Digital advertising services are exempt in Ohio

Digital products have been subject to Ohio sales and use tax since January 1, 2014. However, digital advertising services are soon to be exempt.

Tax applies to both purchases and rentals of the following:

• Audiovisual products (movies)
• Audio products (songs)
• Digital magazine subscriptions
• Electronic books
• Prewritten software

Tax does not apply to electronically delivered magazines, newspapers, or photos, or to digital products delivered via cable television. And under House Bill 466, digital advertising services such as those found online are specifically exempt from sales and use tax.

HB 466 defines digital advertising services as services that provide 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.” In short, it’s referring to online advertisements.

Clarification required

The bill is in response to a December 2015 Information Release issued by the Ohio Department of Taxation, which states that digital advertising is subject to tax. It reads:

“A vendor may advertise its inventory on the Internet. If a vendor has the access to control the advertisement, the Department has determined this service meets the definition of [a taxable] electronic information service.”

This was new, and at the time the Information Release was issued, it was unclear whether or not the department would be enforcing the taxability of digital advertising services since non-digital advertising services are exempt. (Read more about how Ohio sales and use tax applies to electronic information services in Ohio Admin. Code 5703-9-46.)

The Ohio Department of Taxation notes that to have the same tax treatment for both digital and physical products “levels the playing field” for sellers. It therefore stands to reason that digital advertising services be allowed the same exemption granted to other advertising services sold in Ohio.

House Bill 466 has been enacted but does not yet have an effective date. According to the bill, the new exemption applies beginning “the first day of the first month that begins at least thirty days after the effective date of the legislation.

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