Ohio to crack down on use taxes; offers 'amnesty program' for small businesses

COLUMBUS, OHIO — As more veterinarians buy products over the Internet from out-of-state suppliers, Ohio says it will crack down to make sure they collect often-forgotten use taxes.

"It's when the coffers get a little bit empty that they start to look for the laws that are already on the books and they start enforcing them vigorously," says Ohio-based veterinary accountant Marsha Heinke, DVM, EA, CPA, CVPM.

In Ohio, a new amnesty program is being offered to allow veterinarians, as well as about 300,000 other small business owners, to catch up on paying use taxes. The program limits the "look-back period" to two years, instead of the more typical four to six years, and gives business owners the chance to claim their tax burden without penalties or interest charges, according to Gary Gudmundson of the Ohio Department of Taxation.

"It will be an opportunity to reduce their risk and exposure to back taxes," says Jack Advent, executive director of the Ohio Veterinary Medical Association (OVMA).

Consumer use taxes 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 according to the Ohio Department of Taxation.

Veterinarians frequently run into situations with use taxes by ordering items online, Heinke says. For example, a digital X-ray machine ordered online from an out-of-state company with a price tag of $100,000 will cost a veterinary practice $7,000 in use tax, factoring in a standard 7 percent tax rate, if the seller did not charge the practice sales tax upon ordering.

Advent says there also may be some services performed at a practice, like landscaping, where the veterinarian is not charged a tax on the service. But according to Ohio tax laws, the veterinarian still owes the state tax monies, even if it wasn't collected by the service provider. Other services that are subject to use tax include data processing, janitorial and maintenance services and temporary employment services. Heinke says service taxes are difficult to understand, since there is really no reason dictating what types of services are taxed.

A lot of businesses—and tax accountants—don't know about the tax or aren't well-versed on it, and Ohio tax collectors know it. So the Ohio Department of Taxation started an "education program," urging business owners to ask their service providers if they are being charged the appropriate taxes.

"If the vendor doesn't charge it, the liability is on the consumer," Advent says. "The amnesty program recognizes it is not willful disregard for not paying, but no one really knew about it. And there was never an effort to educate people about it, until now."

Business owners, like veterinarians, who establish a use tax account on or after Oct. 1 will be responsible for any use taxes owed going forward, plus their tax liability back to Jan. 1, 2009, not including penalties or interest, Advent explains. Without the amnesty program, the state could look back much farther and assess penalties and interest.

"Ignorance does not give you a pass. As a business owner, you're required to know these things," Heinke says. "We beat on our clients a lot about this. If you don't file your use tax returns as a business, you're leaving yourself open to a statute of limitations that does not close. The state can go back as far as they want to audit your records."

Heinke says other states have recently performed use tax audits, like Kentucky and New York. One of her out-of-state clients recently got hit with an $80,000 use-tax bill. The last time Ohio ran a use-tax audit was in the early 1990s, and Heinke says a notice was sent to all veterinarians requiring them to pull the last three years of invoices and pay any unpaid use taxes.

Technology makes looking back easier now, and a good bookkeeper can be helpful in separating out invoices as they come in to see where appropriate taxes were charged and where they are owed, Heinke says. But even on personal returns, there is a risk without paying anything at all, she says.

"They know people are using the Internet to buy stuff," Heinke says. "Sooner or later they're going to pick someone to make an example."

"There's an economic advantage in coming forward," Advent says. "If you just ignored the amnesty and rolled the dice, you could be in for thousands of dollars."

He cautions that since the amnesty program doesn't start until Oct. 1, veterinarians should wait until then to file anything, or they could be subject to the full penalties and interest on any unpaid use taxes. The amnesty period will be open until March 2013.

There are a lot of questions lingering about the use tax, Advent says—some that even the state is searching for answers to. Veterinarians can run into headaches determining what items fall under resale exemptions, and there's an agricultural exemption in Ohio, making it unclear whether supplies used by large-animal veterinarians would be subject to a use tax.

"Those are the kinds of things unique to veterinary medicine," Advent says.

OVMA is working on developing a set of general guidelines, as well as possibly establishing a help line with an accounting firm that specializes in this area. OVMA also will host sales and use-tax workshop in Columbus Sept. 21. Visit ohiovma.org or call (800) 662-6862 for more information. If there is enough interest in the program, Advent says additional workshops could be added.