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Streamlined Sales Tax: Will Ohio Go For $20 Million Carrot?

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Earlier of this year, Ohio released its new fiscal budget outlining various changes to the state’s taxes including an expansion of the sales tax base to include more services and a 0.5% decrease to the state tax rate.  In an earlier blog post, I talked briefly with you about these proposed changes, and expressed some trepidation about how un-simple service based taxation could be in a Streamlined environment.

What I failed to mention in that post is that Ohio has been an Associate Member to the SST since the state petitioned for membership due to the destination based sourcing requirement contained within the Agreement (OH is one of a handful of states that still allows vendors to collect tax on transactions at the vendors location rather than its destination address).  A lot of us out there that monitor SST thought that when the Agreement was modified in 2012 to allow for origin based sourcing, that OH would almost immediately petition for Full Membership but then the time began to tick by… and it kept on ticking until late July.

After putting a number to the amount of lost revenue the state misses out on each year ($20 million) by not completing the process to become a Full Member, Ohio Governor John Kasich issued an executive order to the Ohio State Tax Commission requiring it to take all necessary steps to bring the state to Full Membership status with SST.

The other important note here that you should be able to see between the lines is Marketplace Fairness Act.  Gov. Kasich’s order to the OTC does a couple of things for the state; one with a more immediate new revenue stream and one with more long-term benefit ensuring the state is able to act should remote collection authority be granted.

First, by becoming a Full Member state, all current and prospective SST registrants must begin collecting the state’s sales and use tax if they are not already doing so.  Due to Ohio’s Associate Member status, Streamlined registrants can currently opt to not collect Ohio’s tax.  That’s the $20 million that Kasich’s numbers refer to…  all those SST sellers that are collecting in every SST state except OH and TN.  So, that’s a nice little windfall left on the table and a quick grab by Ohio is way overdue.

Second to this though, and perhaps equally as important to Ohio, is that under Marketplace Fairness Act, should it pass, Ohio might not be granted remote seller collection authority as it is not in full compliance with the SST.  Not a bad carrot dangling either, don’t you think?  First get $20 million and then maybe get a lot more??  I think that I would file that paperwork with SST right quickly if I were Ohio!

But let’s not hold our breath yet though folks.  Should Ohio be granted this change in status as we still have a much more steep hill to climb (I am looking at you Tennessee)!  Maybe more on those issues next time.

Author update 9/13/2013:  Ohio has officially petitioned SST Governing Board for Full Membership status.  For more information, please see my new post:  Very Tasty Carrot Indeed: Ohio SST Membership Nod.

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