Ohio levies Sales and Use Tax on transfers of tangible personal property and certain taxable services, unless an exemption or exclusion applies. Most businesses are familiar with sales tax but may be unaware that they owe use tax on purchases for which no sales tax was charged by the vendor.
Ohio has special rules for who is a “consumer” in particular circumstances – for instance, construction contracts.
There are important considerations in the tax treatment of mixed transactions involving both transfers of tangible personal property and services. The tax authorities look to the primary object of the purchaser and if there is separate pricing to determine if a mixed transaction is subject to sales and use tax.
Taxpayers have several opportunities and tools available to drive efficiencies and manage use tax audit risk:
- Reverse Sales and Use Tax Audit.
- Exemption and Resale Certificates.
- Direct Pay Permit arrangements for manufacturers, contractors, and other consumers.
- Invoices clearly delineating transactions involving a bundling of goods and services.
- Understand the provisions that govern where to source use tax, such as transactions where businesses use tangible personal property in more than one location, (e.g. “canned software” used by multi-state operations).
- In situations when the vendor is not required to collect sales tax (e.g. certain online sales), understanding when use tax is payable by the taxpayer/purchaser.
- Voluntary Disclosure Agreements to limit audit look-back periods and move into compliance.
For more on this or any tax issue that concerns you, contact your Barnes Dennig representative at (513) 241-8313.