Ohio adopts South Dakota-style economic nexus

Updated 7.23.2019: Remote marketplace facilitators with economic nexus don't have to start collecting sales tax in Ohio until September 1, 2019.

Ohio has enacted South Dakota-style economic nexus.

Economic nexus laws base a sales tax collection obligation solely on economic activity in a state, which was prohibited until the Supreme Court of the United States ruled in favor of the state in South Dakota v. Wayfair, Inc. (June 21, 2018). Prior to the Wayfair ruling, states could only require a business to collect and remit sales tax if the business had a physical presence in the state. Post Wayfair, states are free to tax remote sales via economic nexus, though physical presence still triggers nexus.

In the year since the Supreme Court ruling, all but a few states have adopted economic nexus laws. In fact, Florida, Kansas, and Missouri will soon be the only three states that have a general sales tax and don’t have economic nexus — and Kansas is on track to enforce economic nexus starting October 1, 2019.

A growing number of states, including Ohio, are also requiring marketplace facilitators to collect and remit the tax due on all sales made through physical or electronic marketplaces. 

Economic nexus in Ohio

Effective August 1, 2019, a remote seller is required to collect and remit Ohio sales tax if, in the current or preceding calendar year, it has:

• More than $100,000 in gross receipts from the sale of tangible personal property or services in Ohio; or
• At least 200 separate transactions of tangible personal property or services in the state.

Exempt sales of both products and services should be included when calculating the threshold.

The above thresholds don't apply to a "small remote seller," defined as a remote seller whose gross annual receipts from remote sales in the United States (including affiliate sales) don't exceed $1 million for the preceding calendar year. This is an existing provision that's retained in the new law. See Ohio Rev. Code Ann. §§ 5741.01(S) and 5741.17(c) for more details.

Collection requirement for marketplaces

Effective August 1, 2019, a marketplace facilitator is required to collect and remit tax on all sales made through the marketplace in Ohio if, in the current or preceding calendar year, it:

• Makes or facilitates more than $100,000 in gross receipts from the sale of tangible personal property or services in Ohio, or
• Makes or facilitates at least 200 separate transactions of tangible personal property or services in the state.

Exempt sales of both products and services should be included when calculating the threshold.

This collection requirement does not apply to lodging marketplaces such as Airbnb or VRBO.

Although sales tax rates for in-state sales in Ohio are typically based on the origin of the sale (the location of the seller), the new law requires marketplace facilitators to use destination sourcing for all sales. Thus, marketplace facilitators will collect the tax rate in effect at the point of delivery whether the marketplace seller is based in or outside of Ohio. 

Finally, marketplace facilitators may petition the state to not collect for any seller who:

• Is current on all taxes, fees, and charges administered by the Ohio Department of Taxation;
• Is publicly traded on at least one major stock exchange;
• Has annual gross receipts in the United States in excess of a $1 billion;
• Has not requested a waiver related to the marketplace facilitator at issue (or had the waiver been revoked by the commissioner); and
• Has not violated division (B) of section 5739.30 of the Revised Code.

Click-through and cookie nexus repealed

In updating its remote seller sales tax laws, Ohio also repealed click-through nexus and cookie nexus laws that were created before the South Dakota v. Wayfair, Inc. decision granted states the authority to tax remote sales via economic nexus. Additional details are available in the text of HB 166.

To learn more about economic nexus laws in all states, visit Avalara’s state-by-state guide to economic nexus laws. Our seller’s guide to nexus laws and sales tax collection requirements provides additional information to help you determine where your business may have an obligation to collect and remit sales tax.