If you’ve bought items for your Ohio-based business during the last several years, but not paid sales tax on those purchases, you should know about Ohio’s Consumer’s Use Tax Amnesty. The amnesty is administered through the Ohio Department of Taxation (ODT) and ends May 1, 2013.
As a rule, when you buy “tangible personal property” for your Ohio business—such as standard office supplies, cleaning supplies, computer equipment, or business furniture—the price you pay will include Ohio sales tax. In some cases, however, sales tax may not be included in the purchase price of these items. For example, a California company that sells you business equipment over the Internet, and has no physical presence in Ohio, may have no legal obligation to collect sales tax, and may charge you only the price of the equipment without the tax. In cases where no sales tax is charged on items your business has purchased to store, use, or consume in Ohio, your business has a legal obligation to pay consumer’s use tax (a.k.a. “use tax”). The consumer’s use tax is essentially the state’s sales tax in a different form: it’s a tax on purchases in the same amount as the sales tax would be, but it must be paid by the buyer (“consumer”) rather than the seller.
Be aware that Ohio’s consumer’s use tax applies not only to personal property (goods and products) but also to various services that your business purchases. For more detailed information, check this information sheet published by the ODT.
In theory, every Ohio business that is liable for consumer’s use tax would register with the state either by filing the Ohio Department of Taxation’s paper Form UT 1008, or by an online use tax registration process through the Ohio Business Gateway (OBG). The business would then use either a paper form or the OBG system to make use tax payments using a credit card, debit card, or check. (Individuals are also liable for consumer’s use tax, but generally use a different method to pay it: they have a line item for the tax on their individual Ohio tax return.)
In practice, however, there are businesses that do not register with the state and do not pay the use taxes they owe. In some of these cases, the Ohio Department of Taxation will issue an “assessment” to the business for any use tax that’s due. In other cases, however, businesses may go without paying the consumer’s use tax, which violates Ohio law.
For Ohio businesses that in recent years have failed to pay the legally required use tax, Ohio’s consumer’s use tax amnesty provides an opportunity to now register and make those payments. The amnesty applies to purchases made on or after January 1, 2009. Only businesses that have not previously been issued an assessment by the ODT are eligible for the amnesty.
You must request amnesty through the ODT. The request process varies depending on whether and when you previously registered for use tax payments. More specifically, if you registered for use tax on or before June 1, 2011, you need to call the ODT, and then complete and send in an amnesty application. If you registered after June 1, 2011, or have never registered, you must first register online for use tax payments, and then make payments through the Ohio Business Gateway.
Not every request for amnesty will be granted by the ODT. (If your business does not qualify for amnesty, it nevertheless may be eligible for the state’s voluntary disclosure program.) Also, while an ODT website states that one advantage of the amnesty is that payments made under it are “not subject to interest or civil or criminal penalties,” the same site also states that if you are registered for use tax as of or prior to June 1, 2011, “you will be required to pay interest on any under-reported or unreported consumer’s use tax.”
As part of the amnesty process, you may be required to file use tax returns on a regular basis. Also, if you apply but your business does not qualify for amnesty, the ODT will issue an assessment, and you will be liable for both the unpaid consumer’s use tax and interest.
If you are granted amnesty, you will have to download and work with an Excel spreadsheet to calculate the amount of tax you owe. Making this calculation can be complicated. For this reason, the ODT has set up a dedicated tax amnesty help line; the number, along with certain other amnesty information, is available on this ODT webpage.
More generally, the ODT has multiple webpages devoted to different aspects of the consumer’s use tax amnesty, including a very helpful FAQ page, several different audiovisual tutorials on how to register for amnesty using the Ohio Business Gateway, and a letter from the state tax commissioner.
Before going through the amnesty request process, you should consider whether you can pay the amounts due to the state—and also whether by requesting amnesty you may also become liable for additional amounts due to the IRS. In addition, be aware that your participation in the consumer’s use tax amnesty program may increase the chances of your business being audited in the future. In short, you should consider consulting with a tax professional before making the final decision on seeking use tax amnesty in Ohio.