ST 2009-03 - Sales and Use Tax: Sourcing – Issued December
As part of Ohio’s continued participation in the Streamlined
Sales and Use Tax Agreement, a few changes to the way sales
of tangible personal property and taxable services are
sourced were enacted in H.B. 429 of the 127th General
Assembly and will take effect Jan. 1, 2010. These changes,
which are found in Ohio Revised Code (R.C.) section
5739.033(B), will allow Ohio to retain origin sourcing for
most sales of tangible personal property made by Ohio vendors
to Ohio consumers. Other sales will be sourced to the
location where the consumer receives the property or service
that was sold pursuant to R.C. 5739.033(C). Leases and
rentals will continue to be sourced according to the
provisions of R.C. 5739.033(I). For the majority of
vendors, these changes will mean little, if anything, to
their method of doing business.
It is important to remember that sourcing does not determine
taxability of the sale or, in the case of an out-of-state
seller, whether the seller has nexus and is required to
collect Ohio tax. The purpose of sourcing is to determine the
location of the sale for sales tax purposes. If a sale
is taxable, the sourcing of the sale will determine the
appropriate jurisdiction’s tax rate for the seller to charge.
Attached to this Information Release is a sourcing chart that can be used as a
reference by Ohio vendors and out-of-state sellers in
determining the proper sourcing of their sales, leases, and
rentals to Ohio consumers.
Note: the changes in R.C. 5739.033 do not affect the sourcing
of telecommunications services. Such services will continue
to be sourced under the provisions of R.C. 5739.034.
Providers of telecommunications services should refer to that
section for sourcing information.
Sales of Tangible Personal Property
Ohio vendors of tangible personal property will source their
sales to Ohio consumers to the location where the vendors
receive the order from the consumer. For over-the-counter
sales made from fixed retail locations, this will be no
change from current law. However, those vendors that
previously switched to destination sourcing for delivery
sales under previous Ohio law will be required to source
their sales to the location where the order is received
rather than the delivery location.
Vendors that make sales in Ohio, but do not make sales from a
fixed location (e.g., transient vendors) will continue to
source each sale to the location where the sale takes place.
For remote sales (e.g., mail order, telephone or online
sales) made by Ohio vendors to Ohio consumers, the sale will
be sourced to the location where the order is received. Note
the sourcing is based on where the order is received, which
is not necessarily the location from which orders are
processed or shipped. If the order is received at a location
outside Ohio, or the vendor does not capture the location
where the order is received, the sale is treated as a sale
from outside Ohio and sourced as noted below.
Sales made by Ohio vendors that the vendor sends or delivers
to non-Ohio customers will continue to be treated as sales in
interstate commerce and not subject to Ohio tax. However,
vendors should check with the states into which they ship to
determine if they are required to collect tax for those
Sales by out-of-state sellers to Ohio consumers will be
sourced to the location where the consumer receives the
tangible personal property that was sold. If this is not
known to the seller, the seller should use an address of the
consumer available from the seller’s business records.
Providers of Services
Sales of services should be sourced to the location where the
consumer receives the service. Under Ohio law, a service is
“received” where the customer makes first use of the
service. While this may be somewhat new terminology, it
should be little change for most service providers. For
example, repair services should be sourced to the location
where the consumer gets possession of the repaired object.
Data processing services will continue to be sourced to the
location of the consumer where the service is received.
Exterminating service would continue to be sourced to the
location where the eradication of vermin takes place.
Recreation and sport club memberships would continue to be
sourced to the location of the club where the member makes
use of the membership privileges. An employment service
provided to a business would be sourced to the location where
the employee is posted, if that is known to the service
provider. If the location is not known, it would be sourced
to the location of the consumer that the provider has in its
For sourcing purposes, it does not matter whether the
provider of the service is located in Ohio or outside Ohio.
The relevant issue is where the consumer receives the
Vendors of tangible personal property that converted to
destination sourcing under prior Ohio law and received
compensation for making the change may be eligible for
compensation for converting back to origin sourcing. See
Release ST 2009-01, Vendor Compensation.
As noted above, most vendors and sellers will not be required
to change their tax collection practices as a result of the
changes described above. For those vendors that are required
to change their sourcing procedures, the effective date for
those changes is Jan. 1, 2010. However, recognizing that
these changes may require programming changes or training,
the Department of Taxation will not impose penalties on those
vendors that are required to change their method of sourcing
as a result of H.B. 429, so long as those changes are made by
April 1, 2010.
Leases of Tangible Personal Property
H.B. 429 did not change the current sourcing of lease
transactions. Generally, leases are sourced to the primary
property location of the property at the time the tax is to
be paid. However, there are variations, which are noted on
the attached sourcing chart. Lessors should be aware of
the sourcing provisions for lease transactions.
Direct Pay Permit Holders
The provisions of H.B. 429 do not change the tax remittance
requirements for direct pay holders. Taxpayers reporting on a
direct pay permit should continue to report as provided in
their direct pay agreement.
Beginning Jan. 1, 2010, consumers that purchase tangible
personal property, and who remit Ohio sales tax to the seller
at either the rate applicable where the order was received or
where the consumer received the tangible personal property,
will not be liable for any additional Ohio sales or use tax
on that transaction. This change should ease the burden on
consumers by eliminating the requirement that they determine
additional use tax on transactions where the vendor has
sourced the sale to its location.
The provisions of the above paragraph apply only to sales of
tangible personal property. For sales of services, consumers
must remit use tax based on the location of their use. If the
rate at that location exceeds the rate charged by the service
provider, the additional use tax must still be remitted.
If you have any questions regarding this information release,
please contact our Taxpayer Services at 1-888-405-4039, or
e-mail us through our Web site: tax.ohio.gov.
OHIO RELAY SERVICES FOR
THE HEARING OR SPEECH IMPAIRED