Opposition Brief — Couchot v. Ohio Lottery Commission

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IN THE 1B CLERK

SUPREME COURT OF THE —_

ee.

OCTOBER TERM, 1995

RICHARD L. and KATHERINE E. COUCHOT,

Petitioners,

THE STATE LOTTERY COMMISSION,

THE OHIO DEPARTMENT OF TAXATION and

J. KENNETH BLACKWELL,

TREASURER OF THE STATE OF OHIO,

Respondents.

On Petition for Writ of Certiorari to the

Supreme Court of Ohio

RESPONDENTS’ BRIEF IN OPPOSITION

BETTY D. MONTGOMERY

Attorney General of Ohio

JEFFREY S. SUTTON

State Solicitor

RICHARD C. FARRIN

(Counsel of Record)

Assistant Attorney General

30 East Broad Street, 16th Floor

Columbus, Ohio 43215-3428

(614) 466-5967

COUNSEL FOR RESPONDENTS

QUESTION PRESENTED

May a State impose its income tax on the annual

installment payments of the lottery winnings of a

nonresident who physically entered the State to play the

State’s lottery and to claim his prize without offending the

Commerce Clause or the Due Process Clause?

TABLE OF CONTENTS

Page

QUESTION PRESENTED ...... ccc cccccces i

TABLE OF AUTHORITIES ........0c00c00- ili

DOES GU We bES Ee Ces eRecceeeeecees l

A Wectenl Bacheroumg 2... ccs 2

B The Proceedings Below ............... 2

REASONS WHY THE PETITION SHOULD

PU ow SSS bbc a eee Oh OS eee Scie 4

I DD Ga neeacesecesseceeseée 4

Il. The Ohio Supreme Court Correctly Heid That

A State May Impose Its Income Tax On The

Winnings Of A Nonresident From Playing

And Winning That State’s Lottery ......... 7

Ill. In Re State Tax On Foreign-Held Bonds \s

Inapposite And Of Questionable Vitality ... . . 9

[V. International Harvester 1s Relevant, Correct

SEG 6 Bebb a eeee cécceeses ll

Vv. The Decision Of The Ohio Supreme Court Is

Not In Conflict With Decisions Of Any Other

State Or Federal Court .. 0... eee 12

VI. The Decision Of The Ohio Supreme Court Is

Narrow With Clearly-Defined Boundaries ... 14

CRM Soc oceeeccteecesesesces 16

TABLE OF AUTHORITIES

Page

CASES

Beelman Truck Co. v. Bd. of Equalization,

861 S.W.2d 557 (Mo. 1993).............. 13

Blackstone v. Miller, 188 U.S. 189 (1902) ......... 9

Complete Auto Transit, Inc. v. Brady,

Gp Gs PEED a wed eoewsee coccent 12

Curry v. McCanless, 307 U.S. 357 (1939) ........ 10

Diamond Shamrock Ref. & Mktg Co. v.

Appraisal District, 876 S.W.2d 298 (Tex.

1994), cert. denied, 115 S.Ct. 500 (1994) ..... 13

Erieview Cartage, Inc. v. Pennsylvania, 654

A.2d 276 (Pa. Commw. Ct. 1995) .......... 13

Farmers’ Loan & Trust Co. v. Minnesota,

Gees DEED Ges eb Shoes cticccee 9,10

First Bank of Boston v. Maine,

Pe Gs SEED “So euececccecccsess 9

Geoffrey, Inc. v. South Carolina Tax

Comm ’n, 437 S.E.2d 13 (S.C. 1993),

cert. denied, 114 S.Ct. 550 (1993) .......... 14

Gilette Co. v. Michigan, 497 N.W.2d 595

(Mich. App. 1993), appeal denied, 519

N.W.2d 156 (Mich. 1994), cert. denied,

“See

Guardian Indus. Corp. v. Michigan, 499 N.W.

2d 349 (Mich. App. 1993), appeal denied

sub nom. Cargill Inc. v. Michigan, 512 N.W.

ES ee

In re State Tax on Foreign-Held Bonds,

82 U.S. (15 Wall.) 300 (1872) .............

International Harvester Co. v. Wisconsin

Dept. of Taxation, 322 U.S. 435 (1944)... .

Laptops Etc.. Corp. v. D.C., 164 B.R. 506

DM cégesecadcesescoces

Lawrence Industries, Inc. v. Sharp,

890 S.W.2d 886 (Tex. App. 1994) ..........

Miller Bros. Co. v. Maryland,

EE ESE ee

National Bellas Hess, Inc. v. Department

of Revenue of lil., 386 U.S. 753 (1967) .......

New York ex rel. Cohn v. Graves,

New York ex rel. Whitney v. Graves,

DP ee eacécceecesccoes

Oklahoma Tax Comm'n v. Chickasaw Nation,

ee ee ow oe

Polychrome Int’l Corp. v. Krigger,

Dee Gee a PD noc ccceccévec< 13

Quill Corp. v. North Dakota, 504 U.§ 298

Dt +shoet caeboniin cece +... passim

Ryder Truck Rental, Inc. v. Chesterfield

County, 449 S.E.2d 813 (Va. 1994) ......... 13

Savings & Loan Society v. Maltnowah

County, 169 U.S. 421 (1897) .............. 9

Shaffer v. Carter, 252 U.S. 37 (1920) ....... 8,10,11

Short Brothers (USA), Inc. v. Arlington

County, 423 S.E.2d 172 (Va. 1992) ......... 13

Stark v. Comptroller, 554 A.2d 458 (Md.

Ct. of Special Appeals 1989), cert. denied,

Mee Gee VES EE “hhc cetboscececcs 7

State Tax Commission v. Aldrich,

I 10,15

Travis v. Yale & Towne Mfg. Co.,”

i eee 8,10

Vinmar, Inc. v. Appraisal District,

890 S.W.2d 493 (Tex. App. 1994) .......... 13

Watlow Winona, Inc. v. Comm’r of Revenue,

495 N.W.2d 427 (Minn. 1993) ............ 13

CONSTITUTIONAL PROVISIONS

Art. I, Sec. 8, cl. 3, United States

DE oe LBGUGbeG66ée0s0000 passim

OTHER AUTHORITIES

2 J. Hellerstein & W. Hellerstein, State

EE 10

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, i995

No. 95-1802

RICHARD L. and KATHERINE E. COUCHOT,

Petitioners,

THE STATE LOTTERY COMMISSION,

THE OHIO DEPARTMENT OF TAXATION and

J. KENNETH BLACKWELL,

TREASURER OF THE STATE OF OHIO,

Respondents.

On Petition for Writ of Certiorari to the

Supreme Court of Ohio

RESPONDENTS’ BRIEF IN OPPOSITION

STATEMENT

This case involves the authority of Ohio to impose its

income tax on that part of the income of nonresidents which

consisted of winnings from playing the State’s lottery. In

Process and Commerce Clauses to authorize it to exercise its

power of taxation over such income, the Ohio Supreme Court

applied the well-established principle that a State may tax the

income of nonfesidents that arises out of evenis or

transactions that occur in the State. This was the single,

narrow issue decided below.

A. Factual Background

The facts are simple and straightforward. On March

2, 1988, Richard L. Couchot, a resident of Kentucky,

crossed the Ohio River and physically entered Ohio for the

specific purpose of purchasing an Ohio lottery ticket. On

that same day, in a drawing held in Ohio, the numbers on

Mr. Couchot’s ticket were selected as the winning

combination. Subsequent to that drawing, Mr. Couchot

again physically entered Ohio to claim his prize. Pursuant

to the regulations of the Ohio Lottery Commission in effect

at that time, Mr. Couchot’s prize winnings of $21,000,000

were payable in annual installments over a twenty-year

period. It is these annual installments of Mr. Couchot’s

Ohio lottery prize winnings, and that income alone, that Ohio

has subjected to its income tax.

B. - The Proceedings Below

The Couchots’ statement of the history of the case is

essentially correct. Their version of the holdings of the Ohio

Court of Appeals and Supreme Court is not. The Court of

Appeals, in a decision based on an erroneous conjoining of

the unrelated concepts of due process nexus and retroactivity

(under the Ohio Constitution), held that Ohio’s imposition of

its income tax violated the Due Process Clause of the United

States Constitution and the Retroactivity Clause of the Ohio

Constitution, section 28, Article II. App. B. 28a. That

court did not hold that the tax violated the Commerce

Clause. In fact, the court found that the trial court erred in

utilizing a Commerce Clause analysis. App. B. 26a.

Nor did the Court of Appeals broadly hold that Ohio

could not impose its income tax on Ohio lottery winnings of

nonresidents. To the contrary, citing International Harvester

Co. v. Wisconsin Dept. of Taxation, 322 U.S. 435 (1944),

the Court of Appeals found that the redeeming of an Ohio

lottery ticket constitutes an event or transaction which would

permit Ohio to tax winnings from the lottery. App. B. 27a-

28a. It was only because Mr. Couchot won the Ohio lottery

prior to a statutory amendment that specifically subjected

lottery winnings to Ohio income tax that the court held the

imposition to be unconstitutional. App. B. 28a. The timing

question, however, raised an issue under the Retroactivity

Clause of the Ohio Constitution, not a Due Process nexus

issue under the U.S. Constitution.'

The Ohio Supreme Court granted review and

reversed. Relying on International Harvester as well as

other authorities, it upheld the State’s imposition of income

tax on Mr. Couchot’s installment payments of Ohio lottery

winnings. The Court properly focused on the connection

between the State and the income it sought to tax. Finding

that such income arose entirely out of an event that occurred

exclusively in Ohio, the Court held that the requisite nexus

existed.

' The Ohio Supreme Court held that because the taxable event for

income tax purposes is the receipt of income, the imposition of income

tax on installments of Ohio lottery prize payments in years after the

statutory enactment, which were the only winnings taxed by Ohio, did not

offend the State Retroactivity Clause. App. A. 13a-14a.

REASONS WHY THE PETITION SHOULD BE DENIED

I, Introduction

This case does not present any momentous

constitutional issue that demands this Court’s review.

Instead, it simply involves the application of an established,

fundamental principle regarding the power of the states to tax

income of nonresidents. The issue decided below was much

narrower than that posed by the Couchots in their petition.

Ohio is not seeking to extend its power to tax income of

nonresidents to income that has no connection to Ohio. To

the contrary, Ohio sought only to tax income of the Couchots

which arose out of an event or transaction which occurred

wholly within Ohio.

The only income of the Couchots that Ohio taxed

were the annual installment payments which Mr. Couchot

received as a result of playing and winning the Ohio lottery.

It was only that income which Ohio claimed jurisdiction to

tax. Ohio has not made any attempt to assert its power of

taxation over any other income of the Couchots. Ohio

readily concedes that it would have no right to tax such

income because none of that other income arose from any

event or transaction which occurred in Ohio and Ohio would

therefore have no nexus with that other income.

The specific issue is whether Ohio may, within the

strictures of the Due Process and Commerce Clauses, tax the

annual installment payments of Ohio lottery prize winnings

received by nonresidents who played and won the Ohio

lottery. The Ohio Supreme Court, applying the controlling

decisions of this Court, held that Ohio had sufficient nexus

with that income under both the Due Process and Commerce

Clauses to authorize the State to exercise its taxing power

over that income. In so holding, the Ohio Supreme Court

was guided by the fundamental principle which controls the

determination of the constitutional extent of the States’

jurisdiction to tax the income of nonresidents:

A state may tax such part of the income of a

non-resident as is fairly attributable either to

property located in the state or to events or

transactions which, occurring there, are

subject to state regulation and which are

within the protection of the state and entitled

to the numerous other benefits which it

confers.

International Harvester Co. v. Wisconsin Dept. of Taxation,

322 U.S. at 441-442.

As the Ohio Supreme Court stated in its opinion

below, "[iJt is difficult to imagine a more fundamental

exertion of a state’s taxing power than where the state taxes

income on winnings from its lottery." App. A. 8a. A

review of the nature of the event from which the income

arose and the facts bears out this statement. The sole source

of all of the income subjected to Ohio income tax was an

event that occurred wholly and uniquely within Ohio -- the

playing and winning of the Ohio lottery. See Ohio Revised

Code Chapter 3770. The Ohio lottery is conducted

exclusively within the State and is subject to regulation by

the State. Ohio law defines the nature and extent of the

rights . t:0se who participate in the Ohio lottery. Not only

? Contrary to the Couchots’ claim (Pet. at 5, 11), the Ohio

Supreme Court did not rely exclusively on International Harvester: it

cited numerous other cases which supported the Court’s holding. App.

A. 7a. International Harvester is, however, the controlling authority and

the holding in that case is both relevant and correct.

did the event out of which all of the income at issue arose

occur in Ohio, but by its very nature it could have occurred

only in Ohio.

Mr. Couchot physically entered Ohio for the purpose

of playing the Ohio lottery. He purchased his lottery ticket

in Ironton, Ohio. The lottery drawing in which the numbers

on Mr. Couchot’s ticket were selected as the winning

numbers was conducted in Ohio. The prize was awarded and

claimed in Ohio. Thus, the income that Ohio taxed arose

directly and exclusively from Mr. Couchot’s purchase in

Ohio of an Ohio lottery ticket. Not only did Ohio have

sufficient minimum contacts with this event, it had all of the

relevant contacts.

This pervasive connection between the event out of

which the income sought to be taxed arose and Ohio far

exceeds the minimum contacts or nexus required to meet the

requirements of the Due Process or Commerce Clauses. The

Ohio Supreme Court properly so held. While the Ohio

Supreme Court did hold that the physical-presence

requirement reaffirmed in Quill Corp. v. North Dakota, 504

U.S. 298 (1992), in the area of out-of-state sellers’ liability

to collect and remit sales and use tax had not been adopted

by this Court concerning other types of state taxes, as this

Court expressly stated in Quill, 504 U.S. at 317, what the

Couchots conveniently and consistently ignore is that the

Ohio Supreme Court did not stop there. Instead, that Court

held that even if the physical-presence requirement was

applicable it was satisfied. App. A. lla. It clearly was. As

the Ohio Supreme Court pointed out, Mr. Couchot physically

entered Ohio for the specific purpose of engaging in the very

activity out of which the income arose -- playing the Ohio

eS —

a a nn a - -

lottery. He also came into Ohio to claim his prize.’

The decision of the Ohio Supreme Court falls

squarely within the holding in International Harvester.

International Harvester held in no uncertain terms that a state

may tax the income of a nonresident which is attributable to

events occurring in the state.

The holding of the Ohio Supreme Court was a narrow

one, and one supported by well-established precedent. Nor,

contrary to the Couchots’ bare assertions, is that holding in

conflict with any other state or federal court. Not a single

decision cited by the Couchots is in any way in conflict with

the opinion below. In point of fact, it is consistent with the

only other state court decision which addressed the same

issue, Stark v. Comptroller, 554 A.2d 458 (Md. Ct. of

Special Appeals 1989), cert. denied, 559 A.2d 791 (Md.

1989).

Il. The Ohio Supreme Court Correctly Held That A

State May Impose Its Income Tax On The Winnings Of

A Nonresident From Playing And Winning That State’s

Lottery.

The Ohio Supreme Court did not hold that Ohio has

the power to impose its income tax on Mr. Couchot, a

nonresident. Its holding was much narrower. It held only

that Ohio could impose its income tax on that part of Mr.

Couchot’s income that arose out of Mr. Couchot’s playing

> The Couchots’ incredulity at the fact that under the State's

position nexus "lasts" for twenty years (Pet. at 5) fails to discern the plain

fact that the nexus with the income at issue "lasts" for that period simply

because the income from the Ohio event -- the playing and winning the

Ohio lottery -- is paid out over a twenty-year period.

and winning the Ohio lottery, an event that occurred wholly

within Ohio.‘ That, of course, is precisely the holding of

International Harvester.

The Couchots’ contention that the Ohio Supreme

Court’s decision raises substantial questions regarding the

authority of states to tax income of foreign corporations

which have no physical presence in the state grossly

overstates that decision. The case does not involve a tax on

corporations. Moreover, although the Ohio Supreme Court

noted that Quill stated that the physical-presence test had not

been adopted outside the sales and use tax area, it held only

that the test was not applicable in this case which involves

only personal income taxes. More importantly, the Ohio

Supreme Court held that even if that requirement were

applicable, it was satisfied because Mr. Couchot physically

entered Ohio to purchase the lottery ticket at issue. Thus,

even if this Court might consider it important to decide

whether the physical-presence test should be applied to a

state’s imposition of corporate income taxes on income of

foreign corporations, this case is not the appropriate vehicle.

This case simply does not present that question.

* The Couchots are plainly wrong when they assert that the

constitutional question is not whether Ohio has the authority to tax the

income from an event which occurred in Ohio but whether Ohio has

authority to tax Mr. Couchot. Pet. at 6 n. 5. The Couchots’ statement

that the location of the event which produced the income is not relevant

to a determination of the State’s authority to tax exemplifies the illogic of

their argument. It is precisely because it is an income tax which is at

issue that the location of the event out of which that income arose is not

only relevant, but critical. As /nternational Harvester, Shaffer v. Carter,

252 U.S. 37 (1920) and Travis v. Yale & Towne Mfg. Co., 252 U.S. 60

(1920) confirm, whether a state has nexus to tax income of a nonresident

depends solely on whether the income sought to be taxed arises from an

event which occurred in the State. The connection with the State must

necessarily relate to the income, because that is what is being taxed.

Ill, In Re State Tax On Foreign-Held Bonds \s

Inapposite And Of Questionable Vitality.

The Couchots’ argument that the Ohio Supreme

Court’s decision is in conflict with In re State Tax on

Foreign-Held Bonds, 82 U.S. (15 Wall.) 300 (1872), is

clearly wrong. As the Couchots concede, the tax at issue in

In re State Tax on Foreign-Held Bonds was a property tax,

not an income tax; it thus is inapposite for that reason alone.’

But even if the income at issue arose out of intangible

personal property rather than out of an event, the situs of that

property for tax purposes would be irrelevant. With respect

to income, the relevant consideration is the location of the

source of the income at issue.

In re State Tax on Foreign-Held Bonds is inapposite

in still another respect. The bonds at issue in that case were

held outside of the taxing state. 82 U.S. (15 Wall) at 325.

Its holding thus has been limited to the narrow proposition

that bonds held out-of-state cannot be taxed. Savings & Loan

Society v. Maltnowah County, 169 U.S. 421, 428 (1897);

Blackstone v. Miller, 188 U.S. 189, 206 (1902).

In all events, reliance on In re State Tax on Foreign-

Held Bonds for the view that intangible property could only

be taxed by the state of the owner’s domicile fails for a more

fundamental reason. That proposition, adopted in Farmers’

Loan & Trust Co. v. Minnesota, 280 U.S. 204 (1929), and

followed in First Bank of Boston v. Maine, 284 U.S. 312

. Even if property which is the source of the income sought to be

taxed by a state is immune from taxation by that state, the income is not

clothed with that immunity; whether such income can be taxed by the

state is not affected by the character of the property which is its source.

New York ex rel. Cohn v. Graves, 300 U.S. 308, 313-314 (1937).

(1931), was repudiated in Curry v. McCanless, 307 U.S. 357

(1939), and expressly overruled in State Tax Commission v.

Aldrich, 316 U.S. 174 (1942). The holding in Curry is

clear:

Shares of corporate stock may be taxed

at the domicile of the shareholder and also at

that of the corporation which the taxing state

has created and controls; and income may be

taxed both by the state where it is earned and

by the state of the recipient’s domicile.

307 U.S. at 368 (emphasis added). The “sweeping” nature

of Curry and its repudiation of Farmers’ Loan has been noted

by commentators. 2 J. Hellerstein & W. Hellerstein, State

Taxation 421.14{1], at 21-43 (2d ed. 1992).

Nor do Shaffer v. Carter, supra, and Travis v. Yale

& Towne Mfg. Co., supra, \end any support to the Couchots’

argument. Instead, they support the holding below. Both

Shaffer and Travis properly focused their nexus inquiry on

the income being taxed, not on the person or entity receiving

that income. Shaffer clearly noted that a state could impose

a tax "upon incomes accruing to nonresidents from their

property or business within the state ...."_ 252 U.S. at 52.

The claim that Shaffer and Travis set the outer limits

of a state’s power to tax the income of a nonresident reads

those decisions too narrowly and ignores International

Harvester. Shaffer and Travis simply addressed the type of

income involved in those cases. Neither decision held that

a state could not tax income of a nonresident which arose out

of a source within the state unless that source was a business

operation or work performed. Any such notion is rejected

by International Harvester which broadly applied the

language of Shaffer. See Hellerstein & Hellerstein, supra,

20.05{1},, at 20-15 n. 76. This Court's reference to the

Shaffer holding in Oklahoma Tax Comm'n v. Chickasaw

Nation, 115 S.Ct. 2214, 2222 n. 11 (1995) does not support

the Couchots’ narrow view:

--- @$ to nonresidents, "the tax is only on such

income as is derived from ... sources [within

the State]." (bracketed material by the

Court).

The Couchots’ statement that this Court has never

expanded Shaffer’s reach to a nonresident who lacks a

physical presence in the taxing state likewise ignores

International Harvester in which the Court stated that "the

fact that the stockholder-taxpayers never enter Wisconsin ...

cannot deprive it of its jurisdiction to tax." 322 U.S. at 443.

See also New York ex rel. Whitney v. Graves, 299 U.S. 366

(1937) (income of nonresident from the sale of an interest in

membership on New York Stock Exchange taxable by New

York even where taxpayers never physically entered New

York.) | Moreover, whether physical presence is a

requirement is not relevant in this case because, as discussed

earlier, Mr. Couchot had a physical presence in Ohio -- he

physically entered Ohio to participate in the very event out

of which the income arose. The Couchots’ constant focus on

physical presence is simply a red herring.

IV. International Harvester Is Relevant, Correct And

Controlling.

The assertion that International Harvester is irrelevant

or wrong lacks merit. International Harvester held in no

uncertain terms that a state may tax the income of a

nonresident which is attributable to events or transactions

occurring within the state. The tax at issue in that case was

not imposed on the corporation, but was, as the Court said,

"in point of substance laid upon and paid by the stockholders

...." 322 U.S. at 443-444. The Couchots’ point that this

Court has cited International Harvester regarding the

authority of a state to tax the income of foreign corporations

misses the fact that the same principle is applicable to both

nonresident individuals and foreign corporations. This Court

noted this fact in the very footnote in Miller Bros. Co. v.

Maryland, 347 U.S. 340, 356 n. 18 (1954), referenced by

the Couchots. What the Couchots fail to note is that the

correctness of the holding in /nternational Harvester has

never been questioned in any subsequent decision of this

Court.

The Couchots state that the fact alone that

International Harvester was decided prior to Complete Auto

Transit, Inc. v. Brady, 430 U.S. 274 (1976), raises

substantial doubts as to its vitality. They fail, however, to

give any explanation for this statement. Complete Auto did

not effect a change in the nexus requirement. It addressed

and rejected the formalistic <istinction between "direct" and

"indirect" taxes on interstate commerce that had been applied

in earlier decisions. See Quill Corp., 504 U.S. at 310. In

fact, the Couchots’ reliance on Quill fails to recognize the

fact that the Commerce Clause nexus test for sales and use

taxes upheld in that case was one adopted in National Bellas

Hess, Inc. v. Department of Revenue of Ill., 386 U.S. 753

(1967), which itself was decided prior to Complete Auto.

V. The Decision Of The Ohio Supreme Court Is Not

In Conflict With Decisions Of Any Other State Or

Federal Court.

The Couchots’ contention that the decision below is

in conflict with those of other state and federal courts is

wrong. Not a single one of the decisions cited by the

Couchots involved a personal income tax, or any income tax

imposed on income that arose directly and exclusively out of

an event which occurred within the taxing state. There is no

decision that has questioned the constitutional authority of a

State to exercise its power of taxation over such income of a

nonresident individual or corporation.*

* — Instead, the cases cited involve: (i) sales taxes, Laptops Etc.,

Corp. v. D.C., 164 B.R. 506 (Bankr. D.Md. 1993) (physical presence

necessary to enable the State to impose tax collection obligation upon the

vendor); (ii) corporate income and franchise taxes, Watlow Winona, Inc.

v. Comm 'r of Revenue, 495 N.W.2d 427 (Minn. 1993) (whether business

was unitary, thus allowing State to include all income, not just that

arising directly from activity in the State, in the apportionable income

under the unitary business principle; Court also held that Quill effected

no change in the applicable legal principles and was simply not on point),

Erieview Cartage, Inc. v. Pa., 654 A.2d 276 (Pa. Commw. Ct. 1995)

(physical-presence test not referenced or applied; Quill cited only in Due

Process Clause portion of the opinion), Lawrence Industries, Inc. v.

Sharp, 890 S.W.2d 886 (Tex. App. 1994) (decision included only a Due

Process Clause issue; it contained no reference to the physical-presence

requirement of Quill), Polychrome Int'l Corp. v. Krigger, 5 F.3d 1522

(3d Cir. 1993) (No reference to or adoption of physical-presence test);

(ii) a county business activity license tax, Short Brothers (USA), Inc. v.

Arlington County, 423 S.E.2d 172 (Va. 1992); (iv) the unique Michigan

Single Business Tax, Gilette Co. v. Mich., 497 N.W.2d 595 (Mich. App.

1993), appeal denied, 519 N.W. 2d 156 (Mich. 1994), cert. denied, 115

S.Ct. 779 (1995) and Guardian Indus. Corp. v. Mich. , 499 N.W. 2d 349

(Mich. App. 1993), appeal denied sub nom. Cargill Inc. v. Mich., 512

N.W. 2d 846 (Mich. 1994); (v) and personal property taxes, Beelman

Truck Co. v. Bd. of Equalization, 861 S.W.2d 557 (Mo. 1993), Diamond

Shamrock Ref. & Mktg Co. v. Appraisal District, 876 S.W. 2d 298 (Tex.

1994), cert. denied, 115 S.Ct. 500 (1994), Vinmar, Inc. v. Appraisal

District, 890 S.W.2d 493 (Tex. App. 1994), and Ryder Truck Rental,

Inc. v. Chesterfield County, 449 $.E.2d 813 (Va. 1994) (by their very

nature, personal property axes apply only to tangible personal property

physically located in the state; not one of these cases contain any

reference to Quill’s physical-presence test; because the property at issue

was in the taxing state in each case, physical presence was not an issue).

The Couchots’ statement that the decision of the Ohio

Supreme Court below and the decision of the South Carolina

Supreme Court in Geoffrey, Inc. v. South Carolina Tax

Comm'n, 437 §.E.2d 13 (S.C. 1993), cert. denied, 114 S.Ct.

550 (1993), are the only two decisions which have refused to

adopt Quill’s physical-presence test in an income tax context

is misleading. Initially, Quill itself noted that the physical-

presence test had not been adopted outside of the sales and

use tax area. Second, the Ohio and South Carolina Supreme

Courts are not in a minority of state courts on this issue.

They are the only two state supreme courts that have been

presented with the specific issue. There are no contrary

decisions.

Even if there were inconsistent decisions on whether

the physical-presence requirement applied to income taxes,

this case would be an inappropriate vehicle for reviewing the

issue: in this case, as the Ohio Supreme Court found and as

the facts conclusively establish, there was a clear physical

presence in Ohio and that physical presence was directly

related to the income over which Ohio exercised its power of

taxation. A clearer example of nexus is difficult to imagine.

VI. The Decision Of The Ohio Supreme Court Is

Narrow With Clearly-Defined Boundaries.

The Couchots’ claim that under the Ohio Supreme

Court’s decision the State’s power to tax is boundless

exaggerates the scope of the decision. The holding is both

narrow and clearly-defined. The Ohio Supreme Court held

that Ohio could impose its income tax on Ohio lottery

winnings of a nonresident who entered Ohio to participate in

the Ohio lottery and claimed his prize in Ohio. This was the

only income which Ohio subjected to tax. The case does not

involve whether Ohio could tax income of nonresidents from

annuities purchased in Ohio, interest on accounts in Ohio

financial institutions or dividends paid by corporations doing

business in Ohio. Instead, the income taxed is that arising

out of an event or transaction which by its very nature is

localized in Ohio. Cf New York ex rel. Whitney v. Graves,

299 U.S. at 372-373. Ohio did not claim nexus over any

other income.

The decision of the Ohio Supreme Court is in full

accord with the decisions of this Court. As in /nternational

Harvester, the incidence of the tax is tied to the income

which the taxing state made possible. As in Aldrich, the

payment depends upon and involves the law of the taxing

state for its exercise. Not only did the income realized by

Mr. Couchot depend upon and involve the laws of Ohio, but

the event from which that income derived owed its very

existence to those laws. The laws of Ohio, and only the laws

of Ohio, made that income possible. Also, as in Aldrich,

Ohio law defines the nature and extent of the right of the

person entitled to the income and affords that person

protection for those rights.

This case presents an even clearer situation than that

in International Harvester. Unlike the nonresident

stockholders in International Harvester, Mr. Couchot

actually entered Ohio. His entry into Ohio was for the

specific purpose of engaging in the very activity out of which

the income arose. He entered Ohio to purchase a lottery

ticket which purchase formed the contract out of which the

income at issue arose. The annual payments to Mr. Couchot

by the State are made pursuant to that contract entered into

in Ohio and enforceable in Ohio. When reviewed in light of

the actual holding and the facts, the decision is unassailable.

It is both well-defined and correct. It does not warrant this

Court’s review.

CONCLUSION

For the foregoing reasons, the petition for writ of

certiorari should be denied.

Respectfully submitted,