From “Actual-Authority” to “Possession & Pass-Through”: The Supreme Court of Ohio Narrows the Agency Exclusion under the Commercial-Activity Tax
(Commentary on Aramark Corp. v. Harris, 2025-Ohio-2114)

1. Introduction

The Supreme Court of Ohio’s decision in Aramark Corp. v. Harris settles a long-running debate over the scope of the “agency” exclusion from Ohio’s Commercial-Activity Tax (“CAT”). At stake was almost one million dollars in CAT that Aramark, a national food-services corporation, paid on reimbursements it received from “management-fee” clients for food, labor, and supplies purchased on their behalf. Aramark argued that it was merely an “agent” passing its clients’ funds through to third-party vendors and therefore entitled to exclude those reimbursements from gross receipts under R.C. 5751.01(F)(2)(l). The Tax Commissioner and the Board of Tax Appeals (“BTA”) disagreed, and the Supreme Court has now affirmed.

Beyond Aramark’s refund claim, the Court seized the opportunity to recalibrate the jurisprudence on the CAT’s agency exclusion, expressly disapproving language from its 2018 opinion in Willoughby Hills Dev. & Distrib., Inc. v. Testa. The majority’s new touchstone is not “actual authority” to bind the principal, but whether the taxpayer retains the contested receipts or merely passes them through. This commentary unpacks the judgment, highlights its doctrinal shifts, and forecasts its practical effects.

2. Summary of the Judgment

• Holding: Reimbursements that Aramark received from management-fee clients are taxable “gross receipts” under the CAT because Aramark kept those amounts for itself; it did not hold them “on behalf of another” within the meaning of R.C. 5751.01(F)(2)(l).
• Statutory Focus: R.C. 5751.01(F)(2)(l) (agency exclusion) and R.C. 5751.01(N)(2) (definition of “agent”).
• Key Rationale: The statutory word “retaining” means continuing to hold amounts in one’s possession. The record showed no “pass-through” from Aramark to vendors; therefore Aramark was acting for itself when it received reimbursements.
• Precedential Shift: The Court “disapproves” Willoughby Hills insofar as it required taxpayers to prove “actual authority” to bind the principal; that gloss impermissibly added words to the statute.
• Disposition: BTA decision affirmed (5-2). Chief Justice Kennedy, joined by Justice Hawkins, dissented, urging that Aramark qualifies as an agent under the statute and that reimbursements were received “on behalf of another.”

3. Analysis

3.1 Precedents Cited and Their Influence

• Willoughby Hills Dev. & Distrib., Inc. v. Testa, 2018-Ohio-4488 – Previously required “actual authority” to bind a principal; used extensively by the BTA below. The Court now limits/disapproves this portion, signalling a return to textualism.
• Cincinnati Golf Mgmt., Inc. v. Testa, 2012-Ohio-2846 – A use-tax case under the political-subdivision exemption; had influenced Willoughby Hills. The majority says reliance on it for CAT purposes was misplaced.
• Total Renal Care, Inc. v. Harris, 2024-Ohio-5685 – Cited for the principle that when statutory meaning is unambiguous, courts must apply it as written.
• Administrative sources – O.A.C. 5703-29-13; 2008 Advisory Opinion 08-0012; and a 2019 use-tax final determination (Sodexo) were invoked by Aramark but found non-controlling.

3.2 Court’s Legal Reasoning

1. Pure Textualism. The majority examines the ordinary dictionary meaning of “retain” (“to continue to hold”) and “on behalf of another,” concluding that if the taxpayer keeps the money, it acts for itself, not for the principal.
2. Two-Step Test Emerges.
   a) Does the taxpayer meet the statutory definition of “agent” (R.C. 5751.01(N))? A central factor is whether it “retains only a commission” while remitting other proceeds.
   b) Even if an agent, did it receive or acquire the contested amounts “on behalf of another”? Possession without pass-through fails this prong.
3. Disapproval of Prior Gloss. By criticising Willoughby Hills, the Court cautions against importing common-law agency concepts (actual authority) when the legislature has provided its own definition.
4. Administrative Law Limits. Regulations, information releases, and advisory opinions cannot override clear statutory text; even if they implied a broader exclusion, the statute controls.

3.3 Potential Impact

• Narrower Exclusion. Businesses using reimbursement or “cost-plus” models must show an uninterrupted flow of funds from customer to vendor, with themselves acting merely as a conduit. Retention, even temporarily or for net-settlement purposes, risks CAT liability.
• Compliance Re-engineering. Service providers (facility managers, logistics coordinators, staffing companies) may restructure contracts: e.g., have customers pay vendors directly or channel funds through segregated trust accounts.
• Administrative Guidance Revisions. The Department of Taxation will likely revise Rule 5703-29-13 and related information releases to align with the “possession & pass-through” standard.
• Litigation Forecast. Taxpayers presently litigating refund claims premised on Willoughby Hills may need to reassess proofs; new disputes will focus on factual tracing of funds rather than contractual authority.
• Legislative Invitation. The majority signals that only the General Assembly can expand the exclusion. Stakeholder groups may lobby for amendments restoring an “actual-authority” path or creating a clearer safe harbor.

4. Complex Concepts Simplified

• Commercial-Activity Tax (CAT) – Ohio’s broad-based, low-rate tax on gross receipts (not net income). Businesses with more than a modest Ohio sales threshold must pay it.
• Gross Receipts – “Total amount realized” without deducting costs; virtually every dollar that comes in the door unless expressly excluded.
• Agency Exclusion – A carve-out allowing an “agent” to exclude amounts it collects for someone else, provided it keeps only its commission or fee.
• Actual vs. Apparent Authority – Common-law doctrine describing an agent’s power to bind the principal. The Court now says this doctrine is irrelevant to the CAT definition.
• Pass-Through (Conduit) Test – Practical question: Did the money literally flow through the taxpayer to another payee, leaving the taxpayer only its fee?

5. Conclusion

Aramark Corp. v. Harris redefines the landscape of CAT litigation by divorcing the agency exclusion from common-law notions of authority and anchoring it firmly in the statutory verbs “retain” and “receive.” Going forward, Ohio taxpayers must demonstrate not only an agency relationship but also a bona fide pass-through of funds to escape CAT on reimbursements. The decision strengthens textual fidelity, limits the role of administrative guidance, and prompts businesses to scrutinise contract language and cash-flow mechanics. Whether the legislature accepts the invitation to revisit the statute will determine if “possession & pass-through” remains the definitive rule or merely the latest waypoint in Ohio’s evolving CAT jurisprudence.