A major representative of interstate retailers is dropping its challenge against an Ohio law that could force some of its out-of-state members to collect and remit the state’s sales tax.
At least for now.
The American Catalog Mailers Association (ACMA) voluntarily withdrew its complaint against the Ohio Department of Taxation Dec. 18. Association president and executive director Hamilton Davison told Bloomberg Tax in a Dec. 19 email that the retailers are going to “wait and see” whether the state moves to expand its taxing authority. At issue are what constitutes physical presence in a state and companies’ "exonomic nexus” with a state, which refers to how much of an economic presence they have through sales in the state directly and indirectly.
“The Ohio Department of Taxation has, to date, shown laudable restraint in not seeking to enforce economic or virtual nexus theories against remote sellers, before the Ohio legislature has the opportunity to address Ohio’s sales tax requirements in the wake of the U.S. Supreme Court’s decision in South Dakota v. Wayfair,” Davison said.
ACMA’s suit challenged a rule created in the state’s 2018-19 biennial budget bill. The rule broadens Ohio’s statutory definition of “substantial nexus,” extending use tax collection requirements to companies selling $500,000 in Ohio and who place “in-state software” on Ohio computers and phones or have servers located in Ohio.
The catalog association described the new tax rule as a “cookie nexus,” named after the cookies websites often place on a computer user’s internet browser while shopping online.
‘Cookie’ Suit Back in the Box
The 2017 ACMA suit claimed Ohio’s law didn’t pass constitutional muster under Quill Corp. v. North Dakota, a 1992 U.S. Supreme Court decision that prohibited states from imposing sales and use tax collection obligations on vendors without a physical presence in-state. However, the U.S. Supreme Court’s June ruling in South Dakota v. Wayfair indicated that states could satisfy the U.S. Constitution with economic nexus provisions based on the amount of business done in the state without any physical presence.
So far Ohio hasn’t expanded its taxing authority post Wayfair, while surrounding states such as Michigan, Indiana, and Kentucky have. Those states generally require out-of-state sellers to collect and remit sales tax if a seller has at least 200 transactions or $100,000 of in-state sales, but Ohio hasn’t jumped on the wagon.
The ACMA dismissed its suit “without prejudice,” meaning that it can be refiled “should Ohio’s sales tax enforcement prove inconsistent with the principles the Court announced in Wayfair,” Davison said. He added that even though the suit is off for now, the ACMA “will remain diligent in defending its membership against overreaching state tax laws.”
The Ohio Department of Taxation declined to comment.
The case is Am. Catalog Mailers Ass’n v. Testa, Franklin Cty., Ohio Ct. Com. Pl., No. 17-CV-11440, voluntary dismissal 12/18/18.