Court rules against grocers

By Marc Kovac

COLUMBUS — The state can continue to collect commercial- activity taxes from grocery stores, the Ohio Supreme Court ruled Thursday.

The grocers had argued that the state did not have authority to impose its commercial-activity tax, or CAT, on their gross sales, citing provisions in the Ohio Constitution prohibiting taxes on food.

But in its 6-1 decision, justices said collections were not an unconstitutional excise tax on such purchases.

Justice Maureen O’Connor wrote in the majority decision, “And when the CAT’s practical operation is considered, it becomes evident that it is what it purports to be: a permissible tax on the privilege of doing business, not a proscribed tax upon the sale or purchase of food. For these reasons, we reverse the judgment of the court of appeals.”

The case stems from tax reform instituted by lawmakers several years ago that phased out corporate franchise and tangible personal-property taxes and replaced them with the CAT, a tax figured using a business’ gross annual receipts. The goal of the CAT was to broaden the tax base and lower rates.

Businesses with gross annual receipts of $150,000-$1 million pay a flat $150.

Those with more than $1 million pay a percentage based on their total receipts; those with less than $150,000 pay nothing.

For fiscal 2010, the state has estimated the CAT will generate about $1.4 billion in revenues. Grocery sales make up about $188 million of that total.

But grocers filed suit, seeking to stop the CAT collections, saying that the Ohio Constitution prohibited taxes on food sales.

A trial court found in favor of the state, but an appeals court reversed in favor of the grocers. The Supreme Court on Thursday reversed the appeals court decision.

Justice Paul E. Pfeifer dissented on the final ruling.

He wrote: “It is an incontrovertible fact that if a retailer has sales over $1 million, and he sells an additional 40 gallons of milk at $2.50 per gallon, for a total of $100, a tax of 26 cents is levied upon him, and the state collects 26 cents. Is this not a tax ‘levied or collected upon the sale or purchase of food?’”