Expanded Nexus Obligations in Ohio Effective January 1, 2018

July 28, 2017 Charles Maniace

Online sellers should take immediate notice. House Bill 49 has been passed by the Ohio legislature, signed by the governor, and is set to take effect on January 1, 2018. Hidden within its depths, the language of the bill creates a rule that imposes a tax collection and remittance obligation (nexus) on sellers who use software or internet cookies to place temporary or permanent files on in-state computers or creates or uses in-state content distribution networks.

 According to the bill, a “substantial nexus” with Ohio is presumed to exist when an internet seller uses in-state software to sell property or services to Ohio customers or if the seller provides or enters into an agreement to provide an in-state content distribution network that facilitates the availability of their website. In either case, the internet seller must also have gross receipts exceeding $500,000 in the current or preceding year.

 Cookies and other computer software which leave temporary or permanent files on machines in Ohio are considered “in-state software” under House Bill 49. A “content delivery network” is a system that curates the users web content based on their geographic location, essentially showing only restaurants or stores located near the user.

There is a strong likelihood this tax bill will be challenged. Just a few weeks ago, a DOR directive creating a similar rule was enacted in Massachusetts. The rule was challenged and was pulled by the DOR just hours before it was slated to become effective. Ohio has a history of defending its tax statutes, often defending them all the way to the Ohio Supreme Court.

Even if House Bill 49 is challenged, it is likely states will continue to try to find new ways to tax internet sellers doing virtual business in their state. When that happens, Sovos will keep you posted via this forum!

About the Author

Charles Maniace

Charles Maniace is the Director of Regulatory Analysis at Sovos. An attorney by trade, Chuck leads a team of attorneys and tax professionals responsible for all the tax and regulatory content that keeps Sovos clients continually complaint. Over his 15 year career in tax and regulatory automation, he has given talks and presentations on a variety of topics including The Taxation of High Tech Transactions, The Taxation of Remote Commerce, The Regulatory Implications of Brexit, The Rise of E-Audits, Form 1042-S Best Practices and Penalty Abatement Practices for Information Returns. Chuck is a member of the Massachusetts Bar and holds a BS in Business Economics from Bentley College, a JD from Boston University School of Law, and an LL.M in Taxation from Boston University School of Law.

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