Many Ohio businesses believe that because they pay sales tax on the majority of their purchases, they do not have to worry about paying use tax or filing a use tax return. Use tax is a tax on the consumption of goods or services for which sales tax should have been paid, but wasn’t. It is similar to the state sales tax, but it is only due when the proper amount of sales tax was not paid by the purchaser. It usually becomes an issue when an Ohio business makes an online or mail order purchase from an out of state vendor that does not charge sales tax. This commonly occurs on items such as office supplies, equipment, and job materials purchased out of state. Because sales tax was not paid at the time of purchase, the Ohio taxpayer must file and pay the use tax at the same rate as what the sales tax would have been. Use tax is also due if sales tax was charged at a lower rate than the county where the purchaser is using the item, in which case the use tax due is the difference between what was actually paid and what should have been paid.
This year the US Supreme Court ruled on South Dakota vs Wayfair and that decision has brought renewed attention to the issue of sales and use tax. The Wayfair decision was related to the collection of sales tax by internet retailers who have no property or employees in the state. You may not be an internet retailer but that doesn’t mean this decision does not affect you. States generally are enforcing the sales and use tax regulations more vigorously than in the past. You will want to make sure you are complying with state law to avoid any unpleasant surprises in the event of an audit.
If you have made any taxable purchases for which you have not paid sales tax, we recommend that you begin filing use tax returns and paying the tax. Even if you do not typically have any taxable purchases that are subject to use tax, we recommend that you register for the use tax and file zero returns. By doing this, you shorten the statute of limitations in an audit, so there is less of a chance of the state catching something that you may have forgotten about. If you have any questions about Ohio use tax or would like assistance with registering and filing, please contact us at our Norwalk or Sandusky offices.
Treasury Circular 230 Disclosure
Unless expressly stated otherwise, any federal tax advice contained in this communication is not intended or written to be used, and cannot be used or relied upon, for the purpose of avoiding penalties under the Internal Revenue Code, or for promoting, marketing, or recommending any transaction or matter addressed herein.