A court case with implications for the promotional products industry began Wednesday in front of the Ohio Supreme Court when attorneys for the Cincinnati Reds argued that the team should be exempt from paying a tax on game-day giveaways like bobbleheads and other branded merchandise.
The Reds have taken their argument to the Buckeye State’s highest court after the Ohio Department of Taxation determined that the Major League Baseball team owes $88,000 in taxes tied to promotional products – bobbleheads, T-shirts, wall posters, baseball cards and more –provided to fans on game days between 2008 and 2010. The Reds argued against the department’s finding before the Ohio Board of Tax Appeals, but the board ruled in favor of the state tax commissioner. That prompted Cincinnati’s big league team to appeal to the state Supreme Court.
The Reds say they’re exempt from paying a “use” tax on the game-day swag because it’s not free. The cost of the products is built into ticket prices over the season – and thus constitutes sold items, the Reds maintain. As such, the merchandise is shielded from the “use” tax obligation by an Ohio law that says a company doesn’t have to pay tax on items it purchases to resell.
Steven Dimengo, the Reds’ attorney, articulated that position Wednesday during oral arguments before the state Supreme Court. According to press reports, Dimengo said that the Reds advertise the promotional items ahead of time, which helps drive ticket sales, making them more than just an unexpected freebie, but rather something fans know they’re getting with a ticket purchase. He noted that the Reds buy about 30,000 bobbleheads for each giveaway game.
Get your tickets Margaritaville Night at the Ball Park with the Cincinnati Reds on June 29th. This special package includes an exclusive Shark bobblehead and your ticket for the game: https://t.co/8XXFXpgr4Y pic.twitter.com/BVrcxv7Cr6— Margaritaville (@Margaritaville) June 12, 2018
Kody Teaford, a lawyer with the Ohio Attorney General’s Office who handles taxation matters, argued that the Reds indeed owe taxes on the promo items – plus interest and penalties. Teaford said that the Reds argument doesn’t hold water because state law requires they demonstrate there was a different charge for a ticket that came with a promo item as opposed to tickets that don’t offer such products. The Reds’ prices are the same for both types of tickets, Teaford noted. That differs from, say, a team like the Cleveland Indians, which charges about $5 more for a promotional ticket than one that just gets a fan a seat.
The court decided to take the arguments under advisement. The judges did not indicate when a ruling would be made.
As Courthouse News Service notes, other state courts have issued decisions on cases involving taxes on gameday giveaways. The Kansas City Royals successfully fought to have a decision requiring them to pay state sales and use tax overturned. The Milwaukee Brewers and Minnesota Twins ended up having to pay taxes on their promo products.
Depending on how the Reds ruling goes, the case could have implications for promo distributors that sell merch to teams in Ohio. Should the court side with tax officials, will teams and even other businesses in Ohio be discouraged from investing in branded merchandise for game-day promotions and, perhaps, other events because they don’t want to pay taxes on the items?
Conversely, if the court sides with the Reds, could that help drive sales of such swag? Time will tell. One point seems indisputable: teams see game-day promos as valuable, not just because they benefit their brands, but also because they bring joy to fans.