By: Tracy Burkhart-Fitzpatrick, CPA
The Ohio Department of Taxation recently announced a new initiative taking place over the next couple months. If your company does not have a use tax account, it’s no longer a question of ‘if’, but rather ‘when’, the department will contact you.
Ohio businesses that have not been filing Ohio use tax returns on a regular basis are running the risk of being subjected to an examination by the Ohio Department of Taxation.
Starting August 1, the department will begin issuing letters to companies it has identified that do not have a use tax account. If your business ignores the notice, it could be audited, or the state could send you a notice estimating the amount of use tax you owe.
Manufacturing Companies Beware
- If a manufacturer uses tangible personal property primarily in its manufacturing, the tangible personal property is exempt from sales and use tax.
- Ohio law provides that a manufacturer is a consumer of the tangible personal property that it does not use primarily in its manufacturing operation.
What is Subject To Use Tax?
- Office Equipment, Office Supplies, Furniture, Cleaning Supplies
- Safety Equipment, Vehicles, Storage Equipment, Environmental Controls, Real Estate, Scrap Handling and Storage, Research & Development Expenditures, Repair & Maintenance Equipment
- Services subject to use tax:  Installation, Snow removal, Repair, Janitorial and Maintenance, Employment (temporary labor), Storage, Lawn care and landscaping, Maintenance contracts, Exterminating, Employment placement, Automatic data processing, Motor vehicle towing
What is Exempt From Use Tax?
- Items used primarily in a manufacturing process: Production Equipment, Materials Handling Equipment, Consumables, Testing Equipment, Scrap Handling, Repair Parts, Recycling Equipment, Equipment Transporting, Power, Water, etc.
Pay Now or Possibly Owe Much More Later
Immediate action is required if use tax returns have not been regularly filed to help avoid penalties and a longer look-back period.
Ohio generally has a four year statute of limitations. This will not apply if a use tax return has not been filed. Since the examination period is potentially unlimited, taxpayers could be assessed significant taxes, interest and penalties.
A taxpayer may limit their exposure by entering into a voluntary disclosure agreement with the Department. The benefits of the voluntary disclosure agreement include limiting the review to the three previous years and avoiding penalties from being assessed.
Now is the best time to address potential use tax liability and consider using the voluntary disclosure agreement to limit exposure for prior year use tax liabilities. It is important to understand that the voluntary disclosure agreement is not available after being contacted by the Department.
Please contact your BCG&Co. advisor to address your use tax exposure and further evaluate Ohio’s voluntary disclosure program.
