Ohio’s Department of Taxation is stepping up its enforcement of Ohio sales and use tax law, which means no business owner can afford to be left in the dark. It is absolutely essential to always comply with and understand the sales tax requirements in the states you do business.

Ohio State and County Sales Tax

The Ohio sales and use taxes apply to the retail sale, lease, and rental of tangible personal property, and there are also a number of select services that are taxable. If sales tax is due, but not collected by the seller, a use tax equal to the amount of sales tax is due from the purchaser. Ohio has a sales tax rate of 5.75%, but each county and regional tax authorities may levy additional rates. For instance, a consumer in Cuyahoga County pays 8% tax, but a consumer in Lorain County pays 6.5%.

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Ohio Sales Tax Permit

If a seller determines that they should be collecting and remitting sales tax to Ohio, they must apply for a sales tax permit. Sales tax returns can be filed through the Ohio Business Gateway, and the frequency of your filing will be determined during the application process.

There is a discount of 0.75 of 1% for timely filed sales tax returns, and if you file late, there’s a penalty equal to the greater of (1) $50 per month or fraction of a month, up to $500, or (2) 5% per month or fraction of a month, up to 50% of the sum of the taxes required to be reported for each month or fraction of a month that occurs between the due date, including extensions, and the date on which the return is filed will be levied.

It is also required that any seller with a sales tax permit file a sales tax return on your due date even if you don’t have any sales tax to report or pay.

Ohio Use Tax Permit

The Ohio use tax is similar to the sales tax in its application. It is imposed on the “storage, use, or other consumption” of all tangible personal property and the receipt of certain services that are subject to sales tax. Items exempt from sales tax are also exempt from use tax, such as foods, medicines, and newspapers.

Use tax most commonly arises when an out-of-state seller does not have nexus in Ohio and is therefore not required to collect sales tax.  However, there are instances when a seller simply does not collect in error or the purchaser may improperly claim an exemption that they are not entitled.  In some situations, a purchaser can pay sales tax and still owe use tax.  If an item is purchased in a place with a lower tax rate, but then used in a place with a higher rate, the purchaser should pay use tax on the difference.  A consumer who makes regular purchases upon which the proper amount of sales tax is not collected by the seller should apply for a consumer’s use tax account and file use tax returns.

The Rules of Ohio Sales and Use Tax

While the concept of sales and use tax may seem simple, it can actually get quite complicated.  With the increase of sales/use tax audits being performed by the state, it is important to know the rules.

The first step in ensuring compliance is determining what purchases are taxable. A taxable sale includes any transaction in which title or possession of tangible personal property or the benefit of certain services is, or will be, transferred or provided for a price. All retail sales are subject to the tax unless they are specifically exempted in Ohio’s sales tax law. Some common examples of exempt purchases include food for human consumption off the premises of where it is sold, newspapers, and sales to organizations that have been granted and have maintained 501(c)(3) status by the Internal Revenue Service.

There are also exemptions available for resellers and manufacturers (to ensure sales tax is paid by the end user only). Sales tax exemption certificates can be provided to sellers if an exemption applies. It is important for sellers to properly collect these certificates from their customers and retain them.

Taxable Services in Ohio

While not all services in Ohio are taxable, there is a list of taxable services. Common examples of taxable services include landscaping, janitorial services, employment service, and snow removal services. Professional, personal, and insurance transactions are not taxable so long as any tangible personal property transferred is a small item for which no separate charge is made. The items mentioned in this paragraph are only a few of the many exceptions and exemptions.

Taxability Questions

The above lists are not all-inclusive and provide only a basic outline of what items are subject to use tax. Depending on your business, other various items of tangible personal property and services may also be subject to Ohio sales and use tax. If there are questions on taxability, it is important to contact your tax advisor to ensure you pay the correct amount.