[Cite as Defender Sec. Co. v. Testa, 2019-Ohio-725.]


                              IN THE COURT OF APPEALS OF OHIO

                                   TENTH APPELLATE DISTRICT


Defender Security Company,                             :
d/b/a Defender Direct,
                                                       :
                 Appellant-Appellant,
                                                       :           No. 18AP-238
v.                                                             (B.T.A. No. 2016-1030)
                                                       :
Joseph W. Testa,                                              REGULAR CALENDAR
Tax Commissioner of Ohio,                              :

                 Appellee-Appellee.                    :


                                            D E C I S I O N

                                   Rendered on February 28, 2019


                 On brief: Buckingham, Doolittle & Burroughs, LLC,
                 Richard B. Fry, III, and Stephen A. Dimengo, for appellant.
                 Argued: Richard B. Fry, III.

                 On brief: [Dave Yost,] Attorney General, and Barton A.
                 Hubbard, for appellee. Argued: Barton A. Hubbard.

                           APPEAL from the Ohio Board of Tax Appeals

BRUNNER, J.
        {¶ 1} Appellant-appellant, Defender Security Company d/b/a Defender Direct
("Defender" or "Defender Direct"), appeals from a decision of the Ohio Board of Tax
Appeals ("the BTA") entered on March 6, 2018. The BTA in its decision affirmed the final
determination of appellee-appellee, Joseph W. Testa, Tax Commissioner of Ohio ("the
commissioner"), denying Defender's application for the refund of commercial activity tax
("CAT") Defender had paid on certain gross receipts from January 2010 through December
2013. For the following reasons, we affirm the BTA's decision.
No. 18AP-238                                                                                              2


I. FACTS AND PROCEDURAL BACKGROUND
        {¶ 2} This matter arose from the commissioner's final determination denying
Defender's request for a refund of the CAT that had been assessed on certain gross receipts
Defender had received as fees from ADT Security Services, Inc. ("ADT") in exchange for
selling Alarm Service Contracts to Ohio residents during tax years 2010 through 2013. The
BTA affirmed the commissioner's final determination. We note at the outset that the record
reflects that Defender withdrew its request for a refund for tax year 2010 before the
commissioner issued his final determination. Consequently, the appeal heard by the BTA
and presented now to this Court concerns only the CAT refund requested for tax years 2011,
2012, and 2013.1
        {¶ 3} The relevant facts and procedural posture of this matter are largely
undisputed. Defender is an authorized dealer of security monitoring services provided by
ADT. Defender originates ADT Alarm Services Contracts to consumers in Ohio and sells
them to ADT. ADT receives the contracts in Colorado and provides security services from
its monitoring centers located outside Ohio.
        {¶ 4} Defender markets ADT residential services to consumers via the Internet,
direct mail, and print advertisements. Defender does not have any walk-in locations where
consumers can purchase ADT's monitoring service; a consumer interested in purchasing
the security service telephones Defender's call centers in Indianapolis or Kentucky. A
consumer purchasing ADT services pays an initial fee during the telephone call to Defender
and makes an appointment for a Defender security advisor to install the equipment.2
Defender's security advisor then meets with the consumer at the consumer's location to
install the security equipment and to obtain the consumer's signature on the Alarm Services
Contract, which is an ADT form contract that informs the consumer that the contract will
be assigned to ADT. Defender's security advisor explains the level of security equipment
available, and the consumer decides which equipment to purchase. By signing the Alarm




1The BTA states in its decision, because Defender withdrew its application for refund of amounts paid related
to tax year 2010 before the issuance of the final determination, the BTA confined its decision to the remaining
tax years of 2011 through 2014.
2 Defender states in its appeal brief that Defender occasionally offers promotions in which the initial fee is

reduced to $49. The initial fee is refundable if the consumer does not finalize the purchase.
No. 18AP-238                                                                                             3


Services Contract, the consumer agrees to purchase ADT service for three years. In all
cases, Defender collects the price of the security equipment directly from the consumer.
        {¶ 5} Defender sends the signed Alarm Services Contract to its headquarters in
Indianapolis, where it is reviewed, consolidated into batches, and sent to ADT in Colorado.
ADT is not bound to the consumer's Alarm Services Contract until ADT accepts the
contract.3 If ADT accepts the contract, Defender sells the contract to ADT. The contract
includes: (1) the right to provide security monitoring service for a monthly fee, (2) the right
to use the customer information, and (3) the customer goodwill. ADT then provides
security monitoring services to the consumer from one of its monitoring centers located in
Florida, New York, Tennessee, Texas, or Canada. ADT invoices the consumer for the
security monitoring services and collects the monthly fee from the consumer.
        {¶ 6} In exchange for the sales of Alarm Services Contracts, Defender receives from
ADT a fee referred to by the parties as contract sales receipts, base fee or ADT funding. The
amount of the contract sales receipts is determined based upon the level of service
purchased and the consumer's credit score.
        {¶ 7} It is undisputed that ADT has no property or employees in Ohio. Defender
argues, therefore, that all of its interactions with ADT occur outside Ohio.
        {¶ 8} On or about April 21, 2014, Defender submitted an application for a CAT
refund to the Ohio Department of Taxation ("ODT") pursuant to R.C. 5751.08. Defender
requested a refund in the amount of $88,588.66, which it calculated it was owed from
Defender's CAT payments argued to have been paid erroneously for the period of January 1,
2010 through December 31, 2013 based on fees it received from ADT for sales of Alarm
Services Contracts in Ohio (also referred to as "ADT Funding").                       Defender attached
numerous documents in support of its application, including a narrative providing
background for the requested refund that included this explanatory language:
                Defender Direct receives the following two types of revenue: (1)
                from subscribers for the sale and installation of security / alarm
                equipment; and (2) Customer Account Revenue received from

3A  minority of the Alarm Services Contracts (five to six percent) are not sold to ADT due to issues with the
consumer or completeness of the contract. Defender provides the security service directly to these consumers,
although it purchases the service from ADT and resells it to the consumer since Defender does not have the
equipment or infrastructure to provide the security service. Defender asserts that the receipts from providing
service to these Ohio consumers is not at issue because the receipts are properly subject to Ohio's CAT since
Defender's purchaser is the Ohio consumer, not ADT.
No. 18AP-238                                                                     4


           ADT. Defender Direct has paid Ohio commercial activity tax
           ("CAT") on both types of revenue when the subscriber is
           located in Ohio. However, Defender Direct incorrectly sitused
           the Customer Account Revenue to Ohio since ADT receives the
           benefit of the customer account outside of Ohio. Accordingly,
           Defender Direct is entitled to a refund of CAT paid on such
           revenue received from the sale of customer accounts to ADT.

           Situsing Customer Account Revenue

           Defender Direct's sale of customer accounts to ADT is the sale
           of an intangible. Fn. 1 See e.g., I.R.C. § 197(d)(2) (definition of
           customer-based intangible includes the value resulting from
           the future provision of services pursuant to contractual
           relationships in the ordinary course of business). As the sale of
           an intangible, R.C. 5751.033(I), which applies to "all other
           gross receipts not otherwise sitused under this section,"
           provides that receipts from such sales are sitused to where the
           purchaser, ADT in this case, receives the benefit thereof. "The
           physical location where the purchaser ultimately uses or
           receives the benefit of what was purchased is paramount in
           determining the proportion of the benefit received in Ohio."
           R.C. 5751.033(I).

           Defender Direct sends the customer accounts (service
           agreement and customer information) to ADT's employees in
           Aurora, Colorado. ADT monitors the customer accounts from *
           * * monitoring centers located outside Ohio * * *. Defender
           Direct does not communicate with, or provide customer
           information to, any ADT locations or employees in Ohio.

           The requested refund does not represent a tax loophole as
           revenue collected under the subscriber agreements by ADT
           continues to be subject to the CAT (as this is the same revenue
           Defender Direct would have collected had it provided the
           security monitoring services to Ohio subscribers). However,
           Defender Direct does not receive revenue from performing
           services under the subscriber agreements. Rather, Defender
           Direct receives Customer Account Revenue from ADT (the
           purchaser) from the sale of customer accounts, which must be
           sourced to where ADT receives the benefit of such purchases.
           [Fn.3 omitted.] ADT receives the benefit of the customer
           accounts at its locations where such accounts are serviced and
           monitored. Since none of those locations are in Ohio, all
           Customer Account Revenue received by Defender Direct must
           be sitused outside Ohio for CAT purposes. This makes sense
           because, if Defender Directed [sic] acted as a true sales
           representative, whereby subscribers were ADT customers from
No. 18AP-238                                                                            5


              inception (rather than after the security system was installed)
              and Defender Direct was paid a commission (corresponding to
              the Customer Account Revenue), the commission would be
              sourced outside Ohio to where ADT received the benefit of
              Defender Direct's sales representative services pursuant to
              O.A.C. § 5703-29-17(C)(4) (allocation of revenue from agency
              services to location of purchaser).

              For these reasons, Defender Direct respectfully requests a
              refund of $88,588.68 representing the CAT erroneously paid
              for the periods 1/1/2010 – 12/31/2013 on the Customer
              Account Revenue received from the sale of customer accounts
              to ADT.

(Emphasis sic.) (Record of the Proceedings at 112-13.) Footnote 1 in the narrative states:
"Alternatively, if the customer contract is considered tangible property (i.e., the physical
service agreement and customer information), such property is delivered to ADT in
Colorado, with Defender Direct's receipts from the sale thereof properly sitused to
Colorado." Id. at 113.
       {¶ 9} By letters dated June 30, 2014, ODT denied Defender's various tax years
requests pursuant to R.C. 5751.08.
       {¶ 10} Defender requested a personal appearance hearing on the denials, which was
held on October 1, 2015. Defender filed a memorandum in support of its refund claim on
November 3, 2015.
       {¶ 11} By email dated November 25, 2015, Defender withdrew its refund claim for
tax year 2010, for a revised refund request of $73,334.82.
       {¶ 12} On May 25, 2016, the commissioner issued a final determination denying
Defender's refund request, finding that the gross receipts at issue were properly sitused to
Ohio under R.C. 5751.033(I). The commissioner stated in his decision:
              Specifically, [Defender] claims that its Alarm Services
              Contract-fees from Alarm Services Contracts originated in
              Ohio should be sitused outside Ohio, because ADT received the
              benefit of those service agreements outside Ohio. [ODT] and
              [Defender] agree that the fees paid by ADT must be sitused
              pursuant to R.C. 5751.033(I), which states:

              Gross receipts from the sale of all other services, and all other
              gross receipts not otherwise sitused under this section, shall be
              sitused to this state in the proportion that the purchaser's
              benefit in this state with respect to what was purchased bears
No. 18AP-238                                                                          6


             to the purchaser's benefit everywhere with respect to what was
             purchased. The physical location where the purchaser
             ultimately uses or receives the benefit of what was purchased
             shall be paramount in determining the proportion of the
             benefit in this state to the benefit everywhere. If a taxpayer's
             records do not allow the taxpayer to determine that location,
             the taxpayer may use an alternative method to situs gross
             receipts under this division if the alternative method is
             reasonable, is consistently and uniformly applied, and is
             supported by the taxpayer's records as the records exist when
             the service is provided or within a reasonable period of time
             thereafter.

             [Defender] argues that, because it delivers the customer
             accounts (the Alarm Services Contracts and customer
             information) to ADT's employees outside Ohio, and because
             ADT monitors the customer accounts from locations outside
             Ohio, ADT receives the benefit of the Ohio-based customer
             accounts outside Ohio. Accordingly, [Defender] claims that the
             Alarm Services Contract-fees that ADT pays to [Defender]
             must be sitused outside Ohio. The Tax Commissioner
             disagrees.

             ADT realizes the benefit of the Ohio-based Alarm Services
             Contracts in Ohio. As [Defender] puts it, [Defender] obtains the
             "customer relationship" for ADT. Likewise, ADT purchases
             "the customer relationship" from [Defender]. The customer is
             an Ohioan. The customer relationship is established and
             maintained in Ohio. The monitoring services underlying Alarm
             Services Contract represents security provided to Ohioans;
             protection of persons and property located in Ohio. The
             marketplace to which ADT avails itself benefits from, and is
             protected by, Ohio's government and public service agencies.
             ADT's dependence on Ohio protection and services resounds in
             the Alarm Services Contract itself, which states that in specified
             circumstances, ADT will notify the appropriate police or fire
             department. Without Ohio, the Alarm Services Contract-fees at
             issue would be wholly impossible. Accordingly, ADT's benefit
             with respect to these Alarm Services Contract-fees must occur
             entirely within Ohio.

(Record of the Proceedings at 2.)
      {¶ 13} The commissioner next addressed Defender's alternative argument that it
was ADT's agent, and the Alarm Services Contract-fees represented sales commissions.
Defender asserted that this scenario allowed it to elect the "situs [its fees from ADT] to
No. 18AP-238                                                                         7


ADT's principal place of business," pursuant to Ohio Adm.Code 5703-29-17(C)(4)(c).
(Record of Proceedings at 2.) The commissioner determined that Defender was not an
agent for ADT based on statutory definitions, provisions of the Ohio Administrative Code,
and the plain language of the "Authorized Dealer Agreement" between ADT and Defender,
which explicitly stated that no agency relationship existed between Defender and ADT. Id.
at 4.   The commissioner stated, "[s]imply put, every piece of evidence in the Tax
Commissioner's possession suggests that [Defender] was an independent contractor with
respect to ADT. Accordingly, the Tax Commissioner finds that [Defender] was not ADT's
agent. Thus, [Defender] cannot make any election under O.A.C. 5703-29-17(C)(4)(c)." Id.
at 5.
        {¶ 14} The commissioner found, moreover, that even if Defender were ADT's agent,
the provisions of R.C. 5751.033(I) barred Defender's election under Ohio Adm.Code 5703-
29-17(C)(4)(c). The commissioner stated:
              The first sentence of R.C. 5751.033(I) sets forth the rule by
              which gross receipts from the sale of services must be sitused.
              The rule requires a formulation of a fraction with respect to the
              benefit of the service provided. The numerator of the fraction
              is the service provider's customer's benefit in Ohio, while the
              denominator is the service provider's customer's benefit
              everywhere. Thus, if half of the overall benefit to the service
              provider's customer occurred in Ohio, fifty percent of the
              service provider's gross receipts arising out of the provision of
              that service would be sitused to Ohio.

              The second sentence of R.C. 5751.033(I) requires that the
              physical location where the service provider's customer
              ultimately uses or receives the benefit must be the primary
              factor in formulating the fraction. The third sentence of R.C.
              5751.033(I) becomes necessary only in cases where the service
              provider's records do not allow the service provider to
              determine the physical location where its customer ultimately
              receives the benefit of the service. In such cases, the service
              provider may use an alternative method to situs its gross
              receipts. However, the alternative method must be applied in a
              reasonable, consistent, and uniform manner.

              The election under O.A.C. 5703-29-17(C)(4)(c) is an alternative
              method, which must be applied in a reasonable, consistent, and
              uniform manner. However, [Defender] (the service provided)
              knows the physical location where its customer ultimately uses
              or receives the benefit of [Defender's] service. [Defender] is
No. 18AP-238                                                                            8


              responsible for generating those records. Each Alarm Services
              Contract that [Defender] negotiates with an Ohio-based
              consumer is a record with respect to where ADT uses or
              receives the benefit of [Defender's] service. Accordingly, the
              situsing analysis stops at R.C. 5751.033(I). [Defender] is
              neither required nor permitted to analyze its facts and
              circumstances under R.C. 5751.033(I)'s last sentence or avail
              itself to O.A.C. 5703-29-17(C)(4)(c), because there is no
              question regarding the physical location at which ADT
              ultimately uses or receives the benefit of [Defender's] service.

              Accordingly, the refund claim is denied.

(Record of Proceedings at p. 5-6.)
        {¶ 15} On June 2, 2016, Defender appealed the commissioner's final determination
to the BTA. At the BTA hearing on Defender's appeal, Defender argued that the gross
receipts at issue should be sitused outside Ohio because ADT received the benefit of the
contracts outside Ohio. Defender also argued that the commissioner's final determination
violated the Commerce and Due Process Clauses of the U.S. Constitution. At the BTA
hearing, Defender presented the testimony of its controller and director of accounting, and
several exhibits. Both Defender and the commissioner filed post-hearing briefs in support
of their positions.
        {¶ 16} On March 6, 2018, the BTA entered its unanimous decision affirming the
commissioner's final determination. The BTA stated that its decision was based "upon the
notice of appeal, the statutory transcript ("S.T.") certified by the commissioner, the record
of the hearing ("H.R.") before this board, and the parties' written arguments." (Mar. 6,
2018 BTA Decision and Order at 1.) The BTA in its decision set forth the standard of review
applied to Defender's administrative appeal:

              In our review, we are mindful that, although this board reviews
              the findings of the Tax Commissioner de novo, the findings are
              presumptively valid, subject to rebuttal. Accel, Inc. v. Testa,
              Slip Opinion No. 2017-Ohio-8798, ¶ 13-14; Alcan Aluminum
              Corp. v. Limbach, 42 Ohio St.3d 121 (1989). It is incumbent
              upon a taxpayer challenging a decision of the Tax
              Commissioner to rebut the presumption and establish a clear
              right to the relief requested. Kern v. Tracy, 72 Ohio St.3d 347
              (1995); Ball Corp. v. Limbach, 62 Ohio St.3d 474 (1992);
              Belgrade Gardens v. Kosydar, 38 Ohio St.2d 135 (1974).
Id. at 2.
No. 18AP-238                                                                             9


       {¶ 17} Based on its examination of the relevant statutory provisions, the BTA
focused its inquiry on the purchaser's benefit in Ohio. Id. The BTA reviewed Ohio
Adm.Code 5703-29-17, which provides for situsing of gross receipts, and concluded that,
"[a]lthough a significant number of examples are provided within such rule, none
specifically address the situation here, where the taxpayer generates gross receipts from the
sale of alarm services contracts." (BTA Decision and Order at 3.) At Defender's urging, the
BTA next reviewed Ohio Adm.Code 5703-29-17(C)(4), which addresses the situsing of
"agency services" not otherwise specified in the rule. Id. Ohio Adm.Code 5703-29-
17(C)(4)(c) provides:
              At the election of the service provider, and as long as it is
              applied in a reasonable, consistent, and uniform manner,
              agency services may be sitused according purchaser's
              "principal place of business" * * *. The term "principal place of
              business" refers to the location where the business unit being
              provided the service primarily maintains its operations.

       {¶ 18} The BTA discussed the parties' arguments about the applicability of Ohio
Adm.Code 5703-29-17(C)(4)(c) to this matter and concluded that the commissioner had
appropriately determined that the gross receipts at issue were properly sitused to Ohio.
       {¶ 19} The BTA declined, however, to address the commissioner's arguments about
the sufficiency of the documentation underlying Defender's refund claim. The BTA also
declined to make findings regarding Defender's arguments that the commissioner's final
determination violated the Commerce Clause and Due Process Clause of the U.S.
Constitution, stating that it had no jurisdiction to decide constitutional questions.
Cleveland Gear Co. v. Limbach, 35 Ohio St.3d 229 (1988); MCI Telecommunications Corp.
v. Limbach, 68 Ohio St.3d 195, 198 (1994).
       {¶ 20} Defender now appeals the decision of the BTA affirming the commissioner's
final determination denying the CAT refund.
II. ASSIGNMENTS OF ERROR
       {¶ 21} Defender presents two assignments of error for our review:
              [1.] Gross receipts from the sale of intangible assets are sourced
              to the purchaser's physical location that receives and utilizes
              the assets, not the location where assets were originated.
              Therefore, Defender Direct's receipts from the sale of Alarm
              Services Contracts to ADT are sitused to ADT's locations that
No. 18AP-238                                                                           10


              received and used the customer accounts, none of which are in
              Ohio.

              [2.] The Tax Commissioner's inconsistent application of the
              sourcing statute – applying both destination-based and origin-
              based principals, and using conflicting interpretations of
              "purchase," – creates significant risk of double taxation and
              results in values destined outside Ohio being subject to tax.
              Therefore, as applied to Defender Direct's Contract Sale
              Proceeds (as defined herein), the [CAT] violates the fair
              apportionment requirement of the Due Process and Commerce
              Clauses of the United States Constitution.

III. LAW AND DISCUSSION
   A. Standard of Review
       {¶ 22} We are presented with an application of the law to largely undisputed facts.
The Supreme Court of Ohio, in a recent decision involving the appeal of a BTA decision that
also involved an application of law to largely undisputed facts, stated:
              We must determine whether the BTA's decision is "reasonable
              and lawful." R.C. 5717.04. In doing so, we must defer to the
              BTA's factual findings, so long as they are supported by
              " 'reliable and probative' " evidence in the record. Satullo v.
              Wilkins, 111 Ohio St. 3d 399, 2006-Ohio-5856, 856 N.E.2d 954,
              ¶ 14, quoting Am. Nat'l Can Co. v. Tracy, 72 Ohio St. 3d 150,
              152, 648 N.E.2d 483 (1995). But we must review legal issues de
              novo. Crown Commun. Inc. v. Testa, 136 Ohio St. 3d 209,
              2013-Ohio-3126, 992 N.E.2d 1135, ¶ 16. Because the issue
              presented involves an application of the law to largely
              undisputed facts, we review the issue de novo. City of
              Cincinnati v. Testa, 143 Ohio St. 3d 371, 2015-Ohio-1775, 38
              N.E.3d 847, ¶ 15.

Lafarge N. Am., Inc. v. Testa, 153 Ohio St.3d 245, 2018-Ohio-2047, ¶ 13. Accordingly, we
review the legal issues presented in this matter de novo.
   B. Assignments of Error
       1. First Assignment of Error
       {¶ 23} Defender argues that, because it delivers the customer accounts (the Alarm
Services Contracts and customer information) to ADT's employees outside Ohio, and
because ADT monitors the customer accounts from locations outside Ohio, ADT receives
the benefits of the Ohio-based customer accounts outside Ohio.             Defender asserts,
No. 18AP-238                                                                            11


therefore, that the Alarm Services Contract-fees ADT pays to Defender must be considered
to be sitused outside Ohio.
       {¶ 24} Ohio levies a CAT "on each person with taxable gross receipts for the privilege
of doing business in this state." R.C. 5751.02(A). The statute further provides:
              For the purposes of this chapter, "doing business" means
              engaging in any activity, whether legal or illegal, that is
              conducted for, or results in, gain, profit, or income, at any time
              during a calendar year. Persons on which the commercial
              activity tax is levied include, but are not limited to, persons with
              substantial nexus with this state. The tax imposed under this
              section is not a transactional tax and is not subject to Public
              Law No. 86-272, 73 Stat. 555. The tax imposed under this
              section is in addition to any other taxes or fees imposed under
              the Revised Code. The tax levied under this section is imposed
              on the person receiving the gross receipts and is not a tax
              imposed directly on a purchaser. The tax imposed by this
              section is an annual privilege tax for the calendar year that, in
              the case of calendar year taxpayers, is the annual tax period
              and, in the case of calendar quarter taxpayers, contains all
              quarterly tax periods in the calendar year. A taxpayer is subject
              to the annual privilege tax for doing business during any
              portion of such calendar year.

Id.
       {¶ 25} The provisions for determining how gross receipts must be sitused to Ohio
are set forth in R.C 5751.033. The situsing of taxable gross receipts that are not otherwise
provided for in R.C. 5751.033 is governed by R.C. 5751.033(I), which provides:
              Gross receipts from the sale of all other services, and all other
              gross receipts not otherwise sitused under this section, shall be
              sitused to this state in the proportion that the purchaser's
              benefit in this state with respect to what was purchased bears
              to the purchaser's benefit everywhere with respect to what was
              purchased. The physical location where the purchaser
              ultimately uses or receives the benefit of what was purchased
              shall be paramount in determining the proportion of the
              benefit in this state to the benefit everywhere. If a taxpayer's
              records do not allow the taxpayer to determine that location,
              the taxpayer may use an alternative method to situs gross
              receipts under this division if the alternative method is
              reasonable, is consistently and uniformly applied, and is
              supported by the taxpayer's records as the records exist when
              the service is provided or within a reasonable period of time
              thereafter.
No. 18AP-238                                                                            12


Based on the provisions of R.C. 5751.033(I), our inquiry focuses on where ADT, the
purchaser, ultimately receives the benefit of the contracts it has purchased from Defender.
       {¶ 26} Defender concedes that "[g]ross receipts from the sale of intangible assets,
such as customer contracts, are subject to Ohio [CAT] when the purchaser of the contracts
receives the benefit thereof in Ohio." (Defender's Brief at 1.) Defender asserts, however,
that although it originates contracts in Ohio and sells them to ADT, ADT "receives the
contracts in Colorado and uses the contracts outside Ohio to provide security services from
its non-Ohio monitoring centers." Id. at 1-2. Defender argues, therefore, that ADT, as the
purchaser, ultimately receives the benefit of the contracts wholly outside Ohio. The
commissioner disputes Defender's interpretation of the law, arguing that, as enunciated in
his final determination, ADT receives the benefit of the contract wholly in Ohio, where the
security monitoring services are provided to protect individuals and property in Ohio.
       {¶ 27} Ohio Adm.Code 5703-29-17 governs the situsing of gross receipts from
services. The rule provides a number of examples, but none specifically address the
situation here, where the taxpayer (Defender) generates gross receipts from the sale of
alarm services contracts. Defender asserts that Ohio Adm.Code 5703-29-17(C)(4) applies
here. This rule addresses the situsing of agency services not otherwise specified in the rule
and provides in relevant part:
              (b) If agency services are performed for a purchaser with
              operations within and without Ohio, the gross receipts are
              sitused in Ohio if the services performed are of benefit to
              specific operations in Ohio.

              ***

              (c) At the election of the service provider, and as long as it is
              applied in a reasonable, consistent, and uniform manner,
              agency services may be sitused according to the purchaser's
              "principal place of business" * * *. The term "principal place of
              business" refers to the location where the business unit being
              provided the service primarily maintains its operations. In
              determining the "principal place of business" of a purchaser,
              the following measures, if known, shall be considered in
              sequential order:

              (i) The branch, division, or other unit where the purchaser
              (customer) primarily receives the benefit of the agency service;
No. 18AP-238                                                                         13


              For example, the New York division of a large, multi-national
              corporation with operations in Ohio pays an Ohio agent fees
              associated with the division's life insurance policy. Receipts
              from this service are sitused to New York, because the agency
              services were primarily received by the New York division.

              (ii) The primary location of the management operations of the
              purchaser's business unit; and

              For example, an advertising agency works with a multi-state
              manufacturer to develop an advertising campaign for its
              customers. The company has locations in several states, but the
              management of the company is located in Ohio. The gross
              receipts would be sitused to Ohio since the first default, i.e., the
              location where the purchaser primarily receives the services
              would not be applicable, and the business unit's management
              operations are in Ohio.

              (iii) The purchaser's (customer's) billing address is acceptable
              if provided in good faith. The billing address must be the site
              where the purchaser has some actual operations, and not just a
              post office box.

              For example, an advertising agency provides magazine
              advertising services for one product line of a large, multi-state
              manufacturer. The product line being sold is located in several
              states, and the management of the product line is located in
              most of the locations. The billing address may be used to situs
              the gross receipts as long as the address is associated with an
              operation of the manufacturer.

Id.
       {¶ 28} The record reflects that the commissioner and the BTA considered, and
dismissed, Defender's argument about the applicability of these statutory provisions. The
BTA, in its decision affirming the commissioner's final determination, stated:
              There is no dispute in this matter that ADT does not maintain
              any locations within Ohio; * * *. Therefore, if Defender's
              receipts are sitused under Ohio Adm. Code 5703-29-17(C)(4),
              they would be sitused outside Ohio. In addition, Defender cites
              examples of other services illustrated in the rule * * *. Defender
              draws a distinction between the service it provides to ADT, i.e.,
              obtaining the customer relationship for ADT, and the service
              ADT provides to Ohio customers pursuant to such contracts,
              i.e., security monitoring services.
No. 18AP-238                                                                          14


              The commissioner disagrees as to the applicability of
              Defender's examples, arguing, as he did in his final
              determination, that the benefit to ADT is received because of
              property in Ohio which ADT will monitor pursuant to the alarm
              services contracts Defender sells to it. * * *

              Upon review of the record, the arguments, and the statutory
              and administrative code provisions, we agree with the Tax
              Commissioner that Defender's receipts from the sale of alarm
              services contracts to ADT, i.e. its "customer account revenue"
              is properly sitused to Ohio. It belies logic to argue that the
              purchaser (ADT) receives no benefit in Ohio from the
              contracts it purchases from Defender. The contracts would
              not exist without property in Ohio to be monitored and
              equipment located within such property in Ohio by which the
              monitoring is performed. The commissioner has already
              determined that Defender is not an agent of ADT, and that
              issue has not been raised as an error on appeal. Defender
              therefore may not avail itself of the situsing rules in Ohio Adm.
              Code 5703-29-17(C)(4). Certainly if it were an agent and the
              contracts underlying the gross receipts in this matter were
              unrelated to property located [in] Ohio, for example, life
              insurance, see Ohio Adm. Code 5703-29-17(C)(4)(c)(i), the
              receipts might be properly sitused outside Ohio. However,
              because of the nature of the contracts obtained by Defender
              and sold to ADT, we find the gross receipts from such sales are
              properly sitused to Ohio.

(Emphasis sic and added.) (BTA Decision and Order at 3.)
       {¶ 29} " 'Due deference should be given to statutory interpretations by an agency
that has accumulated substantial expertise and to which the General Assembly has
delegated enforcement responsibility.' " Constellation New Energy, Inc. v. Pub. Utils.
Comm., 104 Ohio St.3d 530, 2004-Ohio-6767, ¶ 51, quoting Weiss v. Pub. Utils. Comm., 90
Ohio St.3d 15, 17-18 (2000). "It is a fundamental tenet of administrative law that an
agency's interpretation of a statute that it has the duty to enforce will not be overturned
unless the interpretation is unreasonable." State ex rel. Clark v. Great Lakes Constr. Co.,
99 Ohio St.3d 320, 2003-Oho-3802, ¶ 10; accord, Northwestern Ohio Bldg. & Constr.
Trades Council v. Conrad, 92 Ohio St.3d 282, 287-88 (2001). In Northwestern Ohio Bldg.
& Constr. Trades Council, the Supreme Court stated further:
              It is axiomatic that if a statute provides the authority for an
              administrative agency to perform a specified act, but does not
              provide the details by which the act should be performed, the
No. 18AP-238                                                                             15


                 agency is to perform the act in a reasonable manner based upon
                 a reasonable construction of the statutory scheme. See
                 Swallow v. Indus. Comm. (1988), 36 Ohio St. 3d 55, 57, 521
                 N.E.2d 778, 779. A court must give due deference to the
                 agency's reasonable interpretation of the legislative scheme. Id.
                 See, also, Chevron U.S.A., Inc. v. Natural Resources Defense
                 Council, Inc. (1984), 467 U.S. 837, 843, 104 S. Ct. 2778, 2782,
                 81 L. Ed. 2d 694, 703 ("if the statute is silent or ambiguous with
                 respect to the specific issue, the question for the court is
                 whether the agency's answer is based on a permissible
                 construction of the statute").

Id. at 287-88.
       {¶ 30} Based on our de novo review of the record, we find the commissioner's final
determination to be reasonable and well-reasoned. We adopt his findings that Defender
was not an agent of ADT, that the provisions of Ohio Adm.Code 5703-29-17(C)(4)(c) are
inapplicable to this matter, and that ADT's benefit with respect to the Alarm Services
Contract-fees occurred entirely in Ohio. We find, as a matter of law, that Defender's gross
receipts from selling the Ohio-based contracts to ADT are sitused in Ohio and, therefore,
subject to Ohio's CAT.
       {¶ 31} Based on the foregoing, we find no error in the BTA affirming the
commissioner's final determination that denied Defender's refund claim.
       {¶ 32} Defender's first assignment of error is overruled.
       2. Second Assignment of Error
       {¶ 33} Defender argues that the commissioner's situsing of Defender's gross receipts
in Ohio creates the substantial likelihood of double taxation on Defender in violation of the
Commerce Clause doctrine and the Due Process Clause of the U.S. Constitution. The
commissioner responds that his application of the general assembly's CAT-situsing statute
to a CAT taxpayer's (Defender's) gross receipts under the facts presented in this case does
not violate constitutional provisions.
       {¶ 34} Defender argues that the constitutional violation in this matter arises from
the commissioner's inconsistent application of the situsing rules under R.C. 5751.033.
Defender asserts that the statute "does not consider origination in apportioning value to
Ohio for CAT purposes. Instead, the only relevant factors for CAT purposes are the
destination of the sale – in this case, the destination of the Alarm Services Contracts sold to
ADT." (Defender's Brief at 38.) Defender asserts that the commissioner applies the statute
No. 18AP-238                                                                            16


inconsistently, applying destination-based sourcing in some circumstances, but applying
origin-based sourcing on Defender. Defender argues that the commissioner's disregard of
the statutory "physical location" requirement in R.C. 5751.033(I) violates the fair
apportionment prong of the Commerce Clause.
       {¶ 35} Defender also argues that the commissioner inconsistently interpreted the
term purchaser as used in R.C. 5751.033 to be the immediate/direct purchase, not the
ultimate purchaser or consumer. Defender argues:
              The Tax Commissioner wants the best of both worlds –
              applying destination-based sourcing in most circumstances but
              origin-based sourcing when it increases tax revenue, narrowly
              interpreting "purchaser" for some sales, while expanding the
              meaning to include "ultimate purchaser" when the consumer is
              located in Ohio. This inconsistent application of the situsing
              statute results in an unfairly expansive determination of value
              subject to CAT by taxing receipts both originating in and
              destined for Ohio. As a result, a substantial likelihood of double
              taxation has been created. The United States Constitution's
              requirement of fair apportionment protects taxpayers from the
              unfair application of state taxes, like is present in this case, that
              results in double taxation or taxing value earned outside the
              state.

(Defender's Brief at 38-40.)
       {¶ 36} The commissioner argues that, when, as here, a taxpayer challenges the
constitutionality of an Ohio tax provision, the taxpayer bears a particularly heavy burden.
Statutory classifications are generally valid if they bear a rational relation to a legitimate
government purpose. Regan v. Taxation Without Representation of Washington, 461 U.S.
540, 547 (1983). Legislatures have especially broad latitude in creating classifications and
distinctions in tax statutes. Id.
       {¶ 37} The Supreme Court of Ohio, like the United State Supreme Court, has been
deferential to the general assembly when reviewing the constitutionality of taxation
statutes. A court's power to invalidate a statute "is a power to be exercised only with great
caution and in the clearest of cases." Columbia Gas Transm. Corp. v. Levin, 117 Ohio St.3d
122, 2008-Ohio-511, ¶ 41.           Laws are entitled to a " 'strong presumption of
constitutionality,' " and the party challenging the constitutionality of a law " 'bears the
burden of proving that the law is unconstitutional beyond a reasonable doubt.' " Id.,
quoting Yajnik v. Akron Dept. of Health, Housing Div., 101 Ohio St.3d 106, 2004-Ohio-
No. 18AP-238                                                                            17


357, ¶ 16; Buckley v. Wilkins, 105 Ohio St.3d 350, 2005-Ohio-2166, ¶ 18; Ohio Grocer's
Assn. v. Levin, 123 Ohio St.3d 303, 2009-Ohio-4872, ¶ 11. Given this heavy burden, a
challenged statute will be upheld if a plausible constitutional interpretation is available.
Ohio Grocers Assn. at ¶ 11.
       {¶ 38} Taxes are fundamentally a legislative responsibility, and a taxpayer
challenging the constitutionality of a taxation statute bears the burden to negate every
conceivable basis that might support the legislation. Columbia Gas at ¶ 91, citing Lyons v.
Limbach, 40 Ohio St.3d 92, 94 (1988); GTE N., Inc. v. Zaino, 96 Ohio St.3d 9, 2002-Ohio-
2984, ¶ 21.
       {¶ 39} " 'This already deferential standard "is especially deferential" in the context
of classifications arising out of complex taxation law.' " Columbia Gas at ¶ 92, quoting Park
Corp. v. Brook Park, 102 Ohio St.3d 166, 2004-Ohio-2237, ¶ 23, quoting Nordlinger v.
Hahn, 505 U.S. 1, 11 (1992). Under the rational-basis standard, a state has no obligation to
produce evidence to sustain the rationality of a statutory classification. Columbia Gas at
¶ 91, citing Am. Assn. of Univ. Professors, Cent. State Univ. Chapter v. Cent. State Univ.,
87 Ohio St.3d 55, 58, 60 (1999).
       {¶ 40} Under the fair apportionment prong of the Commerce Clause and the Due
Process Clause of the U.S. Constitution, a state tax must meet an internal consistency test
and an external consistency test. Moorman Mfg. Co. v. Blair, 437 U.S. 267 (1978);
Goldberg v. Sweet, 488 U.S. 252 (1989). The Goldberg Court stated:
                 [T]he central purpose behind the apportionment requirement
                 is to ensure that each State taxes only its fair share of an
                 interstate transaction. See, e. g., Container Corp. of America
                 v. Franchise Tax Bd., 463 U.S. 159, 169 (1983). But "we have
                 long held that the Constitution imposes no single
                 [apportionment] formula on the States," id., at 164, and
                 therefore have declined to undertake the essentially legislative
                 task of establishing a "single constitutionally mandated
                 method of taxation." Id., at 171; see also Moorman Mfg. Co. v.
                 Bair, 437 U.S. 267, 278-280 (1978). Instead, we determine
                 whether a tax is fairly apportioned by examining whether it is
                 internally and externally consistent. [American Trucking
                 Assns., Inc. v.] Scheiner, [488 U.S. 266,] 285; Armco Inc. v.
                 Hardesty, 467 U.S. 638, 644 (1984); Container Corp., supra,
                 at 169-170.

Id. at 260-61.
No. 18AP-238                                                                             18


       {¶ 41} The Goldberg Court provided the following example of internal consistency:
              To be internally consistent, a tax must be structured so that if
              every State were to impose an identical tax, no multiple
              taxation would result. [Container Corp. of America v.
              Franchise Tax Bd.,] 463 U.S. at 169. Thus, the internal
              consistency test focuses on the text of the challenged statute
              and hypothesizes a situation where other States have passed an
              identical statute.

Id. at 261. In applying this maxim, the high court went on to apply it in the context of taxing
long distance telephone calling, stating:
              We conclude that the Tax Act is internally consistent, for if
              every State taxed only those interstate phone calls which are
              charged to an in-state service address, only one State would tax
              each interstate telephone call.

Id.
       {¶ 42} The commissioner's situsing of the gross receipts at issue here meets the
requirement of being internally consistent. This is because, if every other state sitused only
those receipts from alarm services contracts in which the property subject to the monitoring
services is located in that state, as the commissioner has done here, only one state would
tax the receipts from each such contract. The commissioner sets forth in his brief the
connections that the gross receipts at issue have to Ohio:
              1. The receipts at issue are generated exclusively from
              Defender's sales of alarm system contracts to its purchaser
              (ADT) that Defender obtains wholly from Ohio-located
              residents and businesses, in order to protect Ohio homes and
              business establishments;

              2. In earning those gross receipts, Defender maintains Ohio
              offices and utilizes its own Ohio-based installers and customer
              service personnel to install the alarm systems and to obtain the
              alarm system contracts;

              3. ADT, as purchaser of the alarm system contracts obtained by
              Defender, receives benefits from the Ohio activities conducted
              by Defender's Ohio personnel in procuring the contracts and
              installing the alarm-system equipment necessary to perform
              the contracts;

              4. Defender, by procuring the contracts, and ADT, by
              purchasing the contracts from Defender, thereby obtain
No. 18AP-238                                                                            19


              "customer relationships" that are established by Defender in
              Ohio and maintained by ADT in Ohio throughout the duration
              of the contracts;

              5. Regarding the receipts at issue, both ADT and Defender
              purposefully avail themselves of the Ohio marketplace; and

              6. On an on-going basis, throughout the full duration of the
              contracts, ADT and Defender enjoy the benefits of Ohio police
              and fire protection.

(Commissioner's Brief at 21-22.)
       {¶ 43} In its appeal brief, Defender has applied an entirely different and erroneous
constituency test of what appears to be its own making. Defender asserts that Ohio's
situsing provisions, as interpreted and applied by the commissioner, are fatally inconsistent
when one compares the commissioner's situsing of the receipts that Defender generates
from its sales to ADT of Alarm Services Contracts with the commissioner's allegedly
inconsistent treatment of allegedly similar kinds of receipts. See Defender's Brief at 38-39.
       {¶ 44} New arguments under state or federal constitutional provisions are always
welcome as human interest and activities change over time, and the rule of law's openness
to inventive ways to apply these human rights maxims are to be commended. However,
such arguments must "fit" within the protective, constitutional shield. Defender's does not.
Defender's argument is vague, based on an unspecified comparison of species framed as an
"Equal Protection Clause" challenge, as opposed to a fair apportionment challenge under
the dormant Commerce Clause doctrine/Due Process Clause. Such a vague challenge
necessarily fails on jurisdictional grounds, since it was not specified in Defender's appeals
to the BTA and this Court or in its briefing before this Court. See Castle Aviation, Inc. v.
Wilkins, 109 Ohio St.3d 290, 2006-Ohio-2420, ¶ 19-34.
       {¶ 45} In fact, in its appeal brief, Defender only mentions the Equal Protection
Clause in its bare assertion that "the Tax Commissioner's Final Determination which
violated Defender's rights under the Commerce, Equal Protection, and Due Process Clauses
of the United States Constitution by subjecting gross receipts to tax that lack the necessary
minimum connection and substantial nexus to Ohio." (Apr. 4, 2018 Notice of Appeal at 6.)
We also note that Defender's appeal to the BTA makes no mention of the Equal Protection
Clause.
No. 18AP-238                                                                              20


       {¶ 46} In its brief, Defender itself has recognized the proper standard under the fair
apportionment external consistency test. Under that test, to meet its burden of proof
showing that a state's tax apportionment methodology is constitutionally invalid, the
taxpayer must prove " 'by clear and cogent evidence that the income attributed to Ohio is
in fact out of all proportion to the business transacted in Ohio or leads to a grossly distorted
result.' " See Defender's Brief at 37-38, quoting Cooper Tire and Rubber Co. v. Limbach,
70 Ohio St.3d 347, 350 (1994), citing Trinova Corp. v. Michigan Dept. of Treasury, 498
U.S. 358, 380 (1991).
       {¶ 47} Having correctly described but not having actually named this external
consistency test, Defender thereafter argues that, in applying that test, "the only relevant
factors [sic] for CAT purposes are [sic] the destination of the sale – in this case, the
destination of the Alarm Services Contract sold to ADT." (Defender's Brief at 38.) It is not
clear, but this language could signal that Defender suggests that its own Ohio business
activities may not be considered in determining whether the gross receipts that the
commissioner has sitused to Ohio are "out of all proportion to" Defender's own "business
transacted in Ohio."
       {¶ 48} The CAT is levied on Defender's privilege of doing business in this state, not
on the extent of Defender's purchaser's (ADT's) business presence or activities in Ohio.
With due respect, Defender appears to have inexplicably substituted or conflated aspects of
statutory inquiry about the proper Ohio-situsing criteria with the separate and
fundamentally different constitutional inquiry about the criteria applicable to a fair
apportionment challenge, as developed under the dormant Commerce Clause doctrine and
the Due Process Clause.
       {¶ 49} When the external consistency test that applies to fair apportionment
challenges is properly applied to Defender's business activities in Ohio, the constitutional
sufficiency of the connections between the gross receipts at issue here and Defender's Ohio
business are not reasonably challenged. As measured by the multiple and extensive
connections that these gross receipts have with the State of Ohio, no other state could
plausibly assert a greater connection to these receipts than Ohio.
       {¶ 50} In the final analysis, Defender falls short of meeting the stringent
requirements for successfully invalidating a state tax statute on the basis of a fair
No. 18AP-238                                                                            21


apportionment challenge to its constitutionality. Defender fails to set forth a colorable fair
apportionment challenge to R.C. 5751.033(I), because Defender does not fairly state the
necessary legal standards nor apply them correctly to the pertinent evidentiary material.
       {¶ 51} Based on the foregoing, we find that the commissioner's application of the
Ohio's CAT-situsing statute to Defender's gross receipts under the facts presented here does
not violate constitutional provisions.
       {¶ 52} Accordingly, Defender's second assignment of error is overruled.
IV. CONCLUSION
       {¶ 53} Based on the foregoing, we overrule both of Defender's assignments of error
and affirm the judgment of the Ohio Board of Tax Appeals.
                                                                        Judgment affirmed.
                          KLATT, P.J., and HORTON, J., concur.
