Ohio Use Tax Amnesty Program and Ohio Department of Taxation's Proposed Rules
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The Ohio biennial budget, House Bill 153, was signed by Governor Kasich on June 30, 2011. Included in this bill is a use tax amnesty program aimed as recovering unpaid use tax. This amnesty program begins on October 1, 2011 and runs through May 1, 2013. Under this program, the Department of Taxation will waive any use tax due on purchaser made prior to January 1, 2009 for consumers (individuals and businesses) who qualify under the program.
What is "use tax"?
Use tax is in the same category of taxation as sales tax. In fact, sales tax and use tax are fundamentally tied together. In its most basic, "sales tax" is a tax that the seller of goods is required to collect upon sale and "use tax" is a tax which the purchaser owes if no sales tax was collected on the sale because the seller was out-of-tax or the purchaser claimed exemption on the purchase, but later used the item in a taxable manner. The amount of use tax is equal to the amount of sales tax that should have been collected on the sale. For example, if one purchases office supplies from an on-line vendor, and the seller does not collect sales tax on the transaction, then the purchaser is responsible for paying a use tax equal to the amount of sales tax that should have been collected at the time of sale if the sale had been at a local store in Ohio.
Do I owe any use tax?
In Ohio, both businesses and individual can owe use tax. The responsibility to pay use tax arises when you purchase goods and are not charged sales tax. Most commonly, this occurs when you purchase goods from an out-of-state seller. Whether or not that seller should collect sales tax is dependent on a myriad of factors which are beyond the scope of this article. However, unless you are entitled to an exemption from Ohio sales tax, you may be liable for paying use tax on your purchase equal to the amount that would have been collected as sales tax if the purchase had taken place entirely within Ohio. In today's environment with sales through the internet and mail order catalogs, it is common to have a use tax liability and not be aware of the liability.
How much use tax do I owe?
The amount of use tax that you may owe will depend on your purchase history. The best way to determine your potential liability for Ohio use tax is to conduct a self-audit. You can do this by checking your purchase history for out-of-state sellers, and then checking those invoices to determine if sales tax was charged on the seller's invoice and paid to the seller. If you find a large number of repeat purchases from the same out-of-state sellers who did not collect Ohio sales tax, then you should discuss with your accounting staff how to routinely record the Ohio use tax liability and obtain an Ohio use tax registration.
What is the Ohio use tax amnesty program?
The Ohio use tax amnesty program is a voluntary tax compliance program that was authorized in the most recent Ohio biennial budget. This program provides an amnesty for a qualifying taxpayer to come forward and voluntarily pay any use taxes which he may owe as a result of prior untaxed purchases. In your application to participate in the program, you are required to disclose the amounts of use tax you believe that you currently owe to the State of Ohio. While this is a voluntary program, you can expect the State of Ohio to increase their audits subsequent to the end of the amnesty period and to impose penalties for any non-compliance.
Do I qualify for the use tax amnesty program?
On September 15, 2011, the Ohio Department of Taxation ("ODT") issued a set of proposed rules relative to the amnesty program. These rules list a number of conditions an applicant must satisfy to qualify for amnesty. While these rules are not final, they provide guidance on the conditions the Department of Taxation will be considering for taxpayers' participation in the amnesty program.
According to the proposed rules, the following criteria must be met in order to qualify:
1. The applicant was not registered with the ODT for use tax as of June 1, 2011.
2. The applicant's outstanding use taxes exceed $1,000.
3. If the applicant is a business, at least one responsible party (officer, member, or general partner) must agree to the terms of the payment plan on behalf of the taxpayer, and agree to accept personal liability for the entire debt (a "Guarantor").
4. Unless the applicant is a single member limited liability company, there must be at least one additional Guarantor who agrees to be personally liability for the entire debt.
5. Each Guarantor must provide his or her social security number to the Tax Commissioner.
6. Furthermore, each Guarantor must agree that if the business fails to pay its use taxes per the arrangement with the ODT, the ODT may seek to collect from the responsible party without first collecting from the business.
7. The applicant must agree that, should the applicant fail to pay the use tax as arranged, the ODT may seek to collect any waived use taxes until six months after the end of the amnesty period.
Where can I get further information on the amnesty program?
If you believe that you may qualify, or should you want more information relative to the use tax amnesty program, please contact one of our tax attorneys.
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