Background
CheckFree Services Corporation sought a refund of Ohio sales tax it collected from customers between July 2011 and June 2015 for financial-services products. Its products included debit authorization, which helps determine whether a cardholder has sufficient funds for an ATM withdrawal or purchase, and disbursement authorization, which helps consumers make bill payments by debiting the consumer’s account and crediting the payee.
CheckFree also charged separately for ancillary services supporting both core services. The tax commissioner denied the refund claim for insufficient proof. The Board of Tax Appeals vacated that determination and remanded to the commissioner, finding debit authorization nontaxable but requiring further analysis of ancillary services. Its treatment of disbursement authorization was unclear.
The Court’s Holding
The Supreme Court of Ohio left undisturbed the board’s conclusion that debit authorization is nontaxable because the tax commissioner did not challenge it. But it vacated the board’s decision as to disbursement authorization because the board did not clearly explain what it decided or how it applied R.C. 5739.01(B)(3)(e).
On remand, the board must determine whether disbursement authorization is automatic data processing before considering whether personal or professional services are involved, explain any relevance of Marc Glassman, distinguish or address CheckFree’s data-processing and fund-disbursement functions, and state the statutory basis for its conclusion. The board also must independently apply the true-object test to each separately invoiced ancillary service, rather than sending that task to the tax commissioner.
Key Takeaways
- A tax tribunal must provide reasoning clear enough to permit meaningful appellate review.
- A service must first qualify as automatic data processing before the statutory personal-or-professional-services inquiry matters.
- Separately invoiced ancillary services require their own true-object analysis, though an ancillary service sharing the core service’s true object may receive the same tax treatment.
Why It Matters
The decision reinforces that Ohio sales-tax disputes involving bundled technology and financial services require service-specific analysis. Separate invoices do not automatically make ancillary charges taxable or exempt; their actual object controls.
It also keeps the Board of Tax Appeals in its proper fact-finding and initial decision-making role, rather than allowing either the tax commissioner or the Supreme Court to resolve the developed record in the first instance.