Ohio Tax - Manufacturers' Education Council

2011 Ohio Tax Conference
Ohio Commercial Activity Tax (CAT) Audit Experiences
Appendix A
GROSS RECEIPTS
1. Warranty allowance
Taxpayer received an allowance for handling warranty repairs for the manufacturer. The taxpayer
accounted for the receipts in its warranty expense account. The Department determined that the
receipts were taxable and picked up 100% of the allowance (no deduction for expenses).
2. Co/op advertising
Taxpayer received cash from manufacturers for placing the manufacturer’s products in the
taxpayer’s weekly advertisements. The taxpayer accounted for the receipts as offsets in its
advertising expense account. The Department determined that the receipts were taxable and
picked up all amounts received from the manufacturers (no deduction for expense).
3. Recycling receipts
Taxpayer recycled the cardboard boxes that it received when purchasing products from its
manufacturers/suppliers. The taxpayer accounted for the receipts received from the recycler as
other income. The Department picked up the entire amount of recycling receipts.
4. Pass-through of Freight
The taxpayer sold and delivered stone to its customers charging separately for the stone and the
delivery. The taxpayer hired third parties to deliver the stone. The taxpayer used the following
accounting entries:
Account Debit Credit
Time of sale:
A/R 105
Sales 100
A/P (Delivery) 5
Payment from customer:
Cash 105
A/R 105
Payment to delivery vendor:
A/P (Deliver) 5
Cash 5
The taxpayer argued that the amount for freight was just a pass-through to the delivery vendor.
The Department determined that the taxpayer did not have an agency relationship with either the
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