Information Release

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ST 2004-02 - Sourcing Law Change Update – June, 2005
UPDATED - Supersedes Information Release Dated August, 2004<>

This information release addresses a change in how Ohio sales tax is charged (sourced) on certain transactions involving the sale and delivery of goods.

Ohio lawmakers recently passed a law (S.B. 26, 126 th General Assembly) that will allow retailers more time to implement the sourcing changes made in section 5739.033 of the Revised Code. Vendors (retailers) can now voluntarily implement the sourcing change beginning January 1, 2005, but must complete the transition to the new sourcing provisions by January 1, 2008. However, there are two intermediate thresholds that may require compliance before that date. If the vendor has taxable delivery sales in excess of $30 million in 2005, the vendor must change to destination sourcing on May 1, 2006. If the vendor has taxable delivery sales in excess of $5 million in 2006, the vendor must change to destination sourcing on May 1, 2007. Once a vendor changes to charging sales tax on destination sourcing, they may not return to origin based sourcing.

The new sourcing provisions will require Ohio retailers that sell and then ship (deliver) their goods across county lines in Ohio to charge the sales tax rate that exists in the county where the merchandise will be delivered, not the rate where it is sold. The change will not affect the vast majority of retailers that sell merchandise that is carried away by customers (over the counter sales), or delivered to customers at a location in the same county as the retailer’s place of business.1

Similarly, the change will have little, if any, impact on the operations of vendors who hold transient, service or delivery licenses. The result is Ohio retailers will charge sales tax on in-state, inter-county sales in the same manner as retailers located outside the state (e.g. Internet and catalog companies).

The reason for the sourcing change is to bring Ohio into compliance with the terms of the Streamlined Sales Tax Project (“SSTP”). The SSTP is a multi-state initiative to make sales tax laws, rules, and systems more uniform across states. The ultimate goal of the SSTP is to encourage (or require with federal legislation) out-of-state retailers, primarily catalog and Internet companies, to collect the sales/use tax of Ohio and other states. This will make Ohio retailers more competitive with out-of-state retailers currently not charging and collecting Ohio sales/use tax. It will also reduce the estimated $600 million per year that Ohio’s state and local governments lose in uncollected tax revenue on these types of sales.

The Department understands that some retailers will have to change the business systems they use in order to determine the correct amount of sales tax to charge their customers. Our commitment is to work with retailers and point-of-sale vendors to develop solutions that help make the transition as smooth as possible. To that end, the Department has developed a free, web-based system that will enable retailers (and others) to inquire on-line about an address and/or zip code and obtain the correct sales tax rate to charge.

A more in-depth information release with questions and answers will soon be available on our web site. Additionally, we will continue to provide updates on our web site to retailers in the coming months. To access the most current information and other resources, please visit our web site at tax.ohio.gov and click on the SSTP link.

For additional assistance contact Taxpayer Services at 1-888-405-4039, or e-mail us through our web site: tax.ohio.gov.

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1Note: the tax rate varies within a county where the Central Ohio Transit Authority (COTA) tax applies in portions of the cities of Columbus, Westerville, and Reynoldsburg that are located in Delaware, Fairfield, and Licking Counties. Any vendor making deliveries in those counties will need to collect the correct tax including the COTA tax, if applicable.