local option sales and use taxes the option of adopting their own sourcing rules for instate

sales.

adopt a single statewide rate option for sales into the state from out-of-state locations.

Sellers making sales into the state from locations outside the state would have the option

to source their sales into that state under the rules of section 310A of the Agreement

(destination sourcing) or to collect the single statewide rate for those sales.

from out-of-state, regardless of nexus.

in effect in any jurisdiction in the state.

a simple alternative to the destination sourcing rules.

section 310 of the Agreement.

applicable where the consumer receives the product sold is higher than the single

statewide rate, no additional tax could be charged to make up the rate for the jurisdiction

where the property is received. If the item is moved, tax for the subsequent jurisdiction

could apply use tax as applicable under state law.

sold is received, the state would be required to give the consumer a refund of the

difference in the tax rates. The state must provide the purchaser with at least one year to

file such a claim.

is an exception to the single state rate provisions of that section.

Some concerns have been raised about whether the amendment to sections 308 and 310 of the

Streamlined Sales and Use Tax Agreement (SSUTA) violate the Commerce Clause of the United

States Constitution. The purpose of this document is to address those concerns.

Ohio levies state sales and use tax and permits counties and regional transit authorities to levy

permissive (piggyback) sales and use taxes at varying rates. Under the Ohio sales tax, most sellers

collect sales tax on an origin basis, that is, at the rate applicable at the seller’s location. Out-of-state

sellers with nexus and other out-of-state sellers that volunteer to collect Ohio tax does so at the rate

applicable on a destination basis, or where the item is delivered to the consumer.

Originally, under Ohio use tax law, if an Ohio consumer purchased an item from an Ohio vendor

and paid sales tax to the vendor, the purchaser would not owe use tax. This created a situation

where a consumer making purchases in a high tax rate jurisdiction from an in-state seller located in

a lower rate jurisdiction would pay less tax than if the purchaser bought the same item from an outof-

the Ohio Supreme Court found this situation to be in violation of the United States Constitution as a

discrimination against interstate commerce.

statutes to apply the Ohio use tax to all sales made either in Ohio or from out-of-state. The sales tax

paid effectively is now a credit against the use tax due. On an in-state sale, if a consumer purchases

an item from an in-state vendor that collects sales tax at a lower rate than the rate that applies in the

jurisdiction where the consumer uses the item, the consumer owes the difference between the two

rates as a use tax. Thus, this eliminates the discrimination against the out-of-state seller.

Court found that a Missouri use tax provision establishing a flat tax rate discriminated against

interstate commerce in localities where the flat rate exceeded the local sales tax rate. Under the

Missouri system, the state levied a sales tax and allowed localities to levy an additional sales tax.

However, for the use tax, the state levied its state rate and a flat 1.5% additional use tax on all items

purchased from outside the state. This additional tax was in lieu of local use taxes. Therefore,

purchasers in those jurisdictions where the local sales tax rate was lower than the statewide flat

additional use tax rate, would be required to pay a higher tax on an interstate sale than on a sale

from a local vendor.

This is unlike the situation in Ohio where the use tax is structured to eliminate discrimination

acknowledged:

… The 15 states listing in footnote 16 of our main brief have adopted complementary

use tax schemes that have produced both the desired revenue and the desired protection

of local businesses without crossing the bright line drawn in the sand by the Commerce

Clause.

In the list of states in the referenced footnote, the petitioner included, among others, Ohio, Kansas

and Tennessee. It is worth adding that Tennessee currently has a flat rate option for out-of-state

sellers, which has never been challenged.

Under the Ohio proposal, a state could continue to tax intrastate sales on an origin basis if it so

wished. However, if the state chose to do that, it would have to provide out-of-state sellers with the

option to use a single statewide rate. Note that such a seller may choose to source its sales on a

destination basis or to use the single statewide rate, whichever suits its business better. This is very

similar to the Tennessee system as we understand it.

However, the Ohio proposal adds features to ensure that the interstate sale is not discriminated

against. For sales where the out-of-state seller collects at the single statewide rate and that rate is

equal to or lower than the rate in the purchaser’s jurisdiction, the purchaser will owe no additional

tax. If an out-of-state seller collects tax at a rate higher than the rate applicable in the purchaser’s

jurisdiction, the purchaser will have the opportunity to obtain a refund for the difference.

For an in-state purchase where the rate in the seller’s jurisdiction is lower than the rate in the

purchaser’s jurisdiction, under Ohio law the purchaser would still owe the difference in the rates in

However, if the in-state seller collecting tax on an origin basis collects tax at a higher rate than that

applicable in the purchaser’s jurisdiction there is no refund of the difference.

Thus, for an in-state sale, the in-state purchaser will be liable for tax at a rate no less than, but

possibly more than, the rate in the purchaser’s jurisdiction. For an interstate sale, the rate in the

purchaser’s jurisdiction will be the maximum the purchaser will be liable for. (In the latter case, the

maximum rate will, in some cases, be enforced by the consumer seeking a refund.) Thus, if there is

any discrimination, it will fall on sales of the in-state seller operating out of a high rate jurisdiction.

To the extent this happens, discrimination against in-state sellers does not violate the Commerce

Clause of the United States Constitution.

An argument may be raised that the possible discriminatory effect against some in-state sellers

would violate the Equal Protection Clause of the United States Constitution. The United States

The Court said that, to avoid an equal protection claim against a taxing statute, the state had to show

a “rational basis” for the different treatment and that such treatment is not “palpably arbitrary.” The

basis for this proposal is to continue to allow most in-state sellers to collect at a single origin-based

rate and not have to adopt the complexity of collecting at multiple destination-based rates, while

providing simplification for out-of-state sellers in the hope of increasing the collection of use tax on

interstate transactions.

In summary, it appears that objections to the Ohio proposal under the Commerce Clause of the

United States Constitution can be overcome. Of course, this document does not address any

objections that might arise out of the provisions of any state’s own constitution. Each state will

have to address such matters individually.

A. No member state shall have multiple state sales and use tax rates on items of personal

property or services after December 31, 2005, except that a member state may impose a

single additional rate, which may be zero, on food and food ingredients and drugs as

defined by state law pursuant to the Agreement.

B. Except as provided for in subsection 310(E)(2) of this Agreement, A a member state that

has local jurisdictions that levy a sales or use tax shall not have more than one local sales

tax rate or more than one local use tax rate per local jurisdiction. If the local jurisdiction

levies both a sales tax and use tax, the local rates must be identical.

C. The provisions of this section do not apply to sales or use taxes levied on electricity, piped

natural or artificial gas, or other heating fuels delivered by the seller, or the retail sale or

transfer of motor vehicles, aircraft, watercraft, modular homes, manufactured homes, or

mobile homes.

A. Except as provided in subsection (E) of this section, the The retail sale, excluding lease or

rental, of a product shall be sourced as follows:

1. When the product is received by the purchaser at a business location of the seller, the

sale is sourced to that business location.

2. When the product is not received by the purchaser at a business location of the seller, the

sale is sourced to the location where receipt by the purchaser (or the purchaser's donee,

designated as such by the purchaser) occurs, including the location indicated by

instructions for delivery to the purchaser (or donee), known to the seller.

3. When subsections (A)(1) and (A)(2) do not apply, the sale is sourced to the location

indicated by an address for the purchaser that is available from the business records of

the seller that are maintained in the ordinary course of the seller's business when use of

this address does not constitute bad faith.

4. When subsections (A)(1), (A)(2), and (A)(3) do not apply, the sale is sourced to the

location indicated by an address for the purchaser obtained during the consummation of

the sale, including the address of a purchaser's payment instrument, if no other address is

available, when use of this address does not constitute bad faith.

5. When none of the previous rules of subsections (A)(1), (A)(2), (A)(3), or (A)(4) apply,

including the circumstance in which the seller is without sufficient information to apply

the previous rules, then the location will be determined by the address from which

tangible personal property was shipped, from which the digital good or the computer

software delivered electronically was first available for transmission by the seller, or

from which the service was provided (disregarding for these purposes any location that

merely provided the digital transfer of the product sold).

B. The lease or rental of tangible personal property, other than property identified in

subsection (C) or subsection (D), shall be sourced as follows:

1. For a lease or rental that requires recurring periodic payments, the first periodic payment

is sourced the same as a retail sale in accordance with the provisions of subsection (A).

Periodic payments made subsequent to the first payment are sourced to the primary

property location for each period covered by the payment. The primary property location

shall be as indicated by an address for the property provided by the lessee that is

available to the lessor from its records maintained in the ordinary course of business,

when use of this address does not constitute bad faith. The property location shall not be

altered by intermittent use at different locations, such as use of business property that

accompanies employees on business trips and service calls.

2. For a lease or rental that does not require recurring periodic payments, the payment is

sourced the same as a retail sale in accordance with the provisions of subsection (A).

3. This subsection does not affect the imposition or computation of sales or use tax on

leases or rentals based on a lump sum or accelerated basis, or on the acquisition of

property for lease.

C. The lease or rental of motor vehicles, trailers, semi-trailers, or aircraft that do not qualify as

transportation equipment, as defined in subsection (D), shall be sourced as follows:

1. For a lease or rental that requires recurring periodic payments, each periodic payment is

sourced to the primary property location. The primary property location shall be as

indicated by an address for the property provided by the lessee that is available to the

lessor from its records maintained in the ordinary course of business, when use of this

address does not constitute bad faith. This location shall not be altered by intermittent

use at different locations.

2. For a lease or rental that does not require recurring periodic payments, the payment is

sourced the same as a retail sale in accordance with the provisions of subsection (A).

3. This subsection does not affect the imposition or computation of sales or use tax on

leases or rentals based on a lump sum or accelerated basis, or on the acquisition of

property for lease.

D. The retail sale, including lease or rental, of transportation equipment shall be sourced the

same as a retail sale in accordance with the provisions of subsection (A), notwithstanding

the exclusion of lease or rental in subsection (A). “Transportation equipment” means any of

the following:

1. Locomotives and railcars that are utilized for the carriage of persons or property in

interstate commerce.

2. Trucks and truck-tractors with a Gross Vehicle Weight Rating (GVWR) of 10,001

pounds or greater, trailers, semi-trailers, or passenger buses that are:

a. Registered through the International Registration Plan; and

b. Operated under authority of a carrier authorized and certificated by the U.S.

Department of Transportation or another federal authority to engage in the carriage

of persons or property in interstate commerce.

3. Aircraft that are operated by air carriers authorized and certificated by the U.S.

Department of Transportation or another federal or a foreign authority to engage in the

carriage of persons or property in interstate or foreign commerce.

4. Containers designed for use on and component parts attached or secured on the items set

forth in subsections (D)(1) through (D)(3).

E.

1. A member state that allows local jurisdictions to levy sales or use taxes may elect to

have sellers that make sales from permanent locations in that state source such sales

pursuant to the laws of that member state in lieu of sourcing such sales according to the

provisions of subsection A of this section.

2. Any member state that elects to use the provisions of subsection (E)(1) of this section

shall also provide sellers with the option to collect tax at a single statewide rate, which

cannot be higher than the highest combined state and local rate applicable in that state,

on all sales made from locations outside that state that would be sourced to a jurisdiction

in that state under subsection (A) of this section. Distribution of the tax collected under

the statewide rate shall be made pursuant to the laws of the member state.

3. A purchaser that has paid the single statewide rate authorized by a member state under

subsection (E)(2) of this section shall not be held liable for additional local use tax as a

consumer unless the purchaser subsequently moves the property to another jurisdiction

within the member state or to another member state.

4. Any state that provides a single statewide rate under subsection (E)(2) of this section

shall provide a purchaser that pays the single statewide rate on any sale sourced under

subsection (A) of this section to a local jurisdiction with a combined state and local tax

rate that is less than the single statewide rate with at least one year to apply for a refund

of the difference between the two rates.