It’s January 1st – Wake Up & Note the Ohio Sales Tax Sourcing Rules!

Wake up! It’s January 1, 2010 and Ohio has turned its sourcing rules back to origin-based from destination-based for all intrastate sales of tangible personal property and services. No, it’s not your hangover talking; it’s the dizzy feeling that results from trying to stay compliant.

Effective today and with official Department of Taxation guidance provided in late December here and in further detail here, Ohio vendors need to either switch back or keep sourcing from origin if the shift was never made for intrastate sales.

Companies that converted to destination-based and were compensated for doing so may qualify for a rather generous New Year’s gift. Ohio provides, “Recognizing that these changes may require programming changes or training, the Department of Taxation will not impose penalties on those vendors that are required to change their method of sourcing as a result of H.B. 429, so long as those changes are made by April 1, 2010.”

For those companies that haven’t yet outsourced the numerous and onerous tasks associated with sales tax compliance, it might be high time to considering doing so. 

Will any origin-based sourcing SST states remain 01-01-10?

One of the chief concerns among several SST member states – including Arizona, New Mexico, Ohio, Tennessee, Texas, Utah, and Virginia, as well as the Virginia Association of Counties – is whether the option to have origin-based sourcing rules will remain once the scheduled January 1, 2010 expiration date has come and gone. The states and county association listed above requested more information from the SST Compliance Review and Interpretations Committee early this summer to prepare for the decision, whichever way it turns.

If the original SST Agreement requires destination-based sourcing for each of its full member states, how did we get here? We need to look back to the December 2007 compromise agreement in which the SST Governing Board agreed to allow various associate member states, by amending the Agreement, to allow states to use origin-based sourcing rules until the associate state was to become a full SST member if certain factors were present – one of which was that five or more states are using origin-based sourcing and were otherwise in substantial compliance with the SST Agreement.

As it stands today, Ohio, Tennessee, and Utah meet these standards, but the question is whether two other states will do so by the New Year. The states and association listed above asked for a clarification as to whether the 2007 amendments to the SST Agreement indicate that the exception to the rule – origin-based rather than destination-based – will expire with the New Year or whether it will trigger the exception to the rule.

This is a key interpretation, and the Committee preliminarily answered in mid-August that it will expire. The issue may be further explored at the annual meeting of the full board held this year in Oklahoma City at the end of September. 

Hoteliers, Online Hotel Bookers

Just like almost everybody I know, I shop for the best hotel rate when I plan to visit other cities, for personal and for corporate travel alike. Of the many sites I scope, I’ve used Expedia, Hotels.com, and Orbitz often enough to bookmark them. That’s why various cases (one, among several, in the U.S. District Court for Northern Ohio involving Expedia) caught my eye.

The general issue in this line of cases is the same, namely whether online hotel booking companies should collect and remit sales tax on the mark-up value of the booking or on the final, negotiated price paid by the consumer.

The online middlemen purchase hotel rooms at discounted rates directly from the hoteliers and re-sell them at marked-up rates to the online public. Evidently, several online hotel brokers have been remitting to the states a sales tax that is based on the discount rates, rather than the mark-up, and have been retaining the difference for themselves.

States, cities, and other jurisdictions have been filing claims that they should be entitled to the tax on the full rate that the consumer pays, asserting amongst other allegations, that the online hotel brokers are being unjustly enriched.

Another, no less important issue arises between hoteliers and online hotel room brokers: there may be cause to re-think, or at the very least re-examine, the indemnification clauses they have in the agreements they have in place.