The state no longer can tax your baked beans, frozen waffles or that Big Mac from the drive-through, a state appeals court ruled yesterday.

Handing Ohio grocers and fast-food restaurants a victory, the Franklin County Court of Appeals ruled yesterday that the commercial activities tax (CAT) created by state lawmakers in 2005 cannot, under the Ohio Constitution, be applied to food consumed off-site.

If the decision stands, it would take a $188 million annual bite out of Ohio's already strapped budget.

The decision overturns an August 2007 ruling by Franklin County Common Pleas Judge John P. Bessey, who called the commercial activities tax "an excise tax on the privilege of doing business in the state of Ohio."

The appeals court disagreed. Writing for the 3-0 majority, Judge Patrick M. McGrath said that while the state argues it is not a transactional tax, "when applied to gross receipts derived from the sales of food, a transactional tax is precisely what the CAT becomes."

The attorney general's office is expected to appeal the decision to the Ohio Supreme Court and ask that the impact be delayed so the state can continue collecting the tax until there is a final ruling.

Even if the tax disappears from groceries and take-out food, consumers might not notice much in terms of price changes, according to Tom Jackson, president of the Ohio Grocers Association.

"When it went into effect, customers didn't see huge price increases either," he said. "We're trying to keep food prices low when we've got the largest increases in food costs in the last 20 years. Anytime we're able to reduce our costs of doing business, that could only help the consumer."

Lawmakers developed the commercial activities tax in 2005 as a replacement for the state's exemption-riddled corporate franchise tax and property taxes on inventory and equipment. The goal was to create a low rate imposed across a wide spectrum of transactions.

The tax is imposed at a flat rate of $150 for the first $1 million of annual taxable gross receipts, plus 0.26 percent of gross receipts higher than $1 million.

Gov. Ted Strickland "would oppose anything that threatens a broad-based, low rate," spokesman Keith Dailey said. Asked about the future budget impact, he added: "The economic environment is already extremely challenging for the state."

Retailers and grocers have argued that they are hurt by the new tax.

"If you've got high sales and low profits, the CAT tax is not your friend," Jackson said.

The ruling also could strengthen a separate court challenge to the commercial activities tax, said Tony Ehler, a partner with Vorys, Sater, Seymour and Pease. He is representing two county engineers and a group of road-construction companies who are arguing that revenue generated from the tax on fuel can be used only for roads and bridges.

Tax money currently is directed toward schools and local governments.

jsiegel@dispatch.com