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Sales tax on electronic services bill receives hearing in lame duck session

Written on May 1, 2020

The Ohio Legislature has taken up in lame duck session a bill that would modify the standard for determining when the sales and use tax applies to business-related electronic services that are provided together with other nontaxable services.

House Bill 569 was introduced in March by Rep. Scott Lipps, R-Franklin and Rep. William Reineke, R-Tiffin. The legislators said it was in response to the Ohio Department of Taxation’s interpretation that the state sales/use tax can be applied to certain electronic information services and automatic data processing.

The House Ways & Means Committee on Nov. 27 heard sponsor testimony from Lipps and Reineke about the bill. Read their testimony in its entirety.

Rep. Mike Henne, R-Clayton, asked for an example to illustrate the need for the bill. Rep. Lipps cited pizza sales, saying a pizzeria would face taxation for hiring an outside technology vendor to facilitate online sales, but would not face that taxation if it ran the online sales platform in-house.

This example was an actual Board of Tax Appeals case finding internet-based food ordering systems as taxable under EIS in America’s Pizza Co., LLC v. Testa, BTA Case No. 2016-1551, decided on September 5, 2017.

OSCPA has previously expressed concerns that ODT”s current audit interpretation amounts to a sales tax expansion harming Ohio’s service industry and is a proponent of HB 569. If you have questions, contact OSCPA Tax Policy Director Greg Saul, Esq.