Ohio Enacts New Economic Nexus Provisions and Marketplace Nexus Legislation

Effective Date: August 1, 2019 economic; September 1, 2019 Marketplace Facilitation

Threshold: $100,000 or 200 transactions

Measurement Date: Current or preceding calendar year

Includable Transactions: Retail* sales, including marketplace sales (*Clarification and update based on the 2021 SST Disclosed Practice 8 submitted by the state)

When You Need to Register Once You Exceed the Threshold: Marketplace facilitator: 1st of month following at least 30 days after meeting threshold; Remote sellers and marketplace sellers: the next day after meeting or exceeding the threshold

Ohio has enacted legislation that creates new requirements for certain remote sellers effective August 1, 2019 and marketplace facilitators must collect effective September 1, 2019. The new legislation requires that remote sellers and marketplace facilitators register and collect sales tax if the seller/facilitator:

• Has gross receipts in excess of $100,000 in the current or preceding calendar year from the sale of tangible personal property for storage, use, or consumption in Ohio or from providing services the benefit of which is realized in the state; or
• Engages, in the current or preceding calendar year in 200 or more separate transactions selling tangible personal property for storage, use, or consumption in Ohio or from providing services the benefit of which is realized in the state.

The new legislation amends the previous economic nexus standard of $500,000. The law also repeals Ohio’s provisions relating to software (cookie) nexus as well as click-through and affiliate nexus. There is no longer a presumption of nexus if referrals from a person in exchange for commission exceed $10,000.

The bill defines a “marketplace facilitator” as a person that owns, operates, or controls a physical or electronic marketplace through which retail sales are facilitated on behalf of one or more marketplace sellers, or an affiliate of such a person. A sale is considered facilitated by the marketplace if the marketplace facilitator engages in activities such as listing products, communicating offers, fulfilment or storage services, and customer service on behalf of sellers using the platform.

A marketplace facilitator must begin collecting and remitting sales tax on Ohio sales on the first day of the first month that begins at least thirty days after meeting one of the economic nexus thresholds. If a marketplace facilitator reached on of the thresholds in the prior year, the marketplace facilitator must begin collection by September 1, 2019 (one month after the effective date). The marketplace facilitator will file the September return and remit payment on or before October 23, 2019.

Ohio is an origin-based state for sales tax, but the new law will require marketplace facilitators to source their facilitated sales to the customer location (destination sourcing).

The legislation also creates an option for large remote sellers to request a waiver from the tax commissioner for a marketplace facilitator not to be treated as a seller in regards to that marketplace seller if the following conditions are met:

1. The marketplace seller certifies it has annual gross receipts within the United States, including the gross receipts of any affiliate, of at least one billion dollars;
2. The marketplace seller or its affiliate is publicly traded on at least one major stock exchange;
3. The marketplace seller is current on all taxes, fees, and charges administered by the department of taxation that are not subject to a bona fide dispute;
4. The marketplace seller has not, within the past twelve months, requested that a waiver related to the marketplace facilitator at issue be canceled nor has the waiver been revoked by the commissioner; and
5. The marketplace seller has not violated R.C. 5739.30(B) of the Ohio Revised Code.

A seller with both marketplace sales and non-marketplace sales such as through their website must include both types of sales toward their threshold calculation. If their total combined sales exceed the thresholds, they must register for a seller’s use tax account. However, the seller is only required to collect and remit tax on their taxable non-marketplace sales. (Amended Sub. H.B. 166, Laws 2019, Effective August 1, 2019; Ohio Tax Alert: Substantial Nexus and Marketplace Facilitator Changes, Ohio Department of Taxation)

UPDATE: Per the Ohio Department of Revenue website, here is how to calculate “gross receipts” for purposes of the economic nexus threshold: “R.C. 5741.01 utilizes gross receipts; however R.C. 5739.01(I) and R.C. 5739.01(B) defines “receipts” and “sales” to effectually be retail sales. Therefore, only those sales which are considered retail sales are included in the economic nexus threshold calculation. For example, only those enumerated services in R.C. 5739.01(B)(3) are utilized when determining the economic nexus threshold. Additionally, “retail sales” do not include “sales for resale”.”