In Aramark Corp. v. Harris, Slip Opinion No. 2025-OHIO-2114 (Ohio S. Ct. June 18, 2025), the Ohio Supreme Court (the Court) upheld an Ohio Board of Tax Appeals determination that the company was not entitled to a Commercial Activity Tax (CAT) refund on the grounds it did not satisfy the agency exclusion provided by ORC 5751.01(F)(2)(l). In the opinion, the court distanced itself from its prior holding in a similar case and may provide useful guidance to taxpayers trying to qualify for the exclusion.

Background

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 Department of Taxation (Department) denied the refund claim, which was upheld by the Ohio Board of Tax Appeals (see Tax Alert 2023-2020).

Law and analysis

ORC 5751.01(F)(2)(l) excludes from CAT "[p]roperty, money, and other amounts received or acquired by an agent on behalf of another in excess of the agent's commission, fee, or other remuneration." ORC 5751.01(N) generally defines an "agent" as "a person authorized by another person to act on its behalf to undertake a transaction for the other." ORC 5751.01(N) provides that the definition of "agent" "includes" a list of fact situations. At issue in this case was ORC 5751.01(N)(2), which provides that an agent includes "[a] person retaining only a commission from a transaction with the other proceeds from the transaction being remitted to another person."

In its analysis, the court reviewed its prior decision on the exclusion, Willoughby Hills Dev. & Distrib., Inc. v. Testa, 2018-Ohio-4488, which seemed to reinforce the Department's long-standing position that a common law agency relationship had to exist to claim the exclusion. (See Tax Alert 2018-2260.) While the court did not expressly overrule Willoughby Hills, it characterized the opinion's language as an "interpretive gloss," indicating it disapproved of the decision "to the extent that it requires a showing of actual authority on the part of the taxpayer to qualify as an agent" for purposes of the exclusion.

While the court seemed to agree with the taxpayer that it was a "person authorized … to undertake a transaction for the other," it nonetheless denied the exclusion because the taxpayer did not meet the requirement of ORC 5751.01(N)(2). The court observed that the taxpayer did not merely retain a commission, but "kept for itself the reimbursements that it acquired" and, as such, was acting on behalf of itself with regard to the reimbursements and not the client.¹

Implications

The CAT agency exclusion has historically been a difficult and contentious issue for taxpayers. The court's decision is helpful to taxpayers given its apparent rejection of a requirement that a common law agency relationship exist between the parties. For fact patterns similar to those of the taxpayer in this case, the focus appears to shift to proving that a pass-through of funds occurred. The decision presents businesses the occasion to scrutinize contract language, cash flow mechanics and accounting to demonstrate the separation of the reimbursements from the management fee.