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 Sales Tax Applies to Full Value of "Deal of the Day" Vouchers PDF Print E-mail
Tuesday, 25 February 2014 00:00

The popularity of “Deal of the Day” websites, such as Groupon and LivingSocial, has created an interesting issue as to the correct sales tax base when redeeming vouchers purchased from such websites, as illustrated in a previous post. When someone buys a $100 “gift card” for $50, is the sales tax base upon redemption $50 (what the customer actually paid) or $100 (the voucher’s value)? Unfortunately, the states do not treat such “Deal of the Day” vouchers uniformly. 

The Streamline Sales and Use Tax Agreement’s “best practice” is to apply the difference between the value of the voucher and amount actually paid for the voucher as a discount, thereby reducing the sales price upon which tax must be charged. See Streamline Sales and Use Tax Agreement (amended through Oct. 30, 2013), at Appendix E. So, in the above example, the customer would pay sales tax on $50 when redeeming the voucher / gift card. However, the Ohio Department of Taxation has not accepted this position and will continue to apply sales tax to the full amount of the voucher, regardless of the amount actually paid by the customer. See Ohio Streamline Sales Tax Best Practices Matrix (submitted Dec. 30, 2013). The better approach, in our opinion, is that adopted by Streamline Sales and Use Tax Agreement, which only taxes the amounts actually paid for the voucher. Ohio’s position ignores the substance of the transaction by inflating the sales tax base to include amounts never paid by the consumer, or anyone for that matter. See also, R.C. 5739.01(H) (“price” defined as the “total amount of  consideration” for  the property or services provided, and does not include discounts for which the vendor is not reimbursed). 

Businesses selling “Deal of the Day” vouchers can reduce the Ohio sales tax base for such vouchers by structuring them as a coupon rather than a gift card. This could be particularly important for restaurants selling such vouchers, who continue to receive increased scrutiny for Ohio sales tax.

 
Small Business Owners Receive 50% Deduction for Ohio Personal Income Tax PDF Print E-mail
Tuesday, 18 February 2014 00:00

Last year’s budget bill added a 50% deduction for Ohio personal income tax for small business owners up to $125,000. R.C. 5747.01(A)(31). This broad deduction applies to business income created by nearly all Ohio small businesses, regardless of form, including S corporations, limited liability companies, partnerships, and sole proprietorships. All small business owners (Ohio residents, part-time residents, and non-residents) are entitled to the deduction, as long as they have business income sourced to Ohio. Further, the full deduction may be claimed by multiple owners of the same qualifying business, although limited to $125,000 per taxpayer even if he/she owns multiple small businesses. 

The Tax Commissioner’s recent Alert to All Ohio Small Businesses provides further details on this deduction, which is claimed on Part I.D. of Form IT SBD.

 
Ohio State Bar Association Taxation Committee Sales and Use Tax Subcommittee Report PDF Print E-mail
Monday, 03 February 2014 00:00

As chair of the Ohio State Tax Bar Association Sales/Use Tax Subcommittee, here is a link to the report Steve submitted at the January 16, 2014 Taxation Committee meeting.  Of particular interest is the Board's decision in Refuse Transfer Systems, Inc. concerning the highway transportation for hire exemption.  A tipper did not quality for exemption since it was not involved in the transfer of waste to the landfill destination.  However, it did transport the waste at the site. 

Last Updated on Tuesday, 27 May 2014 19:19
 
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
 
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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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