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Smart Business Thought Leadership Webinar Series September 8, 2011

Ohio Use Tax Amnesty:
How much can you save?

Principal/Director of State & Local Tax

Chad Bice, CPA

By:

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 result in 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 –
computers, software, monitors, printers, scanners, fax, staples, telephones

Postage meter rental charges
Advertising property –
(t-shirts, posters, etc.)

Office Supplies – Furniture –

Paper, tape, business cards, envelopes, folders Desks, chairs, tables, lamps, television

Leases/rental of taxable tangible personal property Safety supplies/equipment Internet access charges for businesses Decorations/Art work

Cleaning Supplies –

Mops, brooms, cleaners, paper towels

Freight on taxable tangible personal property

Potentially Taxable Services
Installation of taxable tangible personal property
Repairs of taxable tangible personal property Employment (temps)

Janitorial
Storage (not inventory) Maintenance contracts Motor vehicle towing Cleaning/detailing of motor vehicles (non-coin operated) Laundry cleaning Employment placement Other

Lawn care and landscaping
Exterminating Automatic data processing Snow removal

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, 2013
No 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, 2011
Note: 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 Works
1. Complete the spreadsheet available on

Ohio Tax’s website to calculate liability
» » » » name and address of the supplier description of item or service price county where item used

 Report the following:

How Amnesty Works
2. Register for an Ohio

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Business Gateway (OBG) account (if don’t already have) account
(if don’t already have)

3. Register for a consumer use tax
 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
4. Complete and digitally

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sign the application & return

 Enter the total liability calculated in step 1

5. Upload the spreadsheet

completed in step 1

How Amnesty Works

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7. Submit payment in full, or the first

month’s payment under a payment plan

 You will receive a payment plan agreement, if requested

8. 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
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

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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 Submitted Information
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?
Puts you in the drivers seat (self audit) Limits liability

You Need Amnesty

Less audit risk
Less penalties & interest Less adversarial
How many years of tax liability will you save?

Don’t Just Open a Use Tax Account
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 Amnesty
If the law changes and Amnesty no longer exists, anticipate
 increased look back period, interest & penalties

Aggressive audits Estimated tax due notices – you will have to “prove it” Third party collection agencies

Amnesty is a once in a lifetime 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?
Principal/Director of State & Local Tax Chad.Bice@ReaCPA.com 740.454.3198

Chad Bice, CPA

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