UPDATE July 14, 2016: Digital Advertising Taxed as EIS - On July 14, 2016, Ohio passed HB 466 that will exempt certain digital advertising services from Ohio sales and use tax. These services include those that provide access, via telecommunications equipment, to computer equipment that is used to enter, upload, download, review, manipulate, store, add or delete data for the purpose of electronically displaying promotional advertisements to potential customers, e.g., a website used by a business to list and advertise their inventory online.
The exemption will be effective 91 days after filing with the Secretary of State, and applicable on the first day of the first month that begins at least 30 days after the effective date of the legislation. We anticipate that effective date to be December 1. We do not believe this will change any audit determinations for periods prior to the law change. However, keep in mind that the proposed legislation does not change the definition of EIS and therefore does not affect any services except those related specifically to digital advertising.
March 7, 2016: Ohio has updated its previous information release (Information Release ST 1999-04, On-line Services and Internet Access) to further clarify the types of items the state is taxing as electronic information services (EIS).As a result of recent sales and use tax audits, Ohio has broadened the list, aggressively classifying nearly all online transactions where a subscription, license or user fee is charged by the vendor as taxable EIS. Industries such as auto dealers, retail and investment company information providers will be directly affected.
Taxable EIS is defined as:
“Providing access to computer equipment by means of telecommunications equipment for the purpose of examining or acquiring data stored on the computer equipment or placing data into the computer equipment to be retrieved by designated recipients with access to the computer equipment.”
Ohio has determined there are many types of subscription services provided over the internet that meet the definition of EIS and, therefore, are taxable for Ohio sales and use tax.For example, an auto dealership that uses a subscription service to obtain a history of an automobile from a database maintained by the vendor of the subscription service would qualify as EIS (think CARFAX or the National Motor Vehicle Title Information System). Another example would be a subscription service provided by an investment information company in which the subscribers can access stock information, such as Bloomberg.
Another area Ohio has determined to be taxable EIS is any website used by a business to list and advertise their inventory online.If the business has access to and can control the advertisement, then it will be taxable as EIS.Specific examples include websites for TRUECar, Autotrader, AbeBooks, eBay and Amazon, among many other websites businesses could be using to advertise.Ohio states in the information release that these types of sites will reach the level of EIS if:
1. Potential purchasers have the ability to search the site, and
2. Businesses have access to the computer equipment by logging into their account to perform one of the following functions: maintaining contact information, uploading pictures and videos, attaching descriptions, adding taglines or slogans and manipulating the inventory to show real-time inventory.
To help combat the potential additional tax on advertising websites, the Ohio Auto Dealers Association (OADA) in conjunction with Representative Smith introduced legislation last week that would expand the definition of personal and professional services to include digital advertising services. Currently, professional services are exempt from sales tax, even when provided in an EIS format.
If the legislation is passed, it would make digital advertising services in any industry exempt from sales tax. However, the legislation will take some time to work its way through before coming to a vote. Also, since the proposed legislation does not change the definition of EIS, if passed it will not affect any services except those related specifically to digital advertising.
It’s important to note that the information release provided by the state of Ohio does not represent a law change but simply clarifies items Ohio is aggressively taxing as EIS during audits.
Depending on the circumstances, taxpayers may be able to argue that all or a portion of qualifying EIS purchases are exempt as a professional service. Take a moment to review your purchases to evaluate the sales and or use tax treatment of similar items related to your business. Reach out to your advisors if a material liability is identified or to address any questions.
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