Supreme Court Decision over Online Retail will have major impact on Ohio

By Jason Warner, Manager of Government Affairs

Last week, the United States Supreme Court ruled on a case out of South Dakota that will greatly impact Ohio and other states who have argued that they were losing out on billions of dollars in tax revenue due to online sales.

The decision in the case of South Dakota v. Wayfair, Inc. reverses a previous ruling from the high court in 1992. In that case (Quill Corp. v. North Dakota), the court ruled that a company was exempt from charging and remitting sales tax in any state in which it did not have a physical presence, or nexus. Because Quill Corp was a catalog-based company that did not have a physical office, such as a store or distribution center, in the state of North Dakota, they did not have to collect and remit state or local sales tax.

The full impact of the Quill decision would not be felt for many more years, as the idea of online retail was just in its infancy (Amazon was founded in 1994, Ebay in 1995, and in 1999, all several years after the Quill decision). The rapid growth of e-commerce has completely reshaped the nations retail landscape – 13% of total retail sales in 2017 were on e-commerce platforms, and that represents 49% of the total retail sales growth in that same year. A number of large retailers were already collecting sales tax on online transactions; however, many smaller businesses and third-party sellers have not. While Ohio collected $10.8 billion in sales tax from online companies in the most recent fiscal year, the Government Accountability Office (GAO) reported Ohio could bring in an additional $288 million to $456 million a year if all online sellers remitted sales tax.

Policymakers are already looking to ready legislation to make that happen. State Rep. Gary Scherer, the vice chairman of the Ohio House Ways & Means Committee, said last week that he is working on encouraging congressional action, either by utilizing existing state law or through a new bill, to begin collecting sales tax. Doing so could help the state restore funding that has been cut over the past several years, such as funding to the local government fund, which has been cut nearly 31 percent since 1997, or to public transit funding, which has been slashed more than 70 percent over the same period. Revenues from online sales could also help to make-up the more than $200 million in lost revenues counties and transit agencies experienced as a result of the end of the MCO sales tax in 2016.

Check back for updates as work continues in the Statehouse. Lawmakers will not want to delay, as they seek ways to capture more of this revenue and enhance state-provided services for Ohioans.