On July 12, 2016, Governor John Kasich signed House Bill 466 (HB 466) into law and, in doing so, exempts digital advertising services from sales and use tax. Specifically, HB 466 amends the definition of "personal and professional services" by adding "digital advertising services"¹ to the list of exceptions to the definitions of otherwise taxable data processing, electronic information services and computer services. "Digital advertising services" is defined as "providing access, by means of telecommunications equipment, to computer equipment that is used to enter, upload, download, review, manipulate, store, add, or delete data for the purpose of electronically displaying, delivering, placing, or transferring promotional advertisements to potential customers about products or services or about industry or business brands."²

HB 466 was enacted, in part, in response to the Ohio Department of Taxation's (Department) amended Information Release 1999-04, On-line Services and Internet Access (January 1999; Updated December 2015). The Information Release was intended to memorialize what the Department indicated were long-standing audit positions. One of the categories of service specifically enumerated was digital advertising services. The sale of advertising space has historically never been taxable in Ohio.³ However, the Department had come to view the provision of advertising space over the Internet, in certain cases, as a taxable electronic information service. Information Releases do not carry the weight of law,⁴ but represent the Department's position on the tax treatment it will apply. With the enactment of HB 466, this issue is now moot with regard to digital advertising.

HB 466 is effective on the first day of the month that begins at least 30 days after the effective date of HB 466.⁵ Under Ohio law, 90 days from the Governor's signature must elapse before a provision becomes effective. Given the foregoing, these provisions should be effective as of December 1, 2016.

Implications

Although the treatment of digital advertising has been clarified by HB 466, there may still be uncertainty as to the tax treatment of other services, historically non-taxable, that may be now delivered via the Internet. For example, Ohio historically has not subjected credit reporting services to Ohio sales tax. In Information Release 1999-04, however, the Department stated that credit reporting services provided over the Internet would be a taxable electronic information service. Under a true object test, it is arguable that a taxpayer's intent is to receive the non-taxable service and, as such, the mode of delivery should not affect its taxability. These are issues that may need to be tested in the courts. Taxpayers should consider the validity of taxability determinations made by the Department under audits, present or past, and consider whether to pursue appeals and/or refund claims.

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ENDNOTES

¹ Ohio Rev. Code Section 5739.01(Y)(2)(k).

² Ohio Rev. Code Section 5739.01(RRR),

³ See Ohio Admin. Code 5703-9-41.

⁴ Renacci v. Testa, Slip Opinion No. 2016-Ohio-3394.

⁵ HB 466, Section 3 uncodified law.