Ohio Use Tax Amnesty Program
Background:
The recent Budget Bill passed by the Ohio General Assembly included two tax amnesty programs: (i) the General Tax Amnesty program, and (ii) the Consumer Use Tax Amnesty program. These programs are in addition to the Voluntary Disclosure Program already available to Ohio taxpayers. Prior to determining whether a particular program makes sense for you, it is important that you work with a qualified tax professional experienced in these matters to ensure you minimize, as much as possible, the negative impact a disclosure may have on you personally, or on your business.
1. The Voluntary Disclosure Program ("VDP")
A. Period Covered
The VDP is an ongoing program and available for various tax years for which a taxpayer may have a liability.
B. Eligible Taxes include
• Sales tax
• Commercial activity tax
• Personal income tax
• Seller’s use tax (out of state vendors collecting Ohio sales tax)
• Corporation franchise tax
• Employer Withholding
C. Restrictions
The restrictions may vary depending upon the type of tax involved. But, in general, as long as the taxpayer has not been contacted by the ODT prior to disclosure, the taxpayer should qualify for the VDP.
D. Payment Requirements
The payment plans will vary depending on the facts and circumstances. Generally, however, it is recommended that payment be made with the final agreement signed by the taxpayer and the Tax Commissioner.
E. Benefits and Terms
Although the benefits and terms may vary depending on the type of tax, the general benefits and terms include:
• The taxpayer must file the relevant tax returns for the current year and each of the three previous years (four years in total) and pay the tax due plus interest.
• The taxpayer waives the right for refund for those three previous years. Refund requests will be honored for the returns due in the current year.
• The Tax Commissioner is precluded from assessing the taxpayer or requiring it to file returns for taxable years prior to the years covered by the agreement if the taxpayer has not been previously contacted by the ODT.
• The Tax Commissioner will waive all penalties associated with the years covered by the agreement.
• The Tax Commissioner may audit the tax returns filed by the taxpayer for the years covered by the agreement.
• See this link for information on the ODT website.
2. General Tax Amnesty
A. Period Covered
The General Tax Amnesty covers taxes due and payable as of May 1, 2011, which were unreported, underreported, and remain unpaid. The program is open from May 1, 2012 to June 15, 2012.
B. Eligible Taxes include
• Sales tax
• Commercial activity tax
• Personal income tax
• Seller’s use tax (out of state vendors collecting Ohio sales tax)
• School district income tax
• Corporation franchise tax
• Estate tax
C. Restrictions
Although certain taxes are eligible, the General Assembly has placed restrictions on eligibility. As an example, the General Tax Amnesty is not available if:
• A notice of assessment has been issued.
• A notice of audit has been issued.
• A tax bill has been issued.
• An audit has been conducted.
• An audit is currently being conducted.
D. Payment Requirements
The participant must pay the full amount of the delinquent tax and one half of the interest between May 1, 2012 and June 15, 2012.
E. Benefits and Terms
The General Tax Amnesty requires taxpayers to fully pay all delinquent taxes due for all periods prior to May 1, 2011. The benefits are:
• The taxpayer need only pay one half of the interest that would otherwise be due on such prior delinquent taxes—the other one half of the interest is abated.
• Any penalties on delinquent taxes paid under this program are fully abated.
• Participants cannot be criminally prosecuted.
• No assessments may be issued by ODT with respect to any tax paid under the General Tax Amnesty program.
Nardone Law Group Comment: This is a very taxpayer friendly provision. It allows taxpayers to come in from the cold that were intentionally not paying their taxes, as well as those taxpayers that simply did not realized the taxes were owed. But, not all taxpayer's should run in and attempt to avail themselves of this program. It is important to consider all facts and circumstances and the potential unintended consequences.
3. Consumer Use Tax Amnesty
A. Definition of Use Tax
Many taxpayers—both individuals and businesses—struggle with the concept of use tax. The ODT explains it as follows:
Consumer’s use tax 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. In general, if you have paid Ohio sales tax on the purchase of tangible personal property or a taxable service, you do not owe consumer’s use tax on that transaction. Examples of tangible personal property subject to use tax are computer equipment, printers, fax machines, office supplies (paper, envelopes, folders, pens, paper clips, etc.), furniture and cleaning supplies (mops, brooms, cleaners, paper towels, etc.). Consumer’s use tax is also due on the use of taxable services in Ohio. Examples of taxable services include, but are not limited to, installation, repair, employment services (temporary labor), automatic data processing, janitorial and maintenance services, storage services and maintenance contracts.
B. Period Covered
The Use Tax Amnesty applies to use tax due for periods from January 1, 2009 through May 1, 2011. The program is open from October 1, 2011 to May 1, 2013.
C. Eligible Taxes
Use Tax only.
D. Restrictions
A taxpayer against which the Tax Commissioner has issued an assessment on or before the effective date of the Use Tax Amnesty section is not eligible to participate in the use tax amnesty program established under this section. Further, see below for those that are already registered for use tax compliance.
E. Payment Requirements
The participant must pay the full amount of consumer use tax for which the participant has outstanding liability sometime between October 1, 2011 and May 1, 2013. If the participant makes an application, ODT may enter into an interest free payment plan for the delinquent use tax. The payment plan may be up to seven years. If the participant fails to comply with the terms of the payment plan, then interest will be due on the unpaid amounts.
F. Benefits and Terms
The Consumer Use Tax Amnesty program categorizes potential participants into two groups: (i) those participants that were registered with ODT to pay consumer use tax as of June 1, 2011, and (ii) those that were not registered with ODT to pay consumer use tax as of June 1, 2011.
(i) For those consumers that were registered with ODT for consumer use tax as of June 1, 2011:
• Consumer use tax due for periods from January 1, 2009 through May 1, 2011 must be paid by the participant.
• No tax, penalty, or interest for periods prior to January 1, 2009 will be assessed.
• The participant is responsible for interest and penalty—if any—on the delinquent consumer use tax paid under this amnesty program (i.e., for January 1, 2009 and forward).
• No criminal prosecution for those who participate.
(ii) For those consumers that were not registered with ODT for consumer use tax as of June 1, 2011:
• Consumer use tax due for periods from January 1, 2009 through May 1, 2011 must be paid by the participant.
• No tax, penalty, or interest for periods prior to January 1, 2009 will be assessed.
• Penalty and interest will be fully abated for the consumer use tax paid under this program. This is a great benefit for this program.
• No criminal prosecution for those who participate.
Nardone Law Group Comment: As part of determining whether or not to disclose and participate in one of the programs discussed above, it should be noted that the Budget Bill also enacted a limitation on ODT’s ability to assess outstanding consumer use tax. Under the new limitation, ODT may not assess consumer use tax for any period prior to January 1, 2008.
In sum, the various programs detailed above provide many benefits to taxpayers that want to come out from the cold and into compliance. Yet, one must review all of the facts and circumstances, including the timing, to determine what the intended and potential unintended consequences maybe. This includes running the actual calculations as to the dollar amounts owed, and determining whether this disclosure impacts any financial, tax, or accounting provisions related to your business or individual reporting requirements to various institutions, including the SEC, IRS, and lending institutions, or as part of your businesses' audited financial statements.