On September 22, 2026, the Supreme Court of Ohio unanimously held in Perrigo Sales Corp. v. Harris, Slip Opinion No. 2026-Ohio-3648, that the amount a prescription-drug manufacturer “realized” for purposes of Ohio’s Commercial Activity Tax (CAT) was the price it actually received on its sales—the list price less an industry “chargeback”—and not the higher list price it invoiced to its distributors. Affirming the Board of Tax Appeals (BTA), the Court rejected the tax commissioner’s attempt to tax amounts the taxpayer never collected.
Perrigo Sales Corporation manufactures generic drugs and sells them at wholesale to distributors, who in turn sell to retailers such as CVS and Walmart. Perrigo invoices distributors at a “list price” (the wholesale acquisition cost), but separately negotiates lower prices directly with retailers. When a distributor pays Perrigo, it pays the lower retailer-negotiated price and deducts the difference—the “chargeback”—typically in a single transaction. About 97 percent of Perrigo’s sales to distributors run through this longstanding chargeback process. Following a 2016–2018 CAT audit, the Ohio Department of Taxation determined that Perrigo had underreported its gross receipts by reporting the net amount received rather than the full list price; the BTA reversed, and the commissioner appealed.
The CAT is levied on “gross receipts,” which are defined as “the total amount realized by a person, without deduction for the cost of goods sold or other expenses incurred, that contributes to the production of gross income of the person.” Ohio Rev. Code § 5751.01(F). Because Ohio’s Tax Code does not define “amount realized,” the Court looked to the statutory example of gross receipts, Black’s Law Dictionary, and the Internal Revenue Code’s parallel definition in 26 U.S.C. 1001(b), which the CAT incorporates for undefined terms. Applying that meaning, the Court reasoned that the amount realized is what Perrigo actually received from the sale of its drugs. Using the Court’s own example: if Perrigo invoices a distributor at a $100 list price but has agreed to a $60 price with the retailer, the distributor pays $60 and claims a $40 chargeback—so $60 is the amount realized and the measure of gross receipts subject to the CAT. The Court worked through and rejected each of the commissioner’s six propositions of law, ultimately holding in favor of Perrigo. The chargeback was not an improper deduction for the cost of goods sold or other expenses because Perrigo never received the list price in the first place. The statutory exclusions for cash discounts and for returns and allowances were not rendered superfluous, as the General Assembly may take a “belt and suspenders” approach to confirm that certain items fall outside gross receipts. Whether the cash-discount regulation applied was irrelevant because the BTA did not rely on that exclusion. The commissioner’s bakery-and-wax-paper hypothetical missed the mark because it involved a buying-and-selling relationship, whereas Perrigo’s case involved only its selling activity. And the Court found substantial evidence that Perrigo never received the full list price, notwithstanding internal records reflecting list prices, and saw no inconsistency between Perrigo’s federal and state accounting methods
Perrigo Sales Corp. v. Harris, Slip Opinion No. 2026-Ohio-3648 (Ohio Sept. 22, 2026)
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