Overview
CheckFree, a financial services provider in Ohio, sought a refund of over $2 million in sales and use tax paid between July 1, 2011, and June 30, 2015. The company argued that its payment authorization and bill payment services are not taxable in Ohio. However, the Department of Taxation denied the claim, asserting that CheckFree failed to prove its services qualified as personal or professional rather than taxable Automatic Data Processing (ADP).
The Dispute and Appeal
Tax Commissioner’s Position
On appeal, the Tax Commissioner contended that CheckFree’s services included multiple components, requiring a “true object” analysis to determine the taxability.
Board of Tax Appeals’ Findings
The Board of Tax Appeals rejected CheckFree’s argument that its services were inseparable, opting instead to examine each component individually.
- The Board concluded that many services were automated and did not involve human intervention.
- Therefore, these services could not be classified as personal or professional services under Ohio law.
Final Decision
Ultimately, the Board vacated the final determination and remanded the case to the Commissioner for further analysis. The Commissioner was instructed to reassess the true object of each service and determine if any refund was warranted.
Case No. 2019-43, CheckFree Services Corp. v. Patricia Harris, Tax Commissioner of Ohio, Ohio Bd. of Tax App., 3-0 decision, Oct. 10, 2024.
Additional Note:
This ruling reinforces the importance of analyzing the true object of multi-component services when determining Ohio taxability.
Frequently Asked Questions
What was the core issue in the CheckFree sales tax case?
The main issue was whether CheckFree’s bill payment services were taxable under Ohio law. The company argued they were exempt as personal or professional services, but the Department of Taxation classified them as taxable Automatic Data Processing (ADP).
Why did the Board of Tax Appeals reject CheckFree’s argument?
The Board rejected the claim that CheckFree’s services were inseparable. Instead, it evaluated each service component individually and found that many functions were automated, which disqualified them from exemption under the personal or professional services category.
What does “true object” analysis mean in this context?
“True object” analysis refers to determining the primary purpose of a multi-component service. If the dominant purpose is the delivery of taxable services like ADP, then the entire service may be considered taxable, even if it includes non-taxable elements.
What was the final decision in the CheckFree case?
The Board of Tax Appeals vacated the Tax Commissioner’s decision and remanded the case for further analysis. The Commissioner was tasked with reassessing the true object of each service to determine if a refund was appropriate.
How does this case impact other businesses in Ohio?
This case highlights the importance for businesses offering multi-component services to clearly document and justify the primary nature of their offerings. Proper classification can significantly affect tax obligations under Ohio law.