Use tax is one of those taxes that can sneak up on your business. And unfortunately, the State of Ohio has begun efforts to increase its education and enforcement of use tax. The Ohio Department of Taxation has already identified 380,000 businesses that do not have use tax accounts, and will soon be sending notices to bring them into compliance.
Note: Ohio has established a tax amnesty program since this post was originally created.
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 buys goods in-state, out-of-state or over the internet and the retailer doesn’t collect Ohio sales tax. If your business has a sales tax account, it probably should also have a use tax account.
Many businesses may not realize they have a use tax liability. Here are some common items or services that businesses purchase that could result in use tax due:
- Office furniture & fixtures
- Office Supplies
- Computer Hardware
- Computer Software (non-customized/canned)
- Printers, copiers, fax machines, modems, phones, etc.
- Pictures & office decorations
- Cleaning supplies
- Cleaning equipment/tools
- Safety supplies / kits
- Advertising property (T-shirts, hats, posters, signs, etc.)
- Internet access services – Business to Business is taxable.
- Envelopes, tape, labels, etc. used in mail room and office
- Tools and supplies used in building maintenance and cleaning
- Leases – if you lease taxable tangible personal property, sales tax is due up front, rather than over the lease stream as payments are made.
- Landscaping, Lawncare and Snow Removal
- Building maintenance, Janitorial and Cleaning
- Pest Control
- Security Monitoring services
- Temporary employment services
- Installation and repair of taxable tangible personal property
Businesses that take action quickly can avoid penalties and a longer look-back period by the Ohio Department of Taxation. However, the longer you wait, the more it will cost your company. If you wait until after July 31, 2011, the look-back period extends to four years as opposed to the current three-year offering. If your business waits too long and the four year VDA is no longer offered, the period will extend to seven years of purchases upon audit. Worse yet, the department could create an estimate of the use tax owed. At this point, your business will have to prove to the state that it does not owe the estimated amount.
Your accounting professional can assist you in entering a voluntary disclosure agreement, or VDA, that allows the business to come forward voluntarily to admit use tax liability. The agreement must be made prior to receiving an audit notice from the state and will require your business to review 36 months (from the date you notify the state) of purchases.
Your Rea accountant can help you through the taxability review and VDA process. Click here to be connected with our Ohio Use Tax accountants!