Ohio Sales Tax; Streamlined Calculation; Return to Traditional “Origin” Method

Kegler Brown Business Tax Alert

In legislation signed by Governor Ted Strickland this year, businesses engaging in retail sales within Ohio will soon return to Ohio's traditional way of calculating sales tax at the point of origin of the sale. Under House Bill 429, passed by the Ohio General Assembly, Ohio businesses that had been charging sales tax based on the destination of their Ohio sales may now switch back to traditional "origin" method as soon as the start of the next month if they wish. Merchants who moved to destination sourcing of delivery sales have until January 1, 2010, to switch back to the traditional method.

This new legislation is responsive to small business owners who considered destination sourcing more complex than Ohio's traditional "origin" method. The vast majority of Ohio merchants have always collected and remitted sales tax based on the location of their store. For them, little will change. Out of state vendors will also probably not be affected by this method. They will continue to collect sales tax based on the rate at the destination of the sale, as they do today. The new law means a big change for a relatively small group of merchants who engage in delivery sales of tangible personal property, such as furniture stores and appliance stores. Since 2006, Ohio has been moving toward "destination sourcing" for sales taxes; that is charging sales taxes based on the destination of the delivery rather than the location of the store.

The move to "destination sourcing" was part of a larger effort to become a full member of the multi state Streamlined Sales Tax Project. This multi state group has been urging states to move to destination sourcing in order to become full members. As the deadline approached for Ohio to comply with these provisions, and in response to concerns from small businesses, the Ohio General Assembly put the shift to destination sourcing on hold. Later, the leaders of the Streamlined Sales Tax Project decided to allow "origin states" to become full members starting in 2010 as long as at least four other "origin states" are also likely to become full members. This new legislation is in response to that provision and moves Ohio back into the "origin" camp. Merchants who switched to "destination sourcing" and who will now be switching back, will eventually be eligible for compensation for up to $1,000. That compensation will not be available until after July 1, 2009, and more information is expected as that date approaches.

Kenneth Cookson (614) 462-5445 is available for consultations on Ohio tax matters.