In oral arguments Tuesday before the Ohio Supreme Court, justices hearing an appeal from NASCAR Holdings Inc. questioned whether the car-racing giant owes Ohio a privilege of business tax for licensing fees tied to products and broadcasts.
The Ohio Board of Tax Appeals in April 2021 upheld a roughly $550,000 tax bill on NASCAR, ruling that Tax Commissioner Jeffrey McClain’s apportionment method—based on the number of Ohio households with cable TV access—was appropriate in the absence of NASCAR’s own product-tracking data. NASCAR appealed to the Ohio Supreme Court in May, seeking to undo that decision.
In the arguments Tuesday, a lawyer for the Florida-based company alleged that the tax commissioner applied Ohio’s Commercial Activity Tax in an “unworkable and unconstitutional way” that included money from out-of state broadcasting deals with FOX Broadcasting Co. LLC and Turner Broadcasting System Inc. and presumed every Ohio TV had been tuned into a race.
Several of the seven judges hearing the appeal asked about the tax agency’s methodology.
“If NASCAR sells the rights to use its IP, maybe just a name or logo, how is it supposed to know all the products it was used on unless it was clearly defined in a contract?” Chief Justice Maureen O’Connor asked. “How would it even be able to determine the proportionality for Ohio, something that was maybe a nationwide flat fee agreement to use its property? It has to be based on population?”
“Either it could keep track of all that information, or it could use population as a rough estimate the way we have here,” John Rockenbach, Ohio’s attorney, said. “In terms of figuring out where the proportionality ends up, I don’t see any problem, as the Multistate Tax Commission, for instance, clearly authorizes hypothesizing those by population.”
Rockenbach pointed to the statute which allows the commissioner to “rely on any information in his possession,” if an entity fails to file a return.
NASCAR’s attorney, Jeremy Hayden, called the application of that statute a “slippery slope.”
“These are contracts that had been in place, they could not have anticipated the Ohio CAT law,” Hayden said. “If we allow this kind of ad hoc taxation to take place, anything that ends up on a screen or shelf in Ohio is somehow taxed to the content creator. This could be a watershed case.”
Justice Pat DeWine called the population-based method a “wild approximation,” adding that it failed to accurately count the percentage of Ohioans who actually watch a NASCAR-licensed broadcast.
DeWine noted that his household would be caught up in the commissioner’s approach, even though he doesn’t tune in.
The case is NASCAR Holdings Inc. v. Jeffrey A. McClain, Ohio, No. 2021-0578, oral arguments 1/25/22.