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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Ohio Governor Vetoes Click-Through Nexus PDF Print E-mail
Tuesday, 02 July 2013 12:32

Although included in the version passed by the Ohio General Assembly, Governor Kasich vetoed click-through nexus provisions from Ohio's Budget Bill signed Sunday night. Similar laws have been enacted in several other states presuming sales/use tax nexus to exist if a company enters into agreements with instate "affiliates" or representatives to refer sales, including via weblinks, in exchange for a commission - aimed at programs made popular by online retailers, such as Amazon and Overstock. Kasich stated that such laws "enacted in other states have resutled in extensive litigation without necessarily producing an increase in state revenue... Without the collection authority being clearly extended to the states for the purpose of out-of-state internet retailers, the legality of this item is uncertain and problematice. Congress must act before this policy change may become viable." See Statement of Reases for the Veto of Items in Amended Substitute House Bill 59, at p. 6 (June 30, 2013).

This reflects the Ohio executive branch's belief that it does not have the authority to impute nexus in the absence of such legislation (state or federal). This is contrary to revenue deparments in other states which have administratively imposed click-through nexus without a specific statute. See e.g., Pennsylvania Dep't of Revenue Sales and Use Tax Bulletin 2011-01 (Dec. 1, 2011). Governor Kasich's action is consistent with his administration's business friendly tax policy

Last Updated on Tuesday, 02 July 2013 14:34
 
Republican Leaders Agree on Ohio Tax Plan PDF Print E-mail
Friday, 21 June 2013 14:27

With both the House and Senate controlled by Republicans, significant changes to Ohio’s tax landscape were certain to occur after Gov. Kasich unveiled his proposed budget for the upcoming biennium beginning July 1, 2013. After yesterday’s announcement that Republican legislatures have reached an agreement, the specifics of those changes are becoming more clear, reflecting a shift towards a consumption-based tax structure. While not as drastic as first proposed by the Governor, here are some of the highlights:

  • 10% reduction in Ohio’s personal income tax to be phased-in over three years;
  • Increase state sales tax rate from 5.5% to 5.75%;
  • Expand sales tax to cover digital goods, such as book and music downloads;
  • Small-business tax break allowing owners of pass-through entities to deduct 50% of the first $250,000 of business income;
  • Commercial activity tax rate (above the $150 minimum tax) will apply to gross receipts above $500,000 (reduced from $1 million);
  • Eliminate 12.5% property tax rollback for future levies; and
  • Eliminate homestead exemption for seniors earning more than $30,000 of income.

Focused on creating Ohio jobs, these changes continue Gov. Kasich’s emphasis on reviving Ohio’s economy by creating a more business friendly climate through tax cuts for Ohio residents and small businesses. It is estimated that Ohioians will save $2.6 billion in taxes under the new budget. The Budget Bill must be passed by the legislature and signed by the Governor before July 1, 2013.

We will have more details about the specifics of these changes and how they will affect Ohio taxpayers in the coming weeks.

 
Northeast Ohio State and Local Tax Conference PDF Print E-mail
Monday, 17 June 2013 17:20

Steve and Rich will be participating in the inaugural Northeast Ohio State & Local Tax Conference on July 25, 2013 in Independence, Ohio. The Conference, presented by The University of Akron's George W. Daverio School of Accountancy and The Ohio Society of CPAs, will be beneficial for a wide variety of professionals, including CPAs, tax attorneys and business owners / executives. The Conference will address Ohio and multistate tax issues, trends and planning techniques, including updates from Ohio’s most recent budget bill to be effective July 1, 2013. 

Steve will present on Ohio sales tax trends, developments and planning opportunities. Rich and Team NEO’s Stephanie Mercado will discuss the benefits of Ohio’s tax incentives and economic development tools. 

Additionally, keynote speaker Joseph Testa, Ohio Tax Commissioner, will give an overview of Ohio’s tax landscape and Margaret Brewer, executive director, Ohio Department of Taxation, will present a thorough review of Ohio tax procedure. Other speakers include: Ray Turk (Price Waterhouse Coopers); Amy Arrighi (Regional Income Tax Authority); William Nolan (Ernst & Young); David Perry (KPMG, LLP) and John Slagter (Buckingham, Doolittle & Burroughs, LLP). 

Click here for more information regarding the conference, including how to register.

Last Updated on Wednesday, 26 June 2013 15:18
 
Ohio Sales/Use Tax: Exempt Purchases of Property Incorporated into Real Property PDF Print E-mail
Friday, 07 June 2013 12:05

Generally, a contractor’s purchase of tangible personal property to be incorporated into real property is taxable. However, a contractor’s material purchases are not taxable when incorporated into:

  • Real property under a contract with, or that is accepted for ownership by, the United States (including its agencies) or the state of Ohio or a political subdivision thereof;
  • A horticulture or livestock structure for a person engaged in the business of horticulture or producing livestock;
  • A house of public worship or religious education;
  • A building used exclusively for charitable purposes by a charitable organization;
  • A building under a contract with a 501(c)(3) tax-exempt organization, when the building is used exclusively for the organization’s exempt purpose;
  • The original construction of a sport facility under R.C. 307.696;
  • A convention center qualifying for the real property tax exemption under R.C. 5709.084; or
  • Real property located outside Ohio, if the destination state would also exempt the contractor’s purchase of such materials.

These exemptions should be supported by the contractor's receipt of an exemption certificate. The contractor should obtain a "Sales and Use Tax Construction Contract Exemption Certificate" (Form STEC CC) from the customer / property owner. Then, the contractor should provide "Sales and Use Tax Contractor's Exemption" certificates (Form STEC CO) to its suppliers. O.A.C. § 5703-9-14(I). Even if the contract is exempt, the contractor is still liable for taxes on property not incorporated into real property improvements, such as tools, equipment and consumables.

Last Updated on Friday, 07 June 2013 12:09
 
Ohio Commercial Activity Tax Sourcing Rules Provide Planning Opportunities PDF Print E-mail
Wednesday, 15 May 2013 17:14

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. 

 
Multistate Taxation: New York's Highest Court Upholds Click-Through Nexus Law Amid Facial Constitutional Challenge PDF Print E-mail
Tuesday, 30 April 2013 13:12

“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.

Last Updated on Tuesday, 30 April 2013 13:18
 
Multistate Taxation: Marketplace Fairness Act Gaining Momentum PDF Print E-mail
Tuesday, 23 April 2013 13:29

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. 

 
Ohio Board of Tax Appeals Accepts Taxpayer's Retroactive Valuation of Personal Property PDF Print E-mail
Friday, 29 March 2013 14:53

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.

Last Updated on Friday, 29 March 2013 14:54
 
Last Chance: Ohio Consumer Use Tax Amnesty PDF Print E-mail
Tuesday, 05 March 2013 15:38

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.

Last Updated on Tuesday, 05 March 2013 15:52
 
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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.

News

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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