Ohio Supreme Court Remands Ohio Sales Tax Refund Dispute to Board of Tax Appeals for Prompt Decision and Further Analysis
The Ohio Supreme Court recently issued its opinion in Checkfree Services Corporation v. Harris, 2026-Ohio-3555, vacating the Ohio Board of Tax Appeals’ decision and remanding the case with specific instructions for expedited and detailed review.
Procedural History & Background
Checkfree Services Corporation (Checkfree) filed refund claims for the Ohio sales taxes it collected from customers, particularly banks, on services it provided. CheckFree, 2026-Ohio-3555 at ¶1. At issue were “debit authorization services,” “disbursement authorization services,” and “ancillary services” relating to those two categories of services. Id. The Tax Commissioner issued a Final Determination denying the refunds for failure to provide sufficient evidence, and Checkfree appealed to the Ohio Board of Tax Appeals (BTA). Id. at ¶5.
The BTA vacated the Tax Commissioner’s Final Determination, remanding the matter back to the Tax Commissioner. CheckFree, 2026-Ohio-3555 at ¶12. Specifically, the BTA held Checkfree’s “debit authorization services” were nontaxable on the basis of Marc Glassman, Inc. v. Levin, 119 Ohio St.3d 254, 2008-Ohio-3819, but wanted the Tax Commissioner to analyze all ancillary services related to debit authorization services separately in compliance with the Ohio Supreme Court’s precedent in Cincinnati Fed. S. & L. Co. v. McClain, 168 Ohio St.3d 123, 2022-Ohio-725 (Cincinnati Federal). CheckFree, 2026-Ohio-3555 at ¶13 (requiring all itemized service transactions to be analyzed separately for sales tax purposes).
The BTA further concluded that because disbursement authorization services were automated and not performed by people, these services could not qualify as nontaxable personal or professional services under Cincinnati Federal. CheckFree, 2026-Ohio-3555 at ¶14. However, the BTA’s decision did not explicitly apply the Marc Glassman analysis to disbursement authorization services, and the parties’ statements to the court suggested it was unclear whether the BTA had ruled those services taxable or intended to remand the question of their taxability to the Tax Commissioner along with ancillary services. CheckFree, 2026-Ohio-3555 at ¶22-23. CheckFree appealed to the Ohio Supreme Court, challenging the BTA’s findings with regard to: (1) disbursement authorization services, and (2) ancillary services relating to both debit and disbursement authorization services. CheckFree, 2026-Ohio-3555 at ¶2. The Tax Commissioner did not appeal the BTA’s treatment of debit authorization services as nontaxable, and the court let that part of the BTA’s decision stand.
Ruling on Disbursement Authorization Service
The Ohio Supreme Court vacated the BTA’s decision with respect to the disbursement authorization services. CheckFree, 2026-Ohio-3555 at ¶25. It concluded that the lack of clarity in the BTA’s decision frustrated the court’s review as an appellate court. Id. It remanded the case to the BTA with specific instructions to: (1) focus on taxability as automatic data processing (ADP), and not electronic information services; (2) determine whether the service is ADP under R.C. 5739.01(Y)(1)(a) including analysis under the court’s precedent in Marc Glassman, only considering whether the service is a personal or professional service if it first determined the service is actually ADP; and (3) explain the significance, if any, of the distinction between CheckFree’s data processing functions and its disbursement functions. CheckFree, 2026-Ohio-3555 at ¶26. The court exhorted the BTA to clarify its reasoning and carefully consider the statutory language. Id. at ¶27.
Ruling on Ancillary Services
The court agreed with the BTA’s determination that the taxability of each ancillary service should be analyzed separately. CheckFree, 2026-Ohio-3555 at ¶28. However, the court declined CheckFree’s invitation to analyze the taxability of these services itself and clarified its holding in Cincinnati Federal as it relates to the application of the “true object” test in R.C. 5739.01(B)(3)(e). Id. CheckFree argued the ancillary services should be taxed the same way as the core service to which they related and characterized them as necessary and merely “separately invoiced components of a single integrated service.” CheckFree, 2026-Ohio-3555 at ¶29. The court disagreed and held that an ancillary service should be afforded the same tax treatment as the core service only if the ancillary service is separately found to have the same true object as the core service. Id. at ¶32.
Instructions to the Board of Tax Appeals
In addition to instructing the BTA on how to analyze the taxability of CheckFree’s disbursement authorization service and that it should separately analyze the true object of each ancillary service supporting debit and disbursement authorization services, the court reiterated its role as a “court of review,” and the BTA’s role as a finder of fact. CheckFree, 2026-Ohio-3555 at ¶36. The court instructed the BTA to determine the taxability of the ancillary services itself rather than remand the issue to the Tax Commissioner, CheckFree, 2026-Ohio-3555 at ¶34, noting that the evidentiary record was “fully developed,” CheckFree, 2026-Ohio-3555 at ¶35, but the Tax Commissioner had not fully briefed the taxability of CheckFree’s ancillary services. CheckFree, 2026-Ohio-3555 at ¶37. It also ordered the BTA to issue its new decision “forthwith,” given that the refund claim concerns tax periods dating back more than a decade. Id. at ¶38.
Broader Implications for Ohio Taxpayers
The court’s decision clarifies that its earlier ruling in Cincinnati Federal requires taxability of a service to be based first on whether the service is ADP or EIS, and if it is, only then does one reach the question of whether the service is performed by people. In other words, not all automated services are ADP or EIS. The court went on to say that there may be times when separately invoiced ancillary services have a taxable purpose and others may not; when the record supports it, the true object of each separately invoiced service must be determined on its own – even if one service is necessary for providing another service. The court’s decision further suggests that going forward, litigants before the BTA must fully develop the factual record, the BTA must address difficult questions as a trial court independently of the Tax Commissioner, and the BTA must issue clearer decisions for litigants and appellate courts.
This decision also offers some planning opportunities and risks to taxpayers. Itemizing the price of services will result in the taxability of each service being analyzed separately. The true object of each service should stand alone. Depending on the mixture of the services, it might be better to bundle all services in a single charge. However, that approach carries risk, because the entire bundle may be deemed taxable when some services might not be taxable if itemized.
In addition, the remand will place front and center the application of the true object test to services, and taxpayers should be cautious. Assigning the true object by describing the benefit of the service to the purchaser and by emphasizing overall goals may lead to inconsistent tax results. That approach elevates a subjective intent over more objective factors such as the means by which the service was rendered, in this case by automation or by human effort. The former is taxable and the latter is not. The BTA will need to wrestle with different perspectives, but it should attempt to reach a decision that implements objective results, which should aid tax planning and compliance.
Lastly, the Court’s observation that the BTA’s record was fully developed is interesting. It leaves open the possibility that on remand the BTA could decline any effort to reopen the proceeding and/or to submit additional briefs. Recall that the taxpayer argued the ancillary services were not distinct or divisible from the core services at issue. It could be that the taxpayer simply was arguing for judicial efficiency and lower appeal costs. On the other hand, it is for the BTA to decide if the record is sufficient to meet the taxpayer’s burden of proof concerning the true object of each ancillary service the taxpayer sought to lump together with the core services. Whether the current record contains sufficient evidence to sustain that burden of proof for each ancillary service remains an open question.
Vorys attorneys continue to analyze the impacts of the CheckFree decision.
