Maximizing Ohio Sales and Use Tax Exemptions for Businesses

In Ohio, sales of tangible personal property are presumed taxable unless an exemption exists. On the other hand, services are presumed nontaxable unless specifically enumerated as taxable under Ohio’s Revised Code. Many of your business purchases of goods or services are likely exempt, potentially even warranting a refund claim for tax erroneously paid. The State and Local Tax attorneys of Buckingham discuss business tax exemptions, specifically sales and use tax exemptions your business may be able to take advantage of.

Common Ohio Sales and Use Tax Exemptions

Manufacturing Exemption

Ohio’s manufacturing exemption is available for property primarily used to produce a product for sale. R.C. 5739.011. Exemption expands to property used or consumed in a “manufacturing operation” beginning when raw materials are “committed” and ending when the product is complete. To maximize the manufacturing exemption, businesses should determine the beginning and end of its manufacturing operation. Our firm has helped taxpayers review their operations in order to maximize the availability of the exemption for production property.

Packaging Exemption

After the manufacturing process is complete and the manufacturing exemption no longer applies, the packaging exemption may be available. This includes any property that restrains movement of your product in more than one plane of direction, including:

1. Packaging the consumer ultimately receives holding the product
2. Bulk packaging for shipment
3. Equipment that places the product in the package or is an integral part of this process
4. Labels
5. Equipment which makes labels, prepare packages for labeling, or places/prints labels

Read more in our supportive article, “Are You Maximizing the Ohio Sales and Use Tax Exemption for Packaging Equipment and Materials?”.

Resale Exemption

One of the most common statutory exemptions is the resale exemption, available for purchases of property or services for resale to a customer. All purchases for resale are exempt if the products are resold in the same form as they were purchased (and even if a change had occurred, exemption would be available under the manufacturing exemption). The Resale Exemption is also applicable when the property is temporarily transferred to consumers, such as through a lease or rental.

Casual Sale Exemption

Sales of property that has been previously used and then sold by such a user are exempt from tax. For example, sales of a consumer’s old equipment or furniture are exempt from Ohio sales and use tax.

Exempt Organizations

Sales to 501(c)(3) tax exempt organizations and other charitable organizations are exempt from tax.

Our tax team has extensive experience reviewing business operations and purchases to maximize sales and use tax exemptions to provide perpetual tax savings. We also have represented taxpayers at the Board of Tax Appeals and Ohio Supreme Court to successfully challenge tax imposed on exempt purchases. See The Dannon Company, Inc. v. Tracy, B.T.A. No. 97-M233 (1998), Stein Inc. v. Tracy, 84 Ohio St.3d 501 (1999), Cincinnati Reds, L.L.C. v. Testa, 155 Ohio St.3d 512, 2018-Ohio-4669, Karvo Paving Co. v. Testa, 2019-Ohio-3974.

If your business provides or purchases services, they are generally exempt from Ohio Sales and Use tax unless Ohio specifically lists the service as taxable. Below are some taxable services that are commonly audited by the Ohio Department of Tax.

• Building Maintenance / Janitorial Services – Services for cleaning the interior and exterior of a building are taxable if the cleaning involves traditional “janitorial” cleanings such as vacuuming, carpet cleaning, trash removal, power washing, etc. Specialized cleaning services (such as flushing beer-tap lines) may not be taxable. See Great Lakes Bar Control, Inc. v. Testa, 156 Ohio St.3d 199,  2018-Ohio-5207.
• Automatic Data Processing / Electronic Information Services – Generally relevant for purchases of software as a service and other electronic subscription services, Ohio taxes services to process others’ data or provide access to computer equipment to place or retrieve data (encompassing many cloud computing services).
• Telecommunications Services – prepaid calling services, prepaid wireless calling services are subject to tax in Ohio.

The above exemptions are only a few of the most common exemptions available to Ohio taxpayers. Businesses should be maximizing their Ohio sales and use tax savings by regularly reviewing their purchases to determine if they are paying tax on exempt transactions. Our team of taxation lawyers has extensive experience analyzing business operations to determine all available exemptions and tax savings opportunities. In some cases, taxpayers may be able to claim substantial tax refunds for tax erroneously paid on exempt services.

By working with our experienced tax team, you can streamline the process for determining available exemptions due to our broad experience in Ohio tax across many different businesses and industries. We also serve as a permanent resource to keep you updated on changes to the tax law that may impact your business.

If you think your business is missing out on Ohio sales and use tax savings, please do not hesitate to contact us for a free initial consultation to discuss your options.

Richard B. Fry III: [email protected]

Steven A. Dimengo: [email protected]