Information Release

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/ .