IFTA Appeals Process and the Impact of the Commercial Activity Tax (CAT) on the Transportation Industry Sarah Hedman Ohio Department of Taxation Legal Counsel

IFTA Attorney Section Meeting Next Meeting: May 11-12, 2007 Indianapolis, IN

IFTA Appeals General Overview R1400. IFTA agreement defers to the laws of the base jurisdiction – If base doesn’t have procedures in place, IFTA appeal procedures control R.C : If Ohio law contradicts IFTA agreement, IFTA controls R If a licensee appeals assessments for one or more jurisdictions, base jurisdiction responsible for appeal process

Common Reasons for IFTA Appeals Audit Findings Revocation of License Denied Refund Assessment Failure to Issue a License

Request for Hearing R1410. – Taxpayer must make written request within 30 days of receiving notice from a base jurisdiction – Otherwise, the original findings become final R.C &.70: Taxpayers may challenge by filing a written request for reconsideration – Must be filed with the commissioner within 60 days of the mailing of the original notice – Taxpayer must request a hearing; otherwise, commissioner will consider evidence before him – If no request filed, original findings become final

Notice of Hearing R1420. – Hearing must be held expeditiously – May be continued for reasonable cause – Taxpayer given 20 days written notice of time and place R.C &.70. – Commissioner shall notify taxpayer of time and place of hearing – May continue from time to time as necessary

Procedures for Hearing R1430. –.100: Taxpayer may appear in person and/or be represented by counsel May produce witnesses, documents, etc. to substantiate appeal –.200: Base jurisdiction required to participate in appeal on behalf of all jurisdictions R.C &.70: Taxpayer may appear in person or by telephone and may be represented by counsel – Informal process – Rules of Evidence do not apply – Required to provide all pertinent information to substantiate appeal

Notice of Findings R1440. Base jurisdiction notifies taxpayer of findings of fact and ruling on appeal R.C &.70: Commissioner may make adjustments and issue a final determination – Commissioner must serve a copy of the final determination on the applicant – Decision is final, subject to further appeal

Further Requests for Appeal R1450. –.100: Further appeal proceeds according to that jurisdiction’s procedures –.200: If audit and taxpayer remains in disagreement about findings Each jurisdiction requested can accept or deny If jurisdiction accepts request, jurisdiction audits for its portion of licensee’s operations only Records must be made available at the jurisdiction’s office or some other specified place or pay reasonable per diem and travel expenses associated with the jurisdiction traveling to licensee’s place of operation

Further Requests for Appeal R.C : Taxpayer may appeal to the Ohio Board of Tax Appeals (BTA) – Within 60 days of service of final determination – Served upon BTA and commissioner – Must attach copy of final determination and specify errors – Commissioner must supply BTA with transcript of case, including all evidence commissioner considered when issuing the final determination – Formal process – Rules of Evidence apply – Ohio AG represents the Ohio Department of Taxation R.C : BTA serves its decision on taxpayer/appellant and commissioner – taxpayer may appeal directly to the Ohio Supreme Court

Ohio’s CAT and Transportation Overview of the CAT Broad-based, low rate tax affecting all types of business forms (not only C corps) Phased in over 5 years –.26% in 2010 Tax Calculation: Taxable gross receipts of: – $150,000 – $1M pay flat tax of $150 per year – $1M+ pay flat tax on the first $1M, plus the rate component of the tax on taxable gross receipts over $1M

CAT “Bright-Line Nexus” Standard R.C (H) defines “substantial nexus” – ODT will only enforce “bright-line nexus” A person has “bright-line presence” in Ohio if any of the following apply: – The person has at least $50,000 of either property or payroll in Ohio during the calendar year; OR – The person has at least $500,000 of taxable gross receipts during the calendar year; OR – The person has at least 25% of the person’s total property, total payroll or total gross receipts within Ohio at any time during the calendar year; OR – The person is domiciled in Ohio as an individual or for corporate, commercial, or other business purposes

What does this mean for the transportation industry? Most transportation companies have $50,000 of property in Ohio in a single trip Ohio Adm. Code : Highway transportation services – bright-line presence and situsing – $50,000 standard not triggered unless presence is more than 13 days in a calendar year “Day” includes any portion of a day and need not be consecutive

What does this mean for the transportation industry? “Two-Prong Test” to be subject to the CAT: 1. Bright-line nexus standard; AND 2. Having at least $150,000 in taxable gross receipts If a transportation service company meets the bright-line nexus property test, it is considered to have nexus with Ohio BUT, it will not be subject to the CAT unless the company has at least $150,000 in taxable gross receipts

Determining “Taxable Gross Receipts” “Gross receipts”: Total amount realized by a person, without deduction for cost of goods sold or other expenses incurred, that contributes to the production of gross income – Numerous exclusions from the general definition Once “gross receipts” determined, person calculates “taxable gross receipts” by situsing receipts within and without Ohio – Transportation services sitused based on miles traveled within Ohio vs. miles traveled everywhere

What happens next? If the transportation company has at least $150,000 in taxable gross receipts and meets the bright-line nexus standard, company must register with the state of Ohio and file returns

Registration/Filing Information Registration and filing information available on ODT’s website at Filing frequency depends on TGR: – $150,000 - $1M: Annual filers ($150 min. tax) – Over $1M: Quarterly filers ($150 min. tax + rate component for receipts in excess of $1M) Due dates: – Annual return due by May 9 th of each year – Quarterly return due within 40 days of the end of the quarter: Feb, 9 th, May 10 th, Aug. 9 th, Nov. 9 th

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