This post was written by Lead Notes Editor, Russell Gribbell. The views and opinions expressed herein are those of the author alone.
This summer the Supreme Court turned the online shopping industry upside down with its holding in South Dakota v. Wayfair, Inc. that states may indeed collect sales tax on an out-of-state seller with no physical presence in the state. The decision overruled the previous holding reached in Quill Corp. v. North Dakota. Internet retailers are scrambling to comply with the new ruling; what follows is a synopsis of the tri-state area’s current laws regarding sales tax.
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Kentucky follows the prior rule from Quill requiring a physical presence, or physical nexus, in the state. Kentucky Revised Statute (KRS) §139.340(2) defines physical presence as a “retailer engaged in business in this state.” Kentucky’s Department of Revenue (DOR) published documentation to assist sellers determining their tax liability. For example, the DOR stated that a nexus is generally understood to include not only the physical presence in the state, but also any subsidiary or affiliated entity. If a seller qualifies as a physical presence, or a nexus, the seller has an obligation to collect and pay Kentucky state sales tax. However, customers may be responsible for paying their own taxes when shopping online, known as a use tax.
Unfortunately for those of us in Ohio, we have already experienced the effects of the Wayfair decision. A new law requiring certain larger Internet sellers with no physical presence to collect Ohio sales tax went into effect on July 1, 2015. In order to qualify, the seller must have an agreement with an Ohio-based business or seller, and the gross receipts from Ohio customers exceeds $10,000 during the preceding 12 months. Similar laws enacted in other states have garnered the name “Amazon Laws.” Ohio’s tax statutes do not define physical presence, but a 1996 Ohio Supreme Court decision relied upon the language in Quill stating that “the physical presence standard applies . . . to sales and use taxes.” Also, just like Kentucky, Ohio has a use tax that is the customer’s responsibility, although the Ohio Department of Taxation (DOT) words it differently, stating that if a seller is not located in Ohio nor has a substantial nexus, then the seller cannot be required to collect Ohio tax, however, the purchaser is still liable for Ohio use tax.
Indiana also requires a physical presence for tax collection purposes under the Indiana Administrative Code (IAC) Title 45 §2.2-3-3. Interestingly, the Indiana Department of Revenue (DOR) webpage has a voluntary disclosure program for out-of-state sellers. However, a 2009 ruling allowed mail order companies (i.e., companies that had zero physical presence and shipped all items sold via mail or carrier) lacked “substantial nexus” and therefore did not have to collect Indiana sales tax. Indiana also reached a special “Amazon agreement” that required the retailer to start paying sales tax by 2014. Customer responsibility is traceable to a FAQ page on the DOR website, in which the use tax is attributable to “Internet purchases from out-of-state vendors.”
It is clear that the laws in Kentucky, Ohio, and Indiana use varying methods to try and collect taxes from online transactions. Internet use taxes may become obsolete, as states enact wider laws capitalizing on Wayfair. Lawmakers in all three states are likely brainstorming ways in which to update tax laws so that the states can better collect Internet sales taxes.
 See SCOTUSblog, http://www.scotusblog.com/case-files/cases/south-dakota-v-wayfair-inc/ (last visited Sept. 7, 2018).
 David M. Steingold, Kentucky Internet Sales Tax, nolo (last visited Sept. 7, 2018), https://www.nolo.com/legal-encyclopedia/kentucky-internet-sales-tax.html.
 Id. See also Kentucky Revised Statutes Chapter 139, Kentucky Legislature, http://www.lrc.ky.gov/Statutes/chapter.aspx?id=37663 (Aug. 30, 2018).
 See id.
 See id.
 See id. A DOR online document states that one example of the use tax is purchasing an item online, and not paying Kentucky state sales tax.
 David M. Steingold, Ohio Internet Sales Tax, nolo (last visited Sept. 7, 2018), https://www.nolo.com/legal-encyclopedia/ohio-internet-sales-tax.html.
 See id. The law also applies to affiliates.
 See id.
 David M. Steingold, Indiana Internet Sales Tax, nolo (last visited Sept. 7, 2018), https://www.nolo.com/legal-encyclopedia/indiana-internet-sales-tax.html. See also Indiana Administrative Code Title 45, Indiana General Assembly, http://www.in.gov/legislative/iac/iac_title?iact=45 (Aug. 22, 2018).
 See id.