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An Ohio automobile manufacturer’s business activities qualified for the direct marketing exemption and were, therefore, exempt from sales and use tax on items used in the storing, handling, transporting, and mailing of inventory. The manufacturer’s activities qualified as direct marketing because its customers fell within the statutory definition of “consumer” which does not exclude persons who purchase items for resale. It should be noted, however, that the manufacturer’s customer service department used certain items that were deemed taxable because it could be proven that they were used in storing, transporting, mailing, or handling inventory. (Freudenberg NOK General Partnership v. Wilkins, Ohio Board of Tax Appeals, No. 2006-K-1556, April 13, 2010)


In December 2009, a release was issued by Ohio, an SST associate member state, announcing that the state had changed its laws to benefit from a Streamlined Sales Tax (SST) Agreement amendment that retains origin sourcing for most sales. However, the release stated that leases of tangible personal property generally must be sourced on a destination basis.

On February 17, 2010 Tim Maloney, Canton Chair Rental, submitted a request for an interpretation by the Compliance Review and Interpretations Committee (CRIC) as to whether rentals of tangible personal property that do not involve recurring periodic payments can be sourced on an origin basis under the SST Agreement. Canton Chair Rental Company rents tables, chairs and other party-related items to individuals, families and companies in various Ohio counties for a fee on a short-term, non-recurring basis, and not of duration of more than thirty days. Maloney asked the CRIC to rule that, under the Agreement, a lease or rental that does not require recurring periodic payments must be treated the same as a retail sale of tangible personal and, therefore, be sourced on an origin basis.

By a unanimous vote on March 11, 2010, the CRIC submitted to the Governing Board a recommendation that the interpretation proposed not be accepted. The CRIC stated that Article IX, Rule 902 of the Rules and Procedures adopted by the Streamlined Sales Tax Governing Board provides “A member state may source retail sales, excluding lease or rental, of tangible personal property…” and “any transfer of possession or control of tangible personal property for a fixed or indeterminate term for consideration.” Therefore, the transaction highlighted in Tim Maloney’s interpretation request clearly fit within the definition of “lease or rental”. Furthermore, the CRIC indicated Subsection 310B.2 “for a lease or rental that does not require recurring periodic payments, the payment is sourced the same as a retail sale in accordance with the provisions of subsection 310A” as a reason for denying the proposed interpretation. Additional regulations apply. (Conference Call, Compliance Review and Interpretations Committee, February 25, 2010; Interpretative Opinion 2010-02, Compliance Review and Interpretation Committee, March 11, 2010)


The Ohio Department of Taxation explains the changes made to the way sales of tangible personal property and taxable services are sourced in an information release. Beginning January 1, 2010, vendors that previously switched to destination sourcing for delivery sales will now be required to source their sales to the location where the order is received rather than the delivery location. Remote sales, including mail order, telephone or online sales, by Ohio vendors to Ohio customers will also be sourced to the location where the order is received. Out-of-state vendors making sales to Ohio customers should source their sales to the location where the consumer receives the tangible personal property that was sold. The sale of taxable services should be sourced to the location where the consumer receives the service regardless if the service provider is located in or outside Ohio. No changes were made to the sourcing of lease transactions or direct pay permit holders.

Vendors that previously converted to destination sourcing and received compensation for making the change may be eligible for compensation for converting back to origin sourcing. Although the effective date for these changes is January 1, 2010, the Department of Taxation will not impose penalties on vendors that are required to change their method of sourcing, as long as these changes are made by April 1, 2010. Also, effective January 1, 2010, consumers that purchase tangible personal property and remit Ohio sales tax to the seller at either the rate applicable where the order was received or where the consumer received the tangible personal property, will not be liable for any additional Ohio sales or use tax on that transaction. (Sales and Use Tax: Information Release ST 2009-03, Ohio Department of Taxation, December 2009)


The Ohio Department of Taxation has adopted a regulation on the tax treatment of negative equity in a vehicle sales transaction. "Negative equity" is a term applied when a motor vehicle purchaser is trading in a vehicle with a current value that is less than the amount owed on the existing loan for that vehicle. For example, a customer trades in a motor vehicle to a dealer in connection with the purchase of another vehicle. The dealer allows a $4,000 trade-in credit towards the purchase of the second vehicle, but the customer still owes $7,000 on the existing loan. The negative equity amount is $3,000.

The manner in which the trade-in allowance, negative equity, or loan payoff amount is displayed on the retail buyer's agreement determines if it is part of the total vehicle price paid for the newly-acquired vehicle and subject to sales tax. If the negative equity amount is included by the dealer in the total vehicle price, it will be included in the base on which sales tax must be charged. If it is not included in the total vehicle price, the negative equity amount will not be included in the calculation of sales tax. In order to exclude the negative equity from the tax base, it may be shown as an additional amount due to a third party (perhaps financed) after the computation of the total vehicle price. The regulation also provides examples of the application of Ohio sales and use tax to sales of motor vehicles when the purchaser is trading in a vehicle with negative equity. (OAC 5703-9-36, Ohio Department of Taxation, effective October 25, 2009)


Legislation intended to standardize Ohio sales and use tax law to the Streamlined Sales and Use Tax (SST) Agreement origin sourcing provisions has been signed by Governor Ted Strickland. The SST Governing Board adopted the origin sourcing legislation at its December 2007 meeting; thereby, making all vendors use origin sourcing for all intrastate sales beginning January 1, 2010.
The sourcing amendments included in Ohio legislation, H.B. 429, Laws 2008, adopt destination-based sourcing for interstate sales and, effective January 1, 2010, adopt uniform origin sourcing for intrastate sales. Vendors using origin sourcing must formulate a record-keeping method that records the location where the order is received for calculating sales tax. Furthermore, an order is received at the location where a vendor initially receives all information necessary to determine whether the order can be accepted, and not where the order may be subsequently accepted and/or completed, effective January 1, 2010. On or after July 1, 2009, vendors who are required to convert from destination sourcing to origin sourcing for intrastate sales are allowed a one-time payment to assist in complying with the origin sourcing requirements. The bill applies additional sourcing amendments, such as eliminating, effective January 1, 2010, provisions allowing sellers with less than $500,000 of delivery sales within Ohio to collect the use tax at a rate equal to the sum of the state sales tax and lowest piggyback” tax. In addition, the bill amends tax liabilities for both delivery charges and consumer protection. Ohio will continue to be an associate member of the SST Agreement until July 1, 2009. In order to maintain its membership, Ohio must reapply for membership in the Agreement under the new Agreement criteria. If Ohio is approved, it would be an associate member until full membership is triggered – once five state meet the requirements for sourcing sales on an origin basis under the new amendments, but no sooner than January 1, 2010. (H.B. 429, Laws 2008)



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