Ohio Tax - Manufacturers' Education Council

2011 Ohio Tax Conference
Ohio Commercial Activity Tax (CAT) Audit Experiences
Appendix A
Under audit, a manufacturer has deducted the amounts paid as chargebacks from its gross
receipts. The Department has determined that the chargebacks are allowable deductions for the
manufacturer.
20. Sale of rental car inventory
The taxpayer (a rental car company) sold its rental cars to wholesalers. The taxpayer did not
include the proceeds of the car sales in its gross receipts for CAT purposes. The Department
agreed that the sales were excluded under R.C. 5751.01(F)(2)(c) — sale of IRC 1221 or 1231
property.
21. Advertising bartering
The taxpayer obtains a discount on future purchases from its vendors for advertising they provide
on behalf of their vendors. The taxpayer solicits the arrangement; it is not sought by their
customers. The taxpayer accounts for the discount as a contra-expense. The Department
determined that the amount of the discount received by the taxpayer was a taxable gross receipt.
22. Profit split - food management
The taxpayer hires GHI (an unrelated 3rd party) to manage its food service operations. The
taxpayer gets a % of the sales made by GHI. Additionally, the taxpayer shares in the profits/losses
made by GHI. The Department determined that the amounts received (% of sales and profits)
would be taxable gross receipts.
23. Non-taxable food
The taxpayer used its sales tax returns to complete its CAT return. The taxpayer used net taxable
sales and did not include non-taxable food in the CAT return.
24. Homeowner construction allowance
The taxpayer, a home builder, deducted the construction allowance that it provided to its
customers for work that will be performed by the customer instead of the homebuilder (e.g.,
septic system, drive way, fire place, etc.). The taxpayer receives the entire amount of the home
loan ($200,000) from the bank and accounts for it as income. The amounts that it pays to its
customers for work the customer will complete (construction allowance) are deducted from
income as a contra-revenue. The Department determined that the deduction was not allowable for
CAT purposes.
25. Land - developer to homeowner
The taxpayer, a home builder, purchases land from a developer and immediately sells it to the
home owner (its customer). The taxpayer did not include the proceeds from the sale of the land as
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