Tax Rules: Final: 5703-29
5703-29-16 Qualified Distribution Center.
(A) Pursuant to division (F)(2)(z) of section 5751.01 of the
Revised Code, “gross receipts” excludes “qualifying
distribution center receipts.” That division defines
“qualifying distribution center receipts” and other terms
used in that definition. While all the requirements of
division (F)(2)(z) of section 5751.01 of the Revised Code
must be met, it essentially provides that certain receipts of
a supplier from qualified property delivered to a qualified
distribution center are excluded from that supplier’s
calculation of gross receipts for purposes of the commercial
activity tax. The extent of this exclusion is based on the
Ohio delivery percentage as determined by the qualified
distribution center, and such percentage applies to all
suppliers shipping to that location regardless of the
percentage of that supplier’s actual property that will be
shipped outside the state.
(B) In order to meet the requirements to be a qualified
distribution center, a warehouse or other similar facility,
in addition to meeting all other requirements specified in
division (F)(2)(z) of section 5751.01 of the Revised Code,
must meet both of the following requirements for the
qualifying period:
(1) The operator of the warehouse or similar facility and
members of the operator’s consolidated elected taxpayer group
as described in section 5751.011 of the Revised Code must
have had at least five hundred million dollars in cumulative
costs from qualified property delivered to the distribution
center by its suppliers during the qualifying period. Such
costs only include costs of qualified property, which is
tangible personal property delivered to a distribution center
that is shipped there solely for further shipping by the
distribution center to another location either within or
without this state. Only the cost of the qualified property,
less any deductions (e.g., cash discounts) is considered for
purposes of this calculation. Any costs or reimbursements for
providing a service to the seller, such as management
consulting services, are excluded from the calculation.
Further, only purchases made by members of the same
consolidated elected taxpayer group and received at the
distribution center are included in the calculation of the
five hundred million dollars. All purchases from members of
the same consolidated elected taxpayer group must be excluded
from the calculation and cannot be included in the five
hundred million dollar threshold.
(a) For example, Corporation A is the operator of a
distribution center. Corporation A, Corporation B, and
Corporation Z purchase qualified property that is shipped to
the distribution center by independent, third-party suppliers
during the qualifying period. Corporation A and Corporation B
are part of the same consolidated elected taxpayer group;
Corporation Z is not part of Corporation A’s consolidated
elected taxpayer group. The purchases of qualified property
made by Corporation A and Corporation B that are shipped to
the distribution center are aggregated in the calculation of
the five hundred million dollar threshold. However, purchases
made by Corporation Z are not included in that calculation
because Corporation Z is not part of Corporation A’s
consolidated elected taxpayer group.
(b) In contrast, assume the same facts as in the previous
example. The intercompany sales between Corporation A and
Corporation B or between or among any other members of the
operator’s consolidated elected taxpayer group are not
aggregated with other purchases from outside suppliers to
meet the five hundred million dollar threshold.
(2) The operator of such facility must have had more than
fifty per cent of the cost of the qualified property shipped
to a situs outside this state under the provisions of
division (E) of section 5751.033 of the Revised Code during
the qualifying period. Any qualified property shipped from a
qualified distribution center to a destination within this
state is received in this state, even if the qualified
property is subsequently shipped outside this state.
(C) If the warehouse or similar facility meets both
requirements, the operator of such location must make an
application to the Tax Commissioner and provide its Ohio
delivery percentage. The Ohio delivery percentage equals the
percentage of the cost of qualified property that is shipped
to purchasers located within this state. The computation
shall be carried out to four decimal places (e.g., 44.56%).
If the calculation results in more than four decimal places,
the percentage shall be rounded up whenever the fifth decimal
place is greater than four. “Purchasers” of this property may
be either members of the same consolidated elected taxpayer
group or non-members of the group. The cost basis used for
calculating the Ohio delivery percentage must be consistently
applied in both the numerator and denominator and must be
supported by the taxpayer’s records as they existed during
the qualifying period.
(D) On the operator’s application, the calculations provided
to establish compliance with the requirements identified in
this paragraph and paragraph (B) of this rule must be
certified by a certified public accountant in a format
approved by the commissioner. Such certification must be
attached to the operator’s application. With the application,
the operator must provide both: (1) the cost of the qualified
property shipped to the distribution center by suppliers
during the qualifying period; and (2) the Ohio delivery
percentage cost attributable to each location, which is the
proportion of the cost of the qualified property shipped to
locations in this state compared with the cost of qualified
property shipped everywhere. Only those suppliers that
actually sell to such qualified distribution center qualify
for the partial exclusion from their gross receipts.
(E) In the event an agency relationship exists such that a
broker, for example, works with a supplier to sell to a
distribution center, only the principal (the supplier) is
entitled to take the partial exclusion from its gross
receipts pursuant to division (F)(2)(z) of section 5751.01 of
the Revised Code. The broker may be entitled to exclude the
portion of the gross receipts it passes on to the
principal/supplier as an agent under division (F)(2)(l) of
section 5751.01 of the Revised Code. However, the person
receiving the commission or fee could not apply the Ohio
delivery percentage to its commission or fee in order to
further reduce its commercial activity tax liability because
such person is providing a service and the amount retained is
not attributable to qualified property.
Effective: 9-1-06
Promulgated under: 5703.14
Authorized by: 5703.05
Amplifies: 5751.01 (F)(2)(z)