U.S. Supreme Court overturns outdated sales-tax rule

Ohio should take steps so on-line merchants collect taxes that are due

In a long overdue and long-awaited decision (South Dakota v. Wayfair), the U.S. Supreme Court today reversed obsolete precedents from 1967 and 1992 and empowered states to require online, catalog, and other remote retailers to collect sales tax on their sales to their residents even if the seller does not have employees or facilities in the state. This should allow Ohio and other states to require collection of sales tax that has always been due, but has often gone uncollected because the state could only collect it from the purchaser. The Government Accountability Office estimated in a recent report that Ohio could potentially gain between $288 million and $456 million a year if all remote sellers were required to collect the tax. The decision also levels the playing field for brick-and-mortar retailers who have been at a pricing disadvantage because they were required to charge sales tax while their online competitors weren’t.

Ohio appears to be in a position to collect the newly-authorized taxes without having to make a major overhaul of its sales-tax system. Under Ohio law, the state is able to collect the tax on anything that is allowable under the federal constitution, so now that the U.S. Supreme Court has permitted it, current Ohio law should suffice. Moreover, like South Dakota, Ohio is a full member of the Streamlined Sales Tax Project (SST), which has worked for years to harmonize state sales taxes to allow for easier collection. That group has set up an online system allowing any company to simultaneously register with all the participating states through a single portal. The SST states also have committed to paying the cost of the compliance software for retailers that are not physically present in each state.

As a result, Ohio is well-positioned to collect the tax that has always been due, but that until now was not required to be collected by remote retailers lacking a physical presence in Ohio. The General Assembly should approve a threshold similar to the one in South Dakota, which exempts sellers with less than 200 sales into the state and or less than $100,000 in total sales into the state. In addition, legislation should be approved that removes any requirement for collection of back taxes that might be due because of the court’s ruling. Justice Anthony Kennedy cited these two elements of the South Dakota law, along with the state’s participation in the Streamlined Sales and Use Tax Agreement, for providing protection to small merchants. Ohio should defer enforcement until January 2019 to allow companies to implement the software and come into compliance.

Ohio should move to take the remaining steps necessary so that tax already owed is collected.