October 19, 2011, 2:10 PM

Online sales tax would boost Ohio retail jobs, study says

Ohio’s store retailers could hire 11,000 more workers, the University of Cincinnati says.

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With two federal legislative measures pushing for significantly more sales tax collection by Internet and catalog retailers, hopes are rising among store retailers for what many of them say would be a boost to their sales. A study released yesterday by the University of Cincinnati feeds that hope, projecting that retail stores in Ohio would hire 11,000 new employees if a new system requiring sales tax collection by out-of-state online and catalog retailers went into effect.

"These are very, very significant findings," says Jeff Rexhausen, associate director of research at the University of Cincinnati Economics Center, which conducted the study on behalf of two groups of store retailers that support sales tax collection by Internet and catalog merchants. "Given the difficult economic circumstances affecting Ohio's retail businesses and its state and local governments, finding a way to bring fairness to the online sales tax process would be a huge economic boon to the state."

The University of Cincinnati study was conducted for Focus on Ohio’s Future, a not-for-profit research organization backed by the trade group Ohio Council of Retail Merchants, and for the Alliance for Main Street Fairness, an organization whose members include large retail chains as well as smaller retailers.

Ohio has an average state and local sales tax rate of 6.78%, according to a separate study by Extrabux.com, a comparison shopping and coupon site. Because federal law exempts online and catalog retailers from sales tax collection in states where they have no physical presence like stores or fulfillment centers, Ohio loses more than $200 million a year in tax revenue, a figure that would amount to more than $1.1 billion between 2007 and 2012, the University of Cincinnati study says. And because that exemption means consumers usually have to pay more for a product in a store than online, Ohio’s store merchants will lose out on as much as $600 million in sales this year alone, the study adds.

Under existing state law, consumers are supposed to pay their own “use” tax on products purchased from retailers who don’t charge sales tax, but few ever do. Only 46,000, or less than 1%, of Ohio state tax returns in 2010 included use tax payments, the university study says, citing  figures from the Ohio Department of Taxation. “At the same time, studies show that more than 60% of Ohio households made at least one online purchase in 2010,” the university study says.

Ohio does not have a history of introducing state legislation that would require Internet and catalog retailers to collect sales tax, according to Daniel Schibley, senior state tax analyst at CCH, a unit of Wolters Kluwer that publishes tax and business information. But Ohio has been a long-time associate member of the Streamlined Sales Tax Project, or SST, a collection of some two dozen states working toward a multi-state system of sales tax collection by Internet and catalog retailers.

One of the federal bills introduced recently, the Main Street Fairness Act sponsored by Sen. Dick Durbin (D, IL), proposes to authorize SST member states to mandate sales tax collection by retailers regardless of whether they have in-state physical facilities. As an associate member of the SST, Ohio has agreed to the SST’s tax collection guidelines but has yet to finalize all of its procedures, according to the SST Governing Board.

Although Durbin’s bill was introduced in June without a Republican co-sponsor, and is therefore considered by Schibley and others as unlikely to pass through Congress, another sales tax bill—which has bipartisan sponsorship and is not tied to SST membership—was introduced this month in the U.S. House of Representatives.

Some experts say that a combined version of the two bills may have a chance of making it through Congress.


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