Ohio Department of Taxation Targets Non-filers of the Ohio Use Tax

Published 2-10-2011

To help reduce the overall state budget deficit and increase revenue, the Ohio Department of Taxation (ODT) has stepped up its audit activity and is more closely examining Ohio businesses’ use tax practices.  The failure to file an Ohio use tax return can leave taxpayers exposed to an unlimited audit period and lead to heavy penalties and interest upon audit.

According to the ODT, many businesses that are registered for and pay sales tax are not properly registered for use tax.  They have identified use tax as one that is continually ignored or under reported. 
Businesses are especially vulnerable if Ohio use tax returns have not been regularly filed and they engage in any of the following taxable transactions:

  • Purchase property from out-of-state vendors that do not collect Ohio sales tax
  • Make taxable purchases of property from any vendor under a “blanket exemption certificate”
  • Use inventory for taxable purposes, such as advertising, product demonstrations, etc.
  • Purchase property as tax exempt due to a belief that an exemption from tax applies (i.e. manufacturing exemption)
  • Purchase and/or ship property from multiple jurisdictions in Ohio

The liability associated with these activities can be extremely high.  Businesses that are not filing Ohio use tax returns are not protected by the usual four-year statute of limitations.  If contacted by the ODT prior to registration, there is no limit on the number of years it can examine; however, policy generally limits any examination to seven years. Audits can result in significant amounts of penalties and interest – up to 35-40 percent of any tax liability identified.

Next Step – Limit Exposure

The state has historically been less likely to audit companies who participate in a voluntary disclosure agreement (VDA) with the state of Ohio.   BMF can assist businesses in assessing possible exposure and complying with Ohio’s sales and use tax requirements through a VDA.  In this role, BMF would be an advocate for the business acting in its best interest, presenting the facts favorably, and controlling the presentation of information.

Other benefits of a VDA include:

  • All penalties waived
  • A limited look-back of only three years by the state
  • An anonymous application process
  • Accurate determinations regarding the taxability of any state challenged transactions
  • An opportunity to review the business’s position on other Ohio taxes and come forward under favorable terms, if necessary

It should be noted that a VDA is not generally available after being contacted by the state.  As such, action should be taken now.

BMF’s professional staff is experienced in the VDA process and the application of Ohio’s sales and use tax laws.  Prospective registration or participation in a VDA can result in huge savings.  Please contact us if you would like to learn more about the Ohio use tax and your potential exposure. 

Robert M. Burak, CPA, partner-in-charge
Tax Services
330.255.1419
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Jonathan O’Donnell, JD, practice Leader
State and Local Tax Services
330.255.2479
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