{"id":6689,"date":"2020-10-02T18:47:50","date_gmt":"2020-10-02T18:47:50","guid":{"rendered":"https:\/\/www.dinsmore.com\/?post_type=publications&p=6689"},"modified":"2025-11-21T21:48:08","modified_gmt":"2025-11-21T21:48:08","slug":"ohio-supreme-court-hands-down-win-for-ohio-cat-taxpayers-in-defender-security-case","status":"publish","type":"publications","link":"https:\/\/www.dinsmore.com\/publications\/ohio-supreme-court-hands-down-win-for-ohio-cat-taxpayers-in-defender-security-case\/","title":{"rendered":"Ohio Supreme Court Hands Down Win for Ohio CAT Taxpayers in Defender Security Case"},"content":{"rendered":"\n

In a major win for sellers of services and intangibles, the Ohio Supreme Court ruled on Sept. 29, 2020, that a taxpayer is entitled to Ohio Commercial Activity Tax (CAT) refunds stemming from its sale of contracts to an out-of-state buyer. The decision rejects the Ohio Department of Taxation\u2019s sourcing method that required the taxpayer to source CAT gross receipts from the sale of the contracts by \u201clooking through\u201d to the benefits received by its customer\u2019s ultimate customers under those contracts.<\/p>\n\n\n\n

The Ohio Supreme Court\u2019s rejection of this approach offers guidance on how sellers of intangibles and service industries not addressed by statute or in Ohio Administrative Code \u00a7 5703-29-17 may source CAT gross receipts. The court\u2019s unanimous decision in Defender Security Co. v. McClain<\/em>, 2020-Ohio-4594<\/a>, is also important because the Ohio Pass-through Entity (PTE) tax sourcing rules use language substantially similar to the \u201cbenefit received\u201d provisions at issue in this case, and there is little guidance on sourcing sales of services for Ohio PTE tax purposes.<\/p>\n\n\n\n

Background<\/strong><\/p>\n\n\n\n

ADT Security Services, Inc. (ADT) provides security alarm services to residential and commercial property owners. Through alarm services contracts with its customers, ADT provides remote monitoring services using security equipment installed at its customers\u2019 locations. ADT is commercially domiciled outside Ohio and provides these services from locations outside Ohio.<\/p>\n\n\n\n

Defender Security Company (Defender) is an authorized dealer for ADT, which means it advertises for ADT in Ohio, installs security equipment at prospective ADT customer locations in Ohio, and enters Ohio customers into alarm services contracts. Defender then sells most of these contracts to ADT, which ultimately performs the remote monitoring services. For any contracts ADT rejects, ADT provides the remote monitoring services, but Defender retains ownership of the contract and the end customers pay Defender directly. <\/p>\n\n\n\n

The issue on appeal was the application of the \u201ccatch-all\u201d sourcing provision in Ohio Revised Code \u00a7 5751.033(I), which applies to any gross receipts not specifically addressed under the CAT sourcing statute. Under this provision, gross receipts are sourced to Ohio based on the purchaser\u2019s benefit received in Ohio, giving paramount importance to the physical location where the purchaser ultimately uses or receives the benefit of what was purchased. This appeal related only to receipts from Defender\u2019s sale of alarm services contracts with Ohio customers and not its receipts from retained contracts or equipment sales. Defender initially sourced these contract sales receipts to Ohio, but later claimed a refund.<\/p>\n\n\n\n

Rulings by the Tax Commissioner, Board of Tax Appeals, and Court of Appeals<\/strong><\/p>\n\n\n\n

The tax commissioner denied Defender\u2019s refund claim because he determined ADT realized the benefit of the alarm services contracts in Ohio, and because Defender was not an agent of ADT, it could not source receipts to the location of its principal. The Ohio Board of Tax Appeals (BTA) affirmed, mainly because Defender\u2019s obtaining the contracts took place in Ohio, and because ADT\u2019s ultimate benefit under the contracts stemmed from revenues it would earn from customers in Ohio. The BTA\u2019s decision was rendered at a time when taxpayers did not have a right to appeal BTA decisions directly to the Ohio Supreme Court,[1]<\/a> so Defender appealed the BTA\u2019s ruling to the Tenth District Court of Appeals, which affirmed because it found the tax commissioner\u2019s decision was \u201creasonable and well-reasoned.\u201d Defender appealed to the Ohio Supreme Court, which granted review.<\/p>\n\n\n\n

The Ohio Supreme Court\u2019s Decision<\/strong><\/p>\n\n\n\n

The Ohio Supreme Court agreed with Defender\u2019s position that ADT purchased intangible contract rights and that ADT\u2019s physical locations outside Ohio are the places where ADT actually used and received the benefit of those contractual rights. The court observed the prior rulings in this case had \u201call failed to properly distinguish between the benefit Ohio consumers received from ADT and the benefit ADT received by purchasing consumer contracts from Defender.\u201d The distinction is between where the customer, ADT, uses or receives the benefit<\/em><\/strong> of the contract rights purchased and where it uses the contract rights themselves<\/em><\/strong>. It also found that although Defender obtained the contracts in Ohio, it was not separately compensated for this service; Defender\u2019s funding from ADT came only from selling contracts.<\/p>\n\n\n\n

The court ruled Ohio Administrative Code \u00a7 5703-29-17, which provides guidance on sourcing receipts for a multitude of service businesses, had no application to Defender\u2019s sales of intangible rights. Because the court resolved the case on statutory grounds, it did not address Defender\u2019s constitutional claims. Nevertheless, the decision is important because it offers greater certainty to Ohio CAT taxpayers, particularly those selling services and intangibles.<\/p>\n\n\n\n

If you have questions about the Ohio Supreme Court\u2019s decision in Defender Security Co. v. McClain<\/em> and its implications for your business or any state or local tax matter, contact Kelvin Lawrence or your lawyer at Dinsmore.<\/p>\n\n\n\n

\n\n\n\n

[1]<\/a> Sub. H.B. 292, 132nd Ohio General Assembly, generally restored the right to appeal Board of Tax Appeals decisions regarding rulings of the tax commissioner and municipal boards of appeal directly to the Ohio Supreme Court.<\/p>\n","protected":false},"excerpt":{"rendered":"

In a major win for sellers of services and intangibles, the Ohio Supreme Court ruled on Sept. 29, 2020, that a taxpayer is entitled to Ohio Commercial Activity Tax (CAT) refunds stemming from its sale of contracts to an out-of-state buyer. The decision rejects the Ohio Department of Taxation\u2019s sourcing method that required the taxpayer\u2026<\/p>\n","protected":false},"author":8,"featured_media":0,"menu_order":0,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"tags":[],"publication-type":[12],"class_list":["post-6689","publications","type-publications","status-publish","format-standard","hentry","publication-type-legal-alerts"],"acf":[],"yoast_head":"\nOhio Supreme Court Hands Down Win for Ohio CAT Taxpayers in Defender Security Case - Dinsmore & Shohl<\/title>\n<meta name=\"description\" content=\"Ohio Supreme Court Hands Down Win for Ohio CAT Taxpayers in Defender Security Case Read insights and legal analysis from attorneys at Dinsmore & Shohl LLP.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.dinsmore.com\/publications\/ohio-supreme-court-hands-down-win-for-ohio-cat-taxpayers-in-defender-security-case\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Ohio Supreme Court Hands Down Win for Ohio CAT Taxpayers in Defender Security Case\" \/>\n<meta property=\"og:description\" content=\"Ohio Supreme Court Hands Down Win for Ohio CAT Taxpayers in Defender Security Case Read insights and legal analysis from attorneys at Dinsmore & Shohl LLP.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.dinsmore.com\/publications\/ohio-supreme-court-hands-down-win-for-ohio-cat-taxpayers-in-defender-security-case\/\" \/>\n<meta property=\"og:site_name\" content=\"Dinsmore & Shohl\" \/>\n<meta property=\"article:modified_time\" content=\"2025-11-21T21:48:08+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.dinsmore.com\/wp-content\/uploads\/2026\/02\/social-media-share.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"675\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data1\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.dinsmore.com\/publications\/ohio-supreme-court-hands-down-win-for-ohio-cat-taxpayers-in-defender-security-case\/\",\"url\":\"https:\/\/www.dinsmore.com\/publications\/ohio-supreme-court-hands-down-win-for-ohio-cat-taxpayers-in-defender-security-case\/\",\"name\":\"Ohio Supreme Court Hands Down Win for Ohio CAT Taxpayers in Defender Security Case - Dinsmore & Shohl\",\"isPartOf\":{\"@id\":\"https:\/\/www.dinsmore.com\/#website\"},\"datePublished\":\"2020-10-02T18:47:50+00:00\",\"dateModified\":\"2025-11-21T21:48:08+00:00\",\"description\":\"Ohio Supreme Court Hands Down Win for Ohio CAT Taxpayers in Defender Security Case Read insights and legal analysis from attorneys at Dinsmore & Shohl LLP.\",\"breadcrumb\":{\"@id\":\"https:\/\/www.dinsmore.com\/publications\/ohio-supreme-court-hands-down-win-for-ohio-cat-taxpayers-in-defender-security-case\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.dinsmore.com\/publications\/ohio-supreme-court-hands-down-win-for-ohio-cat-taxpayers-in-defender-security-case\/\"]}]},{\"@type\":\"BreadcrumbList\",\"@id\":\"https:\/\/www.dinsmore.com\/publications\/ohio-supreme-court-hands-down-win-for-ohio-cat-taxpayers-in-defender-security-case\/#breadcrumb\",\"itemListElement\":[{\"@type\":\"ListItem\",\"position\":1,\"name\":\"Home\",\"item\":\"https:\/\/www.dinsmore.com\/\"},{\"@type\":\"ListItem\",\"position\":2,\"name\":\"Ohio Supreme Court Hands Down Win for Ohio CAT Taxpayers in Defender Security Case\"}]},{\"@type\":\"WebSite\",\"@id\":\"https:\/\/www.dinsmore.com\/#website\",\"url\":\"https:\/\/www.dinsmore.com\/\",\"name\":\"Dinsmore & Shohl\",\"description\":\"\",\"publisher\":{\"@id\":\"https:\/\/www.dinsmore.com\/#organization\"},\"potentialAction\":[{\"@type\":\"SearchAction\",\"target\":{\"@type\":\"EntryPoint\",\"urlTemplate\":\"https:\/\/www.dinsmore.com\/?s={search_term_string}\"},\"query-input\":{\"@type\":\"PropertyValueSpecification\",\"valueRequired\":true,\"valueName\":\"search_term_string\"}}],\"inLanguage\":\"en-US\"},{\"@type\":\"Organization\",\"@id\":\"https:\/\/www.dinsmore.com\/#organization\",\"name\":\"Dinsmore & Shohl\",\"url\":\"https:\/\/www.dinsmore.com\/\",\"logo\":{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.dinsmore.com\/#\/schema\/logo\/image\/\",\"url\":\"https:\/\/www.dinsmore.com\/wp-content\/uploads\/2025\/12\/Dinsmore-Final-Logo-Navy.svg\",\"contentUrl\":\"https:\/\/www.dinsmore.com\/wp-content\/uploads\/2025\/12\/Dinsmore-Final-Logo-Navy.svg\",\"width\":413,\"height\":54,\"caption\":\"Dinsmore & Shohl\"},\"image\":{\"@id\":\"https:\/\/www.dinsmore.com\/#\/schema\/logo\/image\/\"}}]}<\/script>\n<!-- \/ Yoast SEO Premium plugin. -->","yoast_head_json":{"title":"Ohio Supreme Court Hands Down Win for Ohio CAT Taxpayers in Defender Security Case - Dinsmore & Shohl","description":"Ohio Supreme Court Hands Down Win for Ohio CAT Taxpayers in Defender Security Case Read insights and legal analysis from attorneys at Dinsmore & Shohl LLP.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/www.dinsmore.com\/publications\/ohio-supreme-court-hands-down-win-for-ohio-cat-taxpayers-in-defender-security-case\/","og_locale":"en_US","og_type":"article","og_title":"Ohio Supreme Court Hands Down Win for Ohio CAT Taxpayers in Defender Security Case","og_description":"Ohio Supreme Court Hands Down Win for Ohio CAT Taxpayers in Defender Security Case Read insights and legal analysis from attorneys at Dinsmore & Shohl LLP.","og_url":"https:\/\/www.dinsmore.com\/publications\/ohio-supreme-court-hands-down-win-for-ohio-cat-taxpayers-in-defender-security-case\/","og_site_name":"Dinsmore & Shohl","article_modified_time":"2025-11-21T21:48:08+00:00","og_image":[{"width":1200,"height":675,"url":"https:\/\/www.dinsmore.com\/wp-content\/uploads\/2026\/02\/social-media-share.jpg","type":"image\/jpeg"}],"twitter_card":"summary_large_image","twitter_misc":{"Est. reading time":"4 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"WebPage","@id":"https:\/\/www.dinsmore.com\/publications\/ohio-supreme-court-hands-down-win-for-ohio-cat-taxpayers-in-defender-security-case\/","url":"https:\/\/www.dinsmore.com\/publications\/ohio-supreme-court-hands-down-win-for-ohio-cat-taxpayers-in-defender-security-case\/","name":"Ohio Supreme Court Hands Down Win for Ohio CAT Taxpayers in Defender Security Case - Dinsmore & Shohl","isPartOf":{"@id":"https:\/\/www.dinsmore.com\/#website"},"datePublished":"2020-10-02T18:47:50+00:00","dateModified":"2025-11-21T21:48:08+00:00","description":"Ohio Supreme Court Hands Down Win for Ohio CAT Taxpayers in Defender Security Case Read insights and legal analysis from attorneys at Dinsmore & Shohl LLP.","breadcrumb":{"@id":"https:\/\/www.dinsmore.com\/publications\/ohio-supreme-court-hands-down-win-for-ohio-cat-taxpayers-in-defender-security-case\/#breadcrumb"},"inLanguage":"en-US","potentialAction":[{"@type":"ReadAction","target":["https:\/\/www.dinsmore.com\/publications\/ohio-supreme-court-hands-down-win-for-ohio-cat-taxpayers-in-defender-security-case\/"]}]},{"@type":"BreadcrumbList","@id":"https:\/\/www.dinsmore.com\/publications\/ohio-supreme-court-hands-down-win-for-ohio-cat-taxpayers-in-defender-security-case\/#breadcrumb","itemListElement":[{"@type":"ListItem","position":1,"name":"Home","item":"https:\/\/www.dinsmore.com\/"},{"@type":"ListItem","position":2,"name":"Ohio Supreme Court Hands Down Win for Ohio CAT Taxpayers in Defender Security Case"}]},{"@type":"WebSite","@id":"https:\/\/www.dinsmore.com\/#website","url":"https:\/\/www.dinsmore.com\/","name":"Dinsmore & Shohl","description":"","publisher":{"@id":"https:\/\/www.dinsmore.com\/#organization"},"potentialAction":[{"@type":"SearchAction","target":{"@type":"EntryPoint","urlTemplate":"https:\/\/www.dinsmore.com\/?s={search_term_string}"},"query-input":{"@type":"PropertyValueSpecification","valueRequired":true,"valueName":"search_term_string"}}],"inLanguage":"en-US"},{"@type":"Organization","@id":"https:\/\/www.dinsmore.com\/#organization","name":"Dinsmore & Shohl","url":"https:\/\/www.dinsmore.com\/","logo":{"@type":"ImageObject","inLanguage":"en-US","@id":"https:\/\/www.dinsmore.com\/#\/schema\/logo\/image\/","url":"https:\/\/www.dinsmore.com\/wp-content\/uploads\/2025\/12\/Dinsmore-Final-Logo-Navy.svg","contentUrl":"https:\/\/www.dinsmore.com\/wp-content\/uploads\/2025\/12\/Dinsmore-Final-Logo-Navy.svg","width":413,"height":54,"caption":"Dinsmore & Shohl"},"image":{"@id":"https:\/\/www.dinsmore.com\/#\/schema\/logo\/image\/"}}]}},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.dinsmore.com\/wp-json\/wp\/v2\/publications\/6689","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.dinsmore.com\/wp-json\/wp\/v2\/publications"}],"about":[{"href":"https:\/\/www.dinsmore.com\/wp-json\/wp\/v2\/types\/publications"}],"author":[{"embeddable":true,"href":"https:\/\/www.dinsmore.com\/wp-json\/wp\/v2\/users\/8"}],"version-history":[{"count":2,"href":"https:\/\/www.dinsmore.com\/wp-json\/wp\/v2\/publications\/6689\/revisions"}],"predecessor-version":[{"id":61630,"href":"https:\/\/www.dinsmore.com\/wp-json\/wp\/v2\/publications\/6689\/revisions\/61630"}],"wp:attachment":[{"href":"https:\/\/www.dinsmore.com\/wp-json\/wp\/v2\/media?parent=6689"}],"wp:term":[{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.dinsmore.com\/wp-json\/wp\/v2\/tags?post=6689"},{"taxonomy":"publication-type","embeddable":true,"href":"https:\/\/www.dinsmore.com\/wp-json\/wp\/v2\/publication-type?post=6689"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}