Ohio, Hospital Beds, and Streamlined Sales Tax
- Sep 16, 2013 | Gail Cole
Update, 11.4.13: Ohio has been approved full membership of Streamlined Sales Tax, effective January 2014.
Ohio, an associate member of the Streamlined Sales Tax Governing Board since October 2005, is now petitioning for full membership. What does full membership mean? Why would a state seek it? Why would a remote retailer opt into it?
The Streamlined Sales and Use Tax Agreement grew out of several Supreme Court decisions blocking state attempts to impose a sales tax collection obligation on remote sellers. The Court so ruled because "the existing system was too complicated to impose on a business that did not have a physical presence in the state." When sales tax was created in the 1930s, remote sales were relatively few--occurring mostly through road trips and catalogues. With the explosion of Internet sales, states have watched sales tax revenues shrink. Since "sales tax is second only to personal income taxes as the largest source of state revenue," this caught the eye of leaders of the National Governor's Association (NGA) and the National Conference on State Legislatures (NCSL). Concerned "that a 1930's sales tax would not be relevant in the 21st century commerce," they decided to "develop a simpler, business-friendly sales tax system."
Central to the SST is uniform definitions. According to the SST website:
"While states do not vary much in the products and services they tax or exempt, they do vary significantly in how they define these products and services. A business selling a product or service in multiple states must know not only what is or is not taxable in each state, but also how one state's definition differs from other states. The Agreement defines sixty-nine different administrative terms and products and services that states either tax or exempt. A business making sales into a Streamlined state only needs to know whether the product or service they sell is taxable or exempt. Businesses no longer have to wonder how one state's definition differs from another state." (Emphasis theirs).
In essence, the Agreement provides "a road map for states who want to simplify and modernize sales and use tax administration…." The goal is to encourage voluntary compliance by out-of-state vendors.
Sellers who register under the Streamlined Sales Tax and Use Tax Agreement "must collect and remit sales and use taxes for all taxable sales into the member states." Why would a seller want to do that? One reason is that it allows them to expand into more markets without worrying that they are unwittingly triggering a sales tax obligation. Another is because more and more states are requiring remote vendors to collect sales tax through affiliate nexus and so-called Amazon tax laws.
In addition, federal lawmakers are considering legislation (The Marketplace Fairness Act of 2013) that would grant states the right under federal law to impose a sales tax requirement on certain vendors. States and vendors that opt into SST now will be in a strong position to take advantage of the Marketplace Fairness Act (or similar legislation) later, if and when it becomes law.
Back to Ohio
To return to the issue of Ohio, which is seeking full membership: the Ohio Tax Commissioner explains its motivation in its petition for membership. Ohio would benefit from full membership because it levies a sales and use tax, and because:
"[I]t is in the interest of the private sector and of state and local governments to simplify and modernize sales and use tax administration;
[S]uch simplification will result in a substantial reduction in the costs and complexity for sellers of personal property and services in conducting their commercial enterprises; and
[S]uch simplification and modernization of sales and use tax administration is best conducted in cooperation and coordination with other states."
Definitions--the sticking point
According to a letter from the Ohio Department of Taxation to the Streamlined Sales Tax Governing Board, only one issue stands between Ohio and full membership: "The only outstanding issue relates to Ohio's exemption of hospital beds purchased by hospitals, nursing homes and other medical facilities in Ohio Rev. Code (R.C.) 5739.01(B)(18)." Ohio does not believe itself to be out of compliance.
Ohio R.C. 5739.01(B)(19) exempts the following: "Sales of prosthetic devices, durable medical equipment for home use, or mobility enhancing equipment, when made pursuant to a prescription and when such devices or equipment are for use by a human being." Ohio does not allow an exemption for hospital beds, or any durable medical equipment, sold to hospitals, nursing homes, or other medical facilities.
The Tax Commissioner writes, "Now, however, Ohio finds itself in an extremely difficult position. It must either exempt all 'durable medical equipment' including sales of such equipment to hospitals, or tax all 'durable medical equipment.' Neither option is desirable, or likely to be supported by the Ohio General Assembly or Ohio consumers."
Will hospital beds keep Ohio from becoming a full member of SST? Perhaps, perhaps not. The Streamlined Sales Tax Governing Board expects to vote on the Ohio petition during the annual Governing Board Meeting, held this year in Madison, WI, at the end of October. If the Ohio petition is approved, the Buckeye State will become a full member of the Streamlined Sales Tax Governing Board on January 1, 2014.
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