Monday marks Cyber Monday, the Monday after Thanksgiving when online retailers hope you’ll click it and ship it with your gift ideas.
The Ohio Supreme Court gave Ohio’s government something of a gift recently. In its ruling involving Crutchfield Corporation, an online electronics distributor, the court ruled companies with more than $500,000 in sales must pay the state its commercial activity tax.
This is a victory for Ohio’s government, residents and businesses. The rules of play should be the same whether you’re operating a store on Elida Road or in Elmira, New York.
To be clear, this isn’t Ohio’s sales tax. You only have to pay Ohio’s sales tax on an online order if the business has any kind of physical presence in Ohio. Given the number of companies, including Amazon, with central Ohio data centers, that’s a healthy number. (Ohio also has its so-called “Amazon Law,” saying larger Internet retailers must also pay sales tax if it gets customer referrals from an Ohio seller’s website or exceeds $10,000 in Ohio customer sales.)
This particular ruling focuses on that commercial activities tax, a tax implemented in 2005 for businesses with Ohio taxable gross receipts above $150,000 for the privilege of doing business in the Buckeye State. It brings in about $1.7 billion a year to fund your Ohio government, including money passed down to local entities.
Justin William M. O’Neill wrote that the U.S. Constitution’s commerce clause does not forbid the collection of a “privilege to do business” tax, such as the commercial activity tax.
Applying this ruling is just common sense. Internet businesses have had an advantage for years, skating through paying taxes their brick-and-mortar competitors must pay. This may seem fair for a small start-up, but it’s patently unfair when the largest online retailers can not only undercut a local competitor’s prices but also avoid paying the same taxes built into the prices you’re paying a local retailer.
That’s not to say online retailers might not still have the lowest price. We’ll let the market decide that, but they should be playing by the same rules if they’re selling to Ohioans.
We’re happy to see common-sense rulings that apply the rules of the physical world to the online world. There are a myriad of other areas where the physical world and online world still need to meet, but it’s good to see this ruling bring those two worlds closer together.
The reality is these online purchases do put wear and tear on our local resources, particularly roads during delivery. While it’s certainly a trickle-down system, some of these state funds do end up back in the local government’s pocket, filling in that pothole that the delivery driver keeps hitting on a rainy day.
We’re not sure we’ve seen the last of this issue. Certainly there are interstate tax implications that only Congress or possibly the U.S. Supreme Court can decide.
Until then, we’re happy to see these online behemoths paying their share.