ST 1999-04 - On-line Services and Internet Access -
January, 1999
This Information Release is intended to enunciate the
application of Ohio sales and use tax to the provision of
Internet Access. It is not being issued as a result of any
change in Ohio sales and use tax law nor does it reflect any
change in the application of the law by this Department.
Rather, it is being issued to review the existing state of
sales and use tax law in this area.
Section 5739.01(B)(3)(e) of the Ohio Revised Code provides:
"(B) 'Sale' and 'selling' include all of the following
transactions for a consideration in any manner, whether
absolutely or conditionally, whether for a price or rental,
in money or by exchange, and by any means whatsoever:
* * *
(3) All transactions by which:
* * *
(e) Automatic data processing, computer services, or
electronic
information services are or are to be provided for use in
business when the true object of the transaction is
the receipt by the consumer of automatic data processing,
computer services, or electronic information services
rather than the receipt of personal or professional
services to which automatic data processing, computer
services, or electronic information services are incidental
or supplemental. Notwithstanding any other provision of
this chapter, such transactions that occur between members
of an affiliated group are not sales. An affiliated group
means two or more persons related in such a way that one
person owns or controls the business operation of another
member of the group. In the case of corporations with
stock, one corporation owns or controls another if it owns
more than fifty per cent of the other corporation's common
stock with voting rights." (Emphasis added.)
Section 5739.01(Y)(1)(c) of the Revised Code provides:
"'Electronic information services' means providing access
to computer equipment by means of telecommunications
equipment for the purpose of either of the following:
(i) Examining or acquiring data stored in or accessible to
the computer equipment;
(ii) Placing data into the computer equipment to be
retrieved by designated recipients with access to the
computer equipment."
Internet Access Providers (IAPs) provide customers with
access, by use of telecommunications equipment, to their
computer equipment in order to be connected to the Internet.
On-line Service Providers (OSPs) provide Internet access as
well as access to certain proprietary services provided by
the OSP. In each case, the IAPs and OSPs grant customers
access to computer equipment, by means of telecommunications
equipment, so the customers can examine or acquire (download)
information that is either stored in the provider's computer
equipment or made available through the provider's computer
equipment from the Internet. Therefore, to the extent that an
IAP or OSP is providing its service to a consumer
for the consumer's
use in business, the IAP or OSP is providing an
electronic information service that is subject to Ohio sales
and use tax.
Ohio-based providers of electronic information services
should be licensed as service vendors. Out-of-state providers
should obtain a seller's use tax account. Applications for
service vendor's licenses, seller's use tax accounts and
consumer's use tax accounts are available from the Department
of Taxation, Sales and Use Tax Division or any district
office of the Department of Taxation.
Pursuant to section 5739.033(F) of the Revised Code, an
electronic information service sale, " . . . is conclusively
determined to be consummated at the location of the consumer
where the service is performed or received." The tax rate
that should be charged is the rate in effect in the county
where the consumer is located and where the service is
received. Generally, the address of the consumer adequately
establishes the location where the service is received.
It can be difficult for an IAP or OSP to determine whether a
particular customer intends to use the electronic information
service for business purposes or personal purposes. IAPs and
OSPs should ask customers whether the service is being
purchased for business use or personal use at the time the
customer signs up for the service. Unless it is unreasonable
on its face, the service provider may rely on the
representation of the consumer in determining whether the
account is taxable or exempt.
Pursuant to section 5739.071(A) of the Revised Code,
providers of electronic information services may seek a
refund of twenty-five percent of any Ohio sales or use tax
paid to a vendor for purchases of:
" . . . computers, computer peripherals, software,
telecommunications equipment and similar tangible personal
property, primarily used to acquire, process or store
information for use by business customers or to transmit or
disseminate such information to such customers, the
services of installing or repairing such property, and
agreements to repair and maintain such property."
Pursuant to section 5739.071(B) of the Revised Code, if the
electronic information service provider is the holder of a
direct payment permit, tax may be accrued and paid on
seventy-five percent of the price of qualified equipment or
services. In the case where a provider of electronic
information service has purchased tangible personal property
which qualifies for the twenty-five percent refund in section
5739.071 of the Revised Code and no Ohio tax was collected by
the vendor, the provider should accrue and pay use tax on
seventy-five percent of the purchase price of the tangible
personal property on a consumer's use tax account.
Federal legislation known as the Internet Tax Freedom Act,
effective October 21, 1998 imposed a three-year moratorium on
State and local taxes on Internet access and on-line
services. Specifically excluded from the moratorium are taxes
that were in effect prior to the effective date of the
Federal statute and generally enforced. Ohio's inclusion of
electronic information services in the definition of a sale
was enacted in 1993, and the same services would have been
considered automatic data processing under the law that
existed prior to that date. The application of sales and use
taxes to these services has been generally enforced.
Therefore, Ohio's tax on Internet access and on-line services
is not subject to the Federal moratorium.
If you have any questions regarding this matter, you should
call us at 1-888-405-4039.
OHIO RELAY SERVICES FOR
THE HEARING OR SPEECH IMPAIRED
Phone: 1-800-750-0750