ACTION REQUIRED / LIMIT OHIO USE TAX EXPOSURE
Any Ohio business not consistently filing an Ohio use tax return is exposed to an Ohio Department of Taxation (“Department”) investigation. If any of the following apply, and you do not regularly file an Ohio use tax return, immediate action is required:
- Purchases from non-Ohio vendors that do not collect Ohio sales tax;
- Taxable purchases from a vendor holding a blanket exemption certificate;
- Inventory withdrawn for demonstrations, advertising or other taxable uses;
- Erroneously concluding purchases are exempt from tax, such as within the manufacturing exemption or the exception for leased employees; or
- Using/storing property in a higher taxing county than the county of purchase (at least pre-2010 purchases).
Only a small fraction of the more than 380,000 registered Ohio businesses have a use tax account. The Department is finally addressing this great discrepancy by planning to contact and investigate all Ohio businesses without an Ohio use tax account. Furthermore, the general four-year statute of limitations will not apply if a use tax return has not been filed, meaning the potential liability for tax, interest and penalty (15%) is substantial, as the audit period is unlimited (although the Department’s policy is to only review the prior seven years). On the other hand, by requesting a voluntary disclosure agreement (“VDA”), a taxpayer can limit exposure to the previous three years (tax and interest) and avoid penalties.
Our Department sources have advised that they will begin contacting Ohio businesses in the coming months concerning their Ohio use tax liability. So, there is no better time to address your potential use tax liability because the limited three-year look back of a VDA is not available after being contacted by the Department. The Department’s communication is expected to demand payment of all tax and interest due for the previous four years. Unresponsive taxpayers will be assessed for the prior seven years (tax, interest and full penalty).
Thus, Ohio businesses not filing Ohio use tax returns have a unique opportunity to limit their liability through a VDA before being contacted by the Department. By requesting a VDA, which can be done anonymously through the taxpayer’s representative, taxpayers will benefit from:
- Limited three year look back (save at least one year);
- No penalty;
- Avoiding inquiries into other potential tax liabilities, as the Department may investigate compliance with other Ohio taxes, including Ohio’s Commercial Activity tax;
- Directing and controlling presentation of the delinquency in a favorable light; and
- Considering planning to minimize, or even eliminate, future tax liability.
Our expertise and experience in representing clients in all aspects of Ohio sales and use tax matters, from planning through audits and appeals, can minimize your liability. Do not hesitate to contact us today to help evaluate your Ohio use tax exposure.