the power to authorize the 

states to place burdens on interstate commerce. Prudential Ins. Co. v. Benjamin, 

328 U.S. 408, 434, 66 S.Ct. 1142, 90 L.Ed. 1342 (1946). Absent such 

congressional approval, a state law violates the dormant Commerce Clause if it 

imposes an undue burden on both out-of-state and local producers engaged in 

interstate activities or if it treats out-of-state producers less favorably than their 

local competitors. See, e.g., Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 

S.Ct. 844, 25 L.Ed.2d 174 (1970); Philadelphia v. New Jersey, 437 U.S. 617, 624, 

98 S.Ct. 2531, 57 L.Ed.2d 475 (1978); Granholm v. Heald, 544 U.S. 460, 472, 

125 S.Ct. 1885, 161 L.Ed.2d 796 (2005). As we noted earlier this year, the 

United States Supreme Court has described the purpose of the dormant 

Commerce Clause as follows: 

“By prohibiting States from discriminating against or imposing excessive 

burdens on interstate commerce without congressional approval, [the 

dormant Commerce Clause] strikes at one of the chief evils that led to the 

adoption of the Constitution, namely, state tariffs and other laws that 

burdened interstate commerce.” 

(Brackets sic.) Corrigan v. Testa, __ Ohio St.3d __, 2016-Ohio-2805, __ N.E.3d 

__ ¶ 16, quoting Wynne, __ U.S. __, 135 S.Ct. at 1794, 191 L.Ed.2d 813. 

{¶ 63} The Commerce Clause grants Congress the authority to regulate (1) 
January Term, 2016 

27 

“the use of the channels of interstate commerce,” (2) “the instrumentalities of 

interstate commerce, or persons or things in interstate commerce, even though the 

threat may come only from intrastate activities,” and (3) “those activities having a 

substantial relation to interstate commerce, * * * i.e., those activities that 

substantially affect interstate commerce.” United States v. Lopez, 514 U.S. 549, 

558-559, 115 S.Ct. 1624, 131 L.Ed.2d 626 (1995). Federal circuit courts that 

have examined the issue agree that the Internet is a “channel” or “instrumentality” 

of interstate commerce. See, e.g., United States v. Panfil, 338 F.3d 1299, 1300 

(11th Cir.2003); United States v. Extreme Assocs., Inc., 431 F.3d 150, 161 (3d 

Cir.2005). 

{¶ 64} The majority relies on the absence of United States Supreme Court 

decisions directly on point and treats this case as though it exists in a vacuum. It 

does not. And the majority’s approach ignores the clues that we do have—all of 

which point to a business’s physical presence in the state as the lynchpin of a 

substantial nexus between the business and the state. The most relevant cases are 

those dealing with sales and use taxes—Quill, 504 U.S. 298, 112 S.Ct. 1904, 119 

L.Ed.2d 91, is the latest—and a case evaluating a similar gross-receipts tax, Tyler 

Pipe, 483 U.S. 232, 107 S.Ct. 2810, 97 L.Ed.2d 199. In all those cases, the 

businesses subject to the taxes had a physical presence in the taxing jurisdictions, 

and the majority should not ignore these cases. 

{¶ 65} In Quill, the United States Supreme Court reaffirmed the Bellas 

Hess rule that the physical presence of the business established the necessary 

substantial nexus with the state when a state sought to impose use-tax-collection 

duties on mail-order sellers. Quill at 311, citing Natl. Bellas Hess, Inc. v. Illinois 

Dept. of Revenue, 386 U.S. 753, 87 S.Ct. 1389, 18 L.Ed.2d 505 (1967). The 

companies in Quill and Bellas Hess were solely mail-order companies that had no 

in-state physical locations and made contact with the states only by delivering 

goods through the mail and other common carriers. Quill at 302; Bellas Hess at 
SUPREME COURT OF OHIO

28 

753-754. The Bellas Hess court created a bright-line rule that a state can require 

an out-of-state mail-order retailer to collect use taxes only when the retailer has a 

physical presence in the state. Bellas Hess at 757-758. The court noted, however, 

that the physical presence could be satisfied by local agents, who need not even 

be regular employees. Id., citing Scripto, Inc. v. Carson, 362 U.S. 207, 80 S.Ct. 

619, 4 L.Ed.2d 660 (1960) (ten independent brokers sufficient for state to 

mandate use-tax collection). Nevertheless, those agents must be physically in the 

state to provide the substantial nexus necessary to defeat a taxpayer’s Commerce 

Clause challenge. 

{¶ 66} In the years after Quill, this court applied Quill, holding that an 

out-of-state company selling merchandise by direct mail to Ohioans did not 

establish a substantial nexus with the state because the company did not have a 

physical presence in Ohio and, therefore, Ohio could not force the out-of-state 

company to collect use taxes. SFA Folio Collections, Inc. v. Tracy, 73 Ohio St.3d 

119, 123, 652 N.E.2d 693 (1995). 

{¶ 67} I see no evidence that gross-receipts taxes are meaningfully 

different from use taxes for substantial-nexus purposes, and I view Tyler Pipe’s

reliance on physical presence as more indicative of a requirement than an option. 

That opinion suggests as much by its lack of other nexus-producing details. 

There, the Supreme Court evaluated a gross-receipts tax (which I view as similar 

to business-privilege taxes like the CAT—both are measured by gross receipts), 

specifically concerning the sufficiency of Tyler Pipe’s connection with the state to 

justify its imposition of the tax on the company’s sales. 483 U.S. at 249-250, 107 

S.Ct. 2810, 97 L.Ed.2d 199. The company had no office, property, or employees 

residing in the state. Id. at 249. Moreover, it manufactured all its pipe products 

out of state. Id. As the court noted, however, Tyler Pipe had an independent sales 

representative located in the state. Id. That independent contractor (and its 

salespeople) did enough local work to maintain Tyler Pipe’s market and protect 
January Term, 2016 

29 

its interests that it constituted a sufficient nexus with the state and justified the 

state’s gross-receipts tax. Id. at 250, citing Scripto at 211. 

{¶ 68} Nowhere in Tyler Pipe did the Supreme Court indicate that 

anything less than a third-party contractor operating within a taxing state on a 

taxpayer’s behalf would satisfy the substantial-nexus requirement established in 

Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279, 97 S.Ct. 1076, 51 

L.Ed.2d 326 (1977). Yet the majority brushes Tyler Pipe aside, concluding that 

“it is unwarranted to leap from the principle that physical presence is a sufficient 

condition for imposing a tax to the logically distinct proposition that physical 

presence is a necessary condition to impose the tax.” (Emphasis sic.) Majority 

opinion at ¶ __. It is the majority that takes an unwarranted leap in concluding 

that physical presence is merely sufficient, not necessary. Absent evidence that 

an expansion is warranted—and we have none—I will not ignore the mandates of 

federal constitutional law. 

{¶ 69} The majority’s reliance on state-court decisions that speculate as to 

the unlikelihood of the Supreme Court expanding Quill’s physical-presence 

requirement beyond sales and use taxes is unwarranted. Half of those cases 

involved physical presence, and the other half fell under a different type of tax 

that the Supreme Court has not held to require physical presence. To be sure, 

even this court has speculated about the physical-presence requirement. See 

Couchot v. State Lottery Comm., 74 Ohio St.3d 417, 425, 659 N.E.2d 1225 

(1996). Couchot, however, involved an out-of-state resident who bought an Ohio 

lottery ticket in Ohio and redeemed it in Columbus. That is quintessential 

physical-presence-based substantial nexus. In KFC Corp. v. Iowa Dept. of 

Revenue, a corporation licensed intangible intellectual property for use by its instate franchisees. 792 N.W.2d 308 (Iowa 2010). Although the corporation lacked 

property or employees in the state, the Iowa Supreme Court concluded that the 

franchisees’ physical presence in the state coupled with the value of the 
SUPREME COURT OF OHIO

30 

intangibles sufficiently localized KFC’s income from the franchisees’ transactions 

in the state such that Iowa could tax it. Id. at 323. In support of this conclusion, 

the KFC court cited Internatl. Harvester Co. v. Wisconsin Dept. of Taxation, 322 

U.S. 435, 441-442, 64 S.Ct. 1060, 88 L.Ed. 1373 (1944) (“A state may tax such 

part of the income of a non-resident as is fairly attributable * * * to events or 

transactions which, occurring there, are subject to state regulation and which are 

within the protection of the state and entitled to the numerous other benefits 

which it confers”). It is true that Internatl. Harvester was a due-process case, but 

the Supreme Court rendered that decision at a time when due process and the 

Commerce Clause were considered coextensive. See id. at 444; Quill, 504 U.S. at 

305, 112 S.Ct. 1904, 119 L.Ed.2d 91. 

{¶ 70} The other two decisions upon which the majority relies in 

questioning the physical-presence requirement are inapplicable here because they 

deal with a type of tax specific to banks—financial-institution excise taxes. See

Capital One Bank v. Commr. of Revenue, 453 Mass. 1, 899 N.E.2d 76 (2009); 

MBNA Am. Bank, N.A. v. Indiana Dept. of State Revenue, 895 N.E.2d 140 

(Ind.Tax 2008). The Supreme Court has never addressed, much less stated, a 

physical-presence requirement for financial-institution excise taxes. Therefore, 

the state courts’ reasoning in these financial-institution-tax cases is not applicable 

to the case at bar. 

{¶ 71} Because half of them involve sufficient physical presence and the 

other half involve an irrelevant tax on financial institutions, these opinions of 

other state courts criticizing the physical-presence rule as constitutionally 

outmoded for substantial-nexus purposes are not persuasive. 

{¶ 72} The majority’s citations to state-court decisions addressing grossreceipts taxes are a step in the right direction but provide no sounder a foundation 

for its decision today. Interestingly, the majority places great weight on the fact 

that each case involved a physical presence in the state sufficient to uphold 
January Term, 2016 

31 

imposition of the tax. It then somehow reads all these state-court physicalpresence cases to mean that “there is no reason for us to view those decisions as 

authority for the proposition that physical presence would have been a necessary 

condition as well.” Majority opinion at ¶ 51. That extrapolation is not well 

founded. 

{¶ 73} The physical-presence requirement is grounded in the reasoning 

that the dormant Commerce Clause is designed to prevent regulation and taxation 

from being an undue burden on interstate commerce. 

Undue burdens on interstate commerce may be avoided not only 

by a case-by-case evaluation of the actual burdens imposed by 

particular regulations or taxes, but also, in some situations, by the 

demarcation of a discrete realm of commercial activity that is free 

from interstate taxation. 

Quill, 504 U.S. at 314-315, 112 S.Ct. 1904, 119 L.Ed.2d 91. This reasoning is not 

limited to sales and use taxes, and the language of Quill should be applied as 

written—applying to the “discrete realm of commercial activity” at issue in the 

case, which was commercial activity involving companies without a physical 

presence in the taxing state. Id. This reasoning is in line with common sense 

because these companies should not be forced to comply with Ohio’s CAT based 

solely on the fact that Ohioans choose to buy products from them. Under the 

CAT as construed by the majority, a business could be forced to pay Ohio taxes if 

just one Ohioan spent more than $500,000 on its products. It is easy to imagine 

an Ohio manufacturing business ordering one machine from an out-of-state 

business, and that would trigger a requirement for that business to comply with 

the CAT. The business could have no other connection with the state, but Ohio 

could drag it into Ohio’s taxing scheme based on one act of interstate commerce. 
SUPREME COURT OF OHIO

32 

This is an undue burden on interstate commerce of the sort that the Quill court 

was attempting to avoid. 

{¶ 74} I recognize that Quill might be overturned by the Supreme Court or 

abrogated by an act of Congress. Only two members of the Quill court remain on 

the bench—Justices Kennedy and Thomas—and Justice Kennedy has expressed 

his opinion that the case should be revisited in light of the technological changes 

caused by the proliferation of online retailers. Direct Marketing Assn. v. Brohl, 

__ U.S. __, 135 S.Ct. 1124, 1135, 191 L.Ed.2d 97 (2015) (Kennedy, J., 

concurring) (“Given these changes in technology and consumer sophistication, it 

is unwise to delay any longer a reconsideration of the Court’s holding in Quill”). 

Nevertheless, Quill is the law of the land, and it must be followed. 

{¶ 75} Congress could also authorize the states to impose taxes on out-ofstate retailers like Crutchfield. In his concurring opinion in Quill, which was 

joined by Justices Kennedy and Thomas, Justice Scalia wisely remarked that 

whatever constitutional rule the court fashioned based on the dormant Commerce 

Clause was subject to revision by Congress: “Congress has the final say over 

regulation of interstate commerce * * *. We have long recognized that the 

doctrine of stare decisis has ‘special force’ where ‘Congress remains free to alter 

what we have done.’ ” Quill at 320 (Scalia, J., concurring), quoting Patterson v. 

McLean Credit Union, 491 U.S. 164, 172-173, 109 S.Ct. 2363, 105 L.Ed.2d 132 

(1989). Proposed legislation is pending in Congress that would abrogate the Quill

rule and permit states to require online retailers to collect sales taxes. See 

Marketplace Fairness Act of 2015, S.698, 114th Congress (introduced in Senate 

Mar. 10, 2015). Congress has the power and authority to regulate interstate 

commerce to ensure that there is an equal playing field between in-state and outof-state companies. 

{¶ 76} Currently, Ohio responds to this gap in taxation by imposing the 

use tax on purchases that are not subject to sales tax. See R.C. 5741.12(B). 
January Term, 2016 

33 

Ohioans are asked to voluntarily report on line 12 of the personal-income-tax 

Form 1040 the amount of out-of-state purchases made over the Internet that are 

not subject to sales tax. Ohio Department of Taxation, 2015 Universal IT 1040 

Individual Income Tax Return, http://www.tax.ohio.gov/Portals/0/forms 

/ohio_individual/individual/2015/PIT_IT1040.pdf (accessed Oct. 21, 2016). If 

Ohioans report out-of-state purchases, they must pay a use tax at a rate equal to 

the sales-tax rate in their county. Ohio Department of Taxation, Ohio 2015 

Instructions for Filing Personal Income Tax 17, 

http://www.tax.ohio.gov/portals/0/forms/ohio_individual/individual/2015/PIT_IT

1040_Booklet.pdf (accessed Oct. 21, 2016). Just as it would require an act of 

Congress to require out-of-state retailers to collect sales taxes, federal legislation 

is necessary before Ohio can impose the CAT on out-of-state businesses. It is not 

the role of this court to bless a state’s attempt to regulate interstate commerce 

through a taxing scheme just because Congress has been silent. 

{¶ 77} I understand and am sympathetic to the arguments made by amici 

curiae Ohio Manufacturers’ Association, Ohio State Medical Association, Ohio 

Dental Association, and Ohio Chemistry Technology Council because “they have 

a critical and substantial interest in ensuring that this tax is applied fairly and 

equitably.” However, the desire to “fairly” apply the CAT to out-of-state 

companies cannot supersede binding United States Supreme Court precedent, see 

Complete Auto Transit, 430 U.S. at 274, 97 S.Ct. 1076, 51 L.Ed.2d 326, and 

Quill, 504 U.S. at 298, 112 S.Ct. 1904, 119 L.Ed.2d 91. I disagree with amici 

curiae when they state that none of the Supreme Court’s decisions “state that a 

physical presence was the sine qua none [sic] for finding that a substantial nexus 

existed.” As stated above, the reasoning that the Supreme Court used in Quill and 

Tyler Pipe to determine whether a substantial nexus exists between an out-of-state 

business and a taxing state turns on whether or not the out-of-state business has a 

physical presence in the taxing state. 
SUPREME COURT OF OHIO

34 

{¶ 78} As for the BTA’s assertion that Crutchfield’s computerized 

connections with Ohio consumers constitutes physical presence in this state, the 

BTA never made a factual determination that Crutchfield has a physical presence 

in Ohio. On the contrary, the BTA concluded that “under the plain language set 

forth therein, the pertinent CAT statutes do not impose such an in-state presence 

requirement.” Since it did not believe that in-state physical presence was a 

requirement, the BTA did not make a finding as to Crutchfield’s in-state presence. 

“The BTA is responsible for determining factual issues * * *.” Vandalia-Butler 

City Schools Bd. of Edn. v. Montgomery Cty. Bd. of Revision, 130 Ohio St.3d 291, 

2011-Ohio-5078, 958 N.E.2d 131, ¶ 12. In my view, it is the BTA’s 

responsibility to evaluate the evidence and make a factual determination whether 

Crutchfield has a physical presence in Ohio. 

II. Conclusion 

{¶ 79} While I am sympathetic to Ohio-based businesses that are forced to 

pay a business-privilege tax such as the CAT, I nevertheless must follow the law 

as it is exists today. The power to regulate interstate commerce rests exclusively 

with Congress under Article I, Section 8, Clause 3 of the United States 

Constitution. Because the last word from the United States Supreme Court is that 

a state’s ability to tax an out-of-state business depends on a substantial nexus 

created by a physical presence, Quill Corp. v. North Dakota, 504 U.S. 298, 112 

S.Ct. 1904, 119 L.Ed.2d 91; see also Tyler Pipe Industries, Inc. v. Washington 

State Dept. of Revenue, 483 U.S. 232, 107 S.Ct. 2810, 97 L.Ed.2d 199, I must 

dissent. I would remand the matter to the BTA for a determination of physical 

presence under Quill. 

LANZINGER, J., concurs in the foregoing opinion. 

_________________ 
January Term, 2016 

35 

 Brann & Isaacson, Martin I. Eisenstein, David W. Bertoni, and Matthew 

P. Schaefer; and Baker Hostetler and Edward J. Bernert, for appellant and crossappellee. 

 Michael DeWine, Attorney General, and Daniel W. Fausey and Christine 

Mesirow, Assistant Attorneys General, for appellee and cross-appellant. 

 Macey, Wilenski & Hennings, L.L.C., and Peter G. Stathopoulos; and 

Robert Alt, urging reversal for amici curiae Buckeye Institute for Public Policy 

Solutions, Mackinac Center for Public Policy, NetChoice, and American Catalog 

Mailers Association, Inc. 

Fredrick Nicely and Nikki Dobay, urging reversal for amicus curiae 

Council on State Taxation. 

 Goldstein & Russell, P.C., Eric F. Citron, and Thomas C. Goldstein, 

urging affirmance for amici curiae National Governors Association, National 

Conference of State Legislatures, Council of State Governments, National 

Association of Counties, National League of Cities, U.S. Conference of Mayors, 

International City/County Management Association, International Municipal 

Lawyers Association, and Government Finance Officers Association. 

 Bricker & Eckler, L.L.P., Mark A. Engel, and Anne Marie Sferra, urging 

affirmance for amici curiae Ohio Manufacturers’ Association, Ohio State Medical 

Association, Ohio Dental Association, and Ohio Chemistry Technology Council. 

 Bruce Fort, urging affirmance for amicus curiae Multistate Tax 

Commission.

_________________