Ohio State Tax Blog

Current developments, commentary and helpful resources regarding Ohio state and multistate taxes from attorneys Steven A. Dimengo and Richard Fry. We concentrate on all aspects of Ohio state taxation, including sales/use tax, income tax and commercial activity tax, from audits to appeals before the Ohio Board of Tax Appeals and Ohio Supreme Court, and have significant experience in multistate tax planning. Contact us.

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U.S. House Urged to Immediately Enact Marketplace Fairness Act PDF Print E-mail
Tuesday, 14 January 2014 22:53

The Marketplace Fairness Coalition is trying to make 2014 the year when the U.S. Congress enacts legislation allowing states to require sales tax collection from remote sellers in the absence of a physical presence, reversing the 1992 U.S. Supreme Court decision in Quill Corp. v. North Dakota. On January 7, 2014, the Coalition’s hundreds of members, including national and state trade organizations and a diverse mix of businesses, sent the House Judiciary Committee Chairman a joint letter calling for the immediate passage of the Marketplace Fairness Act, which was passed the Senate last May. The list of businesses supporting this effort is wide-ranging, as it includes the largest and most well-known remote seller, Amazon.com, as well as stalwart brick-and-mortar retailers Best Buy, J.C. Penney, Sears and Wal-mart. The Marketplace Fairness Act continues to garner widespread support and is a key development to follow in 2014. 

Last Updated on Tuesday, 14 January 2014 22:54
 
Ryan, L.L.C. Gets Hand Slapped for Engaging in the Unauthorized Practice of Law Before the Ohio Board of Tax Appeals PDF Print E-mail
Wednesday, 08 January 2014 13:46

In 2009, Ryan, L.L.C., which is not a lawfirm, filed a Notice of Appeal with the Ohio Board of Tax Appeals (BTA) on behalf of its client, Owens Corning. The Ohio Supreme Court, adopting the proposed consent decree following an investigation by the Ohio State Bar Association, found that Ryan and its employee engaged in the unauthorized practice of law by: (1) preparing and filing a notice of appeal before the BTA; and (2) appearing before the BTA on behalf of its client. Ohio St. Bar Assn. v. Ryan, L.L.C., 2013-Ohio-5500 (Dec. 24, 2013). It seems Ryan accepted blame for its actions, as the appeal before the BTA was quickly withdrawn, and Ryan fully cooperated in the investigation, in exchange for having no civil penalties imposed.

This ruling is consistent with previous Ohio authority holding that representing another before a quasi-judicial agency, such as the BTA or Board of Revisions, is the practice of law, as explained in a previous post. Non-attorneys, and even attorneys employed by non-law firms, must be cautious, as a notice of appeal or compliant on behalf of their client is ineffective and may be dismissed on jurisdictional grounds, thereby prejudicing the client. See Sharon Village Ltd. v. Licking Cty. Bd. of Revision, 78 Ohio St.3d 479 (1997). It is also likely that representing a client in an administrative appeal before the Tax Commissioner constitutes the practice of law because it creates a record and could prejudice the client’s future rights on appeal. 

Last Updated on Wednesday, 08 January 2014 15:06
 
U.S. Supreme Court Lays Foundation for Congressional Action Requiring Sales Tax Collection by Remote Vendors PDF Print E-mail
Tuesday, 03 December 2013 16:49

The U.S. Supreme Court’s refusal to review constitutional challenges to New York’s click-through nexus law, which is receiving extensive press coverage, is somewhat surprising given that there is a split amongst the states developing. Although the New York Court of Appeals, the state’s highest court, upheld New York’s law requiring online retailers who use in-state affiliates to solicit sales via weblinks to collect sales tax, the Illinois Supreme Court recently found a similar law was preempted by the Internet Tax Freedom Act, but ignored the alleged Commerce Clause violations. Performance Marketing Assoc. v. Hamer, 2013 IL 114496 (Oct. 18 2013). Nonetheless, these click-through nexus or “Amazon” laws do not represent a substantial extension of current sales tax law, as it is well-established that the presence of in-state sales representatives may create sufficient nexus requiring a vendor to collect sales tax. These laws simply presume that nexus is created through such representatives’ solicitation, including through online weblinks.

The Supreme Court’s denial is laying the foundation for Congressional action by enacting some version of the current Marketplace Fairness Act, which would allow states who have joined the Streamline Sales Tax Agreement or enacted other simplification requirements to require out-of-state vendors to collect sales tax even in the absence of a physical presence. Although the bill passed the Senate earlier this year with strong bipartisan support, significant resistance may be met in the Republican-controlled House of Representatives, as Republicans have generally characterized the bill as creating a “new” tax. Many commentators believe the Marketplace Fairness Act could be passed during 2014.

 
Illinois Supreme Court Rules "Click Through Nexus" Law Preempted PDF Print E-mail
Thursday, 31 October 2013 19:56

Illinois enacted its “click-through nexus” or “Amazon” law in 2011 expanding sales/use tax collection obligations to out-of-state retailers who contract with Illinois residents to refer customers via weblinks, which is a form of performance marketing. The Performance Marketing Association (PMA) quickly challenged the law asserting it violated the Commerce Clause of the United States Constitution and was preempted by the federal Internet Tax Freedom Act (ITFA). The PMA was granted summary judgment on both issues and the State appealed directly to the Illinois Supreme Court.

The Supreme Court agreed that Illinois’ click-through nexus law was preempted by the ITFA which prohibits states from imposing multiple or discriminatory taxes on electronic commerce. Performance Marketing Assoc. v. Hamer, 2013 IL 114496 (Oct. 18 2013). The Court found the law to be discriminatory because it imposed the sales/use tax collection obligation on retailers using online performance marketing, but not retailers using offline (e.g., print or broadcast) performance marketing. This is an interesting position, not considered by the New York Court of Appeals which held that its similar click-through nexus law did not violate the Commerce Clause and was enforceable. Justice Karmeier’s dissent criticizes the majority for failing to reach the Constitutional issue.

There is certainly much more to come regarding the validity of click-through nexus laws. In Ohio, Governor Kasich vetoed the passage of click-through nexus laws by the General Assembly earlier this year.

Last Updated on Thursday, 31 October 2013 19:59
 
Sales and Use Tax In Ohio PDF Print E-mail
Friday, 18 October 2013 18:12

Steve will be speaking at the Lorman Sales and Use Tax in Ohio Seminar to be held in Akron on January 21, 2014.  He will be discussing Manufacturing Exemptions, Transfer of Business and Personal Liability for Sales tax.  Click here to see more (and register).

Last Updated on Friday, 18 October 2013 18:16
 
OSBA Taxation Committee Sales and Use Tax Subcommittee Report PDF Print E-mail
Monday, 30 September 2013 17:43

Click here to read the report Steve submitted on September 26 to the Ohio State Bar Association Taxation Committee, as Chair of the Sales and Use Tax Subcommittee. Of particular interest is the Board of Tax Appeal’s decision in Schlegel v. Levin (May 23, 2013), BTA Case No. 2010-A-1757 where the Board notes that the casual sale exemption must be supported by evidence of the seller’s use of the property. This is consistent with the statutory language which only requires that the property had been subject to the state sales tax jurisdiction of the selling party, regardless of whether tax had been paid. This issue arises frequently in the context of an airplane purchase. Let us know if you have any questions.

Last Updated on Tuesday, 01 October 2013 15:16
 
Nexus Created Through Ownership in Pass-Through Entities PDF Print E-mail
Tuesday, 17 September 2013 21:40

An area of continuing focus amongst the states is the creation of nexus for income or net-worth based taxes through ownership of a pass-through entity having operations in the state. In particular, some states assert that holding a general partnership interest in a general or limited partnership with nexus in a states creates nexus for non-sales taxes. The rationale being that the general partner intrinsically has a sufficient in-state presence through its control and management of the partnership. The creation of “special purpose entities” or “nexus remote entities” to fulfill a narrow, specific in-state activity have also raised scrutiny for their owners, especially when they lack substance or legitimate business purpose.

Pass-through entity ownership is not applicable for Ohio’s commercial activity tax since nexus is deemed to exist based upon the taxpayer’s Ohio gross receipts. However, Ohio has held, at least at the individual investor level, that a pass-through entity’s presence creates nexus for its non-resident owners for Ohio personal income taxes. See Dupee v. Tracy, 85 Ohio St.3d 350 (1999); and Agley v. Tracy, 87 Ohio St.3d 265 (1999). 

 
Restaurants Under Audit: Tips for Agreeing to Utilize a Test Check PDF Print E-mail
Saturday, 31 August 2013 15:47

In a previous post, we discussed the increased scrutiny quick service restaurants and others with large reported carry-out orders are facing for under collecting Ohio sales tax. These restaurants under audit must be extremely careful before allowing the Ohio Department of Taxation to conduct a test check or sample audit, as a taxpayer who enters into such an agreement is usually unable to challenge the audit methodology set forth therein.

Two specific items to address in negotiating a favorable method with the Department include site selection and providing for an offset in the calculation. For vendors with multiple locations, site location for the test check will have a significant impact on the ultimate liability since the results from the sample locations will be extrapolated to the remaining locations. The vendor must ensure the sample locations are representative of the whole business. Second, in our experience, the initially proposed sample agreement does not provide a reduction for periods which the statistical analysis results in an overpayment. Under the proposed calculation, if one month results in a $100 liability and the next month results in a $100 overpayment, the Department would ignore the second month and assess a $100 liability. This contravenes the very premise of a statistical sample, which is that some periods will be above the average ratio and some below. Moreover, the purpose of the test check is to measure overall compliance. So, as long as the aggregate results are in-line with the average, no liability should result.

We have extensive experience in helping restaurants navigating through a sales tax audit, including negotiating the terms of the agreement to ensure the test check / sample audit reflects the restaurant’s actual operations and to avoid inequitable results, as well as minimize penalties. 

Last Updated on Tuesday, 03 September 2013 19:13
 
Ohio Supreme Court Rules In Favor of Taxpayer that Tax Commissioner Retained Jurisdiction Over Administrative Appeal PDF Print E-mail
Wednesday, 31 July 2013 19:42

The Ohio Supreme Court recently ruled in favor of the taxpayer in Crown Communications, Inc. v. Testa, 2013-Ohio-3126, who we represented. The Tax Commissioner failed to provide proper instructions to the taxpayer as to how to appeal a final assessment. Rather than appealing to the Board of Tax Appeals, which is the normal appeal procedure for a final assessment, the taxpayer followed the Tax Commissioner’s instructions relating to a preliminary assessment and filed a petition for reassessment with the Tax Commissioner. Holding that the taxpayer had the option to treat the assessment as preliminary (and appeal to the Tax Commissioner) or final (and appeal to the Board of Tax Appeals), the Court agreed with the taxpayer that the Tax Commissioner retained jurisdiction over the taxpayer’s administrative appeal due to the Tax Commissioner’s statutory duty to provide correct instructions.

Last Updated on Wednesday, 31 July 2013 19:45
 
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Ohio State Tax Attorney, Steven A. Dimengo

Steve Dimengo is recognized as one of the leading tax attorneys in Ohio, where he has been serving clients for over twenty-five years. Full Profile. Cases. Email.

 

Ohio State Tax Attorney, Richard B. Fry III

Richard Fry is an Associate focusing on business law, specifically taxation. He holds a J.D. and Masters of Taxation from the University of Akron. Full Profile. Email.

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Steve will be speaking at the Lorman Sales and Use Tax in Ohio Seminar to be held in Akron on January 21, 2014.  He will be discussing Manufacturing Exemptions, Transfer of Business and Personal Liability for Sales tax.  Click here to see more (and register).

 

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