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Today, the American Catalog Mailers Association, Inc. filed a lawsuit against the Ohio Department of Taxation, seeking to declare unconstitutional a new state law that improperly expands the Department’s jurisdiction beyond the state’s borders in clear violation of existing U.S. Supreme Court precedent. The ACMA intends to demonstrate that Ohio’s software “cookie” nexus standard for sales/use tax is in direct contravention of the extraterritorial limits on state tax authority under Quill v. North Dakota.
The state is claiming that the mere presence of electrons placed on an Ohio computer pierces the longstanding “physical presence” test under Quill and subjects remote sellers to sales tax collection and other compliance obligations.
“This is an egregious assault on out of state companies seeking to sell to Ohio residents and effectively presents a barrier to interstate commerce that cannot be left unchallenged,” said ACMA President Hamilton Davison. “We have no doubt the Ohio judiciary, in light of the well-established national precedent created by the highest court in the land, will overturn this illegal new law.”
ACMA has filed this action just before the law’s January 1, 2018 effective date.
What This Means for Ohio Consumers
Were this law left unchallenged, Ohio consumers would be offered fewer products and not have the benefits of remote shopping available elsewhere in the country from online sellers who avoid doing business in Ohio as a result of its egregious and excessive assertion of regulatory and tax authority. Rural Ohioans, shut-ins and elderly citizens would be especially affected. All Ohio residents would have fewer choices and less shopping options. Ohio companies would also be impacted when other states place similar burdens on their out of Ohio sales.
Why the ACMA Is Suing Ohio
Part of the ACMA’s mission is to protect its members from overreaching state laws that burden interstate commerce. Individual companies, if they are audited and assessed, will be left to bear alone the cost of appealing the assessment and disputing the law. The ACMA is stepping forward on their behalf to challenge this untenable action by the State.
What the Alternatives Are for Catalogers
If Ohio can get away with ignoring Supreme Court limitations on the scope of its taxing authority, then we can expect many other states and local tax jurisdictions throughout the country to follow suit. Capitulation (i.e., commencing tax collection), of course, is always an available alternative. However, for many small and mid-size companies, the burden and unfairness of having to collect and remit taxes for thousands of jurisdictions, and be exposed to endless audits, is worth fighting over.
An appeal of a tax assessment by an individual company would require that company to wade first through a lengthy administrative appeal process before obtaining judicial review. We believe that prompt consideration by the courts is a far preferable course of action.
How This Will Impact ACMA’s Federal Tax Battle
Such state-aimed lawsuits are not in isolation from the overarching, national, Quill-preserving or updating strategy. The ACMA’s ultimate goal is obtain reasonable federal legislation, which will enable catalogers and other remote sellers to collect sales tax on a more simplified basis, without unduly burdening them compared to other retailers. If successful, such federal legislation would set the terms for sales tax collection by remote sellers for decades to come.
The ACMA is committed to achieving a long term nationwide solution that is fair to all parties concerned, which includes consumers, states, and merchants. In the meantime, state revenue departments should not be permitted to force catalog and e-commerce companies into compliance with the current crazy quilt of complex, confusing, and wildly differing sales tax regimes by adopting over-reaching new tax laws. Instead, state and local governments should join the ACMA and other industry organizations at the bargaining table to produce a more reasonable and simplified system of sales tax collection.
“This,” Davison said, “is a long-term process in which we are engaged. Unchecked, illegal actions, such as the one Ohio is pursuing, will damage significantly companies that have no political standing in Ohio and will add tens and hundreds of thousands in extra costs on small- and medium-sized businesses ill-equipped to bear this burden. Industry support for this strategy is critical.”