The Ohio Department of Taxation (the Department) has recently established the Use Tax Education Program (UTEP). The purpose of UTEP is to encourage businesses to learn about the requirements to pay use tax1
, as well as offer an opportunity to limit exposure for unpaid use tax in prior years and waive certain penalties.
The Department has recently scanned the different databases within the state government to create a list of companies that it believes should be registered for the use tax. The list has nearly 380,000 names! Is your company on that list? If you are registered for another tax in Ohio and are not registered to pay use tax, there is a good chance you are on that list.
How Will This Work?
Under the UTEP, the Department will permit businesses to enter into a UTEP agreement to clear up past unpaid use tax liabilities. The general terms of the agreement are as follows:
- Business agrees to register and remit use tax prospectively;
- Business agrees to pay use tax (plus applicable interest) on untaxed purchases for the last four years (or less depending on when the business started);
- Note: By law, the business could owe use tax for up to 10 years. The Department's general practice is to audit for the last seven years.
- The Department agrees, in the absence of fraud, to waive the use tax liability for all years beyond the look back period; and
- The Department agrees not to apply the 15% penalty applicable for the unpaid use tax.
1 Use tax is a complement to sales tax and is due on the purchase of taxable property and services when sales tax is not paid. This is most often applicable on purchases from vendors outside a company's home state.
What Can and Should You Do?
Educate yourself about use tax and what it may mean for your company. You can do that by calling Plante & Moran or by going to the Department's website dedicated to the UTEP.
At this site, you will find several publications that are short and to the point. These publications discuss the program itself, use tax in general and what it means to your company.
When Does the UTEP Start?
In the first half of 2011, the Department is promoting awareness of the program along with making sure businesses begin the process of understanding use tax compliance issues and have the ability to evaluate their potential liabilities. In the second half of 2011 (likely in August), the Department will begin contracting companies on the list and will be offering them the opportunity to enter into a UTEP agreement.
In the meantime, companies that are not currently registered for the use tax can still make a request for a voluntary disclosure agreement prior to contact through UTEP. A benefit of entering into a voluntary disclosure agreement before August 2011 is that the Department will agree to a three year look back period. Thus, a company that voluntarily comes forward before August can save the tax from the additional year.
If you have questions, please contact your Plante & Moran tax advisor or: