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Tax Alert: State of Ohio Use Tax Audits

October 29, 2013

Attention: All Clients

We have recently become aware of an increased effort underway by the State of Ohio to perform Use Tax Audits of businesses in an effort to collect tax revenues that should have been paid in recent years.

As you may or may not know, “Use Tax” is basically Sales Tax. However, if a vendor does not charge and collect Sales Tax on a transaction that is subject to the tax, the purchaser is then responsible for paying the Sales Tax directly to the State of Ohio, but it is then called “Use Tax”. The use tax rates are the same as the Sales Tax rates, and may vary from county to county throughout the State.

A recent article mentioned that the State has some 18,000 Use Tax accounts active, but they estimate the number of businesses that should have a Use Tax account is around 300,000. So, in an effort to find and collect the millions of dollars in Use Tax that the State feels it has missed out on collecting, they have hired around 90 auditors in that department to improve their collections.

So, be warned. You may get a notice of a Use Tax Audit, and you should be prepared to pay back Use Taxes, along with interest and a potential 15% penalty. Once instance that we are aware of had the Audit go back five and a half years.

It is in your best interest to review your invoices that do not charge Sales Tax, and then determine whether or not the transaction was subject to the tax. If it was, you need to pay the Use Tax. Not all transactions are subject to Sales Tax, so you may want to check the State of Ohio Department of Taxation’s website for their FAQs that list exempt sales as well as sales that are subject to the tax. Out of State vendors that do business nationally are some of the larger culprits for not charging the Sales Tax, as are on-line vendors. Again, checking your paid invoices seems to be necessary to brace yourself for a potential Use Tax Audit.