Shoe and Soap Sellers Contest State Tax Paid on Products Moving Through Ohio Warehouses

The makers of Nine West shoes and boots sell more than six million pairs a year to retailer DSW. The footwear is shipped to DSW’s sole distribution center in central Ohio to serve its 486 retail stores nationwide. Nine West paid Ohio commercial activity tax (CAT) on 100% of the shipments of shoes to Ohio over a six-year period, but now wants a refund.

Nine West argues it should have only paid tax on the shoes sold at DSW’s 19 Ohio stores. Nine West doesn’t have any records of where DSW sold the Nine West shoes, but it has a good idea why it couldn’t have sold more than 5% in Ohio.

A Nine West vice president told the Ohio Board of Tax Appeals (BTA) that based on the average size of a DSW store, there would be no room for the other 400 brands of merchandise DSW sells if all the Nine West shoes were sold at Ohio stores. In fact, there would be little room for anything else. If Ohio DSW stores sold all the shoes Nine West sent, each store would have to sell one pair per minute. Each store would be stacked wall-to-wall 10 boxes high with Nine West shoes, and there would be no room for cash registers or fitting rooms, according to the vice president’s testimony.

Shoe Sales Not Taxed in Pairs, State Submits
The Ohio tax commissioner doesn’t dispute Nine West’s estimates but believes the company is confusing its tax responsibilities with those of DSW. The $3.8 million in CAT that Nine West paid to Ohio for tax years 2010 through 2016 isn’t calculated by pairing Nine West’s sales to DSW and DSW’s sales to shoe shoppers, the commissioner explains. Under R.C. 5751.033(E), the CAT is applied to property received in Ohio “after all transportation has been completed.” Nine West’s sales of shoes to DSW were completed in Ohio, the commissioner maintains, and Nine West owes CAT for all pairs sold. DSW may have resold the Nine West shoes to DSW customers throughout the United States, and any CAT regarding those sales is a matter between DSW and the state tax department, the commissioner asserts.

Nine West’s disputed tax payments is one of two cases the Ohio Supreme Court will hear next week related to taxing products sent to Ohio warehouses from other states. In a separate case, Patricia Harris, the Ohio tax commissioner, disputes a CAT refund granted to a Kansas soap maker, whose Zest, Coast, and White Rain soap bars were shipped to an Ohio warehouse before the brand owners dispatched 96% of the goods to retailers in eastern U.S. states and parts of Canada.

Tax Based on Where Product Received, Seller Suggests
In the Nine West case, the shoemaker asserts that CAT applies to where a product is ultimately received and insists it provided reliable evidence the shoes weren’t sold in Ohio. While DSW wouldn’t share sales data with Nine West, the shoemaker could determine from publicly available data that more than 95% of the shoes were sold in DSW stores outside of Ohio. Nine West also notes it has received CAT refunds from Ohio for sales the company made to other national retailers, such as Macy’s and Kohl’s, which use Ohio warehouses. Those retailers have Nine West print a “mark for” shipping label indicating the shoes will first be shipped to an Ohio warehouse, but are ultimately sent to an out-of-state location.

Although DSW doesn’t ask Nine West for “mark for” labels, Nine West submits that Ohio law allows it to provide other evidence indicating the location of the sales and maintains it presented enough to justify a CAT refund for at least 80% of its sales.

Soap Maker Presents Similar Arguments
VVF Intervest had a better outcome with the BTA than Nine West when the commissioner rejected its refund request for products shipped to Ohio and then sold in other states. In a 2-1 decision, the BTA granted VVF a $327,000 CAT refund based on sales for the 2010 through 2014 tax year.

VVF’s dispute with the tax commissioner also involves the interpretation of R.C. 5751.033(E). Like DSW, VVF had records of its sales to its buyer, but no records of sales when the product left Ohio. High Ridge Brands owns several personal care brands but doesn’t produce all the products itself. It contracted with VVF to make soap in Kansas. High Ridge picked up the soap and shipped it to an Ohio warehouse. From there, High Ridge sold the soaps to retailers like Walmart and CVS throughout the eastern states and Canada. High Ridge did share its sales data with VVF, which requested a refund from the tax commissioner. The High Ridge records showed that only 3.16% of the soap sent to Ohio was sold in Ohio and the rest went elsewhere.

The tax commissioner argues that VVF only has records of shipping labels for soap sent to Ohio, and those sales should be taxed because High Ridge received them in Ohio. When and where High Ridge sold the soap to retailers isn’t relevant to the calculation of taxes VVF owes Ohio, the commissioner asserts. The commissioner maintains that VVF wants the tax to be based on the “ultimate destination” of a product, but the CAT law isn’t designed that way, and VVF must pay tax on where it was received, which was in Ohio.

Nine West v. Harris and VVF Intervest v. Harris are the first two of four cases in which the Supreme Court will hear oral arguments on April 1. The Court will hear four more cases on April 2.

Watch Oral Arguments Online
Oral arguments begin each day at 9 a.m. They will be streamed live online at SupremeCourt.Ohio.gov and on the Ohio Channel, where they are archived. Detailed case previews from the Office of Public Information are available by clicking on the case names throughout the article or through the list of cases in the sidebar.

Tuesday, April 1
Guardian ad Litem Fees
A guardian ad litem (GAL) was appointed to represent the interests of a couple’s four children during a divorce filed in 2019. The wife asked to dismiss the case in 2022. After the domestic relations court dismissed the case, the mother refiled it. The GAL had requested fees in the 2019 case before it was dismissed. He put in a request again in the refiled case for fees, and the court approved them. In E.A.K.M. v. Kirner, the GAL argues the court had the authority to approve fees from the 2019 case in the later refiled case. The husband, who contested the fees, counters that the GAL had to appeal the dismissal of his request for fees in the 2019 case, instead of seeking the fees in the refiled case.

Sealing Records
A man pled guilty in Franklin County to forgery in 2004 because he deposited fake checks at his credit union. He was sentenced to prison and ordered to pay $2,663 in restitution as “a civil judgment.” In 2022, the man asked the court to seal the records of his convictions. The prosecutor objected, explaining that the man had not paid the restitution. The court ordered the records to be sealed, noting the man is disabled, poor, and unable to pay restitution. In State v. T.W.C., the prosecutor maintains that calling the offender’s restitution “a civil judgment” didn’t change that it was also part of the criminal sanction that must first be paid before asking to seal a record. The offender contends that the restitution wasn’t part of the criminal sanction, but instead was a civil issue subject to creditor-debtor processes.

Wednesday, April 2
Arbitration Clauses
A Canton-based physicians’ group employs doctors across the nation to work in emergency rooms. One of the group’s doctors was sued for malpractice, and the company turned to its malpractice insurance provider to handle the claim. The insurer made what the physician group considered a “low-ball” offer to the victim, and out of fear of a huge jury verdict, the company paid to settle the case with the patient. The company then sued its insurer for bad faith claims handling. In U.S. Acute Care Solutions v. The Doctors Company, the Court will consider whether a clause in the insurance policy requires the matter to go to arbitration rather than be contested in common pleas court.

New Trial Requests
A Cleveland man has spent 20 years in prison for a 2003 shooting outside of a restaurant. At his trial, his friend who was with him, three women, and the victim testified the man was the shooter. Police investigators stated all evidence pointed to the man, not his friend, as the shooter. But in 2018, a public records request revealed a report where the victim initially identified the man’s friend as the shooter. The imprisoned man sought a new trial based on the evidence, but the trial court rejected it without a detailed explanation. In State v. Bostick, the man claims the withheld evidence entitles him to a new trial, or at least a hearing by the common pleas court judge that would allow him to explain how the report could have changed the outcome of his case.

Juror Impartiality
In 2023, a father was convicted in Warren County for rape and other sex offenses involving his daughter. The father raised issues on appeal about whether one of the jurors had expressed that he couldn’t be impartial at the trial. During questioning, a prospective juror had said he might have a hard time with a child witness and that people don’t end up on trial if they haven’t done anything. In State v. Rogers, the father asserts that the juror showed bias against him as the defendant and tainted the jury, requiring a new trial. The prosecutor responds that a prospective juror’s preconceived thoughts about a case don’t mean the person can’t be impartial. Through group answers, the juror also said he could fairly decide the case, the prosecutor notes.

Utility Profits
In re application of Dayton Power and Light involves a challenge to four cases about services provided by a Dayton power company. The state’s utility regulator found in 2021 that the company had profits of $61 million in 2018 and 2019. The regulator determined that the profits weren’t “significantly excessive” given that the company planned to use the profits as part of $300 million in planned investments for 2020 and 2021 and future investments for smart grid technology. The regulator also rejected claims that a $79 million rate stabilization charge imposed on customers was improper. The consumer group challenging the decisions argues customers are entitled to refunds because the electric rates generated excessive profits for the company. The company asserts that the regulator has broad discretion to consider the effect of future investments on whether refunds are due to customers.