COLUMBUS, Ohio (CN) – Internet retailers have sued Ohio, challenging its new sales tax on out-of-state merchants whose websites appear on computers and phones in the Buckeye State.
The American Catalog Mailers Association sued the Ohio Department of Taxation in the Franklin County Court of Common Pleas on Dec. 29. Represented by Elizabeth McNellie with Baker & Hostetler’s Columbus office, the ACMA calls Ohio’s “in-state software nexus” theory unconstitutional and unenforceable. It took effect Monday.
The law requires internet vendors who use “catalog applications downloaded onto the customer’s computer or cell phone and html and java script coding used in displaying the seller’s website on the customer’s computer or cell phone” to collect and remit Ohio sales tax, according to the lawsuit.
Retailers who have more than $500,000 in gross receipts in Ohio are subject to the tax. The law includes a “network nexus” for vendors who use internet service providers with servers in Ohio.
The ACMA, based in Washington, D.C., itself “the leading trade association in the United States” for catalog marketing. It claims the in-state software and network nexus theories violate the Due Process and Commerce clauses of the Constitution. They also say the state law is “discriminating against electronic commerce in contravention of the federal Internet Tax Freedom Act. “
Citing the U.S. Supreme Court ruling in Quill v. North Dakota (1992), the association says, “sellers who do no more than communicate with customers in the state by mail, wire or common carrier” lack the “substantial nexus” to collect state sales tax.
Quill calls for a “physical presence” in the state to justify the tax collection, the association says. And, the Internet Tax Freedom Act “ITFA bars any state law that would impose different collection obligations between Internet vendors, on the one hand, and other types of remote sellers, on the other hand,” according to the lawsuit.
Neither attorney McNellie nor the Ohio Department of Taxation responded to email requests for comment.