After Uber Tiff, Ohio Casting Broader E-Commerce Tax Net

Ohio politicians—stung by an Uber tax dispute—are considering expanding the state’s sales tax and making it retroactive.

Other e-commerce companies warn those moves could bring lawsuits and congressional scrutiny at a time Ohio and dozens of other states are pushing to extend sales tax to online marketplaces and other sectors of e-commerce.”

Internet platform companies and advocates said the proposal would potentially require collection and remittance from car-sharing platforms like Turo, home-sharing platforms like Airbnb Inc., and home-repair platforms like Thumbtack—all groups that currently don’t remit sales tax in the state. Some may consider suing over the changes.

The proposal follows a $1.6 million sales tax tiff between Uber Technologies Inc. and the Ohio Department of Taxation, first reported by Zach Schiller, research director for liberal think tank Policy Matters Ohio. The ride-sharing company is arguing it only provides an app, not actual transportation services, so it doesn’t need to remit taxes as a vendor or co-vendor.

That dispute has been put on ice so that the department can later consolidate the case with two other appeals it expects from Uber subsidiaries. But in what could be an effort to get an upper hand in those cases, the Ohio House and Senate have proposed tax code tweaks—being hashed out in a budget bill conference committee—that could rope in other taxpayers who say the moves go too far.

House and Senate Proposals

The Ohio House passed a budget bill that would clarify that “transportation network companies” like Uber and Lyft Inc. are required to collect and remit the state’s 5.75% sales tax. The Senate took that ball and ran with it, passing what critics call a “sea change” in the definition of a vendor that must remit sales tax, and then a provision allowing the state to seek uncollected sales tax retroactively.

The Senate bill would create a new class of vendor called a “technology platform,” defined as an operator of “any technology platform that connects a consumer with another person who is providing a service” that is subject to the state’s sales tax. The definition includes, but isn’t limited to “a transportation network company or a peer-to-peer car sharing program.”

Department spokesperson Gary Gudmundson said in an email that the language doesn’t change the definition of vendor, but instead clarifies the issue as it already exists under state law.

“The language does clarify that transportation network companies (those companies providing intrastate transportation to Ohioans) and peer-to-peer car sharing companies (those companies connecting Ohioans with owners of Ohio cars) continue to be subject to Ohio’s sales tax just as any taxi or car rental company would be,” he said. “Any vendor that effectuates a sale of tangible personal property or certain services in Ohio is subject to the sales tax.”

Steve DelBianco, president and CEO of NetChoice, an e-commerce trade association, said the Senate proposal would almost certainly bring lawsuits from internet platforms, as well as possible congressional scrutiny over the issue of retroactivity. States have generally steered clear from retroactivity following the U.S. Supreme Court’s South Dakota v. Wayfair decision, which dozens of states have used as the foundation to expand sales tax on out-of-state retailers—a move Ohio is also considering in the Senate budget bill.

“Retroactive taxes will raise due process and undue burden questions, and would invite a lawsuit based on the Wayfair opinion, which said ‘the South Dakota law at issue in Wayfair ensures that no obligation to remit the sales tax may be applied retroactively,’” DelBianco said. “If Ohio starts pursuing businesses around the country for retroactive taxes, the House Judiciary Committee will then have the evidence they’ve been seeking to justify legislation protecting interstate commerce from overly aggressive state tax collectors.”

Turo Sharpens Its Horns

Peer-to-peer car-sharing marketplace Turo saw the Senate language and approached the department with an offer—the company would agree to pay state sales tax retrospectively if the state ditched the technology platform language.

Michelle Peacock, company vice president and head of government relations, said the state rejected the offer.

“Ohio has dug in on attacking this space, and is now pushing this legislation out to platforms that offer to connect people online,” she said. “We don’t want litigation, but at the same time that may be on the table.”

Part of the company’s concern is the ambiguity in how it and similar businesses would be classified. The House and Senate bills also include marketplace facilitator language, which would require online marketplaces to collect and remit sales tax on behalf of vendors. That raises the issue of potential double taxation, Peacock said.

Ohio has had a broad-based tax on transportation services since 2003, and that tax should be applied retroactively, but the Senate bill would create new questions as to which companies would be considered vendors, said Fred Nicely, senior tax counsel for the Council On State Taxation.

“I think that’s really causing a huge ambiguity there,” he said. “This is definitely a change in the law, and this type of change should be imposed prospectively not retroactively.”

The budget bill is still being discussed, John Fortney, Ohio Senate Majority Caucus spokesperson, said in an email. He also said that the retroactivity change isn’t mandatory, so the department would have discretion.

“Third party web based companies connecting one person willing to rent a car or truck to another person, are doing business within the state of Ohio, and as with any other business would be subject to a sales tax for the transaction,” Fortney said.

Uber didn’t immediately reply to a request for comment.