Summary
The Supreme Court of Ohio affirmed the Board of Tax Appeals' decision denying Aramark Corporation's request for a commercial-activity tax refund. The court held that Aramark did not qualify for the statutory gross-receipts exclusion for agents because it retained client reimbursements for itself rather than holding them on behalf of another. Additionally, the court disapproved of a prior precedent's interpretive gloss requiring an agent to have actual authority to bind the principal.
Topics
Practice areas
Questions Presented
- Whether reimbursements received by Aramark under management-fee contracts qualified for the commercial-activity-tax gross-receipts exclusion for amounts received or acquired by an agent on behalf of another.
- Whether Aramark qualified as an agent under R.C. 5751.01(N)(2) without showing that it remitted the proceeds of the transactions to another person.
- Whether the reimbursements constituted gross receipts under R.C. 5751.01(F) and R.C. 5751.01(F)(1)(b).
- Whether administrative rules, advisory guidance, or a prior tax determination supported exclusion of the reimbursements from Aramark's taxable gross receipts.
Holdings
- Aramark was not entitled to exclude the reimbursements from its taxable gross receipts because it did not establish that it received or acquired the money on behalf of another; the record showed that Aramark kept the reimbursements for itself rather than holding them as a payment conduit or representative of its clients.
- Willoughby Hills is disapproved to the extent that it requires a taxpayer to show actual authority to qualify as an agent for purposes of the CAT.
- The reimbursements were taxable gross receipts because they were amounts realized from Aramark's performance of services for its clients.
Key quotations
“We accordingly disapprove of Willoughby Hills to the extent that it requires a showing of actual authority on the part of the taxpayer to qualify as an agent for purposes of the CAT.” (¶ 22)
“The Board of Tax Appeals’ decision is reasonable and lawful. We therefore affirm its decision.” (¶ 33)
Factual background
Aramark provides food-service programs and, under management-fee contracts, purchases food, labor, and miscellaneous materials from third-party vendors for clients that reimburse Aramark and pay a management fee. The case concerns reimbursements received from July 2012 through December 2016, on which Aramark paid commercial-activity tax. Aramark later sought a $907,532 refund, arguing that the reimbursements were excluded gross receipts received by an agent on behalf of another or, alternatively, were not gross receipts because they did not contribute to its gross income. The majority found that Aramark kept the reimbursements and that the record did not establish that it passed them on to third-party vendors.
Procedural history
Aramark paid Ohio commercial-activity tax on reimbursements received under management-fee food-service contracts and later sought a $907,532 refund. The Tax Commissioner denied the claim, and the Board of Tax Appeals affirmed. The Supreme Court of Ohio affirmed the Board's decision, although on reasoning different from the Board's.