[Cite as Greenscapes Home & Garden Prods., Inc. v. Testa, 2019-Ohio-384.]

                             IN THE COURT OF APPEALS OF OHIO

                                  TENTH APPELLATE DISTRICT


Greenscapes Home and                                 :
Garden Products, Inc.,
                                                     :
                Appellant-Appellant,
                                                     :                       No. 17AP-593
v.                                                                          (BTA No. 2016-350)
                                                     :
Joseph W. Testa, Tax Commissioner                                       (REGULAR CALENDAR)
of Ohio,                                             :

                Appellee-Appellee.                   :




                                          D E C I S I O N

                                   Rendered on February 7, 2019


                On brief: Brouse McDowell LPA, Terry W. Vincent, and
                Anastasia J. Wade, for appellant. Argued: Anastasia J.
                Wade.

                On brief: [Dave Yost], Attorney General, Daniel G. Kim, and
                Daniel W. Fausey, for appellee. Argued: Daniel W. Fausey.


                          APPEAL from the Ohio Board of Tax Appeals

KLATT, P.J.

        {¶ 1} Appellant, Greenscapes Home and Garden Products, Inc., appeals from a
decision issued by the Ohio Board of Tax Appeals ("BTA") affirming the assessment of the
commercial-activity tax ("CAT") by appellee, Joseph W. Testa, tax commissioner , for
revenue Greenscapes receives from the sale of lawn and garden products that are shipped
into the state of Ohio. For the reasons that follow, we affirm.
No. 17AP-593                                                                                 2

I. Factual and Procedural Background
       {¶ 2} Greenscapes is a Georgia corporation. It does not have any locations in Ohio
and does not employ any agents, representatives, or employees in Ohio. Greenscapes'
primary customers are "big-box" retailers such as Walmart, Home Depot, and Lowe's.
These retailers have distribution centers located in Ohio. When an order is placed,
Greenscapes is provided with a delivery address. It prepares a bill of lading but is not
responsible for shipping. The retailer arranges for a carrier to pick up the product at
Greenscapes' facility. Once loaded into the carrier's truck, the product becomes the
property of the retailer. After the product leaves the facility, Greenscapes cannot track the
final destination of the product. In this case, we are concerned with the situsing of the total
gross receipts that Greenscapes receives when it sells goods that are shipped by the retailer
to Ohio.
       {¶ 3} In April 2012, an auditor for the Ohio Department of Taxation sent
Greenscapes a nexus letter. The letter stated that it appeared that Greenscapes was doing
business in Ohio but had not registered or filed for the CAT. It requested that Greenscapes
take one of three actions:      (1) register, file, and remit any taxes owed; (2) provide
information if already registered and filed; or (3) explain why the company should not be
required to register for the CAT. In response, Greenscapes registered for the CAT in May
2012 and filed returns for all quarters of 2011 and 2012.
       {¶ 4} Greenscapes also received notice in 2012 that a CAT audit was to be
conducted. After initially complying and sending some sales information, Greenscapes
declined to further participate in the audit. It also stopped filing CAT reports and paying
any taxes to Ohio. The auditor used the sales information provided to determine the total
gross receipts for 2007-2012 and estimated the total gross receipts for 2005 and 2006. In
February 2014, a notice of assessment was issued to Greenscapes in the amount of $64,064
for taxes owed for the period of 2005-2012, plus interest, penalty, and late payment penalty.
The department also issued notices of assessment for each quarter of 2013 and 2014 based
upon estimated tax owed due to Greenscapes' failure to file a return.
       {¶ 5} Greenscapes filed petitions for reassessment for 2005-2014 and also filed a
refund claim for the CAT payments that it made in 2011 and 2012. Greenscapes contended
that it was not liable for the CAT because it did not own the goods shipped to Ohio, was not
No. 17AP-593                                                                               3

responsible for the goods being shipped to Ohio, and Ohio may not be the final destination
for the goods as they were sent to Ohio distribution centers. The tax commissioner issued
a final determination on December 29, 2015. Relying on R.C. 5751.033(E) and Dupps Co.
v. Lindley, 62 Ohio St.2d 305 (1980), the tax commissioner found that when a purchaser
buys tangible personal goods in Georgia and subsequently ships those goods to a retail
location in Ohio, the seller's gross receipts from that sale must be sitused to Ohio. He
further noted that Greenscapes failed to produce any evidence that Ohio was not the final
destination for the goods. The tax commissioner affirmed the assessments and denied the
refund claim.
       {¶ 6} Greenscapes filed a timely notice of appeal with the BTA. At the hearing
before the BTA, Greenscapes presented evidence and the testimony of Donald Hayes, an
executive vice president. The exhibits were examples of orders from retailers such as
Lowe's, Home Depot, and Wal-Mart. They reflected that the retailers were billed at their
home offices, which are located outside of Ohio, and that common carriers were hired by
the retailers to pick up the goods in Georgia and deliver them to Ohio. Hayes testified that
Wal-Mart, Home Depot, and Lowe's constitutes 95 percent of its customer sales and that
Greenscapes has not successfully marketed to customers outside of these retailers. He
acknowledged that Greenscapes had some online presence during the audit period but that
it did not have a catalog nor did it advertise its products. Hayes admitted that Greenscapes
was aware that retailers like Lowe's have a national presence and that is the reason that
Greenscapes likes to work with them. He also confirmed that Greenscapes' products have
been shipped to all 50 states and to Canada.
       {¶ 7} The tax commissioner presented the testimony of Janelle Rahn, who
conducted the audit of Greenscapes. She stated that during the audit Greenscapes had
provided a document showing sales by state from 2007 to 2012. Rahn was then contacted
by an accountant for Greenscapes, who clarified that the document did not represent sales
in Ohio but that it showed sales by ship to destination. Rahn explained that this distinction
was immaterial because under the situsing statute the final destination controls where the
goods would be sitused. Because the document reflected goods shipped to Ohio, she used
that data to determine the tax owed for 2007-2012 and estimated the tax owed for 2005
No. 17AP-593                                                                                 4

and 2006. Rahn also testified that she offered to consider additional information showing
that Ohio was not in fact the final destination for the goods but did not receive any.
       {¶ 8} The BTA agreed with the tax commissioner that the ultimate destination of
the products sold by Greenscapes after all transportation has been completed controls
where the sales are sitused. It acknowledged that some of the goods that were shipped to
Ohio may have ended up in retail locations outside of Ohio but also noted that Greenscapes
failed to present any evidence of further transportation. The BTA found that Greenscapes
knew its products would be transported to Ohio based on its customers' orders and the bills
of lading it provided to the drivers responsible for transportation. The BTA recognized that
Greenscapes had raised arguments under the Commerce Clause and Due Process Clause of
the U.S. Constitution but declined to make any findings as constitutional challenges are
outside of its authority. The BTA found that Greenscapes failed to meet its burden on
appeal and affirmed the determination of the tax commissioner.
II. The Appeal
       {¶ 9} Greenscapes appeals the decision of the BTA and assigns the following errors:
              [I.] THE BOARD OF TAX APPEALS ERRED IN HOLDING
              THAT GREENSCAPES' DELIVERY OF PRODUCT IN
              GEORGIA TO ITS OUT OF STATE CUSTOMERS' CARRIER
              OR A COMMON CARRIER HIRED BY ITS CUSTOMERS,
              WHO THEN SHIPPED THE PRODUCT TO DISTRIBUTION
              CENTERS LOCATED IN OHIO, WAS ENOUGH CONTACT
              TO CREATE A SUBSTANTIAL NEXUS BETWEEN
              GREENSCAPES AND THE STATE OF OHIO SUCH THAT
              THE STATE OF OHIO COULD ASSESS A COMMERCIAL
              ACTIVITY TAX AGAINST GREENSCAPES UNDER THE
              COMMERCE CLAUSE OF THE U.S. CONSTITUTION.

              [II.] THE BOARD OF TAX APPEALS ERRED IN
              CONCLUDING THAT GREENSCAPES HAD THE MINIMUM
              CONNECTION TO OHIO SUCH THAT OHIO COULD TAX
              GREENSCAPES UNDER THE DUE PROCESS CLAUSE OF
              THE U.S. CONSTITUTION.

III. Scope of the Appeal and Jurisdiction
       {¶ 10} In its assignments of error, Greenscapes alleges that the application of the
CAT to its sale of goods to retailers based outside of Ohio is unconstitutional and a violation
of the dormant Commerce Clause and the Due Process Clause of the U.S. Constitution. In
No. 17AP-593                                                                                 5

response, the tax commissioner contends that we lack jurisdiction to consider these claims
because Greenscapes failed to (1) properly specify error as to the tax commissioner's final
determination or the BTA decision, (2) specify the statute or statutes that are
unconstitutional, and (3) preserve the substantial nexus challenge because it was not raised
as part of its petition for reassessment.       The tax commissioner initially notes that
Greenscapes' assignments of error incorrectly state the BTA's holding. He contends that
the BTA did not hold that there was a substantial nexus or minimum contact with Ohio.
Instead, the BTA affirmed the final determination that the gross receipts for products
delivered into Ohio were properly sitused to Ohio. Because the errors specified in the notice
of appeal to the BTA and to this court do not actually address the actual holding made in
the final determination or in the BTA's decision, the tax commissioner contends that we
lack jurisdiction over this matter. The tax commissioner also notes that the only statute
referenced in the notice of appeal is R.C. 5717.033(E). That statute is concerned with
situsing but does not reference substantial nexus or minimum contact.                 The tax
commissioner argues that Greenscapes has abandoned any claim based on the statute
because it did not brief that issue.
       {¶ 11} R.C. 5717.02 authorizes the BTA to hear appeals from final determinations of
the tax commissioner. The notice of appeal to the BTA "shall contain a short and plain
statement of the claimed errors in the determination or redetermination of the tax
commissioner * * * showing that the appellant is entitled to relief and a demand for the
relief to which the appellant claims to be entitled." R.C. 5717.02(C). In similar fashion, the
notice of appeal from the BTA's decision shall set forth "the errors therein complained of."
R.C. 5717.04. It is well-established that a notice of appeal filed with the BTA must explicitly
and precisely set forth the errors contained in the final determination of the tax
commissioner and that any error not specified is not reviewable by either the BTA or an
appellate court. See Lovell v. Levin, 116 Ohio St.3d 200, 2007-Ohio-6054, ¶ 35. The
specificity requirement of R.C. 5717.02 has been interpreted in such a way that if the
language in the notice of appeal is so broad and general that it might be employed in nearly
any case, then the notice of appeal will be deemed insufficient. Queen City Valves v. Peck,
Inc., 161 Ohio St. 579 (1954), syllabus; Castle Aviation, Inc. v. Wilkins, 109 Ohio St.3d 290,
2006-Ohio-2420, ¶ 38. These requirements are considered jurisdictional prerequisites for
No. 17AP-593                                                                                  6

the BTA and this court on appeal. Global Knowledge Training, LLC v. Levin, 127 Ohio
St.3d 34, 2010-Ohio-4411, ¶ 15.
       {¶ 12} Whether a constitutional challenge must be raised in the notice of appeal to
the BTA depends on the type of challenge involved. The BTA, as an administrative agency
and a creature of statute, is without jurisdiction to determine the constitutional validity of
a statute. Cleveland Gear Co. v. Limbach, 35 Ohio St.3d 229 (1988), paragraph one of the
syllabus. If an appellant argues that a tax statute is unconstitutional on its face, the issue
may be raised initially in the Supreme Court of Ohio or in the courts of appeals despite not
having been previously raised to the BTA. Id. at paragraph two of the syllabus. However,
when a tax statute is challenged on the basis that it is unconstitutional in its application, a
court needs a factual record and the proponent of the statute needs notice so that evidence
may be submitted in support of the application of the statute. Id. at 232. The Supreme
Court has determined that the BTA is a reasonable forum to develop that record. Id.
Therefore, when an issue of whether a tax statute is unconstitutional as applied to a
particular set of facts is raised, it must be brought in the notice of appeal to the BTA and the
BTA must receive evidence on this issue even though the BTA may not decide the
constitutional question. Id. at paragraph three of syllabus.
       {¶ 13} In its notice of appeal to the BTA, Greenscapes specified the following errors:
              FIRST: The Ohio Supreme Court has repeatedly held that,
              when construing a statute, a court cannot read words into the
              statute not found in its text. According to R.C. 5751.033(E),
              direct delivery in Ohio, other than for purposes of
              transportation, to a firm designated by the purchaser is
              delivery in Ohio. The second clause of that sentence, however,
              states that direct delivery outside Ohio to firm designated by
              the purchaser is not delivery to the purchaser in Ohio and does
              not include the limitation that the delivery must be "other than
              for purposes of transportation." Greenscapes delivers the
              product to an agent of the Retailers in Georgia for purposes of
              transportation to Ohio. Did the Commissioner err in holding
              that Greenscapes' gross receipts must be sitused in Ohio when
              the products are directly delivered in Georgia to a firm
              designated by the Retailers?

              SECOND: The United States Supreme Court has held that, for
              a state to impose taxes on an out-of-state entity, there must be
              a substantial nexus between the out-of-state entity and the
              state to meet the requirements of the Commerce Clause of the
No. 17AP-593                                                                              7

              United States Constitution. The U.S. Supreme Court has
              further held that a seller whose only contact with the taxing
              state is by common carrier lacks the required substantial nexus
              and cannot be taxed by the state. At most, Greenscapes only
              contact with the State of Ohio is through a common carrier
              hired and paid for by the Retailers to transport purchased
              tangible personal property received in Georgia to a distribution
              center in Ohio. Did the Commissioner err in holding that
              Greenscapes' delivery of product to a common carrier hired by
              the Retailers, who then shipped the product into Ohio, was
              enough contact to create a substantial nexus between
              Greenscapes and the State of Ohio such that the State of Ohio
              could assess a Commercial Activity Tax against Greenscapes
              under the Commerce Clause of the U.S. Constitution?

              THIRD: The U.S. Supreme Court requires that there be some
              minimum connection between a state and the entity it seeks to
              tax to comport with the Due Process Clause of the U.S.
              Constitution. To be subject to tax under the Due Process
              clause, there must be demonstrated some efforts on the part of
              the out-of-state entity are "purposefully directed" toward
              residents of the state. Greenscapes does not direct any effort
              towards residents of Ohio and its only connection to the state
              is its sales of product to out-of-state corporations, who then
              ship some of the product to distribution centers in Ohio. Did
              the Commissioner err in concluding that Greenscapes had the
              minimum connection to Ohio such that Ohio could tax
              Greenscapes under the Due Process Clause of the U.S.
              Constitution?

              FOURTH: A penalty on a tax assessment is inappropriate
              where the party subject to the assessment relied in good faith
              that, based on current law, it was not subject to the assessed
              tax. Greenscapes relied, in good faith, on the text of R.C.
              5751.033(E) and on Federal constitutional principles for the
              conclusion that it was not subject to Ohio's Commercial
              Activity Tax. Did the Commissioner err in imposing penalties
              on Greenscapes for the assessed Commercial Activity Tax?

(Mar. 1, 2016 Notice of Appeal at 4-5.)
       {¶ 14} When it filed its notice of appeal with this court, Greenscapes eliminated the
fourth error regarding the assessment of a penalty. The other three errors are substantially
the same except for the last sentence in each error. In the notice of appeal to this court,
Greenscapes complained of the following errors:
No. 17AP-593                                                                  8

           FIRST: The Ohio Supreme Court has repeatedly held that,
           when construing a statute, a court cannot read words into the
           statute not found in its text. According to R.C. 5751.033(E),
           direct delivery in Ohio, other than for purposes of
           transportation, to a firm designated by the purchaser is
           delivery in Ohio. The second clause of that sentence, however,
           states that direct delivery outside Ohio to firm designated by
           the purchaser is not delivery to the purchaser in Ohio and does
           not include the limitation that the delivery must be "other than
           for purposes of transportation." Greenscapes delivers the
           product to an agent of its customers in Georgia for purposes of
           transportation to Ohio. The BTA erred in holding that
           Greenscapes' gross receipts must be sitused in Ohio when the
           products are directly delivered in Georgia to the customer or an
           agent designated by its customers.

           SECOND: The United States Supreme Court has held that, for
           a state to impose taxes on an out-of-state entity, there must be
           a substantial nexus between the out-of-state entity and the
           state to meet the requirements of the Commerce Clause of the
           United States Constitution. The U.S. Supreme Court has
           further held that a seller whose only contact with the taxing
           state is by common carrier lacks the required substantial nexus
           and cannot be taxed by the state. At most, Greenscapes only
           contact with the State of Ohio is through a common carrier
           hired and paid for by some of its customers to transport
           purchased tangible personal property received in Georgia to a
           distribution center in Ohio. The BTA erred in holding that
           Greenscapes' delivery of product to the customer's carrier or a
           common carrier hired by its customers, who then shipped the
           product into Ohio, was enough contact to create a substantial
           nexus between Greenscapes and the State of Ohio such that
           that State of Ohio could assess a Commercial Activity Tax
           against Greenscapes under the Commerce Clause of the U.S.
           Constitution.

           THIRD: The U.S. Supreme Court requires that there be some
           minimum connection between a state and the entity it seeks to
           tax to comport with the Due Process Clause of the U.S.
           Constitution. To be subject to tax under the Due Process
           clause, there must be demonstrated some efforts on the part of
           the out-of-state entity are "purposefully directed" toward
           residents of the state. Greenscapes does not direct any efforts
           towards residents of Ohio and its only connection to the state
           is its sales of product to out-of-state corporations, who then
           ship some of the product to distribution centers in Ohio. The
           BTA erred in concluding that Greenscapes had the minimum
No. 17AP-593                                                                                  9

              connection to Ohio such that Ohio could tax Greenscapes
              under the Due Process Clause of the U.S. Constitution.

(Aug. 18, 2017 Notice of Appeal at 2-3.)
       {¶ 15} Greenscapes did not include in its brief any argument regarding the first
error. Instead, it focused on the constitutional challenges.
       {¶ 16} Upon review of the notice of appeal filed before the BTA and this court, we
conclude that we have jurisdiction to determine this appeal. A court should not engage in
a hyper-technical reading of the notice appeal to deny review. MCI Telecommunications
Corp. v. Limbach, 68 Ohio St.3d 195, 197 (1994). The notices of appeal clearly and distinctly
present the questions of whether the application of the CAT to Greenscapes violates the
Commerce Clause of the U.S. Constitution due to the lack of a substantial nexus and
whether the application of the CAT to Greenscapes violates the Due Process Clause of the
U.S. Constitution due to the lack of minimum contact with Ohio. However, as part of its
first assignment of error, Greenscapes also argues that Ohio cannot impose a tax on it
because Greenscapes receives no benefit, protection, or opportunity in exchange for having
to pay the CAT. This argument was not specified in the notice of appeal to the BTA or to
this court. Therefore, we shall not consider it.
IV. Standard of Review
       {¶ 17} This appeal concerns the constitutional validity of applying the CAT. The
BTA received the evidence at its hearing, but we are tasked with determining the facts
necessary to resolve the constitutional questions before us. Crutchfield Corp. v. Testa, 151
Ohio St.3d 278, 2016-Ohio-7760, ¶ 16, citing MCI Telecommunications Corp. at 198. "To
prevail on a constitutional challenge to [a] statute as applied, the challenger must present
clear and convincing evidence of the statute's constitutional defect." State ex rel. Ohio
Congress of Parents & Teachers v. State Bd. of Edn., 111 Ohio St.3d 568, 2006-Ohio-5512,
¶ 21. Clear and convincing evidence is a degree of proof that " 'will produce in the mind of
the trier of facts a firm belief or conviction as to the facts sought to be established.' " Id.,
quoting Lansdowne v. Beacon Journal Publishing Co., 32 Ohio St.3d 176, 180-81 (1987),
quoting Cross v. Ledford, 161 Ohio St. 469 (1954), paragraph three of the syllabus. In
determining a constitutional challenge, we are mindful that laws are entitled to a strong
presumption of constitutionality. Ohio Grocers Assn. v. Levin, 123 Ohio St.3d 303, 2009-
No. 17AP-593                                                                               10

Ohio-4872, ¶ 11. Our review of the constitutionality of a statute is de novo. State v.
Watkins, 10th Dist. No. 09AP-669, 2010-Ohio-4187, ¶ 9, citing State v. Cook, 83 Ohio St.3d
404 (1998).
V. The CAT
       {¶ 18} The CAT was enacted as part of a major reform of Ohio's tax code.
Am.Sub.H.B. No. 66, 151 Ohio Laws, Part II, 2868.            For many businesses such as
manufacturing and distribution companies like Greenscapes, the CAT replaced the
corporate-franchise and personal-property taxes, which were gradually phased out. See
Beaver Excavating Co. v. Testa, 134 Ohio St.3d 565, 2012-Ohio-5776, ¶ 23; Ohio Grocers
at ¶ 6. The CAT levies a tax on each person with taxable gross receipts for the privilege of
doing business in Ohio. R.C. 5751.02(A). For purposes of the CAT, "person" includes
companies and "any other entities." R.C. 5751.01(A). A person who has less than $150,000
of taxable gross receipts in a calendar year does not have to pay the CAT. R.C. 5751.01(E)(1).
If a person's taxable gross receipts is $1,000,000 or less, the CAT owed is a flat $150. R.C.
5751.03(B)(1). After that, the amount of tax owed is determined by a formula set forth in
R.C. 5751.03 and is based on the amount of taxable gross receipts. "[G]ross receipts" is "the
total amount realized by a person, without deduction for the cost of goods sold or other
expenses incurred, that contributes to the production of gross income of the person,
including the fair market value of any property and any services received, and any debt
transferred or forgiven as consideration." R.C. 5751.01(F). One example of "gross receipts"
is the "[a]mounts realized from the sale, exchange, or other disposition of the taxpayer's
property to or with another." R.C. 5751.01(F)(1)(a).
       {¶ 19} To fall within the purview of the CAT, the gross receipts must be taxable in
Ohio. "Taxable gross receipts" are "gross receipts sitused to this state under section
5751.033 of the Revised Code." R.C. 5751.01(G). As pertinent to Greenscapes,
              [g]ross receipts from the sale of tangible personal property
              shall be sitused to this state if the property is received in this
              state by the purchaser. In the case of delivery of tangible
              personal property by motor carrier or by other means of
              transportation, the place at which such property is ultimately
              received after all transportation has been completed shall be
              considered the place where the purchaser receives the
              property. For purposes of this section, the phrase "delivery of
              tangible personal property by motor carrier or by other means
No. 17AP-593                                                                                              11

                of transportation" includes the situation in which a purchaser
                accepts the property in this state and then transports the
                property directly or by other means to a location outside this
                state. Direct delivery in this state, other than for purposes of
                transportation, to a person or firm designated by a purchaser
                constitutes delivery to the purchaser in this state, and direct
                delivery outside this state to a person or firm designated by a
                purchaser does not constitute delivery to the purchaser in this
                state, regardless of where title passes or other conditions of
                sale.

R.C. 5751.033(E).1 The tax commissioner determined that Greenscapes was required to
pay the CAT because it had gross receipts sitused to Ohio based on the sale of its products
which were delivered to Ohio distribution centers.
    VI. Substantial Nexus and the Commerce Clause
        {¶ 20} In its first assignment of error, Greenscapes challenges the application of the
CAT to its sale of goods to retailers who ship those goods to Ohio distribution centers. It
argues that these transactions are insufficient to create a substantial nexus under the
Commerce Clause of the U.S. Constitution.
        {¶ 21} The U.S. Constitution provides that Congress shall have the power "[t]o
regulate Commerce * * * among the several States." U.S. Constitution, Article I, Section 8.
The Commerce Clause does not expressly place prohibitions on "the several States" in any
specific terms, but the Supreme Court of the United States has interpreted "a negative
implication in the provision since the early days." Kentucky Dept. of Revenue v. Davis, 553
U.S. 328, 337 (2008). Thus, that court has "long interpreted the Commerce Clause as an
implicit restraint on state authority." United Haulers Assn., Inc. v. Oneida-Herkimer Solid
Waste Mgt. Auth., 550 U.S. 330, 338 (2007). This concept of "negative implication" and
"implicit restraint" is known as the "negative" or "dormant" Commerce Clause.
        {¶ 22} The dormant Commerce Clause is "driven by concern about 'economic
protectionism—that is, regulatory measures designed to benefit in-state economic interests
by burdening out-of-state competitors.' " Kentucky Dept. of Revenue at 337-38, quoting
New Energy Co. v. Limbach, 486 U.S. 269, 273-74 (1988). The dormant Commerce Clause
thus is an economic policy to prohibit states from erecting barriers to free trade across state


1The CAT situsing statute is also consistent with situsing provisions from other states. See, e.g., Ala.Code
40-18-31.2; Ariz.Rev.Stat.Ann. 43-1146; Cal.Rev. & Tax Code 25135; Va.Code Ann. 58.1-415.
No. 17AP-593                                                                                 12

borders and from enacting laws that favor local enterprises at the expense of out-of-state
businesses. Boston Stock Exchange v. New York State Tax Commr., 429 U.S. 318, 328-29
(1977).
          {¶ 23} When the state law is in the form of a tax, the Supreme Court of the United
States has broadly held that a tax is invalid under the dormant Commerce Clause if it taxes
a " 'transaction or incident more heavily when it crosses state lines than when it occurs
entirely within the State.' " Chemical Waste Mgt. v. Hunt, 504 U.S. 334, 342 (1992),
quoting Armco Inc. v. Hardesty, 467 U.S. 638, 642 (1984). It is a bedrock principle " 'that
a State may not tax value earned outside its borders.' " Corrigan v. Testa, 149 Ohio St.3d
18, 2016-Ohio-2805, ¶ 17, quoting Allied-Signal, Inc. v. Dir., Div. of Taxation, 504 U.S.
768, 777 (1992). But, interstate commerce is not immune from state taxation. Colonial
Pipeline Co. v. Traigle, 421 U.S. 100, 108 (1975). " 'It was not the purpose of the commerce
clause to relieve those engaged in interstate commerce from their just share of state tax
burden even though it increases the cost of doing the business.' " Id., quoting Western Live
Stock v. Bur. of Revenue, 303 U.S. 250, 254 (1938). A tax provision will not run afoul of
the commerce clause if (1) the activity taxed has a substantial nexus with the taxing state,
(2) the tax is fairly apportioned to reflect the extent of commercial activity within the taxing
state, (3) the tax does not discriminate against interstate commerce, and (4) the tax is fairly
related to benefits provided by the state. Complete Auto Transit, Inc. v. Brady, 430 U.S.
274, 279 (1977). In its notice of appeal to the BTA and to this court, Greenscapes challenged
only the substantial-nexus factor.
          {¶ 24} Greenscapes contends that it has no nexus with Ohio to justify the imposition
of the CAT. Initially, Greenscapes' argument appeared to be twofold, asserting that it lacked
a nexus because it does not have a physical presence in Ohio and because its transactions
with retailers occurred entirely outside of Ohio. In its reply brief, however, Greenscapes
disavowed any argument that substantial nexus requires a physical presence inside the
taxing state. Greenscapes' concession that a physical presence in the taxing state is not
required for purposes of imposing the CAT is consistent with Ohio law. The Supreme Court
of Ohio rejected requiring a physical presence as a necessary condition for imposing a tax
obligation under the CAT. Crutchfield, 151 Ohio St.3d 278, 2016-Ohio-7760, at ¶ 42. It
declined to extend the physical-presence standard set forth in Quill Corp. v. North Dakota,
No. 17AP-593                                                                               13

504 U.S. 298 (1992), beyond sales and use taxes. Crutchfield at ¶ 47. It reasoned that as
long as the tax on the privilege of doing business in Ohio had an adequate quantitative
standard to satisfy the nexus requirement of the Commerce Clause, a physical presence was
not needed. Id. at ¶ 42.
       {¶ 25} If there was any doubt after Crutchfield that a physical presence was not
required under the Commerce Clause for imposing a tax obligation under the CAT, the
Supreme Court of the United States put that to rest in South Dakota v. Wayfair, __ U.S.__,
138 S.Ct. 2080 (2018). That court acknowledged, "Each year, the physical presence rule
becomes further removed from economic reality and results in significant revenue losses to
the States." Id. at 2092. It determined, "Quill's physical presence rule intrudes on States'
reasonable choices in enacting their tax systems. And that it allows remote sellers to escape
an obligation to remit a lawful state tax is unfair and unjust." Wayfair at 2095. The court
overruled Quill, concluding the physical presence rule was unsound and incorrect. Wayfair
at 2099.
       {¶ 26} In arguing that it has no nexus to Ohio because its transaction with customers
occur entirely outside the state, Greenscapes relies on McLeod v. J.E. Dilworth Co., 322
U.S. 327 (1944). In that case, the Supreme Court of the United States held that an Arkansas
sales tax on a Tennessee corporation violated the Commerce Clause.            The Tennessee
corporation had no business location in Arkansas and the solicitation of orders was taken
by a traveling salesperson domiciled in Tennessee. Id. at 328. The orders were approved
in Tennessee and title to the goods passed upon delivery to the carrier in Tennessee. Id.
The Supreme Court stated that "a tax on an interstate sale like the one before us and unlike
the tax on the enjoyment of the goods sold, involves an assumption of power by a State
which the Commerce Clause was meant to end." Id. at 330. Greenscapes highlights its
factual similarities to McLeod. It points out that it is a Georgia corporation that solicits
orders and sells products to retail customers headquartered in Georgia, North Carolina,
and Arkansas. According to Greenscapes, the orders are received in Georgia and billed to
the retailers' headquarters. The title to the goods passes in Georgia. Based on the foregoing,
Greenscapes concludes that the transactions underlying the gross receipts at issue occur
entirely outside the state of Ohio.
No. 17AP-593                                                                             14

       {¶ 27} Greenscapes' reliance on McLeod is misplaced. McLeod was decided at a
time when the Supreme Court had held that state taxes on interstate commerce were per se
unconstitutional. See Gen. Trading Co. v. State Tax Commr., 322 U.S. 335, 338 (1944)
(holding that "no State can tax the privilege of doing interstate business"). In Complete
Auto, the U.S. Supreme Court overruled this line of cases and upheld a privilege on doing
business tax on gross receipts from interstate commerce. Complete Auto, 430 U.S. at 289.
Further, Greenscapes ignores that its retail customers have a presence in Ohio and that they
purchased goods for delivery to their Ohio distribution centers. Greenscapes knew that its
products were destined for Ohio at the time the orders were placed. R.C. 5751.033(E)
provides that the situs of the gross receipts from the sale of tangible personal property is
the place at which such property is ultimately received after all transportation has been
completed. In this case, the evidence established that that place is Ohio.
       {¶ 28} The Supreme Court of Ohio reviewed a substantially similar situsing statute,
R.C. 5733.05(B)(2)(c), and found that it provided "ample nexus" for the corporate franchise
tax. House of Seagram, Inc. v. Porterfield, 27 Ohio St.2d 97 (1971). In House of Seagram,
the Ohio Department of Liquor Control purchased liquor from the House of Seagram,
which was located in New York. A common carrier designated by the state of Ohio picked
up the liquor in New York and delivered it to a warehouse in Ohio. The tax commissioner
issued an assessment of a franchise tax against the House of Seagram. As part of the
computation of the tax owed, the tax commissioner included the sale of liquor to the state
of Ohio. The House of Seagram argued that the sale of liquor originated outside of Ohio
and should not be included in the business-done formula. The Supreme Court of Ohio
disagreed. It concluded that pursuant to R.C. 5733.05, sales of tangible personal property,
delivered by the seller to a common carrier outside Ohio and ultimately received in Ohio
after all transportation has been completed, are deemed business done in Ohio and must
be included in the formula for computing the franchise tax. House of Seagram at 101. The
House of Seagram argued that if the tax commissioner's interpretation of R.C. 5733.05 was
correct, then that tax was an unconstitutional tax on interstate commerce. House of
Seagram at 101. The court rejected this argument as well. It found that there was "ample
'nexus' " to support the tax in question and that there was no showing that the tax was
discriminatory or disproportionate. Id.
No. 17AP-593                                                                               15

       {¶ 29} It does not appear that situsing the gross receipts from the sales at issue in
Ohio will result in double taxation to Greenscapes. According to Ga.Code Ann. 48-7-
31(d)(1)(A)(i),
              [gross] receipts shall be deemed to have been derived from
              business done within this state only if the receipts are received
              from products shipped to customers in this state, or from
              products delivered within this state to customers. In
              determining the gross receipts within this state, receipts from
              sales negotiated or effected through offices of the taxpayer
              outside this state and delivered from storage in this state to
              customers outside this state shall be excluded[.]

In a case with facts similar to this one, the Georgia Supreme Court determined that gross
receipts from carpet sales by a Georgia company to out-of-state customers who took
possession of the goods in Georgia for transport and resale out of state were not taxable in
Georgia. Strickland v. Patcraft Mills, Inc., 251 Ga. 43, 43-44 (1983). In interpreting
Ga.Code Ann. 48-7-31, the court applied a destination rule for determining the taxable
nexus of gross receipts. Strickland at 45. It reasoned that a destination test was easy to
apply, was not subject to taxpayer manipulation, and recognized the contribution by a
consumer state to the realization of corporate income. Id. The Georgia Supreme Court
concluded that because Patcraft's sales were destined for markets outside of Georgia, the
gross receipts were properly allocable to other states for corporate income tax purposes,
regardless of the place of transfer of possession of the goods, or the manner by which the
merchandise arrived at its eventual destination. Id. at 45-46.
       {¶ 30} In Wayfair, the Supreme Court of the United States did not question South
Dakota's authority to tax the transaction because it involved the sale of tangible personal
property for delivery into the state. Wayfair, 138 S.Ct. at 2092. " 'It has long been settled'
that the sale of goods or services "has a sufficient nexus to the State in which the sale is
consummated to be treated as a local transaction taxable by that State." ' " Id., quoting
Oklahoma Tax Comm. v. Jefferson Lines, Inc., 514 U.S. 175, 184 (1995). " 'Generally
speaking, a sale is attributable to its destination.' " Id. at 2092-93, quoting 2 Trost &
Hartman, Federal Limitations on State and Local Taxation, Section 11:1, at 471 (2d
Ed.2003).
No. 17AP-593                                                                                16

       {¶ 31} Situsing the gross receipts to the destination forum, rather than the place
where title passes is a common method for apportioning sales in interstate commerce to a
particular forum state. For instance, Delaware's wholesalers' gross receipts tax requires
any entity "engaged in business in this State as a wholesaler" to pay a license fee and a tax
on the aggregate gross receipts attributable to sales of tangible personal property physically
delivered within Delaware. Del.Code Ann., Title 30, Section 2902(b) and (c)(1). Dial
Corporation challenged the imposition of the wholesalers' tax. Dir. of Revenue v. Dial
Corp., 962 A.2d 916 (Del.2008). Dial manufactured its consumer products outside of
Delaware. In general, Dial's customers were larger retailers such as Wal-Mart, Target, and
K-Mart, and all sales were invoiced at Dial's Arizona headquarters. Dial shipped the
products to its customers from facilities located outside of Delaware, and title passed to the
purchasers upon delivery to a common carrier, which also occurred outside of Delaware.
Dial argued that its sales were a "wholly local" activity that could not be taxed in Delaware.
The Delaware Supreme Court disagreed. It noted that for purposes of the wholesalers' tax
the determinative factor is the destination to which the seller delivers the goods to the
purchase and not the location where title passed. Because the tax applied to activity that
occurred within Delaware—the delivery of tangible personal property to a purchaser—the
Delaware Supreme Court concluded that the wholesalers' tax did not violate the Commerce
Clause. The uniform holding of courts in other states employing similar provisions to R.C.
5751.033(E) is that the destination of the goods, and not their delivery point, is dispositive.
See Indiana Dept. of Revenue v. Miller Brewing Co., 975 N.E.2d 800 (Ind.2012); Texaco,
Inc. v. Groppo, 215 Conn. 134 (1990); Dept. of Revenue v. Parker Banana Co., 391 So.2d
762, 763 (Fla.App.1980); Olympia Brewing Co. v. Commr. of Revenue, 326 N.W.2d 642,
648 (Minn.1982); Pabst Brewing Co. v. Dept. of Revenue, 130 Wis.2d 291, 296 (1986).
       {¶ 32} Based on the foregoing, we conclude that R.C. 5751.033 creates a nexus with
Ohio by situsing gross receipts to this state because the tangible personal property involved
was ultimately received in this state. To satisfy the Complete Auto test, however, there must
be a substantial nexus.
       {¶ 33} In Wayfair, the Supreme Court stated that the substantial nexus prong of
the Complete Auto test " 'is established when the taxpayer [or collector] "avails itself of the
substantial privilege of carrying on business" in that jurisdiction.' " Wayfair, 138 S.Ct. at
No. 17AP-593                                                                                  17

2099, quoting Polar Tankers, Inc. v. Valdez, 557 U.S. 1, 11 (2009). It concluded that the
economic and virtual contacts the taxpayer had with South Dakota were sufficient to
establish a nexus. Because South Dakota applied its act only to those sellers who delivered
more than $100,000 of goods into the state or who engaged in 200 or more separate
transactions, the court reasoned that quantity of business could not have occurred unless
the seller availed itself of the substantial privilege of carrying on business in South Dakota.
Id.
       {¶ 34} R.C. 5751.02(A) expressly provides that "persons with a substantial nexus
with this state" are subject to the CAT. A person has a "substantial nexus with this state"
when the person (1) owns or uses a part or all of its capital in Ohio, (2) holds a certificate of
compliance to do business in Ohio, (3) has a bright-line presence, or (4) otherwise has a
nexus so that the person can be required to remit tax under the U.S. Constitution. R.C.
5751.01(H). A "bright-line presence" is established when a person (1) has property with an
aggregate value of $50,000 in Ohio; (2) has payroll in Ohio of at least $50,000; (3) has
taxable gross receipts of at least $500,000; (4) has at least 25 percent of its total property,
total payroll, or taxable gross receipts in Ohio; or (5) is domiciled in Ohio. R.C. 5751.01(I).
In Crutchfield, the Supreme Court of Ohio held that the $500,000 sales-receipts threshold
complies with the substantial-nexus requirement of the Complete Auto test. Crutchfield,
151 Ohio St.3d 278, 2016-Ohio-7760, at ¶ 52. Such a quantitative standard makes it
reasonable to hold a remote seller liable for the CAT. Id. at ¶ 53.
       {¶ 35} In this case, there is no dispute that Greenscapes has satisfied the $500,000
sales-receipts threshold for the tax period at issue. Based on the holding of Crutchfield,
Greenscapes has a substantial nexus with Ohio. We therefore conclude that application of
the CAT to Greenscapes did not violate the dormant Commerce Clause.                    The first
assignment of error is overruled.
VII. Minimum Contact and the Due Process Clause
       {¶ 36} In the second assignment of error, Greenscapes argues that the application
of the CAT to its sales violates the Due Process Clause of the Fourteenth Amendment to the
U.S. Constitution. Although Greenscapes may market its goods to big-box retailers who
may buy and distribute those goods to Ohio, Greenscapes contends that it has done nothing
to purposefully direct sales to Ohio.
No. 17AP-593                                                                               18

       {¶ 37} The Due Process Clause of the Fourteenth Amendment to the U.S.
Constitution states that "[no] State [shall] deprive any person of life, liberty, or property,
without due process of law." It guards against a state exceeding its jurisdiction to tax by
establishing a twofold test. First, there must be a definite link or a minimum connection
between the state and the person, property, or transaction that Ohio seeks to tax; second,
the income attributed to the state for tax purposes must rationally relate to values
connected with the taxing state. T. Ryan Legg Irrevocable Trust v. Testa, 149 Ohio St.3d
376, 2016-Ohio-8418, ¶ 64. " 'Due process centrally concerns the fundamental fairness of
government activity,' while the Commerce Clause reflects 'structural concerns about the
effects of state regulation on the national economy.' " Corrigan v. Testa, 149 Ohio St.3d 18,
2016-Ohio-2805, ¶ 17, citing Quill, 504 U.S. at 312. The Due Process Clause is considered
a lower constitutional barrier for the imposition of a tax than the Commerce Clause. See
Tyler Pipe Industries, Inc. v. Washington State Dept. of Revenue, 483 U.S. 232 (1987)
(holding that a tax may be consistent with due process and yet unduly burden interstate
commerce).
       {¶ 38} It is well-settled that a business need not have a physical presence in a state
to satisfy the demands of due process. Burger King Corp. v. Rudzewicz, 471 U. S. 462, 476
(1985). In Wayfair, the Supreme Court of the United States commented, " 'it is an
inescapable fact of modern commercial life that a substantial amount of business is
transacted . . . [with no] need for physical presence within a State in which business is
conducted.' Quill itself recognized that '[t]he requirements of due process are met
irrespective of a corporation's lack of physical presence in the taxing State.' " Wayfair, 138
S.Ct. at 2093, quoting Quill at 308. A state may tax the income of a non-resident which is
fairly attributable either to property located in the state or to events or transactions which
occur there. Internatl. Harvester Co. v. Wisconsin Dept. of Taxation, 322 U.S. 435, 441-
42 (1944).
       {¶ 39} Greenscapes argues that it does not have minimum contacts with Ohio. It
asserts that it simply sells its products to retailers who then deliver those products to
distribution centers in Ohio. It claims to have done nothing to purposefully avail itself or
further its business in Ohio. Greenscapes also contends that it receives no benefit from this
No. 17AP-593                                                                              19

state for the payment of the CAT because it does not maintain property or funds in this
state, does not hire employees in Ohio, and does not transport the product to Ohio.
        {¶ 40} In response, the tax commissioner argues that Greenscapes has knowingly
and consciously sold its products to retailers with a large national presence. As a result of
its efforts, Greenscapes had annual gross receipts of $3.8 million to $5.7 million from the
sale of tangible personal property that was delivered to Ohio from 2007 to 2014. The tax
commissioner asserts that Greenscapes is utilizing the protections and benefits of Ohio by
taking advantage of the opportunity to earn income through the sale of goods shipped to
Ohio.
        {¶ 41} Minimum contacts are satisfied where a defendant has "purposely avail[ed]
itself of the privilege of conducting activities within the forum State." Hanson v. Denckla,
357 U.S. 235, 253 (1958). A defendant's placement of goods into commerce "with the
expectation that they will be purchased by consumers in the forum State" may indicate
purposeful availment. World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 298
(1980). Greenscapes, relying on Asahi Metal Industry Co. v. Superior Ct. of California,
480 U.S. 102, 112-13 (1987), contends that passive knowledge that its goods may end up in
Ohio is insufficient to satisfy the "purposefully directed" standard of the Due Process
Clause. Asahi is a products liability case in which a plurality of the Supreme Court of the
United States articulated a "stream of commerce plus" theory that would require additional
conduct directed to the forum state besides the placement of goods into the stream of
commerce to satisfy the Due Process Clause. Federal courts, however, have found a
defendant who sells products to a national or regional retailer for resale to ordinary,
individual consumers in the forum state has purposefully availed itself of the privilege of
doing business in the forum state. See Beverly Hills Fan Co. v. Royal Sovereign Corp., 21
F.3d 1558, 1566-67 (Fed.Cir.1994) (finding personal jurisdiction because defendant
shipped the accused product through a regional retailer for resale in the forum state);
Schwanger v. Munchkin, Inc., Fed.Cir. No. 99-1049 (Oct. 7, 1999) (finding personal
jurisdiction because "Muchkin purposefully shipped the accused product into Ohio through
Wal-Mart, an established distribution channel"); Innovation Ventures, LLC v. Custom
Nutrition Labs., LLC, 946 F. Supp.2d 714 (E.D.Mich.2013) (finding personal jurisdiction
because defendant sold accused product to Walgreens for resale in Michigan); Original
No. 17AP-593                                                                              20

Creations, Inc. v. Ready Am., Inc., 836 F.Supp.2d 711 (N.D.Ill.2011) (finding personal
jurisdiction because defendant sold the accused product to regional distributors for resale
in Illinois); Hanamint Corp. v. Alliant Marketing Group, LLC, 481 F.Supp.2d 444
(M.D.N.C.2007) (finding personal jurisdiction because defendant contracted with Wal-
Mart to sell accused products in North Carolina).
       {¶ 42} The income that Greenscapes earns from the sales at issue is made possible
because there is a market for its goods in Ohio. See Internatl. Harvester, 322 U.S. at 444.
Based on the systemic sale of tangible personal property that is delivered to Ohio, we
conclude that there is a definite link between Ohio and Greenscapes. Greenscapes has
purposefully taken advantage of the distribution ability of national retailers and knows that
its products are shipped to Ohio. We therefore conclude that the application of the CAT to
Greenscapes does not violate the Due Process Clause of the Fourteenth Amendment. The
second assignment of error is overruled.
       {¶ 43} Having overruled both assignments of error, we affirm the decision of the
Board of Tax Appeals.
                                                                        Judgment affirmed.

                            TYACK and DORRIAN, JJ., concur.
