Ohio Tax - Manufacturers' Education Council

11. Government contracts
2011 Ohio Tax Conference
Ohio Commercial Activity Tax (CAT) Audit Experiences
Appendix A
The taxpayer sold its services to the federal government and excluded those gross receipts from
its CAT return. The Department denied the exclusion of these gross receipts as there is no
deduction for gross receipts received from the federal government (or any state or local
governmental jurisdiction).
12. Construction allowance
The taxpayer (a retailer) leased several of its retail locations. In some situations, the taxpayer will
want to make improvements to the leased property. When the lessor agrees with the
improvements, the lessor will pay (or credit future rents) the taxpayer for making the necessary
leasehold improvements. The Department determined that the amounts received were taxable
gross receipts for the taxpayer.
13. Freight claims
The taxpayer hired XYZ to handle all of its shipping needs. XYZ owns the tractors and provides
the driver while the taxpayer owns the trailers and lets XYZ use them. During the shipment,
inventory that XYZ has picked up for the taxpayer may be damaged (as a result of XYZ’s
services). If damaged, the taxpayer will file a freight claim with XYZ to recoup the amount of the
damage. The Department determined that the amounts received by the taxpayer from XYZ are
taxable gross receipts.
14. Back-haul credits
The facts are the same as stated in the Freight claims example above. XYZ may arrange to
provide shipping services for unrelated companies on the return trip instead of returning with an
empty trailer (i.e., backhauling). The taxpayer will receive a portion of the revenue that XYZ has
earned because XYZ has used the taxpayer’s trailers. The taxpayer accounted for the amount in
its Other Income account. The Department determined that the amount received by the taxpayer
was a taxable gross receipt.
15. Uniform reimbursement
The taxpayer purchased uniforms for sale to its employees. The employees pay for the uniforms
through payroll reimbursement. The Department determined that the amounts received from the
taxpayer’s employees were taxable gross receipts. [EXCLUDED AS OF 7/1/2009]
16. Rewards Points Program
The taxpayer (a hotel) has a rewards program, which is operated by a subsidiary of the hotel,
DEF. The hotel filed as a combined group for CAT purposes. Rewards points are earned by the
hotel’s customers when staying at its hotel or at a franchised hotel. The hotel or the franchisee
pays DEF for the points earned. When the hotel’s customer redeems the points on another hotel
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