Understanding Ohio Sales and Use Taxes
Understanding and complying with the sales tax requirements in the states in which you do business is absolutely essential. More states are taxing services, as well as retail sales, so no business owner can afford to be in the dark. In addition, you may find that you are liable for use taxes for products purchased out of state. This article answers some of the basic questions regarding sales tax in Ohio.
Ohio imposes a 5.5 percent state sales tax. In addition, local governments in Ohio are allowed to assess an additional sales and use tax.
This tax is imposed on each retail sale of tangible personal property except for sales for resale or sales of property to be incorporated into tangible personal property to be produced for sale. The tax is also imposed on rentals of tangible personal property and on lodgings furnished to transient guests for less than 30 days. Ohio also charges sales tax on many services. For example, repairs of property and automatic data processing are taxable services.
Leases Are Considered Sales
Rentals or leases are considered sales in Ohio — the tax is calculated and collected on each rental or lease payment. Price means the aggregate value in money of anything paid or delivered, in the complete performance of the rental or lease agreement. A lease that obligates the lessee to accept ownership and to pay for the property at a future time is a conditional sale, and the tax is due on the total price at the time of the sale.
In the case of the lease of any (1) motor vehicle designed by the manufacturer to carry a load of not more than one ton, (2) watercraft, (3) outboard motor, (4) aircraft, or (5) business equipment (other than motor vehicles designed to carry loads in excess of one ton), the vendor is required to calculate the Ohio sales or use tax due on the entire amount to be paid during the lease period, and to collect the tax due at the time the lease is consummated. Under prior law, the tax on these leased items was paid with each lease installment over the life of the lease. Otherwise, tax is generally collected on each installment paid for the use of the property involved.
Ohio Taxes Many Services
In Ohio, sales tax is imposed on the following services:
- repairs and installation of taxable property
- motor vehicle washing, waxing, painting
- industrial laundry cleaning services
- automatic data processing and computer services for business
- landscaping and lawn care services
- private investigation and security
- 900 telephone number calls
- building maintenance and janitorial services
- employment placement services
- exterminating services
- physical fitness, recreation, and sports club services
- producing or reproducing written or graphic matter
- production or fabrication of tangible personal property for a consideration for consumers who furnish the materials used
- some telecommunications services
- warranties, maintenance, or service contracts
Sellers and Buyers Are Both Personally Liable for Sales Tax
In Ohio the sales tax is to be paid by the consumer to the vendor. If a vendor collects the tax and fails to remit it, the vendor is personally responsible for the money. If the vendor fails to collect the tax, the state can collect the tax from either the vendor or the consumer. Both the vendor and consumer are personally liable for uncollected tax.
Absorbing the tax is not permitted. In Ohio, it is against the law to refund or offer to refund all or any part of the amount collected, or to absorb the amount of sales tax required to be added to the sales price and collected from the purchaser. As a seller, it is also against the law for you to advertise directly or indirectly that you will absorb the sales tax that is required to be added to the sales price.
Tax Permits Are Required
In Ohio a license obtained from the Tax Commission is required for each place of business, including each vehicle from which sales are made. The original license fee is $25. The fee for a transient vendor's license is $25. A delivery vendor's license is $25.
Specified Transactions Are Exempt from Tax
Ohio has many specific items that are exempt from sales tax — for example, certain prescription medications are exempt from Ohio sales tax. You'll want to check and see if you are exempt from the sales tax.
An exemption certificate may be issued by a purchaser of a nontaxable item. The exemption certificate may be based on the type of transaction (such as a resale exemption) or on the item itself.
Sales for Resale Are Not Taxed
The definition of a taxable retail sale does not include sales for the purpose of resale and therefore is not subject to sales tax. A purchaser of property or services under the resale exemption is required to execute an exemption certificate.
Resale exemption certificate requirements. Ohio prescribes forms that are for use as unit and blanket exemption certificates and may be duplicated as needed. Substitute exemption certificates must:
- identify the vendor
- reasonably apprise the tax commissioner of the exemption being claimed
- be signed and dated by you, the purchaser
Ohio Permits Blanket Resale Certificates
An exemption certificate holder that regularly engages in making tax-exempt purchases may furnish a certificate to the seller specifying that all tangible personal property subsequently purchased will be for the purpose shown on the certificate. This blanket certificate will relieve the burden of executing a separate certificate for each individual tax-exempt purchase. The blanket resale certificate should include the information that is included on the resale exemption certificate discussed above.
Physical Presence Triggers Tax Liability
You will be responsible for paying sales tax only if you have physical presence within Ohio. To determine if you have physical presence, ask yourself the following:
- Do I have retail facilities, a warehouse, or any office space in Ohio? Maintaining retail or warehouse facilities will give you physical presence. Also, having an office for employees, even for business activities unrelated to mail order sales, will give you physical presence.
- Do my employees or I enter Ohio for purposes of taking and transmitting orders from Ohio? If your employee or independent contractor goes into Ohio to take or transmit orders, your business may have physical presence in Ohio. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence.
- Do my delivery vehicles frequently enter Ohio for purposes of delivering property? Frequent deliveries in Ohio by your trucks will give you physical presence in Ohio.
Ohio Does Not Use a Sales Bracket System
Effective January 1, 2006, Ohio no longer requires vendors and out-of-state sellers to collect Ohio sales tax according to bracket schedules. Instead, the 5.5 percent sales and use tax computations must be carried out to three decimal places and rounded to the nearest whole cent, rounding up when the digit in the third decimal place is greater than four. A vendor may elect to compute the tax due on a transaction on an item or an invoice basis.
Claims Must Be Filed for Refund of Tax Overpayments
Applications for refunds must be filed on prescribed forms to the Tax Commissioner. These refunds must be filed within four years from the date of the illegal or erroneous payment of the tax. Refunds are not available when the seller has been reimbursed by the purchaser.
Ohio Imposes Use Tax on Out-of-State Purchases
An excise tax (use tax) is levied on the storage, use, or other consumption in Ohio of tangible personal property purchased or on the benefit realized in Ohio of any service provided. The use tax is imposed on the consumer, measured by the purchase price of tangible personal property stored, used, or consumed in Ohio. A credit is generally allowed for sales or use tax paid in another state for tangible personal property used in Ohio. The amount of the credit may not exceed the amount of the Ohio tax.