On November 6, 2023, the Ohio Board of Tax Appeals determined that Aramark Corporation (“Aramark”) was not entitled to a refund of commercial activity tax (“CAT”) paid on management fees earned by the company in performance of certain cost-plus agreements. Aramark Corporation v. Harris, Case No. 2019-2975 (Ohio Bd. Tax App. Nov. 6, 2023).
Aramark is a food services, hospitality, facility services, and uniform services company. It provides a broad range of managed services to businesses and educational, healthcare, and government institutions. Some of Aramark’s services were provided pursuant to a “management fee” agreement where customers purchased food, supplies, and other items. Even though Aramark purchases these items, its customers reimburse Aramark for the expenses. Aramark sought to exclude the gross receipts associated with these purchased items.
Under Ohio’s CAT, there is an exclusion from “gross receipts” for “[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.” Ohio Rev. Code § 5751.01(F). The code defines an agent as “a person authorized by another person to act on its behalf to undertake a transaction for the other.” Id. § 5751.01(P). “An agent may include ‘[a] person retaining only a commission from a transaction with the other proceeds from the transaction being remitted to another person.’” Ohio Rev. Code § 5751.01(P)(2).
The Ohio Board of Tax Appeals denied Aramark’s claim that it was acting as an agent on behalf of its clients. The Board explained that, pursuant to Ohio Supreme Court precedent regarding agency, Aramark “must be ‘endowed with authority,’ and such authority must be linked to the activities that generate the gross receipts.” Aramark at 6. The Board observed that the contractual language in one of the management fee agreements, expressly providing that Aramark was an independent contractor and acted as such in its day-to-day operations, was inconsistent with this precedent. Id. at 8.