Grocers to Ohio Supreme Court: We should not have to pay business tax

A ruling supporting the grocers would cut $188M in Ohio’s budget.

COLUMBUS (AP) — Ohio Supreme Court justices fired questions Tuesday at an attorney arguing that grocers should not have to pay a broad business tax when it’s applied to receipts from the sale of food, in a case with ramifications for the state’s tight budget.

Ohio grocers hope the court upholds an appeals court decision that it’s unconstitutional for grocers to pay the Commercial Activities Tax on food sale receipts because of a constitutional prohibition on taxes on the sale of food taken elsewhere to be consumed.

The state, however, argued the tax is levied on the privilege of doing business in Ohio and said the state Constitution only prohibits a sales tax on food. A ruling in favor of the grocers would create an estimated $188 million hole in the precarious state budget, and likely encourage other business interests to challenge the tax.

Questioning during oral arguments Tuesday suggested the grocers will have to overcome initial skepticism from the majority of justices to get a favorable ruling.

The grocers’ attorney argued that the business tax, when applied to receipts from the sale of food, essentially behaves like a sales tax because there’s no difference between taxing individual sales of food and taxing the aggregate receipts collected from the sale of food.

But Chief Justice Thomas Moyer said the court has found in previous cases that receipts can be part of the measurement that’s used in determining how much a business pays in a broad business tax. The Commercial Activities Tax behaves like a so-called franchise tax, which it replaced in 2005 in an effort to expand the base of business taxation and close myriad loopholes that had formed.

“The object of the tax is to say to grocers, like everyone else in business, ‘This is the tax you pay for having the privilege of doing business in Ohio,”’ Moyer said. “And I have a difficult time understanding why gross receipts cannot be the measurement.”

Justices also tried to pin down whether the Commercial Activities Tax, when applied to the sale of food, has a direct impact on the consumer, and whether that consumer would see lower prices if the grocers were not required to pay the tax on receipts from food sales. The questioning attempted to get to the point of whether the tax behaved like a sales tax, with an impact on consumers.

Attorney General Richard Cordray, arguing his first case in the state’s highest court since taking office, said a 1936 constitutional amendment approved by voters only sought to prohibit sales taxes levied on food, and had nothing to do with franchise taxes — or taxes for the privilege of doing business.

“The plaintiffs’ position here is not that the tax is unconstitutional simply because a consumer may or may not ultimately pay higher grocery bills,” countered Gerhardt “Gage” Gosnell, the attorney for the grocers.