By Samantha Trencs and Eric Coffill
The American Catalog Manufacturers Association (ACMA) filed an action for a declaratory judgment in Ohio state court asserting that the new Ohio statutory definition of substantial nexus, which was expanded to include remote sellers by adopting “software” and “network” nexus provisions, violates the Commerce Clause, the Due Process Clause and the Internet Tax Freedom Act (ITFA).
Under Ohio’s expanded nexus provision, a seller located outside of Ohio is presumed to have substantial nexus with Ohio for its sales and use tax laws if a seller uses in-state software (e.g., apps or cookies) or enters into a contract with an in-state content distribution network to facilitate website delivery, provided that the seller has annual gross receipts in excess of $500,000 from transactions with Ohio customers in the current or preceding calendar year. ACMA alleges that the expanded nexus provision violates the physical presence requirement in Quill v. North Dakota because some of ACMA’s members would be required to register, collect and remit Ohio sales and use tax despite lacking a physical presence in Ohio. ACMA also alleges that the software and network nexus provisions discriminate against electronic commerce in contravention of ITFA. Complaint, American Catalog Mailers Association v. Testa, Case No. 17 CV 011440 (Ohio C.P. Dec. 29, 2017).