Everyone knows about sales tax—you buy something, you pay sales tax. But did you know there’s a companion to sales tax, a tax similar in some respects, different in others, and entirely separate from the sales tax with its own compliance requirements?  It’s use tax.

What’s use tax? Think of use tax as having two components.  First, in Ohio when a business buys something taxable, sales tax is owed by the business.  When the vendor doesn’t collect and remit the tax, however, the business has to do it.  When the business has to remit the tax, it’s no longer “sales tax.”  It’s “use tax.”  In this situation, sales tax and use tax are, for all practical purposes, the same.

The second component is the “real” use tax. Ohio levies a tax on the use, storage, or other consumption of goods and services in Ohio.  So, if you buy something either inside or outside Ohio and use it, store it, or consume it in Ohio you owe use tax.  There are a few exceptions, though.  Four notable ones are as follows:

• If the transaction is subject to Ohio sales tax, and you paid the sales tax, you don’t owe use tax.
• If the transaction would have been exempt from the sales tax had it applied, you don’t owe use tax.
• If you purchased the item outside of Ohio for use outside Ohio and you bring it into Ohio temporarily for non-business use, you don’t owe use tax.
• If you purchased an item and it is subject to use tax, you don’t owe use tax to the extent you paid sales tax to another state.

Use tax has its own compliance requirements. Unlike their sales tax counterparts, though, these compliance requirements are not widely advertised.  In Ohio, if you make any taxable sales you’re required to register for sales tax.  The equivalent isn’t true, however, of use tax.  An Ohio business isn’t required to register for consumers use tax if its annual use tax liability is $1,000 or less, so many businesses don’t register.  And why register and file regular returns when you don’t have to, right?  There’s a good reason why you should.

When a business doesn’t register, its use tax obligations become occasional—filings are required only as needed—and when compliance obligations become occasional they can become forgotten or ignored, particularly when the exposure seems small and there’s a cost to reducing it. If use tax obligations aren’t tracked, a business will lose sight of its annual liability and might unknowingly exceed the $1,000 threshold.

Lack of use tax registration and failure to file use tax returns is a red flag for the Ohio Tax Department, and if use tax returns should have been filed and weren’t the statute of limitations is seven years. At that point, the cost of filing monthly or quarterly returns seems pretty low when compared to the time and effort needed to get through a use tax audit with an audit period of seven years.

Businesses that aren’t registered for consumer’s use tax should consider registering, and businesses that don’t have use tax procedures should definitely establish some.

For help getting registered or for more information, contact our expert Steve today!

• Category: SALT Dash
• Tag: ohio, sales tax, SALT, state tax, tax department, use tax