United States: Ohio Enacts Budget Including Click-Through Nexus Provisions

On June 30, Ohio Governor John Kasich signed budget legislation which makes various changes to sales and use tax nexus standards, including the adoption of click-through nexus.1 Other enacted changes include a decrease in personal income tax rates and an increase in the benefit available from a small business deduction.


Beginning July 1, 2015, an out-of-state retailer is presumed to be doing business in Ohio and is required to impose, collect, and remit sales and use taxes if the retailer enters into an agreement with one or more Ohio residents under which the resident, for a commission or other consideration, directly or indirectly refers potential customers to the seller, whether by a link on a Web site, an in-person oral presentation, telemarketing, or otherwise.2 This presumption applies only if the cumulative gross receipts from sales to consumers referred to the seller by all such residents exceed $10,000 during the preceding twelve months.3

The presumption may be rebutted by submitting proof that each resident engaged by the seller did not engage in any activity within Ohio during the preceding twelve months that was significantly associated with the seller's ability to establish or maintain its Ohio market.4 Such proof may consist of sworn written statements from all the residents with whom the seller has an agreement stating that the resident did not engage in any solicitation in Ohio on behalf of the seller during the preceding twelve months.5

Also, modifications were made to the list of activities presumed to create substantial nexus with Ohio. Specifically, statutory language was modified to clarify that the following activities are indicative of substantial nexus:

  • the use of an office, distribution facility, warehouse, storage facility, or similar place of business in Ohio, whether operated by the seller or any other person, other than a common carrier acting in its capacity as a common carrier;
  • the regular use of employees, agents, representatives, solicitors, installers, repairers, salespersons, or other persons in Ohio for the purpose of conducting the business of the seller, or either to engage in a business with the same or a similar industry classification as the seller selling a similar product or line of products as the seller, or to use trademarks, service marks or trade names in Ohio that are the same or substantially similar to those used by the seller; and
  • the use of a person, other than a common carrier, to:

    • receive orders;
    • use that person's employees or facilities in Ohio to advertise, promote, or facilitate sales by the seller to customers;
    • deliver, install, assemble or perform maintenance services for the seller's customers; or
    • facilitate the seller's delivery of tangible personal property to Ohio customers by allowing them to pick up property sold by the seller at an office,  distribution facility, warehouse, storage facility, or similar place of business; or
    • have an affiliation with a person that has substantial nexus with Ohio.6

The presumption that any of these activities results in substantial nexus with Ohio may be rebutted by demonstrating that activities conducted in Ohio on the seller's behalf are not significantly associated with the seller's ability to establish or maintain a market in Ohio for the seller's sales.7

Activities which are no longer listed as singularly indicative of nexus include registration with the Ohio Secretary of State to do business in the state, and any other contact with Ohio which would allow Ohio to require the seller to collect and remit sales tax based on U.S. Constitutional standards.8 In order to sell or lease tangible personal property or provide services to a state agency, a seller without substantial Ohio nexus must register with the Tax Commissioner as if nexus existed.9

Personal Income Tax

A reduction in personal income tax rates across all brackets is effective retroactively to January 1, 2015. The new top marginal rate is reduced from 5.333 percent to 4.997 percent, while the lowest rate is reduced from 0.528 percent to 0.495 percent.10

Also, an increase in the available small business deduction available to certain business owners, including investors in pass-through entities, was enacted. For tax years beginning in 2015, a deduction of 75 percent of Ohio business income is available, limited to $187,500 (previously, the deduction was 50 percent of Ohio business income, limited to $125,000).11 For tax years beginning in 2016, a deduction of 100 percent of Ohio business income is available, limited to $250,000.12 In addition, taxable business income remaining after this deduction is taxed at a rate of 3 percent beginning in 2015.13

Commercial Activity Tax

A single exemption from the Commercial Activity Tax (CAT) was added by the new law. Specifically, an exemption from the CAT is added for certain qualifying integrated supply chain receipts from personal care, health or beauty products or aromatic products. To qualify for the exemption, a business must be located in a narrowly defined district.14

Sales and Use Tax

As of July 1, 2015, a sales and use tax exemption is available for reimbursed rentals of motor vehicles provided to owners or lessees while another motor vehicle is being repaired or serviced.15 The Tax Commissioner must abate all unpaid taxes and penalties and interest related to the provision of these rental vehicles before July 1. However, taxpayers with an unpaid tax liability as of September 1, 2015 are ineligible for this abatement.

Also, the law clarifies that sanitation services required by federal food safety regulations provided to a meat processing or slaughtering operation are not subject to sales tax.16 Such sanitation services are not taxable "building maintenance and janitorial services."

Other Changes

The enacted legislation also makes various other changes to tax statutes, including:

  • Limiting the availability of certain personal income tax credits, including the retirement income credit, the lump-sum retirement credit, and the senior citizen credit, to taxpayers with individual or joint adjusted gross income of less than $100,000;17
  • Amending the computation of the job creation and retention tax credits to depend upon a percentage of the taxpayer's Ohio employee payroll rather than withholdings. The law also decreases the allowable time frame (from 60 to 30 days) within which to submit a copy of a job creation or retention tax credit certificate requested by the taxing authorities;18
  • Modifying the municipal income tax statutes, including adding an election to tax the net profit of a publicly traded partnership as if it were a C corporation instead of being treated as the net profit or income of any owner of the partnership;19 and 
  • Increasing the sales or use tax on cigarettes from $1.25 per pack to $1.60 per pack.20


By enacting click-through and affiliate nexus provisions designed to improve sales and use tax collections, Ohio joins the ranks of several other states.21 Specially, Ohio's enacted language closely mirrors the statute enacted by New York, which has been held to not facially violate the U.S. Constitution under either the Commerce or Due Process Clauses.22 Similar language was also enacted by Nevada earlier this year.23

The other changes enacted by Ohio surrounding the presumption of substantial nexus are intriguing. Elimination of the long-standing language attributing nexus to companies registered to do business in Ohio, combined with the enacted language providing an allowance for a potential taxpayer rebuttal of substantial nexus, could result in an increase in nexus disputes. Specifically, the language allowing for nexus rebuttal if certain specified activities conducted in Ohio on the seller's behalf are not significantly associated with the seller's ability to establish or maintain a market in Ohio appears to set the stage for potential controversy. Similarly, the newly enacted click-through nexus standards may be rebutted by demonstrating that the Ohio parties at issue did not engage in any activity within Ohio during the preceding twelve months that was significantly associated with the seller's ability to establish or maintain its Ohio market. No definition of the term "significantly" is provided in this context. It will be interesting to follow the potential nexus disputes arising from the enactment of these statutes.

Finally, several items included in the Governor's original budget proposal did not survive the legislative process. For example, proposals to increase the CAT rate, increase the state sales and use tax rate, and expand the sales and use tax to apply to the provision of certain services were discarded during the legislative process. Also, the Governor vetoed multiple line items including a provision which would have enacted Ohio's fourth amnesty program in recent years.


1 Amended Substitute House Bill 64, Laws 2015.

2 OHIO REV. CODE ANN. § 5741.01(I)(2)(g).

3 Id.

4 OHIO REV. CODE ANN. § 5741.01(I)(4).

5 Id. The statements must be provided and obtained in good faith. 6 OHIO REV. CODE ANN. § 5741.01(I)(2)(a)-(f).

7 OHIO REV. CODE ANN. § 5741.01(I)(3).

8 Previous OHIO REV. CODE ANN. § 5741.01(I)(7)-(8).

9 OHIO REV. CODE ANN. § 5741.01(I)(5).

10 OHIO REV. CODE ANN. § 5747.02(A)(3).

11 OHIO REV. CODE ANN. § 5747.01(A)(31), (HH)(1). 12 OHIO REV. CODE ANN. § 5747.01(A)(31), (HH)(2).

13 OHIO REV. CODE ANN. § 5747.02(A)(4).

14 OHIO REV. CODE ANN. § 5751.01(F)(2)(jj).

15 OHIO REV. CODE ANN. § 5739.02(B)(42)(p).

16 OHIO REV. CODE ANN. § 5739.01(II).

17 OHIO REV. CODE ANN. § 5747.055(B).

18 OHIO REV. CODE ANN. § 122.17(A), (H).

19 OHIO REV. CODE ANN. § 718.01(D)(4). A publicly traded partnership that is treated as a partnership for federal income tax purposes and subject to tax on its net profits in one or more municipal corporations in Ohio may elect to be treated as a C corporation for municipal income tax purposes. The publicly traded partnership must make the election on an annual return in every municipal corporation in which the partnership is subject to taxation on net profits. 20 OHIO REV. CODE ANN. § 5743.02.

21 The following states have enacted click-through nexus laws: Arkansas, California, Colorado, Connecticut, Georgia, Illinois, Kansas, Maine, Michigan, Minnesota, Missouri, Nevada, New Jersey, New York, North Carolina, Rhode Island, Tennessee, Washington and Vermont. Similarly, the following states have enacted affiliate nexus laws: Arkansas, California, Colorado, Georgia, Illinois, Iowa, Kansas, Maine, Michigan, Missouri, Nevada, New York, Oklahoma, South Dakota, Texas, Utah, Virginia, and West Virginia.

22 Overstock.com, Inc. v. New York State Department of Taxation and Finance, 987 N.E.2d 621 (N.Y. 2013); cert. denied, 134 S. Ct. 682 (2013). For a discussion of this case, see GT SALT Alert: New York State Court of Appeals Holds Click-Through Nexus Statute Is Facially Constitutional and GT SALT Alert: U.S. Supreme Court Declines to Consider Whether New York's Click-Through Nexus Statute Is Facially Constitutional.

23 For a discussion of the Nevada legislation, see GT SALT Alert: Nevada Enacts Rebuttable Presumption of Sales and Use Tax Nexus.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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