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December 7, 2023

Ohio Board of Tax Appeals denies CAT agency exclusion absent written contract authorizing company to act as agent

In Aramark Corp. v. Harris, Case No. 2019–2975, the Ohio Board of Tax Appeals (BTA) ruled that a managed services company could not claim an "agency exclusion" from the Commercial Activity Tax (CAT) on reimbursements it received under a management fee contract because the contract did not expressly authorize the taxpayer to enter contracts on its client's behalf.

The taxpayer, a food, hospitality, facility and uniform services company, provides managed services to business, educational, healthcare, and government institutions on two types of contracts: (1) profit and loss, and (2) management fee. Under a profit-and-loss contract, the taxpayer operates independently of the client, retaining all receipts, and making a profit to the extent receipts exceed expenses. Under the management fee arrangement, the taxpayer's clients bear the risk of profitability, with the taxpayer purchasing food, supplies and other items for the client. The client retains the receipts and reimburses the taxpayer for its expenses, plus a management fee for its services.

The taxpayer had sought a refund for a portion of the receipts received under a management fee contract — specifically reimbursements for purchases of food, labor, and other direct expenses — arguing that they were received as an agent of its client under ORC 5751.01(F)(2). The Ohio Department of Taxation (Department) denied the taxpayer's refund request, relying on OAC 5703-29-13(C)(2)(c), which requires a general contractor engaged in a cost-plus contract to have a written agreement with its subcontractors that it is acting as the property owner's agent. As no written agency agreement existed, the Department denied the refund and the taxpayer appealed.

On appeal, the BTA was not persuaded that incurring expenses on the client's behalf or acting for the client's benefit, per the contract's terms, satisfied the contractual agency requirement. Similarly, the client's continued control over day-to-day operations was unpersuasive. The BTA noted that Ohio Supreme Court decisions, such as Willoughby Hills Dev. & Distrib., Inc. v. Testa, 155 Ohio St.3d 276, 2018-Ohio-44881 and Cincinnati Golf Mgt., Inc. v. Testa, 132 Ohio St.3d 299, 2012-Ohio-2846, require the purported agent to have actual authority to bind the principal to its contracts. Those cases also rejected applicability of the "control test," which considers how much control a principal retains over a purported agent. Given the absence of express contractual language authorizing the taxpayer to bind its clients, the BTA concluded that the agency exclusion did not apply.

The BTA also rejected the taxpayer's secondary argument that the expense reimbursements received from management fee contracts are not gross receipts. The BTA found that ORC 5751.01(F) includes all gross receipts without deductions for cost of goods sold or other expenses incurred.

The BTA deferred ruling on constitutional arguments it said may only be addressed by the Ohio Supreme Court.


It is unknown at this time if the taxpayer will appeal this decision. The BTA's decision relies on Ohio Supreme Court precedent defining what constitutes an "agency" relationship. The Department has consistently denied the application of the CAT agency exclusion for expense reimbursements or other "conduit" arrangements in the absence of a written agreement citing an agency relationship.


Contact Information
For additional information concerning this Alert, please contact:
State & Local Tax
   • Bill Nolan (

Published by NTD’s Tax Technical Knowledge Services group; Maureen Sanelli, legal editor



1 See Tax Alert 2018-2260.