Ohio to crack down on use taxes; offers 'amnesty program' for small businesses

Ohio to crack down on use taxes; offers 'amnesty program' for small businesses

Oct 01, 2011

COLUMBUS, OHIO — As more veterinarians buy products over the Internet from out-of-state suppliers, Ohio says it will crack down to make sure they collect often-forgotten use taxes.

"It's when the coffers get a little bit empty that they start to look for the laws that are already on the books and they start enforcing them vigorously," says Ohio-based veterinary accountant Marsha Heinke, DVM, EA, CPA, CVPM.

In Ohio, a new amnesty program is being offered to allow veterinarians, as well as about 300,000 other small business owners, to catch up on paying use taxes. The program limits the "look-back period" to two years, instead of the more typical four to six years, and gives business owners the chance to claim their tax burden without penalties or interest charges, according to Gary Gudmundson of the Ohio Department of Taxation.

"It will be an opportunity to reduce their risk and exposure to back taxes," says Jack Advent, executive director of the Ohio Veterinary Medical Association (OVMA).

Consumer use taxes must be paid on all taxable purchases of tangible personal property or services used, stored or otherwise consumed in Ohio unless Ohio sales tax has been paid to a vendor or the tax has been properly paid to another state according to the Ohio Department of Taxation.

Veterinarians frequently run into situations with use taxes by ordering items online, Heinke says. For example, a digital X-ray machine ordered online from an out-of-state company with a price tag of $100,000 will cost a veterinary practice $7,000 in use tax, factoring in a standard 7 percent tax rate, if the seller did not charge the practice sales tax upon ordering.

Advent says there also may be some services performed at a practice, like landscaping, where the veterinarian is not charged a tax on the service. But according to Ohio tax laws, the veterinarian still owes the state tax monies, even if it wasn't collected by the service provider. Other services that are subject to use tax include data processing, janitorial and maintenance services and temporary employment services. Heinke says service taxes are difficult to understand, since there is really no reason dictating what types of services are taxed.

A lot of businesses—and tax accountants—don't know about the tax or aren't well-versed on it, and Ohio tax collectors know it. So the Ohio Department of Taxation started an "education program," urging business owners to ask their service providers if they are being charged the appropriate taxes.

"If the vendor doesn't charge it, the liability is on the consumer," Advent says. "The amnesty program recognizes it is not willful disregard for not paying, but no one really knew about it. And there was never an effort to educate people about it, until now."