New Payment Plan Rule for Ohio Use Tax Amnesty Program

By: Dow Wolfe, CPA

On September 15, 2011, the Ohio Department of Taxation (ODT) proposed a new rule addressing a payment plan for the Ohio Use Tax Amnesty program authorized by House Bill 153.

It states that the Tax Commissioner may enter into a no-interest payment plan with a qualifying taxpayer who elects to participate in the consumer’s use tax amnesty program if the following conditions are satisfied:

1.      The taxpayer must not be registered with the ODT for consumer’s use tax as of June 1, 2011.

2.      The amount of consumer’s use tax due under the amnesty application must exceed $1,000.

3.      At least one corporate officer, LLC member, general partner or other guarantor of the taxpayer must agree to the terms of the payment plan on behalf of the taxpayer, and agree to accept personal liability of the entire debt.

4.      At least one additional guarantor must agree to accept personal liability for the entire debt.  If the taxpayer is a single member LLC, no additional guarantor is required.

5.      Each guarantor must provide his or her social security number to the Tax Commissioner.

6.      The guarantor must agree that the Tax Commissioner is not required to pursue the taxpayer for the unpaid for the unpaid balance, including interest and additional fees, prior to seeking repayment by the guarantor.

7.      The taxpayer must agree that the period in which the Tax Commissioner may assess unpaid consumer’s use tax due under amnesty does not expire until six months after the end of the payment plan.

The payment plan terms are as follows:

1.      The minimum monthly payment is $1,000.  The first payment must be included with the amnesty application.

2.      The maximum term of the payment plan is 84 months.

3.      The taxpayer must return the fully executed consumer’s use tax amnesty payment plan agreement to the Tax Commissioner within 15 days after receipt.

4.      The taxpayer must make each payment due under the payment plan on or before the first business day of each month.

If the taxpayer misses a monthly payment, fails to return a fully executed copy of payment plan agreement, or fails to remain current with all Ohio tax obligations, the Tax Commissioner will notify the taxpayer of such default.  The taxpayer will have 15 days from the date of the Default Notice to provide documentation that the disputed payment was made, the fully executed agreement has been returned, or that the taxpayer is current with all of its Ohio tax obligations.  If the taxpayer fails to provide such documentation within 15 days, the Tax Commissioner may assess the taxpayer and each guarantor for the entire outstanding consumer’s use tax balance, including interest.   The assessment will be certified to the Ohio Attorney General for collection.  Additional fees may be assessed by the Attorney General.

Please contact me at Dow.Wolfe@BCGCompany.com if you have additional questions.

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BCG Blogger, September 21st 2011 | Tags: , , , , , , ,
Posted in State and Local Tax (SALT), Tax Strategy, Tax Updates, Use Tax

Ohio Releases Details on Consumer’s Use Tax Amnesty Program

By: Dow O. Wolfe, CPA

The Ohio Department of Taxation has issued guidance on the consumer’s use tax amnesty program that was announced earlier this summer.   The amnesty program begins October 1, 2011 and ends May 1, 2013.   The recently released guidance includes answers to the following questions:

What consumer’s use tax period should be included in the amnesty application?

Consumer’s use tax due on purchases made on or after January 1, 2009 should be included in the amnesty application.   However, if a consumer has been issued an assessment for consumer’s use tax for any period, the consumer is not eligible for amnesty.  Also, a consumer may apply for amnesty only once during the program.

What if a consumer does not qualify for consumer’s use tax amnesty?

Consumers not qualifying for use tax amnesty may still qualify for the voluntary disclosure program.  Additional information on voluntary disclosure is available at ODT’s website http://tax.ohio.gov/channels/other/voluntary_disclosure.stm.

What are the advantages of amnesty?

All un-assessed use tax liability due for any periods prior to January 1, 2009 is waived.  No interest or penalties will be added to the consumer’s use tax paid under amnesty.   However, if a consumer is registered for Ohio use tax as of June 1, 2011, the consumer’s use tax paid under amnesty will be subject to interest.

Is a consumer required to pay tax for past periods?

Yes.  The consumer is required to make a non-refundable payment of all consumer’s use tax on purchases made on or after January 1, 2009 through the last day of the month preceding the month in which amnesty is requested.    The consumer will also be required to register for consumer’s use tax and may be required to file returns on an ongoing basis.

What happens if a consumer applies for amnesty but does not qualify?

The Ohio Department of Taxation will issue an assessment for any unpaid balance of the consumer use tax liability plus interest.   A payment plan is not available to consumers who do not qualify for amnesty.

Is there a payment plan available?

Yes.  A no interest payment plan is available to businesses that were not registered for consumer’s use tax as of June 1, 2011.  In order to qualify for the payment plan, the amount of consumer’s use tax due under amnesty must exceed $1,000.   The payment period cannot exceed seven years and the minimum monthly payment is $1,000.   If a payment plan is requested, at least one corporate officer, LLC member, general partner or other guarantor must agree to the plan terms and personally guarantee the debt.   One additional guarantor must agree to accept personal liability for the entire debt also.   Guarantors must provide his or her social security number and the consumer must agree to waive the statute of limitations for assessment of the consumer’s use tax due under the payment plan.  The first month’s payment must be remitted at the time the amnesty application is submitted.

If you have any questions regarding the amnesty program or need assistance with the amnesty application, please feel free to contact me at 330-864-6661 or dow.wolfe@bcgcompany.com.



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BCG Blogger, September 19th 2011 | Tags: , , ,
Posted in State and Local Tax (SALT), Tax Strategy, Tax Updates, Uncategorized, Use Tax

Ohio to Offer Use Tax Amnesty Program

The Ohio Budget Bill recently signed by Governor Kasich includes two important provisions regarding Ohio’s consumer use tax.

The first provision requires the Ohio Tax Commissioner to establish the Use Tax Amnesty Program.

It is scheduled to run from October 1, 2011 to May 1, 2013.

The program will allow consumers who are unregistered to come forward and pay their Ohio consumer use tax liability for taxes owed from January 1, 2009 to present.  Unregistered consumers qualifying under the program will not be subject to interest or penalties.  Consumers registered for the use tax prior to June 1, 2011 may participate in the program but may be subject to interest and penalties.

Consumers who do not participate in the amnesty program will be subject to a use tax audit for taxes, plus interest and penalties, owed from January 1, 2008 to present.  The Tax Commissioner will release forms and instructions regarding the amnesty program as they become available.

The second major provision regarding the Ohio use tax prohibits use tax assessments for taxes owed prior to January 1, 2008.

Under prior law, the statute of limitations was seven years for consumers owing use tax.   This new provision has essentially shortened the statute of limitations.   This new provision is also effective for consumers that are currently under audit, provided that an assessment is not issued prior to October 1, 2011.

For more information, please contact a BCG&Co tax advisor.

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BCG Blogger, July 11th 2011 | Tags: , , , , ,
Posted in Tax Updates, Uncategorized, Use Tax

Ohio Use Tax: Are You At Risk?

By: Dustin Sheppard

The Ohio Department of Taxation (ODT) has announced a program beginning in 2011 for taxpayers to resolve unpaid use tax. The Use Tax Education Program (UTEP) is an Ohio initiative allowing taxpayers incentives to remit use tax and avoid penalties and interest. The UTEP is being rolled out in two phases.

The first phase is education based. The ODT will be providing educational events to Ohio businesses through business associations, workshops and seminars. These programs and other UTEP information can be found at: http://tax.ohio.gov/divisions/sales_and_use/index_use.stm

The second phase of the UTEP program is identifying and contacting Ohio businesses about registering for use tax filings. If ODT determines a business is not registered for use tax, the ODT will contact the business and enter into a UTEP agreement. Under this agreement, the business will have to remit any previous unpaid use tax plus interest, but penalties will be waived.  Under Ohio law, ODT can go back as far as ten years to assess use tax liability but the UTEP program will limit the lookback period to four years (provided fraud has not taken place).

If a business would prefer to avoid waiting for ODT to contact them, a voluntary disclosure program is available. This program can limit the lookback period to three years of use tax liabilities plus interest. Depending on the client’s use tax exposure, it may be best to enter into a voluntary disclosure agreement with Ohio and bypass the UTEP program.

However, if a business does not enter into either program, Ohio will go back seven years for a use tax audit (with the option to go back ten years) for any business discovered after the UTEP program has closed.

If your business is not currently registered for use tax or you would like additional information on the voluntary disclosure process, please contact us – Dow.Wolfe@BCGCompany.com

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BCG Blogger, June 6th 2011 | Tags: , , , , , , ,
Posted in Tax Minimization, Tax Updates, Use Tax

Ohio’s Use Tax: Webinar

The Ohio Department of Taxation has made it clear that their mission is to uncover unpaid Ohio use tax and potentially subject businesses to interest and penalties for unpaid taxes. Ohio’s use tax complements its sales tax. It is paid at the same rates as the sales tax. The use tax must be paid on all non-exempt purchases of tangible personal property and services by Ohio residents and businesses if the proper amount of sales tax has not been paid to the vendor, seller or service provider.

If you are among the estimated 380,000 businesses (including nonprofits) in Ohio who do not have an Ohio use tax account, you are in the majority. However, the state is issuing a task force to go after those businesses and collect, with interest, on these past due taxes. Starting this August they will begin to issue letters to businesses as a starting point to determine if they owe use tax to the state.

View the webinar or download the slides to learn more about the Use Tax and how it impacts you.

 

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BCG Blogger, May 17th 2011 | Tags: , , , , , ,
Posted in Small Business, State and Local Tax (SALT), Uncategorized, Use Tax

Ohio Use Tax for Individuals

By: Dustin Sheppard, CPA, MBA

Most Ohioans are familiar with sales tax. In general, Ohio sales tax is charged on many everyday purchases. When people buy products online or out of state, sales tax is often not charged. In those cases, if the items purchased are taxable, Ohio use tax is due.

The use tax rate is the sales tax rate in your county of residence. To determine the use tax liability, multiply your purchase amount by the sales tax rate.

For Example:

Katie wants to buy a new pair of shoes. She finds the shoes she likes at a local store for $150. She goes home and finds the exact shoes for the same price from an online retailer. The online retailer is offering free shipping too. Katie decides to buy the shoes online since the online retailer does not charge sales tax. She thinks she will save 6.5% on sales tax: is she correct?

Answer: Technically yes, since she did not pay sales tax. However, she owes use tax of $9.75 ($150 x 6.5%) to Ohio. So how does Katie actually pay her use tax?

Ohio individuals pay their use tax when they file their Ohio individual return. On the second page of the Ohio return, line 17 asks for the amount of any unpaid Ohio use tax. Follow the instructions and the worksheet on page 31 & 32 of Ohio’s tax booklet to calculate your tax.

If you have further questions or need professional advice, please contact a BCG tax professional.

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BCG Blogger, April 11th 2011 | Tags: , , , ,
Posted in Sales Tax, Uncategorized, Use Tax

DOES YOUR BUSINESS HAVE “NEXUS” ISSUES?

A business that sells to customers in many states may be exposed to a variety of multistate tax issues. “Nexus” is a concept that is increasingly becoming a hot-button issue for companies with a multistate presence.

As many states grapple with budget deficits, nexus is gaining momentum as a means by which a state or other jurisdiction may claim that a particular activity of a company is subject to tax. Activities of a company in a given state where the business has a presence may be considered sufficient — from the taxing state’s perspective — to cause a strong enough connection to impose any one or more of a number of taxes.

Businesses operating in a variety of states should consult with their tax professional as to whether taxes or other levies may be triggered in each state in which it operates. Not every state has each of the following taxes. For instance, many states do not impose an income tax and a franchise tax.

Sales and Use Tax. Generally, under federal law, a state must have “substantial nexus” to a seller in order to require the collection of sales and use taxes imposed on buyers upon the sale of goods or merchandise in its state. Over the years, “substantial nexus” has been defined generally as a company’s having a physical presence in the state, as determined by one or more of a number of factors, including the presence of a salesperson or a contractor or a location within the state.

You should determine whether any of your business’ activities creates substantial nexus with each state in which it does business. In your analysis:

  • Consider the activities that you are engaged in that may rise to the level of nexus;
  • Determine which states consider the activities a sufficient connection; and
  • Prepare for the possible exposure to uncollected tax by conducting an analysis regarding those states where substantial nexus exists.

An added complication to the nexus concept is that, even if your out-of-state business activities do not result in exposure to one type of tax, it does not necessarily mean that those activities aren’t sufficient for the state to impose other taxes.

Income Tax. Generally, a higher level of business activity than what constitutes nexus for sales tax must be present in a given state for it to also impose an income tax. As a general rule, if an out-of-state business engages in any of the following activities, it is generally considered to have sufficient state income-tax nexus:

  • Derives income from sources within the state;
  • Owns or leases property in the state; or
  • Employs personnel who engage in activities that go beyond those protected under federal interstate commerce laws.

Merely selling into a state should not be enough to cause nexus for income-tax purposes. Under federal law, a state may not impose a tax on out-of-state taxpayers based on or measured by net income where the only activity connecting it to the state is the solicitation of orders for sales of tangible personal property — as long as such orders are approved and shipped from outside the state trying to impose the tax. Generally, tangible personal property is an asset that can be touch or moved. Examples include furniture, jewelry, clothing, artwork, or household goods.

As a result, businesses must be vigilant against the potential exposure to income tax as it relates to a business’ solicitation for the sale of intangible property (such as goodwill, trade secrets, patents, trademarks, or copyrights), real estate, or services.

Franchise Tax. A business’ protection under federal law against the imposition of a given state’s income tax does not necessarily insulate it from franchise tax. Franchise tax is typically imposed based on non-income factors, such as net worth or apportioned capital. Generally, franchise tax is exacted on a business entity for the privilege of doing business in the state. If a business has substantial nexus for sales- and use-tax purposes, it may well have exposure to a state’s franchise tax.

Gross Receipts or Other Business Taxes. The concept of basing tax on non-income factors is a growing trend. Many states have passed laws that base the imposition of such a tax on measuring gross receipts generated from the seller from:

  • The sale of products or services within the state;
  • The value of a business’ transactions within the state; or
  • Some other modified base.

Such so-called gross-receipts taxes imposed on sellers are separate from sales and use tax imposed on buyers — even though the same sales receipts give rise to both tax liabilities. 

A Review Is Needed
Many states have expanded their tax reach by imposing a variety of taxes based both on income and non-income factors. Business taxpayers should carefully consider their potential exposure to any one or more of the taxes discussed in this article in each state in which it does business. Need assistance determining your multistate tax obligations? Let us help.

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BCG Blogger, March 31st 2011 | Tags: , , , , ,
Posted in Sales Tax, Small Business, State and Local Tax (SALT), Use Tax

Ohio Use Tax: Are you filing and reporting?

By: Dow Wolfe, CPA

The Ohio Department of Taxation recently announced a new initiative taking place over the next couple months. They plan to contact registered Ohio businesses who do not have an Ohio use tax account and investigate their use tax liability. 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.  If you are a registered Ohio business, Ohio use tax returns should be filed regularly, even if the use tax liability is zero.  Immediate action is required if use tax returns have not been regularly filed and taxable transactions such as the following have occurred:

  • Purchases from non-Ohio vendors that do not collect Ohio sales tax
  • Using or storing property in a higher taxing county than the county of purchase
  • Erroneously determining purchases as exempt from tax, such as under the manufacturing exemption or exception for leased employees
  • Taxable purchases from a vendor holding a blanket exemption certificate

 
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. representative to address your use tax exposure and further evaluate Ohio’s voluntary disclosure program.

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BCG Blogger, February 2nd 2011 | Tags: ,
Posted in Tax Updates, Use Tax

Sale and Use Tax Audits on the Rise in Ohio

By: Laura Culp, CPA, MT, CCIFP
Dustin Sheppard, CPA, MBA

As is frequently reported in the news, the economy has impacted state revenues and Ohio is no exception.  Looking for sources of revenue, Ohio has hired around 100 new auditors of which approximately 25 were hired in the Cleveland-Akron area. Companies that have not filed a use tax return are being targeted for audit.

Most people are familiar with sales tax but not with use tax. Sales tax is paid at the time of purchase and collected by vendors who do business in Ohio.  Use tax is assessed on taxpayer’s purchases where either no sales tax has been paid or the amount of sale tax paid is less than the sales tax for the jurisdiction in which the purchase is being used.  The difference in tax is remitted on a use tax form and generally Ohio requires use tax to be remitted electronically via the Ohio Business Gateway.

Areas that auditors are examining for additional sales and use tax include:

  • Property, equipment and supplies that were purchased from vendors in a state where no sales tax was paid and that property was subsequently brought into Ohio.
  • Taxable items purchased in an Ohio county with a lower sales tax rate than your home county’s or job location’s sales tax rate. 
  • Taxable services such as temporary labor, employment placement fees, cleaning, lawn and landscaping services.
  • Mail order and Internet purchases of office supplies, computer equipment, software, etc.

If your company is selected for audit, the auditor will review three years of activity if you have been filing use tax returns and seven years if no returns have been filed. Interest and penalty are also assessed on unpaid use tax liabilities. We highly recommend that all businesses file use tax returns to limit their audit exposure and tax liabilities.  Additionally, if your company has operations outside of Ohio, you need to be aware of that state’s sales and use tax rules as they might be different.  If these transactions apply to your business, we recommended you consult with your tax advisor to determine the best course of action.

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BCG Blogger, July 30th 2010 | Tags: , , , ,
Posted in Legislation, Sales Tax, Uncategorized, Use Tax