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2012: Anxious Optimism in State Taxes

January 26th, 2012 by Judd Ballard

Looking forward to 2012?  Let’s hope so.  Everyone is capable of finding a reason or two to ring in the New Year.  It would be stating the obvious to assume Ohio State football, the Columbus Blue Jackets, and Senate Bill 5 supporters are all leaving behind less than memorable 2011’s (leave Penn State alone…it’s still too early).  Can you imagine the instantly rejuvenating feeling on Woody Hayes Dr. seeing the date January 3, 2012 on your Tuesday morning newspaper?  And, it would be another six days before the decision making heads on Nationwide Boulevard figured it was time for a fresh start, and who knows if they’re finished.

What about the tax world?  With several state tax topics on the near horizon, it’s not so much leaving behind a bad 2011, as it is tax accountants and businesses alike should be anxiously optimistic about the fresh start a new year can provide.  For starters, the economy appears to be rebounding…all except for housing, they say, and who can argue?  Based on reported tax collections in the state of Ohio, there appears to be an unexpected increase over budgeted collections that indicate a moderate rebound.

Other state and local tax topics already trending in the New Year relate mostly to sales and use tax.  More Amazon (of course), more Main Street Fairness (yes, I know, we’ve made this claim before), and plenty of Ohio activity surrounding topics like cloud computing and the tax amnesty programs.  The Ohio consumer’s use tax amnesty, by all known accounts, appears to have been well received.

If you haven’t heard about Amazon and sales tax by now, you’re living in a cave.  In the news for more than a couple years, Amazon has refused to accept some states’ views that website linking agreements are sufficient enough to create physical presence for sales tax nexus.  Amazon struck agreements with some states, as recently as early-January in Indiana.  However, more than a couple of these agreements have related to actual physical presence (distribution centers, warehouses, etc.), not the web-site linking agreements that created such a stir in New York.  Is it fair to all taxpayers for these deals to continue?  The intended goal was to level the playing field.  Why does Amazon deserve a deal and no one else?  A little clarity in the New Year would be welcome.  Rumor has it Florida is about to play “Let’s Make a Deal”, yet Virginia appears to be joining the “tax-imposition” party.  Amazon has one distribution center in the state, with two on the way, and has never collected Virginia sales tax.

The Main Street Fairness concept has been around for several years as well, but seemed to pick up traction in the last half of 2011 with three separate bills, each with varying congressional support.  Spurred by the popularity of the Amazon issue, states are continuously looking for how best to capture all taxable sales made by online retailers lacking physical presence in the state.  In 2012, Capitol Hill is surely expected to take this a little more serious than years past.  At the state level, keep an eye on New Jersey (affiliate nexus provisions announced) and Georgia (recent discussions of extending the sales tax to online purchases).  In the meantime, businesses must refrain from telling themselves the use tax is a new tax.  Retailers, if you’re making sales over the internet, I challenge you to assign one point person sole responsibility for staying up to date on every bit of news out there regarding Amazon and Main Street Fairness.

After listening to the multiple discussions at this week’s Ohio Tax Conference regarding cloud computing, it has become obvious the state of Ohio is taking the position they’ll find a way to tax any cloud activity.  Similar to the state’s treatment of software, essentially everything is taxable.  The definitions of both electronic information service and automatic data processing service provided by the Department are just intentionally broad enough to allow the state to tax the clouds.  Gives new meaning to, “the sky’s the limit”.

My final thought, anyone even remotely concerned about potential Ohio consumer’s use tax exposure, please take advantage of the use tax amnesty opportunity currently available with the Ohio Department of Taxation.  The program lasts until May 2013 but do it now, don’t put it off.  Take advantage of the benefits being offered because you’re unlikely to ever see an amnesty program this taxpayer friendly for a long time, in any state.  Let’s not roll the dice and leave it up to the Department to determine the consequences (more thorough audits, more creative means of collection) of not participating in amnesty when it was offered.  There’s no telling how long the “kinder, gentler” moniker will last when this is over.

Happy New Year!

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