You can read all of our articles on our website. Having trouble getting our emails?   Change your spam controls and white list 

How deal with ADT and Dealer works / Ohio tax case  
October 7, 2020
How deal with ADT works / Ohio tax case
            A recent appellate case in Ohio deals with whether the ADT Dealer has to pay an Ohio Commercial Activity Tax on the commissions paid by ADT to the Dealer. The taxing authority imposed the taxes, the lower court upheld the tax, and the appellate court reversed and ordered the taxing authority to refund almost $74,000 paid, plus interest.  The case offers an analysis of the relationship between ADT and its Dealer.  You can read the entire case on K&K’s website at Leading Cases, State by State,
[] and the case is Defender Security Company v McClain, Tax Commissioner
            Here is an excerpt from the case with the factual background [from the Court’s perspective] which discusses the relationship between ADT and its Dealer:
            “{¶ 2} ADT provides security services to residential and commercial property owners throughout the country. ADT enters into alarm-services contracts with its customers and provides remote monitoring services by receiving information from security equipment installed at customers' properties. When an alarm is triggered, ADT contacts the customer and the police or fire authorities.
{¶ 3} Defender is an Indianapolis-based company whose business consists of serving as an “authorized dealer” of ADT under an Authorized Dealer Agreement (the “master agreement”). Pursuant to the master agreement, Defender acts “exclusively” in its relationship to ADT, but it is not an agent of ADT. Defender (1) generates leads for new ADT customers through advertising, (2) installs equipment at the Ohio property of new customers, for which it collects and retains a fee, and (3) at time of installation, signs an alarm-services contract with Ohio customers under which ADT provides security-monitoring services to the Ohio customer.
{¶ 4} Within Ohio, Defender operates four branch locations: Cincinnati, Columbus, Toledo, and Akron. But executive and administrative staff work is performed in Indiana at Defender's Indianapolis headquarters. ADT interacts with both Defender and with Ohio customers from locations outside Ohio.
{¶ 5} Defender collects new Ohio alarm-services contracts at its Indianapolis headquarters and forwards them to ADT's dealer-support unit in Aurora, Colorado. ADT decides whether to take assignment of each contract. The gross receipts at issue consist of payments ADT makes to Defender when ADT has accepted assignment of a customer contract. In 5 to 6 percent of instances, ADT rejects assignment of the contract and the customer pays Defender for security-monitoring services provided by ADT. In all instances, ADT provides security-monitoring services to Ohio customers from one of six monitoring locations, all outside Ohio.
{¶ 6} These transactions lead to three types of revenue sources for Defender: (1) payments made by Ohio customers to Defender for the cost and installation of alarm-services equipment, (2) payments made by Ohio customers to Defender under the alarm-services contracts that are not accepted by ADT, and (3) payments made by ADT to Defender under the master agreement as consideration for ADT's purchase of Ohio alarm-services contracts from Defender. There is no dispute as to the first two: Defender pays the CAT on the fees it obtains from Ohio customers for installing equipment and for alarm services when ADT does not purchase the contract. Only the third category, which we refer to as “ADT funding,” is at issue.”
            Pertinent holdings by the Court:
            “…Defender was not an agent of ADT, that the provisions of Ohio Adm.Code 5703-29-17(C)(4)(c) are inapplicable to this matter, and that ADT's benefit with respect to the Alarm Services Contract-fees occurred entirely in Ohio. We find, as a matter of law, that Defender's gross receipts from selling the Ohio-based contracts to ADT are sitused in Ohio and, therefore, subject to Ohio's CAT.
(Emphasis added.) 2019-Ohio-725 at ¶ 30, 2019 WL 994159. Because the court of appeals, in accordance with our case law, did apply a de novo standard of review, we find Defender's argument under the first proposition of law to be without merit.”

            “ R.C. 5751.033(I) establishes situs at ADT's physical locations outside Ohio ¶ 21} Under R.C. 5751.033(I), the “paramount” consideration when determining the proportion of the benefit attributed to Ohio is “[t]he physical location where the purchaser [ADT in this case] ultimately uses or receives the benefit of what was purchased.” Defender argues that ADTpurchased intangible contract rights and that ADT's physical locations outside Ohio are the places where ADT actually used and received the benefit of those contractual rights. We agree with Defender, and we conclude that the tax commissioner, the BTA, and the court of appeals all failed to properly distinguish between the benefit Ohio consumers received from ADT and the benefit ADT received by purchasing consumer contracts from Defender.

      {¶ 22} What ADT's customers acquired was the benefit of ADT's security services in relation to their Ohio properties, and their payments for those services were Ohio taxable receipts under R.C. 5751.033(I). By contrast, what ADT purchased from Defender consisted of intangible contract rights, and the benefit derived from the purchase lay in receiving payments from Ohio customers in consideration for ADT providing the contracted-for monitoring services from its locations outside Ohio.
        {¶ 23} The contrast of physical locations is stark. On the one hand, the physical locations at which ADT's customers use and receive the benefit of ADT's monitoring services are the Ohio properties protected by ADT. On the other hand, the physical locations at which ADT uses and receives the benefit of its contracts are ADT's physical locations where it receives customer payments and performs services for Ohio customers—all of which, on this record, are outside Ohio. Because ADT uses and receives the benefit of the contracts it purchased from Defender outside Ohio, Defender's receipts from the sale of those contracts are not sitused to Ohio under R.C. 5751.033(I).

2. Ohio Adm.Code 5703-29-17 does not apply, nor does it furnish valuable analogies, because ADT purchases contracts rather than services *5 {¶ 24} R.C. 5751.033(K) specifically authorizes the tax commissioner to “adopt rules to provide additional guidance to the application of this section, and provide alternative methods of situsing gross receipts that apply to all persons, or subset of persons, that are engaged in similar business or trade activities.” With respect to applying division (I) of R.C. 5751.033, the commissioner has exercised this power by promulgating Ohio Adm.Code 5703-29-17.

            “The tax commissioner also asserts that ADT “uses or receives” the intangible contractrights in Ohio to generate income for itself. But that is not the correct analysis under the plain language of R.C. 5751.033(I). The statute focuses on where ADT “used or received” the benefit ofthe contract rights it purchased from Defender, not on where ADT “used or received” the contract rights themselves.
     {¶ 32} The tax commissioner points to R.C. 5751.033(F), which “allows Ohio to tax the ‘right to use’ a trademark in Ohio.” Division (F) does link tax situs to the use of intellectual property in Ohio. But this case does not address license fees for intellectual property, and all agree that the analysis here is controlled by R.C. 5751.033(I), not division (F). Under division (I), situs is determined not by looking at where ADT uses the contract rights, but where ADT “uses or receives the benefit of” the contract rights.
     {¶ 33} Likewise, the cases cited by the commissioner are inapposite. Taking Geoffrey, Inc. v. South Carolina Tax Comm., 313 S.C. 15, 437 S.E.2d 13 (1993), as the paradigm case, we note that the South Carolina Supreme Court held that the state could impose income tax on Geoffrey's royalty income to the extent that Geoffrey purposefully availed itself of the state's protections by licensing its trademarks for use in that state. In Geoffrey, the taxpayer was deemed to have used the trademarks themselves in South Carolina but arguably received the benefit of its license agreements in its home state, Delaware. Applied to that situation, division (I) of R.C. 5751.033would establish situs at the latter, not the former.

C. We need not reach Defender's third proposition of law 

{¶ 34} Because we rule in Defender's favor on its statutory claim, we need not reach the constitutional claim set forth under its third proposition of law.


{¶ 35} For the foregoing reasons, we reverse the judgment of the court of appeals. We also remand to the tax commissioner with instructions that he issue refunds for 2011, 2012, and 2013 in the amounts set forth in the refund claim, plus the amount of any interest that may be provided for by statute. See Corrigan v. Testa, 149 Ohio St.3d 18, 2016-Ohio-2805, 73 N.E.3d 381, ¶ 71(cause remanded to the tax commissioner for issuance of refunds).”

To order up to date Standard Form Alarm /  Security / Fire and related Agreementsclick here:
You can check out the program and sign up here: or contact our Program Coordinator Stacy Spector, Esq at 516 747 6700 x 304.
NOTICE:  You can always read our Articles on our website at
THE ALARM EXCHANGEalarm classifieds alarm security contracts

    This area is reserved for alarm classifieds, alarm company announcements, solicitations, offers, etc. 
    There is no charge to post a listing here.Include your contact information, phone, email and web site.  If you would like to submit a post, please send an email to  To create a reciprocal link to our website, click here.

Getting on our Email List / Email Articles archived: 
    Many of you are forwarding these emails to friends or asking that others be added to the list.  Sign up for our daily newsletter here: Sign Up.  You can read articles and order alarm contracts on our web site
Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
200 Garden City Plaza
Garden City, NY 11530
516 747 6700 x 301