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# 7690 - OHIO: SALES TAX STATUS OF INTERSTATE TRANSACTIONS

Your Association posed several questions to the Ohio Department of Taxation to clarify collection of SST (or use tax) on interstate transactions. Here are the questions we posed, and the answers given in response by Bernard E. Johnson, Deputy Tax Commissioner for Ohio, January 1992.

Question 1. In 1986, I understand Ohio entered into an agreement with several other states regarding out-of-state sales. Have agreements been reached with any additional states since that time (Kentucky, for instance)?

In answer to your first question, Ohio has information sharing agreements with most of the 44 other states which have a sales/use tax. We are also members of the Great Lakes States Compact, regularly meeting with Indiana, Illinois, Minnesota and Michigan and in 1988, we signed an agreement with Kentucky and in 1986 with West Virginia. In 1990, Ohio was part of a tri-state border project with Kentucky and West Virginia, an attempt to urge vendors on both sides of the respective borders to register and collect each other's tax. Border Projects are intended to level the playing field among merchants and to eliminate such unfair practices as the billboard on the Kentucky side of the river that might advertise: Ohio residents buy Kentucky and save the sales tax!

Question 2. With respect to out-of-state customers, when is an Ohio retailer required to collect Ohio state sales tax?

It appears that there might be some misunderstanding over what constitutes an Ohio sale so as to be subject to Ohio tax. When possession transfers in Ohio, the Ohio sales tax must be collected unless the purchaser provides the seller with a fully completed exemption certificate at the time of sale. Being a resident of another state does not entitle you to a sales tax exemption. Other states' laws are the same. However, if the Ohio vendor ships or delivers the merchandise to an out-of-state location via a common carrier (such as UPS or a motor freight company), no Ohio sales tax is due, since this is a sale in interstate commerce. No exemption certificate is necessary, but the vendor's records must show the fact that the merchandise was delivered interstate.

Question 3. With respect to out-of-state customers, when is an Ohio retailer required to collect sales tax for another state? When is an Ohio retailer required to collect use tax for another state?

If your members deliver goods into another state by any means other than common carrier (ie., their own vehicle), they have established a connection, or nexus, and are required to be registered to collect the other state's tax. This looks like sales tax, but is actually use tax. As you know, use tax is the tax another state's purchaser is required to pay on goods used or consumed in their state when they purchase those goods from an out-of-state supplier.

Question 4. If an out-of-state customer still refuses to pay the appropriate sales (or use) tax after being told it is due, what are the retailer's obligations to remain in compliance with the law? Is the retailer expected to lose the sale?

Please understand that this Department has no desire to become a "crutch" for the Ohio retailer who does not want to collect tax from out-of-state residents who take delivery of merchandise in Ohio. However, we do recognize that there are times when a sale could be "lost" because of an Ohio merchant's good faith effort to collect Ohio tax when an out-of-state purchaser thinks he can "win" by intimidation. In those cases only, if we are immediately provided with a copy of the sales invoice complete with the purchaser's name, mailing address, phone number, description of merchandise sold and selling price, we will collect the Ohio tax. The customer should be advised that penalties will apply in these situations. Your members need to understand that they will be held liable for untaxed sales in the event of an audit, if this procedure was not followed. If the out-of-state resident should provide your member with a valid exemption certificate just to "appease" the Ohio merchant when in fact there is no real reason for exemption, providing us with that documentation in addition to the invoice information will result in our providing that transaction to the other state which can then pursue use tax collection. Your customer should be advised that the other state may also apply a penalty when billing for their use tax.

Question 5. Under the multi-state agreement who has authority to conduct a sales tax audit, only the dealer's home state or any of the member states?

Irrespective of multi-state agreements, any time a seller has established nexus with Ohio, Ohio has the authority to conduct an audit. If a nexus situation does not exist, we can enlist the other state's cooperation in providing Ohio consumer transactions so that we can bill for our use tax. We established a program in July, 1988, dedicated to this effort and have realized cash payments of over $2 million to date. Consumers everywhere are beginning to realize that they are not "home free" when they bring untaxed goods into their respective states.

-- January 1992

SALES TAX STATUS IN ADJACENT STATES

Following a recent inquiry into sales tax status of equipment in a neighboring state, your Association asked other Farm & Power Associations to update our records for their respective state. In all cases, agricultural equipment (when used in the direct production of agricultural products for sale) is exempt from sales tax. All the neighboring states have indicated they would accept Ohio's exemption certificates when equipment is purchased in Ohio. All the states reported that outdoor power equipment and construction equipment are taxable. The chart below summarizes the findings. Please keep in mind that if possession of taxable items transfers in Ohio, the applicable Ohio sales tax must be collected. If you deliver equipment to customers in another state by any other means other than common carrier, you must be registered to collect that state's tax.

If you want more information than contained in this brief summary, you may contact the sales tax department(s) listed below:

Ohio 614-466-7350

Indiana 317-232-2240

Kentucky 502-564-4580

Michigan 517-373-3190

Pennsylvania 717-787-8201

West Virginia 304-558-3333

-- May 1994