Unlike other states, Ohio isn’t in any rush to capitalize on a recent U.S. Supreme Court tax ruling that would mean millions of dollars for the state.
The June ruling allows states to force online and catalog retailers to collect sales taxes even if they don’t have a physical presence in the state. If enforced, the ruling would add to shoppers’ bills but, proponents argue, would also level the retail playing field.
Since the ruling, at least 26 of the 45 states with a sales tax have either started collecting the tax or plan to in coming months, said Bill Fox, who has studied the issue as director of the Boyd Center for Business and Economic Research at the University of Tennessee.
But Rep. Tim Schaffer, R-Lancaster, chairman of the Ohio Legislature’s House, Ways and Mean Committee where any tax-writing legislation in the House likely would start, is concerned about the potential fallout the tax could have on retailers that don’t collect the tax now. Some politicians view extending compliance to retailers that don’t collect taxes now as a new tax.
"A lot of people have concern that we are missing what should be legally taxed expenditures, but at the same time, I know there are other people who want to make sure we’re not taxing everything that moves," he said. "I don’t know if we want to go there."
Schaffer is concerned about what it could mean for the economy should the state act.
"Any time the cost of business goes up … it costs jobs. I’m going to be very cautious from that perspective, that we don’t end up taking the quick buck and realize we hurt ourselves in the long run by losing jobs and hurting families," he said.
His counterpart in the Senate, Sen. John Eklund, R-Chardon, said it is a discussion that legislators need to have.
"While leveling the playing field between e-commerce and bricks-and-mortar merchants could be a very desirable thing to do just from the economic landscape in which Ohioans operate, there are those who see internet transactions with a sales tax or use tax as nothing more than a tax increase," he said.
Eklund said he will wait until any debate is over before making up his mind.
The Supreme Court, on a 5-4 vote, upheld a South Dakota law ordering online retailers that do at least $100,000 in business every year to collect sales taxes on those purchases even if they didn’t have a physical presence in the state, overturning a 1992 decision. Retailers with a physical presence such as a data center or warehouse, were already required to collect sales tax.
Retailers Overstock.com, Wayfair and Newegg challenged the law.
Consumers who buy products online without a sales tax are legally required to report those sales to the state and pay the tax when they file their tax return. But in reality, that rarely happens.
For 2016, 60,521 Ohio income tax returns were filed that paid $4.1 million in taxes on untaxed purchases, according to the Ohio Department of Taxation.
Because the tax already is owed, Fox, with the University of Tennessee, disagrees that it is a new tax.
"The only thing you’re doing is seeking to enforce it using a collection method not available before," he said. "It is a compliance technique, not a tax. The tax is already due."
For retailers, it’s about fairness.
"There shouldn’t be a set of rules for one that are different than the other," said Gordon Gough, president and CEO of the Ohio Council of Retail Merchants.
Gough’s group hasn’t pushed for any action to occur during the Legislature’s lame duck session wrapping up now. Instead, Gough believes it is a discussion that should take place when the Legislature crafts the new state budget next year. Eklund said it is such an important issue that it may need to be considered as its own piece of legislation.
A 2009 study commissioned by Gough’s group found that the state was missing out on at least $200 million in sales tax revenue.
Online sales have grown since then, but so has the number of online retailers who collect sales tax and remit it to the state.
The Taxation Department says 46 of the top 50 "e-tailers" already collect sales tax and pay it to the state. The top 50 take in 48 percent of online business-to-consumer sales in Ohio.