The Ohio Supreme Court has ruled that NASCAR’s broadcast, media, licensing and sponsorship revenue is not subject to Ohio’s Commercial Activity Tax (“CAT”). Ohio’s CAT statute situates gross receipts of intellectual property to Ohio only “to the extent” they are “Based on The right to use the property“In Ohio. RC 5751.033(f) (emphasis added). The Court interpreted the provision as requiring the receipts to have a causal connection with the right to use the IP specifically in Ohio. Since none of the sample contracts “Tied Payments to the Right to Use Property in Ohio” And in fact, Ohio was not mentioned at all, such a relationship was missing. Instead, the contracts “promises broad rights to use NASCAR’s intellectual property over large geographic areas,” Typical of the United States and its territories. See Nascar Holdings, Inc. V. McClainSlip Opinion No. 2022-OHIO-4131.
The Court applied the plain statutory language to distinguish receipts of the right to use IP in Ohio from fixed fee payments to use IP in larger areas that included Ohio. Since the receipts in issue – broadcast, media, sponsorship and licensing fees – were not linked to the actual use of the intellectual property in Ohio, they did not have the necessary connection to Ohio to justify taxation under the siting law. In other words, the right to use the IP in the United States for a fixed fee, regardless of location, does not mean that the receipts are based on the right to use the IP in Ohio. Due to lack of contractual support, the tax commissioner would not prevail even if he taxed receipts rationally connected to actual Ohio use of the intellectual property.
The case involved multiple sources of NASCAR’s IP-related revenue from: (1) granting networks the rights to air NASCAR races (broadcast revenue); (2) media sponsors incorporating NASCAR in marketing campaigns (media revenue); (3) royalties for NASCAR-branded products and services (License Fees); and (4) fees from corporate sponsors (Sponsor Fees). The Ohio Board of Tax Appeals previously determined that NASCAR’s receipts from the use of its intellectual property were properly situated to Ohio based on the ratio of Ohio viewers with Nielsen ratings or US. it. Census data, as more fully explained in our previous post. The Ohio Supreme Court disagreed, however, because NASCAR’s revenue was not based on any right to use the property specifically in Ohio.
The NASCAR ruling significantly hampers Ohio’s ability to impose tax on revenue from granting broad intellectual property rights and provides taxpayers with a planning technique to avoid CAT on their IP-related revenue.