Last week I downloaded an MP3 from Amazon.com on to my smartphone (Max Stalling, Wide Afternoon, $8.99 in case you're interested). I paid no sales tax, but I will have to pay use tax to the State of Ohio. Most people won't report the use tax on such transactions, and that got me thinking about how many Ohio businesses that purchase equipment, inventory or supplies online or out of state and do not pay the use tax. It is far from ironic that the State of Ohio Department of Taxation is thinking about the same thing.
The Ohio Use Tax
Ohio imposes a use tax on all tangible personal property located in the state, and on certain other goods and services for which sales tax has not already been paid. The rate of use tax is usually the same as the applicable sales tax of a county. That file I bought online, the equipment you buy from a supplier in Michigan (without paying sales tax), and the Columbus company that does your snow removal in February (for which you paid cash) are all subject to use tax.
Ohio Enforcement and Voluntary Disclosure
Ohio purchasers must report and pay use tax directly to the State of Ohio using a use tax return. This year, Ohio is trying to bring at least 300,000 non-reporting Ohio businesses into use-tax compliance. As a first step, the state is offering a Voluntary Disclosure Program to incent delinquent taxpayers to comply. If you are on this list, the state will send you a postcard notifying you of your potential use tax liability. If you do nothing, a letter will follow. If you still do nothing, you may be audited. The Department of Taxation statistics show that 96% of all use tax audits uncover unpaid use taxes.
Benefits of Voluntary Disclosure
Taxpayers should consider taking part in the Voluntary Disclosure Program, which offers taxpayers the opportunity to voluntarily report and pay their use tax and interest for the past three or four years. By contrast, an audit looks back seven years and includes interests and up to a 15% penalty. Furthermore, use tax audits are typically so thorough that they uncover other areas that the Department of Taxation may wish to audit, like sales tax, commercial activity tax, and more. Voluntary Disclosure offers taxpayers a non-invasive way to get in compliance and avoids years of penalty fees and the risk of a costly audit.
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