In L.L. Bean Inc. v. Levin, the Ohio Board of Tax Appeals affirmed the decision of the Tax Commissioner finding that an out-of-state retailer had substantial nexus with state through its sales attributable to Ohio customers for purposes of the Commercial Activity Tax even though it did not have any physical presence in the state (Case no. 2010-2853 (2014)).

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April 16, 2014
Ohio Tax Appeals Board Rules on Factor Presence
In L.L. Bean Inc. v. Levin, the Ohio Board of Tax Appeals (“BTA”) affirmed the decision of the Tax Commissioner finding
that an out-of-state retailer had substantial nexus with state through its sales attributable to Ohio customers for
purposes of the Commercial Activity Tax (“CAT”) even though it did not have any physical presence in the state (Case
no. 2010-2853 (2014)).
Overview
L.L. Bean, Inc. (“Bean”) is an apparel and consumer goods retailer that did not have a physical presence in Ohio but
remotely sold over $500,000 in goods into the state. In an earlier administrative hearing, the Ohio Tax Commissioner
rejected Bean’s assertion that physical presence was required before Ohio could impose a filing requirement under the
CAT (In Re: L.L. Bean, Ohio Department of Taxation, 8/10/2010). The Commissioner ruled that the physical presence
nexus requirement only applied to sales and use taxes and that the CAT was not the functional equivalent of a sales
tax. Consequently, the Commissioner held that Bean did have nexus under Ohio Rev. Code Ann. § 5751.01(I) due to its
continuous, systematic and significant solicitation and exploitation of the state through catalogs and advertising as
demonstrated by the fact that the taxpayer exceeded the statutory threshold of $500,000 in Ohio sales.
On appeal, the BTA did not adjudicate any constitutional issues because it lacked jurisdiction. Therefore, it focused
exclusively on whether the statute in question was applied correctly. Not surprisingly, the BTA affirmed the
Commissioner’s decision finding that Bean had nexus for CAT purposes because it exceeded the statutory threshold of
$500,000 in Ohio sales.
CBIZ Observations
The Bean litigation is important because it represents the first time that a taxpayer has challenged the constitutional
validity of factor presence nexus. However, the opinions issued thus far have provided little guidance or insight into
these constitutional issues. It should be noted that Ohio Rev. Code Ann. § 5751.31 provides that any constitutional
matter relating to this bright-line rule could have been appealed directly to the Ohio Supreme Court if the Commissioner
had chosen to do so. Now that a decision by the BTA has been made, almost four years later, we will finally see
whether the Supreme Court of Ohio will address the constitutional issues as Bean has petitioned the Court for review.
Further, taxpayers in other factor presence states, such as California, Michigan, Connecticut, Colorado, Washington
and New York (beginning in 2015), will likely receive persuasive authority on how such matters may be adjudicated in
those states.
Meanwhile, the Ohio Department of Taxation has continued to strictly enforce the factor presence standards of Ohio
Rev. Code Ann. § 5751.01(I). Out-of-state businesses selling to customers in Ohio should consider the implications of
Ohio’s factor presence rules while we await final resolution to the Bean litigation.
Questions
If you have any questions concerning nexus issues in Ohio or any other states, please contact your local CBIZ MHM tax
advisor who can connect you with one of our state and local tax specialists.
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