Ohio’s Department of Taxation is getting serious about its enforcement of the state’s use tax law. 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.
Note: Ohio has established a tax amnesty program since this post was originally created.
The department recently announced a “carrot and stick” approach to enforcement of the use tax law. The agency will first work to educate businesses about use tax responsibility through a series of presentations, meetings and workshops. The department has also developed a number of publications to assist small and medium-sized businesses in understanding Use Tax law, including specific publications for contractors, manufacturers, retailers and service providers.
Starting August 1, the department will begin issuing letters to approximately 380,000 companies it has identified that do not have a use tax account. If your business ignores the notice, it could be audited, or the state could send you a notice estimating the amount of use tax you owe.
Why Should You Care About Use Tax?
If your business doesn’t have a use tax account, taking action quickly will help you avoid penalties and a longer look-back period – and the longer you wait, the more it will cost you. The agency developed a voluntary disclosure agreement program, or VDA, that is more favorable if entered into before the state contacts you. When filing a VDA, the state requires a review of 36 months (from the date you notify the state of your tax obligation) of purchases.
If you wait until the state contacts you to address your company’s use tax responsibility, the look-back period extends four years. However, if you choose to ignore the state’s notice, you could more than double the amount of use tax you owe when the agency requests a review of seven years of purchases – or possibly more if the agency instead creates an estimate of the use tax owed.
How to Comply – Contact Us
If your company doesn’t have a use tax account, Rea & Associates can help you enter into a VDA and assist you through the tax review process. For additional information on compliance with Ohio Use Tax regulations, contact Chad Bice, CPA at 740-454-3198 or click here to email Chad. He can assist you in determining what/if any liability you may have and how to come into compliance.