For Ohio businesses that do not have a consumer's use tax account with the State of Ohio, you will need to consider registering for an account before May 1, 2013. The Ohio Department of Taxation has made it clear that after this date, any business with another Ohio tax account, such as sales tax or withholding tax, that does not have a use tax account with the State of Ohio may be audited.
What is use tax? Use tax is a tax on the storage, use or other consumption of tangible personal property and certain taxable services in Ohio. The tax is a complement to the sales tax. That is, if you have paid sales tax on an item, then it is not subject to use tax. Stated another way, a use tax should be paid on taxable property or service used in Ohio when the vendor does not collect Ohio sales tax. It usually occurs when you buy something from out-of-state or the internet and the retailer does not charge sales tax.
The Ohio Department of Taxation started a use tax education program (UTEP) in January 2011. The goal of UTEP is to help businesses understand what use tax is and when it must be paid. The Department has sent out hundreds of letters to businesses who might be registered for sales tax or the Commercial Activity Tax, but do not have a use tax account.
The Department has also set up the Consumer's Use Tax Amnesty Program. This Amnesty program runs from 10/1/2011 through 5/1/2013. The look-back period begins on January 1, 2009 and ends the last day of the month preceding the month in which a business enters the amnesty program. If you think that you have use tax exposure, this amnesty program is a great way to resolve unpaid use tax. Interest and penalties are waived, and there is no liability for any use tax incurred prior to January 1, 2009. Note, however, that this amnesty applies only to taxpayers that have not been issued a consumer's use tax assessment prior to 9/29/2011.
If you have use tax liability and the Ohio Department of Taxation sends you an inquiry letter after the Amnesty period, then Ohio can go back for as many as seven years and interest and penalties would apply. Furthermore, a use tax audit would be time-consuming and costly for your business. A notice from the state would require you and your staff to search through receipts of purchases your business made over the past seven years.
OSAE Strategic Partner Clark Schaefer Hackett can help you if you think that you owe use tax to the State of Ohio. We can walk you thru the process and review with you what invoices might be subject to use tax. Please call us at 614-885-2208.