The Republican-led Ohio General Assembly successfully has applied a legislative fix to the state tax code after the Tax Department last year revised its interpretation on digital advertising.
Gov. John Kasich last week signed House Bill 466 into law after a relatively quick course through Ways and Means Committee hearings in both houses.
“You may recall that during the last two budget cycles this body said no to expanding the sales tax base to include advertising services,” said bill sponsor Rep. Ryan Smith, R-Bidwell, during testimony before committee members. “Numerous parties appeared before you to emphasize the negative impact doing so would have had on their businesses.
“In response, there was overwhelming support within the legislature to retain the tax exemption on advertising services. I believed at that time the issue was addressed.”
Then, in December of 2015, the Ohio Department of Taxation issued an updated informational release on online services and internet access, which effectively applied sales tax to digital advertising services, testimony outlined.
Smith said it is common sense that digital advertising be included on the current list of professional services currently exempt from sales and use tax.
Throwing his support behind HB 466, Columbus attorney and partner at Vorys, Sater, Seymour and Pease LLP Tony Ehler said the legislation clarifies state tax laws and prevents an unintended tax.
“HB 466 continues the policy of encouraging commerce and promoting retail sales,” Ehlar said on behalf of the Ohio Automobile Dealers Association and Ohio Association of Broadcasters “This is good both for the marketplace and consumer choice.
“It generates more retail sales and produces more sales tax.”
According to the Ohio Legislative Service Commission’s analysis of the bill, digital advertising under current law can be considered an electronic information service that is a taxable electronic service if used for business purposes.
Continuing law, unchanged by the bill, distinguishes between taxable electronic information services and personal and professional services.
“Although some services satisfying the bill’s definition of digital advertising services may currently qualify as a personal or professional service, the bill explicitly classifies all digital advertising services as a personal or professional service, effectively exempting all digital advertising services from sales and use tax,” Mackenzie Damon wrote for the commission.
In its fiscal analysis of the measure, the commission suggested it only could speculate on the impact because of a lack of reliable statistics on the subcomponent of digital advertising that overlaps with electronic information services.
If imminent and ongoing tax enforcement actions by the department raise revenue, the commission’s analysis provided, those indeterminate tax revenue amounts would be foregone by the enactment of the bill.
The sales and use tax is a General Revenue Fund (GRF) tax, and the Local Government Fund and Public Library Fund receive 1.66 percent and 1.70 percent, respectively, of GRF taxes during Fiscal Year 2016 and Fiscal Year 2017.
Enacting the measure will reduce receipts in both of the funds by an indeterminate amount, summary concluded.
The law is expected to become effective later this fall.