Use tax is a tax on the storage, use or consumption of a tangible personal property and certain taxable services in Ohio. Generally, if you have paid Ohio sales on an item, you do not owe Ohio use tax. However, if you have not paid Ohio sales tax, then you may have the responsibility to remit Ohio use tax.
The old use tax education program has been modified as a result of the Ohio legislature passing a Use Tax Amnesty law as part of their biennial budget bill. Legislators wanted to refocus the message on taxpayers, reduce the financial hit to taxpayers, and make it even easier to come forward.
The use tax VDA program has been suspended, except for taxpayers who do not qualify for the new amnesty program. Taxpayers who had a use tax assessment issued prior to 9/29/11 are not eligible for the amnesty program and can continue using the VDA program. If you have a VDA in process, it will be terminated unless you do not qualify for amnesty (then you will be allowed to continue). All taxpayers who qualify for amnesty need to use the amnesty program and complete a new application.
Amnesty includes full waiver of interest (VDA charged interest) Amnesty has a payment plan (VDA required payment in full) Amnesty looks back to 1/1/09 (VDA looked back a full three years from the application date)
* Note that this is for new audits that will commence in the future, if you are currently under audit and have had an assessment issued you may be ineligible for the program.
Once in a lifetime opportunity!! Letter mailing campaign – 10,000 at a time every two weeks
You can only participate in amnesty once during the amnesty period. [Internal Note – The default effective date of the law for provisions not specifically mentioned is 91 days after the date of enactment, which was 6/30/11. The 91 st day after 6/30/11 is 9/28/11. Eligibility is destroyed if you are assessed on or before the effective date. Thus assessments issued on 9/29/11 and later do not destroy amnesty eligibility.]
*Note that this form is not yet available, but will go live in September. It will be similar to the document used to report under the old VDA program which is shown here. The forms will auto-calculate the amounts due if you provide the above information. The period you have to report and pay tax on is from 1/1/09 to the last day of the month preceding the month you submit the application (so if you file on October 1, 2011 then your period would be from 1/1/09 through 9/30/11).
If your liability is under $1,000 then the entire amount is due with your amnesty application.
It is very important to confirm your eligibility for amnesty, you or your tax representative can call Ohio to confirm your eligibility.
If you have an average monthly liability of $5,000 or more, your filing frequency will be monthly, else it will be quarterly. Note that you must file your future use tax returns timely, even if you have no liability for a particular period. Once you participate in amnesty you can never go back, your business will be locked into filing an Ohio use tax return as long as it is doing business in Ohio.
Mention Rea’s proves methodology – education, review of data, completion of amnesty steps, clean slate moving forward – no more under or overpayments of tax.
One important distinction on use tax. Consumer’s use tax is imposed on the use in Ohio of items or services that are covered by Ohio sales tax on which no sales taxes were paid (anywhere). Seller’s use tax is the collection of tax by an out of state seller of Ohio purchaser’s use tax on the transaction (its very similar to sales tax collection). Seller’s use tax (which is like sales tax) is eligible for General Amnesty just as sales tax is. Consumer’s use tax is ONLY covered by the separate use tax amnesty program. Seller’s use tax is NOT COVERED by the separate use tax program. Each type of use tax is only covered by one program.
We mention this here because the programs are similar and were enacted by the same legislation. They are easy to mix up. Key differences – General amnesty has a very limited application window which doesn’t start until May of next year. General Amnesty applies to almost all tax types (other than consumer use tax). General Amnesty only waives ½ of interest. Returns must be filed under General Amnesty. Payment in full is due under General Amnesty.
Ohio Use Tax Amnesty
Smart Business Thought Leadership Webinar Series September 8, 2011 Ohio Use Tax Amnesty: How much can you save? By: Chad Bice, CPA Principal/Director of State & Local Tax
Agenda Introduction to use tax How use tax enforcement has changed What is use tax amnesty Applying for amnesty What happens after you apply Why you need amnesty Don’t confuse with general amnesty
You May Have Use Tax Liability if… You bought taxable goods and services, and didn’t pay sales tax.96% of Ohio use tax audits resultin use tax liability.
What’s Use Tax Anyway? Sales tax companion Every purchase should be taxed once unless an exemption applies Not all purchases have sales tax added Sales tax may not have to be charged
When is Use Tax Due? When no sales tax is charged on taxable goods or services Internet purchases Out of state purchases In state purchases Sales tax is charged on the front-end by the seller. Use tax is due on the back-end by the purchaser, when the sales tax collection process breaks down.The use tax rate is equal to the sales tax rate.
Potentially Taxable Goods Office Equipment – Postage meter rental computers, software, monitors, charges printers, scanners, fax, staples, telephones Advertising property – (t-shirts, posters, Office Supplies – etc.) Paper, tape, business cards, envelopes, folders Leases/rental of taxable tangible personal property Furniture – Desks, chairs, Safety supplies/equipment tables, lamps, television Internet access charges for Cleaning Supplies – businesses Mops, brooms, Decorations/Art work cleaners, paper towels Freight on taxable tangible personal property
Potentially Taxable Services Installation of taxable Janitorial tangible personal property Storage (not inventory) Repairs of taxable Maintenance contracts tangible personal property Motor vehicle towing Employment (temps) Cleaning/detailing of motor Lawn care and landscaping vehicles (non-coin operated) Exterminating Laundry cleaning Automatic data processing Employment placement Snow removal Other
Enforcement Has Changed Use Tax Education Program (UTEP) Data mining initiative. Help businesses understand use tax laws. Increase compliance, generate revenue. The Ohio Department of Taxation will contact 380,000 businesses this summer!
VDA Program Suspended Look back period limited to 3 years Penalties waived Interest charged Conduct self audit Submit in summary format Register for use tax
How Amnesty & VDA Differ Amnesty Includes full waiver of interest Has a payment plan Looks back to 1/1/09 Cannot be filed anonymously Is completed all at once (no back and forth with the state) Is conducted through Ohio Business Gateway
Use Tax Audits Suspended Temporary situation Will resume during the amnesty period Can apply for amnesty even while under audit
The Use Tax Amnesty Program Self audit from Jan. 1, 2009 through application date 100% abatement of penalties & interest Payment plan available Runs from Oct. 1 to May 1, 2013No Amnesty = look back to Jan. 1,2008 + interest & penalties
Who Qualifies for Amnesty?Individuals and businesses who did not have a use tax assessment prior to Sept. 29, 2011Note: Those who registered for a use tax account on or before June 1, 2011, can still participate, but interest will not be waived.
How Amnesty Works1. Complete the spreadsheet available on Ohio Tax’s website to calculate liability Report the following: » name and address of the supplier » description of item or service » price » county where item used
How Amnesty Works -continued2. Register for an Ohio Business Gateway (OBG) account (if don’t already have)3. Register for a consumer use tax account (if don’t already have) The application/return is accessible on OBG once registered Those who had a use tax account on June 1, 2011, must call (or have representative call) to arrange amnesty
How Amnesty Works -continued4. Complete and digitally sign the application & return Enter the total liability calculated in step 14. Upload the spreadsheet completed in step 1
How Amnesty Works -continued 7. Submit payment in full, or the first month’s payment under a payment plan You will receive a payment plan agreement, if requested 7. Complete the payment plan agreement and mail back, if applicable
How a Payment Plan Works Liabilities greater than $1,000 pay $1,000/month until fully paid If not evenly divisible by $1,000, then final payment will be the balance First payment is due with application Interest free plan
How a Payment Plan Works -continued Maximum of 7 years (84 months) to pay Example: If you owe $126,000, payment would be $126,000/84 months = $1,500 per month The catch… Two people must agree to personally guarantee the entire debt One can (but does not have to) be an officer, member, or partner of the business Both must provide social security numbers
Review of SubmittedInformation Tax Commissioner has right to review application & supporting documentation before accepting Applications that seem suspicious can be reviewed by auditors
Apply But Don’t Qualify? Will be sent an assessment for the amount owed, plus interest Unclear if penalties will be added (probably will be) No payment plan available Submitted payment will be applied - balance due immediately
Ongoing Use Tax Reporting Liability before Jan. 1, 2009, is forgiven Now current with filing through participation date New use tax returns must be filed on a go forward basis monthly or quarterly
No Use Tax Account? You Need Amnesty Puts you in the drivers seat (self audit) Limits liability Less audit risk Less penalties & interest Less adversarial How many years of tax liability will you save?
Don’t Just Open a Use TaxAccount State is wise to this approach You can be audited back to Jan. 1, 2008 – and the statute of limitations never runs on those years Post amnesty, a more aggressive audit & estimated tax due notice method of enforcement will resume
Post AmnestyIf the law changes and Amnesty no longerexists, anticipate increased look back period, interest & penaltiesAggressive auditsEstimated tax due notices – you will have to“prove it”Third party collection agenciesAmnesty is a once in alifetime opportunity!
A General Amnesty Program Separate from use tax amnesty Covers unreported & underreported tax delinquencies Seller’s use tax vs. Consumer’s use tax Not available on taxes assessed, billed or under audit Available to both individual & business taxpayers
General Amnesty Details Applies to state-collected taxes due before May 1, 2011 Runs from May 1-June 15, 2012 Waiver of full penalty & ½ interest amount Returns must be filed Payment must be in full
Smart Business Thought Leadership Webinar Series – September 8, 2011 Questions? Contact Chad Bice, CPA Principal/Director of State & Local Tax Chad.Bice@ReaCPA.com 740.454.3198