For those that are not familiar with the concept of a use tax, it is a sales tax that was not paid, but should have been, on taxable services or property purchased by your business. Put another way, if your business bought a taxable service or item which is then used in Ohio and the business paid sales tax on it, you will not owe Ohio use tax. However, if your business did not pay Ohio sales tax and there is not an applicable statutory exception, exemption or exclusion, you owe Ohio use tax.
The responsibility for collecting Ohio sales tax does not fall entirely on the out-of-state vendor. Thus, if your business has purchased a taxable service or item and has not paid sales tax on it, your business has a use tax liability. Recently, there has been a push by the Ohio Department of Taxation to identify businesses that have not remitted the Ohio use tax. The Ohio Department of Taxation will begin contacting such businesses as soon as August 2011.
Under the Ohio Use Tax Education Program, the Ohio Department of Taxation’s goal is to work with small to mid-sized businesses with potential liabilities to better understand and become compliant with Ohio’s use tax law. If your business does not have a use tax account, take action quickly to avoid penalties and interest and longer “look back” periods. The Ohio Department of Taxation has set up a Voluntary Disclosure Program that provides more favorable treatment for those businesses that take advantage of the program versus those that do not and are first contacted by the agency.
Failure to file an Ohio use tax return could result in:
- An audit
- Payment of interest
- A penalty of up to 15%
- No statute of limitations on the period being audited.
If your business is not registered with the Ohio Department of Taxation for use tax, please contact me to discuss your exposure and the Voluntary Disclosure Program. Taking action now will help avoid larger problems down the road.