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Sales and Use Tax - Substantial Nexus and Marketplace Facilitator
Sales and Use Tax - Substantial Nexus and Marketplace Facilitator

The original decision in South Dakota v. Wayfair, Inc. did not have an immediate, direct impact on Ohio. The Court ruled on the laws in another state; not on Ohio’s tax laws, Since that decision, however, Ohio has adopted a standard that looks at the gross receipts or transaction thresholds of a seller in the current calendar year and/or the previous calendar year. If the seller’s gross receipts are greater than $100,000 or the seller has at least 200 transactions in either year, the seller has substantial nexus and is required to register for a seller’s use tax account to collect from consumers, file returns, and remit the appropriate tax.
Effective August 1, 2019, if the seller’s gross receipts are greater than $100,000 or the seller has at least 200 transactions in either the current or previous calendar year, the seller has substantial nexus and is required to collect from consumers, file returns, and remit the appropriate tax. Gross receipts include taxable and non-taxable sales combined. If the taxpayer has all exempt sales, they would not need to apply for a seller’s use license. Note – Any person or business that has a physical presence in Ohio and makes taxable retail sales must be registered with the Department. These minimum thresholds do not apply to any business with a physical presence in Ohio.
Out-of-state sellers that registered in Ohio prior to the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc., are not impacted by this decision and should continue to collect and remit sales and use tax.  Unregistered out-of-state sellers should verify whether or not they meet the new definition of substantial nexus in Ohio.
Physical presence and certain other activities in Ohio still create substantial nexus in Ohio. However, under the new substantial nexus statutes effective August 1, 2019, out-of-state sellers with substantial nexus are required to collect and remit Ohio tax on all sales of taxable products and services made from sources other than a marketplace facilitator into Ohio unless a fully completed exemption certificate is received. Effective September 1, 2019 marketplace facilitators are liable to collect and remit Ohio sales tax on sales of taxable products and services made on behalf of marketplace sellers.

Taxpayers will not be required to collect and remit sales tax on taxable sales made through a marketplace, so long as the marketplace facilitator is collecting and remitting sales tax on your behalf. However, those sales must be taken into consideration when making a substantial nexus determination.

Out-of-state sellers that also make sales outside of a marketplace should report all of their gross sales on line one of their tax return and deduct those sales made through a marketplace facilitator by listing those sales with their exempt sales on line two of the return.

The Department encourages taxpayers who are considered marketplace facilitators to acquire a second account (seller’s use) to report third party sales made via the marketplace. Marketplace facilitators will continue reporting their direct sales on their existing vendor’s or seller’s use account.
All sellers.  Additionally, the marketplace facilitator must look to whether the marketplace facilitator, on its own behalf, and/or sales or transactions into Ohio it facilitates in the aggregate meet the thresholds. A marketplace seller would also aggregate all sales and transactions into Ohio made through all marketplace facilitators as well as any Ohio sales that they make on their own when determining whether they meet the thresholds.
The threshold applies to all gross receipts regardless of whether they are made on-line or by some other means including sales made through marketplace facilitators.
Sales made by the marketplace facilitator on behalf of marketplace sellers are always destination sourced regardless of where the order is received.
Per R.C. 5741.05(B) destination-based sourcing only applies to “sales facilitated by the marketplace facilitator.”  It makes no mention of sales made on the marketplace facilitator’s own behalf.  When the marketplace facilitator makes their own sales into Ohio (and the order is received in Ohio), origin-based sourcing is applied and the marketplace facilitator would source these sales based on where the order is received.

Out-of-state sellers may register through the Ohio Business Gateway or the Streamlined Sales Tax Project.

Ohio Business Gateway — Out-of-state sellers may obtain a seller’s use tax license immediately through the Ohio Business Gateway (Gateway). Note: Businesses must first establish an account with Gateway before using it to request a seller’s use tax license.
Streamlined Sales Tax Registration System – Out-of-state sellers may register for multiple states, including Ohio, by submitting a single application through the Streamlined Sales Tax Registration System. 

Businesses with a physical presence in Ohio should register for sales tax by obtaining a vendor’s license. 

The Department will look at the “current or preceding calendar year” to determine whether the $100,000/200 transactions threshold has been met.  If a seller has only 140 sales and $80,000 of transactions in the current year, the Department would look back to the preceding calendar year to see if they have substantial nexus.  If in the preceding calendar year the threshold was met, the taxpayer would still be required to file/remit tax in the current year.  The taxpayer would only be able to cancel their account on January 1 of the subsequent calendar year if during the preceding two years they did not meet the threshold.  However, if the taxpayer meets the threshold in the current calendar year, the taxpayer would have re-established substantial nexus, so the taxpayer should be cautious when canceling their account.

No. As long as all of the sales made by the marketplace seller are reported by and the Ohio tax collected by the marketplace facilitator, the marketplace seller does not need to register for a seller’s use or vendor’s license. Please note - If the marketplace seller chooses to keep their account open and does not file returns, the marketplace seller would receive delinquency notices from the Department.

The website where you are shopping may now be required to collect Ohio sales tax (they now have substantial nexus with Ohio) as either a marketplace seller or marketplace facilitator. 

Additional Resources

Additional Resources