The Ohio Department of Taxation (ODT) recently announced an
amnesty-like program that can result in substantial savings for
taxpayers that have undisclosed Ohio use tax liability. The Ohio
use tax is a complement to the Ohio sales tax, and is a tax on the
storage, use or other consumption of tangible personal property and
certain taxable services in Ohio. It generally arises when a seller
fails to collect sales tax on the sale of certain purchased
personal property and services which are used in Ohio. Common
examples include the purchase of property to be used in Ohio from
an online vendor, a catalog company, or an out-of-state seller with
minimum contacts to Ohio.
The Use Tax Education Program (UTEP) is a new initiative aimed at
raising awareness of the use tax and inducing businesses to
register and pay. As the ODT rolls out UTEP, the ODT is offering an
extra incentive for compliance: taxpayers who voluntarily disclose
unreported use tax liability prior to August 1, 2011, will only
have to pay up to three years back tax and interest (currently 4%).
Under normal use tax audit rules, taxpayers could owe tax for up to
10 years (although ODT policy is to only go back seven) and
substantial penalties (generally 15% of the tax liability).
After the expiration of this incentive period, ODT will begin
notifying taxpayers about UTEP by sending out approximately 380,000
use tax notices to businesses which the ODT believes have
undisclosed Ohio use tax liability. A notice recipient may limit
its exposure to four years of back tax and interest if the notice
recipient contacts ODT prior to the time that ODT commences an
audit. Any recipient that does not respond to the Notice may face a
use tax audit under the ODT's stricter rules (longer look-back
and penalties).
Going forward, Ohio taxpayers should expect an increase in the
number of use tax audits performed by ODT. The ODT's release of
several media announcements over the last four months indicates
that the ODT plans to pay more attention to use tax audits than it
has in the past.
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