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How does use tax protect against unfair competition?

As a business owner, you may be familiar with both unfair competition and with use tax; unfair competition is when another business uses unscrupulous means to infringe on your business or otherwise gain an advantage, while use tax is an equivalent to sales tax to ensure used or stored items that were not taxed under Ohio sales tax law but are not exempt are appropriately taxed. But how do the two tie in to each other?

The Ohio Department of Taxation elaborates that without use tax on purchases made from out of state vendors, businesses in other states could unfairly compete with yours. The lack of sales tax would entice customers to shop out of state rather than turning to local businesses such as yours, which would collect sales tax. This is considered unfair competition, while also allowing consumers to unethically dodge sales tax. Use tax seeks to remediate this by ensuring that taxable items are appropriately taxed, so that there is no unfair discrepancy between items purchased in-state or items purchased out of state.

Many online marketplaces avoid this now by automatically collecting appropriate sales tax based on the state of your shipping address. However, if out-of-state online vendors who compete directly in your market do not collect appropriate tax for your state on customer purchase, you may have a case for unfair competition. This only applies, however, if customers are not instead paying the appropriate use tax for their purchases.

This has been a reference blog that should not be used as a substitute for legal counsel.

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