Mia Shoes, Inc. v. McClain, 2019 Ohio Tax LEXIS 1864

Mia Shoes, Inc. v. McClain, 2019 Ohio Tax LEXIS 1864

Opinion

DECISION AND ORDER

Mr. Harbarger, Ms. Clements, and Mr. Caswell concur.

Appellant Mia Shoes, Inc. appeals a final determination of the Tax Commissioner affirming a commercial activities tax ("CAT") assessment for the period of July 1, 2006 through March 31, 2014. This matter is now considered upon the notice of appeal, the statutory transcript ("S.T.") certified by the commissioner, the record of the hearing before this board, and the parties' written argument.

Mia Shoes is a wholesaler of footwear headquartered in Miami, Florida, which designs and manufactures footwear through trading companies, then distributes that footwear to customers through the country. Mia Shoes' customers consist of department stores, specialty stores, and other independent customers. In addition to footwear made under their label, Mia Shoes designs and manufactures "private [*2]  label" footwear to be sold under the customer's brand name. The goods sold by Mia Shoes are manufactured abroad and shipped to a port in either California or Florida before being transported to customers, typically via common carrier, though some customers may take possession directly from the vessel at the port. A portion of the footwear Mia Shoes sells is shipped to facilities in Ohio, for customers such as DSW, Macy's, Gap, Kohl's, and Justice/Tween Brands. After it was discovered that the company was not registered for the Ohio CAT despite Ohio gross receipts in excess of $ 500,000, Mia Shoes was audited for the period of July 1, 2006 through March 31, 2013. This audit resulted in the issuance of an assessment of $ 66,269 for that time period (excluding interest and penalty). Mia Shoes was also assessed an estimated $ 10,000 tax (excluding interest and penalty) per quarter for failure to timely file CAT returns and failure to timely pay the corresponding liability for the four quarters spanning April 1, 2013 to March 31, 2014. The total amount due, including tax, interest, and penalties, totaled $ 127,812.20.

Mia Shoes filed a petition for reassessment, raising constitutional concerns, [*3]  challenging the situsing methodology, and requesting abatement of the penalties. After a hearing, the commissioner affirmed the assessment. The commissioner rejected Mia Shoes' claim that the footwear sent to Ohio distribution centers were merely received initially in Ohio but ultimately received by those same customers elsewhere, which references the situsing language in R.C. 5751.033(E). The commissioner found that Mia Shoes had failed to provide sufficient evidence to substantiate this claim or otherwise show that it was not liable for the amounts assessed. The commissioner also maintained the penalties and declined to address the constitutional arguments, citing a lack of jurisdiction to do so. From this decision, Mia Shoes filed the present appeal, raising the same arguments it made in the notice of appeal, though it moved for leave to amend the notice of appeal after this board's hearing to clarify that it was making an as-applied constitutional challenge. This board convened a hearing, at which Christopher Calcagno, the President of Mia Shoes, and Jeffrey Hartlage, Audit Manager for the Ohio Department of Taxation, testified. Calcagno testified regarding Mia Shoes' business model and the logistics [*4]  from manufacturing to delivery to the customers, primarily at distribution centers. Hartlage testified regarding the audit and situsing methodology. Following the hearing, the parties submitted written argument. Acknowledging that resolution of the constitutional arguments would be reserved for further appeals, the parties focused on the propriety of the commissioner's situsing and apportionment of Mia Shoes' gross receipts to Ohio.

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