Use tax is an often overlooked and misunderstood tax that has been in effect in Ohio since 1936. Use tax works hand-in-hand with Ohio’s sales tax. When you purchase an item of tangible personal property, or a service that is subject to sales tax, in the state of Ohio, from a vendor that is also located in the state of Ohio (or has some other connection, or “nexus” with the state), then the seller is usually responsible for collecting and remitting sales tax on the transaction to the state. Sometimes, there are exceptions to the seller’s responsibility for collecting and remitting sales tax – for example, if the purchaser has a valid exemption certificate. If the seller has no “nexus” with the state, then the seller is not responsible for collecting and remitting sales tax to Ohio.
Enter consumer’s use tax. If the seller in the transaction has no nexus with Ohio, and therefore no responsibility for collecting and remitting sales tax to Ohio, but the purchaser is located in Ohio, and using the taxable item/service in Ohio, then the purchaser is subject to consumer’s use tax. The purchaser is responsible for remitting use tax to Ohio, in the same amount as the transaction’s sales tax equivalent would be.
With the increasing number of sales being made over the internet, the state is seeing what it projects to be a significant amount of tax revenue that is not being collected and remitted in the form of sales tax. Therefore, the state has determined that a consumer’s use tax should be its new focus. While this tax applies to individual consumers as well as companies, the state already collects use tax from individuals on the individual income tax return. Educating businesses as to their use tax responsibilities is the next big state initiative. As such, beginning October 1, 2011, Ohio has announced two new tax amnesty programs. The first is a Use Tax Amnesty program, which is aimed at helping businesses who might be unaware of, or behind in, meeting their use tax filing obligations. A business that has not previously registered with the state for use tax self-assessment might be able to take advantage of this amnesty without incurring penalties or interest on past due amounts. There is a payment plan available for companies that owe more than $1,000 in past due tax. Companies that do not qualify for the amnesty program may still qualify for the Voluntary Disclosure Program. The Use Tax Amnesty program is offered from October 1, 2011 until May 1, 2013. Once you have received a notice of assessment . . . it’s too late.
The second type of amnesty program is a General Tax Amnesty, which is applies to a broad number of taxes, applicable to entities and individuals. The types of taxes included in the General Tax Amnesty are (for entities): commercial activity (CAT), corporate franchise, sales, gross receipts or a natural gas company or a combined electric and gas company, motor fuel, cigarette or other tobacco products, intangible property, employer withholding; (for individuals): pass-thru entity, personal income, school district income, and estate. General Tax Amnesty forgives penalties and one-half of the interest for taxes due and payable up through May 1, 2011. There is no payment plan available under this program. This amnesty program is available from May 1 through June 15, 2012.