Reed Smith Client Alerts

On October 20, the Ohio Department of Taxation (the “Department”) issued an information release (“ST 2017–02”) explaining Ohio’s standard for “software” and “network” nexus for sales and use tax, which will take effect January 1, 2018.1 ST 2017–02 supplements a prior information release on sales and use tax nexus that the Department recently revised (“ST 2001–01”).2

Authors: Paul E. Melniczak Matthew L. Setzer

Background

The Department’s release of ST 2017–02 comes on the heels of the enactment of Ohio House Bill 49 earlier this year. That bill requires Internet sellers with more than $500,000 of annual Ohio gross receipts to collect sales tax on sales to Ohio customers.3 (For more information on House Bill 49, see our prior coverage.)

Earlier this month, the Department issued a revised version of a prior information release – ST 2001–01 – that describes Ohio’s new nexus standard under House Bill 49 generally, and the implications of that standard for sales and use tax purposes. In particular, ST 2001-01 provides a list of activities, such as soliciting sales in Ohio, delivering property to Ohio, or negotiating franchising or licensing agreements with Ohio customers, which create nexus for out-of-state sellers. However, ST 2001-01 provides that the Department will not require taxpayers to collect and remit tax if the out-of-state seller’s contacts are limited to one of a series of “safe harbor” activities.4 In the revised version of ST 2001-01, the Department also promised that a separate information release would be issued that focused specifically on the software and network nexus provisions of House Bill 49. The Department has wasted no time in fulfilling that promise – issuing ST 2017-02 within the same week as the revised version of ST 2001-01.