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Senate committee takes up proposed legislation that could help ailing retailers

Special to the Legal News

Published: April 30, 2018

Having cleared the Ohio House of Representatives by unanimous vote late last year, a measure meant to modernize state tax code and return overpaid sales taxes to retailers is moving through a Senate committee.

House Bill 104 would allow vendors to deduct or receive a sales tax refund for bad debts on private label credit accounts in instances in which the debt is charged off as uncollectible by the credit account lender or by a debt collector.

"This is a good day for retailers who provide thousands of jobs in Ohio, but have been losing millions of dollars each year to the state in unreimbursed sales taxes from faulty transactions," HB 104 sponsor Rep. Tim Schaffer, R-Lancaster, said in a press release. "This is money that does not belong to the government.

"It belongs to the retailers.

He noted that the bill's passage in the House was a major step forward in addressing what he characterizes as a "job-killing situation."

The lawmaker estimated that the un-refunded sales tax on bad private-label debt costs Ohio retailers about $8 million a year.

HB 104 would apply to the in-store credit cards that many retailers offer customers.

Schaffer said that most retailers in recent years have contracted the operation of their in-store credit cards, many engaging a private label credit card company.

"The store logo remains on the card, but it is owned and managed by the private label," the lawmaker said during testimony.

When a purchase is made with one of these cards, retailers advance the sales tax to the state for items bought by consumers with those cards, even if the customer defaults on the card and its deb, he explained.

"In this circumstance, retailers are not reimbursed for the sales tax they have remitted on behalf of the consumer," Schaffer said. "Therefore, the retailer is paying sales tax on a sale that is never officially completed due to consumer default on the credit card debt."

The tax code does allow for retailers who own their credit cards to apply for such a refund. Ohio law, however, does not allow retailers to apply for a refund when their in-store cards are owned by a private label.

"This is an inequity and it has created an unfair cash flow to the state at the expense of the retailer," he said.

Similar legislation has passed in a number of other states, including Texas, California, Michigan, Florida, Wisconsin, Pennsylvania and Illinois.

The Ohio Chamber of Commerce, one of many proponents of the bill, said the status quo is unfair.

The chamber's Director of Tax and Economic Policy Jeff McClain wrote of the four points to be considered by lawmakers, especially those on the fence

"Retained sales tax on bad debt deviates from a tax on paid consumption," he began. "Tax treatment should be neutral."

"It's not a cost of doing business (and) government should only receive sales tax on paid consumption."

Good sale tax policy, McClain said, would allow retailers credits or refunds for sales taxes on the unpaid portion of credit card debt, regardless of how the debt is financed.

A flurry of traditional Ohio retail outlets have closed or announced pending closure in recent months, Bon-Ton, mostly branded throughout the Buckeye State as Elder Beerman department stores, and Toys-R-us being the most recent.

The closures are attributed market share loss to online retailers that offer free or discounted delivery charges, such as Amazon.

A second hearing of HB 104, which has broad cosponsor support in the House, had not been scheduled at time of publication.

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