Generally, taxable receipts for the Ohio commercial activity tax are sourced to where tangible personal property is “ultimately received” or the benefit of services are received. R.C. 5751.033. However, evidenced by guidance published by the Ohio Tax Commissioner, these locations are not always clearly discernable. O.A.C. § 5703-29-17 (sourcing services). Information Release 2005-17 (revised April 2006). For example, it is particularly difficult to determine the proper source of receipts from services provided to businesses with locations in multiple states which benefit from the service. The Ohio Tax Commissioner’s guidance allows taxpayers to elect between sourcing receipts from certain services to the recipient’s principle place of business or apportioning the receipts based upon the recipient’s business locations. Businesses with Ohio commercial activity tax obligations may benefit from a review of the commercial activity tax sourcing provisions and careful planning to take advantage of many recognized alternative sourcing rules. 

“Click-through nexus” laws generally attribute the presence of in-state representatives who refer sales to an out-of-state retailer, including via web links, in exchange for a commission for determining sales tax nexus. See e.g., New York Tax Law § 1101(b)(8)(vi). New York was the first state to enact such a “click-through nexus” or Amazon law. Predictably, Amazon.com and Overstock.com challenged the constitutionality of New York’s click-through nexus law. After making its way through the trial court and initial appellate court, the New York Court of Appeals (the state’s highest court) recently held that the statute did not violate the U.S. Constitution on its face.

The Court found that it was reasonable to impose sales tax collection burdens on out-of-state retailer, such as Amazon.com and Overstock.com, that have effectively established an in-state sales force through affiliate programs. Despite the affiliates’ primary activity being simply posting links to the retailers’ online marketplaces, evidence in the record supported active solicitation of New York residents by the affiliates to justify the presumption that such arrangements created nexus. “The bottom line is that if a vendor is paying New York residents to actively solicit business in this State, there is no reason why that vendor should not shoulder the appropriate tax burden.” Overstock.com, Inc. v. N.Y. State Dept. of Tax. and Fin., 2013 WL 1234823 (N.Y. Ct. of Apps., Mar. 28, 2013).

Additionally, the opinion specified that substantial nexus would not result if the New York resident was paid merely to post passive advertisements on their website, relying upon the Department of Taxation and Finance’s published guidance that the statute is only triggered if the compensation paid to the New York resident is tied to a completed sale. N.Y. St. Dept. of Tax. & Fin. Memorandum No. TSB-M-08(3)S (May 8, 2008).

Justice Robert Smith wrote an interesting dissent whereby he concludes that the statute is unconstitutional since, based upon its literal wording, it covers online (passive) advertisements linking to the advertiser’s website. This fight may not be over as Overstock.com has indicated that it will likely file an appeal to the U.S. Supreme Court.

On April 22, 2013, the U.S. Senate voted to take up the Marketplace Fairness Act of 2013 for debate and amendment. Notably, President Obama came out in support of the bill. While several hurdles remain, including passage by the Republican-controlled House of Representatives, this is step towards federal legislation permitting states to force remote sellers, i.e., online and catalog retailers, to collect sales tax even without an in-state physical presence. As currently drafted, retailers with less than $1 million of annual sales would be exempt from sales tax collection without a physical presence. 

Upon remand from the Ohio Supreme Court, the Board of Tax Appeals recently ruled in favor of a taxpayer’s valuation of its personal property using a different method than the statutorily prescribed “302 Computation.” The taxpayer presented a retrospective appraisal report prepared after the relative tax valuation dates. The BTA accepted the taxpayer’s valuation as probative evidence of the property value as of the relative tax lien dates, overruling the Tax Commissioner’s objections. Although the personal property tax has been repealed, this case provides helpful support for real estate valuations.

Steve represented the taxpayer, WCI Steel, Inc., in this case.

Ohio use tax amnesty ends May 1, 2013. Amnesty is a great opportunity to minimize past liability for a consumer’s untaxed purchases avoiding penalty, and in some cases, interest, while commencing prospective compliance. More details for the program can be found here. To qualify, the company cannot have received a prior use tax assessment. All applications must be post marked by May 1, 2013 to qualify for amnesty. Contact us for advice concerning your eligibility for amnesty or the extent of your liability.