August 13, 2007 - Gibbs Represents Ohio on National Sales Tax Task Force
COLUMBUS, Ohio - State Rep. Bob Gibbs is now representing Ohio on a national task force reviewing the impact of a shift to destination sourcing of the sales tax and developing solutions to mitigate the impact on businesses.
The outcome of the task force’s work could determine whether or not Ohio remains a part of the Streamlined Sales Tax Project, a multi-state effort to make it easier for businesses to comply with sales and use taxes on transactions across state lines. Ohio is currently the largest state participating in the Streamlined Sales Tax Project.
Rep. Gibbs, R-Lakeville, was recommended for the task force by the Ohio Department of Taxation.
“We are responding to the concerns we’ve heard from the small business community about the impact destination sourcing could have in Ohio,” Tax Commissioner Richard A. Levin said.
Through the Streamlined Sales and Use Tax Agreement, member states are making their laws more uniform in order to reduce the burden of collecting sales taxes for businesses. The multi-state agreement requires that by Jan. 1, retailers in member states must start collecting sales taxes based on the rate at the destination of a sale rather than at the origin of the sale.
In most cases, the origin and the destination for a transaction are one and the same – for example, when a consumer buys a pair of jeans at a department store and takes possession before walking out of the store (an “over the counter” sale).
But the requirement for destination sourcing would mean changes for vendors who engage in delivery sales, such as a furniture store that delivers to customers outside its home county. This poses a particular challenge in Ohio and other states where sales tax rates vary by locale.
“Senator Ron Amstutz and I have been working for several years for a solution to the sourcing issue,” Gibbs said. “This issue has been the most challenging and contentious issue for the success of the project.”
“Changing to destination sourcing puts additional compliance costs on many of Ohio’s businesses. I believe we simply can’t do that,” Gibbs said. “If we can solve this issue I am confident that the project will move forward and Ohio’s taxpayers and businesses will benefit from the multi-state effort. We have brought this issue to the forefront and if we do not have a satisfactory solution by October 1, Ohio will no longer be an active participant.”
Among the goals is a more level playing field for businesses that sell across state lines and more simplicity for consumers. Currently, businesses are required to collect sales taxes on interstate transactions when they have a physical presence in the destination state. Businesses without a physical presence are not. When out-of-state businesses don’t collect sales tax on transactions across state lines, the consumer is faced with a use tax liability.
In 2005, the Ohio General Assembly approved Senate Bill 26, legislation that would have complied with the multistate agreement by requiring all Ohio retailers who engage in delivery sales to begin calculating sales tax rates based on the destination by Jan. 1, 2008. Businesses with more than $30 million in annual delivery sales – as well as retailers with service or delivery licenses – already must do so.
But in June, the General Assembly approved a state budget bill that would exempt retailers with less than $500,000 in annual delivery sales in Ohio from the destination sourcing requirement.
In response, the Streamlined Sales Tax Governing Board created the task force on destination sourcing to develop a workable solution before the Governing Board’s next meeting in September.
“This issue is bigger than Ohio,” Levin said. “We sense some large states have avoided participating in the streamlined sales tax effort in part because of this sourcing issue. If we address this issue, we might be able to make this agreement attractive to other states.”
The destination sourcing exemption included in the state budget bill means 96 percent of Ohio companies with sales tax accounts would not be required to convert to destination sourcing.
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CONTACT: Mike McKinney, ODT Public Information Officer, at (614) 466-5461 or Emily Pettigrew, Legislative Aide to Rep. Gibbs, at (614) 466-2994.