Can you be taxed on money you never received? An article in the October 2025 edition of The BR State + Local Tax Spotlight authored by Joshua M. Sivin posed that question when discussing a decision of the Ohio Board of Tax Appeals (“BTA”). The Supreme Court of Ohio has now answered with a unanimous “no.” Affirming the BTA, the Court held that a drug manufacturer’s Commercial Activity Tax (“CAT”) base is the amount it actually received, not the higher list price printed on its invoices. Perrigo Sales Corp. v. Harris, Slip Op. No. 2026-Ohio-3648 (Ohio Sept. 22, 2026).
The Facts: Perrigo Sales Corporation (“Perrigo”) manufactures generic prescription drugs and sells them to wholesale distributors, which resell them to retailers such as CVS and Walmart. Perrigo invoices distributors at a “list price” but negotiates lower prices directly with retailers. When a distributor sells at the retailer’s price, it deducts the difference (a “chargeback”) and sends Perrigo only the net amount, usually in a single transaction. Perrigo is contractually bound to honor these chargebacks, and about 97 percent of its distributor sales work this way, a reportedly longstanding industry practice. Chargebacks were typically processed within 48 hours, and Perrigo reported revenue on a net basis for both GAAP and federal tax purposes.
After auditing the 2016 through 2018 tax periods, the Tax Commissioner decided that the list price was the number that counted, even though Perrigo never got to count it. She assessed additional CAT, treating the chargebacks as business expenses. The BTA reversed, holding that “[b]ecause Perrigo never received the amounts at issue, they are not ‘gross receipts.’” Undeterred, the Commissioner appealed.
The Decision: Writing for a unanimous Court, Justice DeWine began with a “straightforward application” of the CAT. The tax is imposed on “gross receipts,” defined as “the total amount realized by a person, without deduction for the cost of goods sold or other expenses incurred.” Ohio Rev. Code Ann. § 5751.01(F). The case turned on two words: “amount realized.” Because the Revised Code does not define the phrase, the Court looked to the statute’s own example, Black’s Law Dictionary, and, as Ohio Rev. Code Ann. § 5751.01(K) permits, Internal Revenue Code Section 1001(b). Each pointed to the same answer: the amount Perrigo actually received.
The Court’s math was refreshingly simple. Suppose Perrigo invoices a distributor at $100 but has agreed with a retailer on a $60 price. The distributor pays Perrigo $60, accompanied by a $40 chargeback claim. Perrigo never sees the $100, so the $60 is the amount realized and what the CAT reaches.
An invoice is not a receipt, and a number on paper is not money in the bank.
The Commissioner raised six propositions of law, and none fared well. Remarkably, the Court observed, the Commissioner did not “seriously engage” with the statutory definition of gross receipts. Perrigo was not deducting a business expense, because it never realized the list price in the first place; the chargebacks were “simply an accounting entry” reflecting what it actually received. Nor did this reading make the exclusions for cash discounts and returns superfluous. When something is not a gross receipt, there is nothing to exclude, and the General Assembly was free to take a “belt-and-suspenders” approach.
The Commissioner’s parade of horribles featured a bakery that sells $1,000 of muffins to a grocery store and offsets $200 it owes the store for wax paper. The Court found the hypothetical “far wide of the mark,” since both the $800 payment and the $200 value of the wax paper are receipts from the bakery’s sale. Perrigo, by contrast, was only selling. The muffin argument, in other words, did not rise to the occasion. As for the claim that Perrigo’s accounting departed from its federal method, the Court’s response was blunt: “We fail to understand this argument.” Perrigo had consistently reported net amounts on its federal returns, and substantial evidence showed it never received the list price. Finding the BTA’s decision “reasonable and lawful,” the Court affirmed.
The Takeaway: The prior Spotlight article read the BTA’s ruling as a victory of substance over form. The Supreme Court reached the same result through the statute’s text, which should make the holding harder for the Ohio Department of Taxation to confine to Perrigo’s facts. CAT taxpayers that use chargebacks or similar prearranged pricing should confirm they are reporting the amounts actually realized and consider refund claims for open periods, subject to applicable limitations periods. Setoffs from a separate purchasing relationship, however, still count as receipts, and a seller that collects the full price and later pays some back may get a different answer. And as the prior article warned, the paper trail matters. Put simply, in Ohio you are taxed on what you get, not on what you bill.
This update is one in a series of updates written for the October 2026 edition of The BR State + Local Tax Spotlight.
© 2026 Blank Rome LLP. All rights reserved. Please contact Blank Rome for permission to reprint. Notice: The purpose of this update is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This update should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.