Sep 8, 2010

Ongoing struggle regarding commercial activity tax

Posted by Wendy Weber

The discord between ecommerce marketers and individual states continues. Advocates call for an advertising nexus tax because they think a sales tax collection obligation for out-of-state online companies is an equalizer for brick-and-mortar “main street” retailers. Online retailers feel that efforts to impose eTaxes across state lines violate the Dormant Commerce Clause, which restricts states from passing legislation that burdens or impedes interstate commerce.

In a recent development, written about by InternetRetailer.com, the Ohio Department of Taxation has informed multichannel retailer L.L. Bean Inc. that it owes the state $210,770 in back taxes, interest and penalties that accrued under the state’s commercial activity tax law.

The state’s commercial activity tax, sometimes called a business privilege tax, requires companies to pay a tax on the value of their gross receipts on sales to Ohio customers. Ohio enacted the law in 2005 and has phased it in gradually, with the law’s full 0.26% tax rate taking effect in the second quarter of 2009.

L.L. Bean appealed the finding to the state’s tax commissioner, contending that the tax doesn’t apply to the retailer because it has no physical presence or nexus in Ohio.

A decision in an Ohio court would not be binding on other states, of course, but what happens in one state is often followed by tax administrators in other states, so this matter is being closely followed in the ecommerce world.

To learn more about this issue, here is a recent article that appeared in InternetRetailer.com: click here.

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