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Contractor or Employee - which do you have?
Do you owe Use tax to the State of Ohio? Are you sure whether or not you owe the tax? We would like to provide you with the information to make these determinations, or at least start a conversation about the liability. Consumer’s Use tax (unpaid sales tax) is being targeted by Ohio because of the current fiscal challenges facing the state and because enforcement of these laws (that date back to 1935-1936) is an alternative to raising taxes as a way to increase revenues. We are seeing this trend with numerous states due to Federal funding cutbacks and falling state revenues. Ohio has identified approximately 300,000 taxpayers who are registered for at least one other tax, but not for sales/use tax. The other taxes include employer withholding, CAT, corporate franchise and income taxes. So that means if you are registered for any of these other taxes, you may be receiving a letter inquiring about possible liability for use tax.
What is use tax and how do I pay it? Use tax is generally owed to Ohio any time sales tax has not been paid on a transaction. The most common examples of when use tax would be owed include catalog sales, items purchased from out of state vendors, internet purchases, in-state vendors that do not charge tax and intercompany transactions. All sales are presumed to be taxable until the contrary is established. So if Ohio questions whether sales tax should have been paid, you must prove that there was an exception or exemption that applied to paying tax on that sale. Exemption certificates should be provided to vendors to claim exemption from sales tax. The certificate must be completed, which includes identifying the vendor or seller, showing the statutory exception or exemption, and being signed and dated by the purchaser. If fully completed, the exemption certificate relieves the vendor of collecting and remitting tax on any transaction covered by the certificate. A copy of all exemption certificates provided to vendors should be kept in file for reference in case of audit. There are two ways to remit use tax when you have a liability. One is on your personal Ohio tax return, Form IT-1040. The other is by completing the Universal Ohio Use Tax Form, available on the Ohio Department of Taxation website.
The State of Ohio has two programs that could reduce or limit your liability. The first is a Special Consumers Use Tax Amnesty Program available through the State of Ohio starting October 1, 2011 through May 1, 2013. This program is available only to taxpayers that havenot been issued a consumer’s use tax assessment. It is a special program only for consumer’s use tax and is separate from the general amnesty program. It requires that the taxpayer apply to the program, disclose taxable transactions and register and file for the appropriate sales and use tax accounts. One advantage of this program is that the state only looks back to January 1, 2009 in determining liability. So the period included is January 1, 2009 up to the date you enter the amnesty program. Any liabilities prior to that are abated, and there is no interest, criminal or civil penalties paid on the amnesty liabilities. Payment plans are available, depending on the amount of the liability.
The second program, which is currently available, is the Voluntary Disclosure program. It will not be available during the time period of the Amnesty program. This program generally looks back three years and does require payment of interest. The benefit here is that the lookback period, and tax liability, is limited to three years and all civil and criminal penalties will be waived. This does not include tax that was collected and not remitted. That tax would still be due, and there could be liability for civil and criminal penalties. The voluntary disclosure process must be completed within 60 days of receipt of the voluntary disclosure agreement. This includes completing the agreement, registering with Ohio to remit sales tax in the future, submitting a spreadsheet detailing sales tax liability and paying all tax liability as well as interest.
If you have questions, are not sure of whether you have a liability or whether you are correctly calculating your liability, we would be glad to meet with you. Calculation of Sales/Use Tax