For the past few weeks. we’ve been talking about the state of Ohio’s stepped up enforcement of its use tax law. So what happens if you don’t comply?
Use tax is a tax that wasn’t paid, but should have been, on taxable property or services your business purchased. It most often occurs when a business purchases goods in-state, out-of-state or over the internet, and the retailer does not collect Ohio sales tax. In other words, if your company bought a taxable item or service which was used in Ohio and paid Ohio sales tax on it, you do not owe Ohio use tax. However if your business purchased a taxable item or service which was used in Ohio and did not pay Ohio sales tax on it and there is not a statutory exemption, exception, or exclusion from taxation, you may owe Ohio use tax.
The state is currently conducting the Ohio Use Tax Education Program, or UTEP, which includes educational seminars to help educate businesses about Ohio’s use tax law. However, later this summer, the state will begin sending notices to businesses it has identified that do not have use tax accounts.
To shorten the look-back period and avoid penalties, your business can set up a voluntary disclosure agreement, or VDA, with the state. However, you’ll need to do so before the state notifies you. The difference between submitting a VDA now and doing nothing until later could mean as much as double the number of years reviewed and taxes (and penalties) incurred!
One Ohio healthcare office recently learned about Ohio use tax the hard way. Its owners praised the office manager for her ability to purchase items sales tax-free. Items ranged from disposable healthcare items to computers to furniture. The office manager purchased these items over the internet through vendors that did not charge sales tax and from small in-state vendors, saving the office the 7 percent sales tax costs on a tremendous amount of purchases over the years. The savings stopped, however, when the practice received an Ohio use tax audit. The audit went back seven years and cost the practice more than $60,000 in back taxes and penalties!
If you don’t have an Ohio use tax account, it’s just a matter of time before the state finds you. By working proactively to get into compliance, you can limit its impact. Learn more about Ohio’s use tax law and how you can comply at our free webinar on April 6.