A long forgotten tax is now in the spotlight of the state Department of Taxation. The Ohio use tax dates back to 1936 and requires Ohioans to pay tax on goods bought outside the state that did not carry a sales tax.
The use tax is a complement to the state sales tax. It is meant to create an equal playing field by requiring businesses that buy items out of state and thereby bypass Ohio sales tax, to pay the use tax instead. No use tax is owed in Ohio if the business pays out-of-state sales tax on an item it buys and the two rates are the same.
The tax was seemingly forgotten for nearly 75 years, until the explosion of business over the Internet. Now the state wants to enforce the tax, targeting businesses first. Although individuals are required to pay as well, there is no current plan for enforcement against individuals.
The state has instituted an amnesty program to promote compliance with the tax without punishment. Under the program, businesses will be allowed more than a year to comply and avoid punishment. The amnesty program will begin October 1 and continue until May 2013.
Businesses that voluntarily enter into the program will be required to remit use taxes dating back to January 1, 2009. Any taxes that would have been due before that date will be forgiven. There will be no penalties or interest assessed and if the liability is over $1,000 the state can set up payment plans. The amnesty, however, does not apply to all businesses. Businesses that have been assessed use tax before are not eligible.
State officials are unsure how much will be collected from enforcement efforts, but it could be a substantial amount given the amount of Internet sales conducted today. It is reported that the use tax already generates more than $1 billion a year for the state.
State officials hope that compliance with the use tax will strengthen the Ohio economy as companies make more purchases in the state once they lose the tax advantage of buying out of state.