Local retailers await Court ruling
Case deals with imposing sales tax on online purchases
Online buyers and sellers across the nation are awaiting a U.S. Supreme Court decision that could affect the future of online sales — whether states have the right to impose sales tax on out-of-state internet purchases.
The case at hand questions whether an online seller with no physical presence in the buyer’s state must charge a sales tax established by the buyer’s state.
The case will likely set a strong precedent for future internet commerce cases. Oral arguments were heard April 17 and a ruling is expected by June 30.
One traditional retailer sees the case as a way to level the playing field between e-commerce and brick-and-mortar shopping.
Anthony Cafaro Jr., co-president of Niles-based Cafaro Company, which owns the Eastwood Mall and multiple other shopping centers across the U.S., said local sales tax revenue is essential to maintaining a high standard of living in the Mahoning Valley.
“Where people spend their money is a vote for their future,” said Cafaro. “It’s not just about pricing and convenience. Stores employ cashiers, shippers, etc. It also creates a cycle that helps employ local fire and police.”
Cafaro said people would complain if services such as parks were cut due to a decline in sales tax revenue. If a community wants to maintain its vitality, brick-and-mortar stores are important, Cafaro said, noting there are direct and indirect costs associated with a decline in sales tax revenue.
Under Ohio law, if an internet seller is located in Ohio, he / she must remit sales tax to the state on sales of tangible personal property to buyers in Ohio.
If a seller is out-of-state, but has a connection to Ohio — a warehouse, office, sales representative, etc. in the state — he / she must still remit sales tax on sales of tangible personal property to the state.
However, if the seller is out-of-state and has no connection with Ohio, he / she does not have to collect and remit Ohio sales tax.
On the other hand, purchasers still owe sales tax, a requirement they must fulfill by self-reporting.
Additionally, Ohio is one of several states that have instituted “Amazon taxes” on large out-of-state sellers.
The rule mandates those large sellers collect sales tax from Ohio customers if the seller pays for an Ohio company to provide customer referrals and the out-of-state seller’s gross sales top $10,000 during the previous 12 months. The state enacted the tax in 2015.
Matt Chafin, chief legal counsel for the Ohio Department of Taxation, said the state has made its views known.
“We absolutely want to treat both types (of retail) the same,” said Chafin.
Chafin said Ohio lawmakers passed a law stating if Congress enacts a law to require a remote seller to collect or remit sales tax, the proceeds would be placed in an income tax reduction fund.
Although it may be the Supreme Court, rather than Congress, that allows for the online sales tax, Chafin said he believes the state will go ahead with the income tax reduction fund if the court rules in favor of more internet sales tax.
Chafin also said if the Supreme Court rules in favor of states trying to collect online sales tax, it will be up to every state to decide how to handle uniformity across states. This will be challenging, Chafin said, because there may be municipalities and counties within states that have their own sales tax rates.
“I like to think there will be technological answers to streamline the process,” Chafin said.
Cafaro thinks it is clear why the nation’s highest court has agreed to hear the case.
“The Supreme Court has taken on the case because lawmakers haven’t kept up with technology,” Cafaro said. “Opponents (of the internet sales tax) say it is burdensome.” But, he adds, “it’s hard to believe in today’s time” that a solution can’t be found.
Despite the possible decline in local revenue as a result of online purchases, sales tax revenue in Trumbull County has risen steadily over the last decade, save for a small dip during the recession in 2009 and 2010.
In 2007, county sales tax revenue stood at $21.2 million. After increases of roughly $1 million annually, the county’s sales tax revenue rose to $26.6 million in 2017. Trumbull County has a sales tax rate of 6.75 percent.
Trumbull County Auditor Adrian Biviano attributes the upward trend to economic growth and the imposition of the Amazon tax.
However, tax revenue is lagging by $800,000 this year compared to 2017, a decrease Biviano said is caused, in part, by the state of Ohio’s elimination of a tax on Medicaid-managed care organizations last year.
Regardless of the final decision handed down by the Supreme Court, Cafaro said he is not necessarily an opponent of online sales.
Also, e-commerce and brick-and-mortar shopping are not necessarily mutually exclusive. Some retailers at the Eastwood Mall allow consumers to purchase goods online and then pick them up at the store without having to wait for the product to ship, Cafaro said.
“E-commerce will continue to grow,” Cafaro said. “All that case is about is equitable treatment.”