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Ohio’s New Online Sales Tax: Cookies Creating Nexus?



What do cookies, nexus and online sales tax have to do with each other? States are continuing to look for ways to justify charging sales tax to internet retailers; Ohio just took a page out of Massachusetts’ book.

Massachusetts’ Online Sales Tax Directive 17-1

A couple of weeks ago we shared that Massachusetts created a directive that redefined nexus to include internet cookies, which meant that the state was recognizing these bits of computer code as a way to establish a physical presence, therefore making internet retailers responsible for collecting and remitting sales tax from online shoppers.

Ohio’s Approach to Cookies and Online Sales Tax

While Massachusetts passed a directive canceling the “cookies directive” before it was enacted, the idea isn’t gone. Bloomberg BNA reports that Ohio’s most recent budget (signed this past June 30) included, “A little-discussed provision that may require internet retailers to collect and remit sales tax if they [make sales into the state in excess of $500,000 and] use cookies on their websites.” But is this legal?

Unsurprisingly, Ohio’s new legislation will be taken to court as multistate retailers and internet commerce advocacy groups are suing over the legality of the law, arguing, “We don’t see how a court will agree that electrons flowing into a computer or smartphone can possibly create a ‘physical presence.’” Ohio is no stranger to legal battles, having fought and won the economic nexus battle related to its Commercial Activity Tax (or CAT) in a 2016 state Supreme Court ruling. In that case, an internet retailer, making sales of more than $500,000 into the state, but with no other physical presence created nexus. [Crutchfield Corp. v. Testa; No. 2015-0386; Slip Opinion No. 2016-Ohio-7760, November 17, 2016]

Our Take on the Provision

While states’ attempts to collect online sales tax from internet retailers isn’t new, the type of provision that Ohio introduced hasn’t actually been challenged before. Yet we are dubious the argument that cookies create nexus will hold up in court because these bits of data aren’t physical, tangible items the seller owns. It will certainly be interesting to see what happens, though!

If you want to know more about online sales tax, nexus and multistate issues, or have questions about how they might affect your business, contact us today!

Monika Miles

Monika founded Miles Consulting Group which focuses on multi-state tax consulting, helping clients navigate state tax issues such as sales tax and income tax in interstate commerce, including e-commerce.

Prior to forming the firm, Monika worked for 12 years combined in Big 4 Public Accounting and private industry. Monika has provided such services as federal and state income/franchise tax compliance and consulting, sales/use tax consulting, audit support, and credits and incentives reviews. She has served clients in a variety of industries including manufacturing, technology, telecommunications, construction, utility, retail and financial institutions.

Monika graduated from the University of Texas at El Paso (UTEP) with a BBA in Accounting/Finance and has a Masters in Taxation from San Jose State University.