Do Not Expect Leniency from the Ohio Board of Tax Appeals for Financial Hardship

In Cottonwood, Inc. v. Levin, Ohio BTA No. 2009-K-5 (April 19, 2011), the Tax Commissioner assessed a struggling business deficient sales tax, interest and penalties. The taxpayer appealed to the Ohio Board of Tax Appeals (“BTA”) requesting a waiver of the interest and penalties, but without challenging the tax, based upon the fact that the deficient sales tax had been paid and the business’ financial hardship.

The Tax Commissioner has considerable discretion to include interest and penalties in an Ohio sales/use tax assessment pursuant to R.C. 5739.13 to 5739.133. A taxpayer challenging the use of this discretion must show more than an error of law or judgment, but rather that the Tax Commissioner’s decision was unreasonable, arbitrary or unconscionable. This is a lofty standard for taxpayers to overcome, and nearly impossible when the validity of the tax is upheld (or not challenged). Since taxpayers have this significant hurdle to overcome at the BTA, it is best to work with the Tax Commissioner’s office during the audit in an attempt to have interest or penalties excluded from the assessment in the first place. In our experience, the Tax Commissioner is often willing to waiver potential penalties, perhaps in exchange for immediate payment of the delinquent tax and interest, but is generally not willing to waive interest (and lacks the authority to do so in many circumstances). However, as evidenced by Cottonwood and several other BTA decisions, once assessed, it is very difficult for a taxpayer to successfully get interest and penalties waived.