Ohio Supreme Court on Tuesday announce NASCAR The winner in its multi-year dispute with the Ohio tax commissioner over whether NASCAR owed more than half a million dollars in back taxes and penalties for business conducted out of state.
The ruling sends the message that while the major professional leagues generate revenue in all 50 states, each state’s ability to tax requires compliance with the law.
In the case in NASCAR vs. McLean Was whether the state of Ohio could tax NASCAR on revenue generated from national contracts that included NASCAR’s intellectual property license. Related contracts related to TV, live broadcast, and website activities from 2005 to 2010 and launched an audit in 2011. Ohio’s business tax law allowed Ohio to tax NASCAR receipts “to the extent that receipts are based on a right to use the property in [Ohio]. ”
Ohio tax regulators have decided that the $1.7 billion in revenue NASCAR earned in its broadcast contract with Fox is within reach of the law. The state calculated the amount of revenue attributed to Ohio based on Nielsen data and found that Buckeye residents make up 4.3% of cable TV viewers in the US
Ohio used a similar measure to determine how much of NASCAR’s profits from licensing its brand in marketing materials and website activities—for example, in one licensing contract, Turner paid $6 million over six years—should be taxed by Ohio. In terms of NASCAR’s revenue from licensing fees that allowed banks, insurance companies, and other businesses to use its brand and trade names, Ohio derived from United States Census data for Ohio residents versus the national population.
In an opinion written by Judge Pat DeWine, the court concluded that most of this tax estimate was illegal. The main problem, DeWine writes, was that NASCAR contracts did not stipulate payments on the right to use property in Ohio. In fact, “Ohio was not mentioned in the contracts.”
Instead, “the contracts granted broad rights to use NASCAR’s intellectual property over large geographic areas—most often the United States and its territories—which includes Ohio.” DeWine found this problematic, because the contracts did not spell out “a causal relationship between any of the receipts and the right to use NASCAR’s intellectual property in Ohio.”
DeWine detailed that there was no causal relationship in the NASCAR-Fox deal. DeWine wrote that “Fox paid NASCAR a flat fee for the rights—a fee that did not change regardless of whether any part of NASCAR’s intellectual property ever came to Ohio.”
The state asserted it could approximate Ohio’s percentage based on Nielsen ratings, but DeWine said the law only allows intellectual property taxes if the receipts are based on a right to use the property in Ohio. Because the contract “does not clearly base what NASCAR is paying on the right to use NASCAR property in Ohio,” the state lacks the right to levy taxes.
DeWine acknowledged that the NASCAR brand “reaches Ohio in a number of ways,” including when “Ohioans buy NASCAR grill covers, watch ads run by companies that boast of being NASCAR’s “official partner,” and visit Turner-owned NASCAR.com.” broadcast”. But the judge stressed that these factors are not decisive in whether a state can levy a tax contingent on the use of property in the state.
Robert RaiolaO’Connor Davies, who is CPA for Teams and Players and Group Director of Sports and Recreation at PKF, agrees with the court’s decision. Raiola said: “States” Sportico“Unions often tax, but this ruling shows that there are important limits under tax laws that states must follow.”