Comprehensive Tax & Legal Solutions

Are “cookies” the next nexus for tax? Pt.2

On Behalf of | Mar 5, 2016 | Tax Law

In our last post, we were discussing the topic of out of state taxation of a business that has no presence in Ohio. Under traditional conceptions of taxation, such a business would have no nexus with Ohio, other than that some customers were located here, and would not be subject to sales tax.

Ohio enacted a commercial activity tax (CAT), the Board of Tax Appeals upheld the imposition of this tax because the statutory definition of a “substantial nexus” with Ohio was satisfied by the fact the non-resident retailer had $500,000 in taxable gross receipts.

The BTA noted the constitutional objections but found it had no authority to rule on that issue and affirmed the tax on the meeting of the bright-line test from the statute of $500,000 in sales.

However, the Ohio Tax Commission had ruled that the physical presence test was satisfied by the use of “cookies” on the user’s computer when they make a transaction. And they went even further, claiming the CAT was more like an income tax and did not  need to satisfy the physical presence requirement for the substantial nexus analysis.

Given the trillions of dollars in commerce that has moved to the internet, the relevance of the U.S. Supreme Court case that has been relied upon  has been questioned. That case was decided in 1992 when mail order sales amounted to $180 billion per year. In 2008, that total was up to $3.16 trillion.

There is little doubt that states are likely to continue to look for ways to tap into billions in potential tax revenue represented by this commerce. It is unclear if the U.S. Supreme Court will reconsider its 1992 ruling in the near future. Until then, retailers may find more examples of CTA type taxes being imposed.

Source:, “ Ohio High Court Case,” Eric Kroh, February 9, 2016