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Are "cookies" the next nexus for tax?

When it comes to taxing an out of state business, the standard test has been whether the retailer has a significant nexus with the state. The easiest way to find this significant nexus has been whether the retailer has physical assets located within a state or has employees.

If an entity operates a business with a physical locating in Ohio, that settles the question. However, a less obvious presence may also satisfy the nexus requirement. If the business has a warehouse, factory or distribution center, it will qualify, and in some cases, simply having a sales representative, who sells the products or is instrumental in helping those sales in the state, will also meet the significant nexus standard.

Online sales represent a significant portion of the retail economy. States like Ohio are anxious to find ways to tax the flow of commerce, as it represents potentially millions of dollars in lost tax revenue every year.

Congress could fix the issue, but has proven resistant to ending the de facto tax-free status out of state retailers products receive. Yes, individuals and businesses are supposed to pay a "use" tax on items purchased from out of state, but few do.

Ohio is now attempting to enforce a commercial activity tax (CAT) on businesses that generate more than $500,000 in gross receipts per year in Ohio. Crutchfield, a Virginia-based retailer has an appeal now pending in the Ohio Supreme Court to determine if the  CAT violates the U.S. Constitution and U.S. Supreme Court precedent on the issue.

Ohio has made an unusual argument as to why they should be able to tax this business, and we will look at that next time.

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

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