Ohio Sales and Use Tax: Recent Board of Tax Appeals Decisions Highlight the Importance of Fully and Effectively Challenging Tax Commissioner Determinations

Following up on our Sales and Use Tax Subcommittee Report, there are quite a few cases of note decided by the Ohio Board of Tax Appeals. An unfortunate overriding theme in these recent decisions is that each taxpayer lost due to one of the following:

  • insufficient evidence in support of appeal;
  • the decision was consistent with essentially identical prior BTA cases;
  • no authority for the relief sought (i.e., refunds filed beyond four year statute of limitations or interest abatement); or
  • no Tax Commissioner abuse of discretion (i.e., penalty abatement).

What does this mean? Either: 1) the taxpayer did not fully and correctly present its case during their initial proceedings before the Ohio Tax Commissioner or the subsequent appeal before the Board of Tax Appeals; or 2) the taxpayer’s appeal simply had no merit. We attempt to resolve controversies as soon as possible during the audit stage, as well as throughout any appeal, to minimize the expense thereof and screen inappropriate appeals so that your time and money is not wasted.

Our Sales and Use Tax Subcommittee Report also reflects legislation now requiring exemption certificates to support exemptions available for otherwise taxable employment services (i.e., essentially leased employees) when the personnel are:

  1. not under the direct control of the purchaser who is acting as a contractor / subcontractor;
  2. used to provide medical / health services;
  3. provided under a permanent assignment / one-year contract;
  4. provided within an affiliated group; or
  5. resold through another employment service agency.

Not providing the exemption certificate is a trap for the unwary, especially when it is clear the transaction is nontaxable, as would be the case for exemptions 1 – 4. Proposed legislation is anticipated to clarify that an exemption certificate is not required when the transaction is never taxable in such circumstances. Nonetheless, to be fully protected, providers of leased employees should always obtain an exemption certificate if they are not collecting tax.

Finally, although we have a new exemption with respect to “digital advertising” services, Ohio businesses must be careful if there is still a significant aspect of “electronic information services” being provided as a component of the service. This could include the ability to run reports electronically or otherwise manipulate analytics to gauge the effectiveness of the business’ online presence. The Department is taking the position that the whole transaction could still be taxable if the electronic information service portion of the service provides a significant benefit to the consumer. Appropriate planning needs to be in place to minimize such an occurrence.