ST 2003-05 - Sales and Use Tax Law Changes (Am. Sub. H.B.
95) - July 2, 2003
Am. Sub. H.B. 95 contains a number of changes to Ohio’s sales
and use tax statutes. Some of these changes are intended to
bring Ohio statutes into compliance with the terms of the
Streamlined Sales and Use Tax Agreement. Information on the
Streamlined Agreement can be found at www.streamlinedsalestax.org.
Other changes involve new or revised exemptions from the
sales and use tax. The purpose of this release is to identify
and provide information on some of these revised exemptions.
The changes to the exemptions covered by this information
release are effective July 1, 2003, except for the change to
the definition of "food" that is effective July 1, 2004.
Streamlined changes
The Streamlined Sales and Use Tax Agreement requires states
that participate to employ certain uniform definitions in
their laws. One of these uniform definitions is for the term
"retail sale." This definition includes all sales in the
sales tax base except sales for resale. Prior Ohio law
included a number of exceptions from the definition of a
"retail sale" in R.C. 5739.01(E). Effective July 1, 2003, the
definition of a "retail sale" in R.C. 5739.01(E) will read as
follows:
"Retail sale" and "sales at retail" include all sales,
except those in which the purpose of the consumer is to
resell the thing transferred or benefit of the service
provided, by a person engaging in business, in the form
in which the same is, or is to be, received by the
person.
Excluding R.C. 5739.01(E)(4), the exceptions formerly found
in R.C. 5739.01(E)(2) through (15) have been moved and
re-enacted as exemptions under R.C. 5739.02(B)(43)(a) through
(m) and 5739.02(B)(44). Essentially, consumers now have
exemptions available that are the same as the former
exceptions. However, beginning July 1, 2003, any vendors that
have been accustomed to claiming one of the former exceptions
in R.C. 5739.01 and referring to a citation in that section
of the Revised Code should cite the new location of these
provisions in R.C. 5739.02.
Other uniform definitions of the Streamlined Agreement
adopted in H.B. 95 are the definitions of "tangible personal
property" and "food." To conform with the Agreement,
effective July 1, 2003, the definition of "tangible personal
property" for sales and use tax purposes will include
electricity. However, to maintain the exempt status of
electricity, H.B. 95 amended R.C. 5739.02(B)(7), effective
July 1, 2003, to provide an exemption for "sales of
electricity delivered through wires."
The definition of "food" exempt for off premise consumption
is also changed to conform with the uniform definition
required by the Streamlined Agreement. It has a delayed
effective date of July 1, 2004. The current definition and
the amended definition for "food" can be found in R.C.
5739.01(EEE). The exemption for food consumed off premise is
still located in R.C. 5739.02(B)(2).
Finally, adoption of the uniform definitions of the
Streamlined Agreement required amendments to the exemptions
for drugs and medical equipment in R.C. 5739.01(B)(18) and
(19). These changes are discussed at some length in another
Information Release entitled "H.B. 95 – Drugs,
Prosthetic Devices, Mobility Enhancing Equipment, and Durable
Medical Equipment."
Vanpool exemption
Prior to H.B. 95, Ohio provided a sales and use tax exemption
for:
The sale of a motor vehicle that is used exclusively for
a vanpool ridesharing arrangement to persons
participating in the vanpool ridesharing arrangement when
the vendor is selling the vehicle pursuant to a contract
between the vendor and the department of transportation.
H.B. 95 repeals this exemption effective July 1, 2003. After
that date, the purchase of a motor vehicle for use in a
vanpool ridesharing arrangement will be subject to the sales
and use tax. For purposes of determining whether a sale of a
motor vehicle for a vanpool ridesharing arrangement occurs
before or after July 1, 2003, the sale will be before that
date if either the consumer has received possession of the
motor vehicle or the vendor or seller has received full
payment of the purchase price, whether in cash or by an
approved financing agreement, before July 1, 2003.
Reclamation
Prior to H.B. 95, Ohio excepted from sales tax any sales
where the purpose of the consumer is:
To use or consume the thing transferred in the process of
reclamation as required by Chapters 1513. and 1514. of
the Revised Code.
H.B. 95 repeals this exception effective July 1, 2003. After
that date, purchases of tangible personal property used in
the reclamation of strip mined or surface mined land will be
subject to Ohio sales and use tax.
Transportation property
H.B. 95 imposes sales tax on several previously untaxed
services. One of these newly taxable services is the
transportation of persons by motor vehicle or aircraft
entirely within Ohio (e.g., taxi cabs, limousines, charter
airplanes and buses). Taxation of these services will begin
on August 1, 2003. Most commercial airplane and public
transit service is excluded from the tax.
Corresponding with the taxation of the services discussed
above, a new exemption was enacted in H.B. 95. This exemption
applies to sales of personal property and services used
directly and primarily in providing taxable intrastate
transportation services. The new exemption is found at R.C.
5739.02(B)(42) and is effective July 1, 2003.
Under this exemption, persons engaged in providing taxable
intrastate transportation of persons may claim this new
exemption on their purchases of motor vehicles or airplanes
used "directly and primarily" to provide those services. The
exemption will also apply to other purchases of personal
property and services that meet the "directly and primarily"
test. Some providers of these types of services (e.g.
taxicabs) may have previously claimed exemption on purchases
of vehicles or property as an item used directly in the
rendition of a public utility service. Such persons should,
in the future, claim any exemptions based on the new
statutory provision.
To determine whether a sale of a motor vehicle or aircraft is
purchased after the effective date of the exemption,
exemption will not be allowed if the consumer either has
received possession of the vehicle or aircraft or has made
full payment to the seller, either in cash or by an approved
financing arrangement, prior to July 1, 2003.
Telecommunications, Mobile Telecommunications and
Satellite Broadcasting Service
Prior to H.B. 95,
the definition of taxable telecommunications service
specifically excluded:
(1) Sales of incoming or outgoing wide area transmission
service or wide area transmission type service, including
eight hundred or eight hundred type service, to the
person contracting for the receipt of that service;
(2) Sales of private communications service to the person
contracting for the receipt of that service that entitles
the purchaser to exclusive or priority use of a
communications channel or group of channels between
exchanges;
H.B. 95 deleted these exceptions from the statute so that,
for periods after July 1, 2003, charges for those services
will be subject to sales and use tax.
Also effective July 1, 2003, H.B. 95 created an exemption
for:
Sales of telecommunications service that is used directly
and primarily to perform the functions of a call center.
As used in this section, "call center" means any physical
location where telephone calls are placed, or received,
in high volume for the purpose of making sales,
marketing, customer service, technical support or other
specialized business activity and that employs at least
fifty individuals that engage in call center activities
on a full-time basis, or sufficient individuals to fill
fifty full-time equivalent positions.
This new exemption serves to partially off-set the WATS/800
exception that is repealed by H.B. 95 and is available for
such business activities as telemarketing, customer service,
or computer technical support.
The application of the tax to WATS/800/private communications
services will begin, for each customer, with the first
billing period that begins after July 1, 2003. The call
center exemption will apply to telecommunications services
billed to a call center on or after July 1, 2003.
Another newly taxable service is satellite broadcasting
service provided to consumers in Ohio. Taxation of this
service will begin on August 1, 2003.
Corresponding with the taxation of this service, the
exemption for telecommunication service providers was
expanded in H.B. 95 to cover satellite broadcasting service.
This exemption applies to sales of "tangible personal
property and services used directly and primarily in
transmitting, receiving, switching, or recording any
interactive, one- or two-way electromagnetic communications"
provided by a telecommunications, mobile telecommunications
or satellite broadcasting service vendor. The exemption is
found at R.C. 5739.02(B)(34) and is effective July 1, 2003.
Call Center Exemption
H.B. 95 provides a
new exemption for sales of telecommunication service that is
used directly and primarily to perform the functions of a
call center. The new exemption can be found at R.C.
5739.02(B)(46). Call center is defined to be:
any physical location where telephone calls are placed or
received in high volume for the purpose of making sales,
marketing, customer service, technical support, or other
specialized business activity, and that employs at least
fifty individuals that engage in call center activities
on a full-time basis, or sufficient individuals to fill
fifty full-time equivalent positions.
The exemption for call centers is effective July 1, 2003.
Fractional Share Aircraft
H.B. 95 also
provides a new exemption for replacement and modifications to
parts of aircraft used primarily in a fractional aircraft
ownership program. The repair and maintenance of such
aircraft is also exempt, along with any machinery, equipment
and supplies used to provide those services. The new
exemption can be found at R.C. 5739.02(B)(45). The definition
of "fractional aircraft ownership program" can be found in
R.C. 5739.01(KKK). This exemption is effective July 1, 2003.
If you have questions regarding any matter covered in this
release, please call 1-888-405-4039 (Ohio Relay Service for
the Speech or Hearing Impaired: 1-800-750-0750), or e-mail us
through our web site at http://tax.ohio.gov/ .