Back in April, we wrote about Ohio Department of Taxation’s (ODT) use tax collection program.
They called their program the Use Tax Education Program. When the government uses the word “education” in a tax collection program title, you better hold on to your wallet! Their interest is not so much in education as it is in income repatriation.
But then almost as soon as the ODT announced their education program it was suspended because the legislature had the temerity to pass their own amnesty bill. The amnesty program would be effective October 1, 2011 so the ODT had to scramble to figure out the details.
The ODT has now announced the details (well some of them) via their website. Keep in mind that what the Legislature giveth, the regulator taketh (or at least attempteth to take) away, so it’s important to review the details of this program. But it does look to be relatively generous.
Keep this in mind too: This amnesty is for use tax on purchases. And it does actually waive some use tax on purchases made before January 1, 2009 that would otherwise be due. But what about sales tax on sales you make? There’s another program for that. Ohio also participates as an associate member of the SSTP and as such is obliged to offer an even MORE generous amnesty program that could waive all the tax you should have collected in OH if you qualify. More on that below after we discuss this new use tax amnesty program.
The following is from the the ODT website with PJCo commentary as noted.
ST 2011-01 - CONSUMER'S USE TAX AMNESTY PROGRAM - ISSUED SEPTEMBER 2011
The consumer's use tax amnesty provisions of H.B. 153 (see uncodified section 757.42) provide an excellent opportunity for taxpayers to satisfy their past consumer's use tax liability. The amnesty program begins October 1, 2011 and ends May 1, 2013.
PJCo: This is an unusually good opportunity as amnesties go (see our article “Are You For or Against Amnesty?”. Because if OH were to find you first, they go back 7 years and assess not only the tax but penalty and interest
WHAT CONSUMER'S USE TAX PERIODS SHOULD BE INCLUDED IN MY AMNESTY APPLICATION?
Consumer's use tax due on purchases made on or after January 1, 2009 should be included in your amnesty application. However, if you have been issued an assessment for consumer's use tax due for any period, you are not eligible for amnesty. You can apply for consumer's use tax amnesty only once during the program.
PJCo: Eligibility is key here. You don’t want to apply for amnesty and then realize you’re not eligible. The ODT says you may still be eligible for the VDA program but it is unclear if you would be eligible if you applied for amnesty and then learned you weren’t eligible.
WHAT IF I DON'T QUALIFY FOR CONSUMER'S USE TAX AMNESTY?
Taxpayers who do not qualify for consumer's use tax amnesty may still qualify for ODT's Voluntary Disclosure Program. For more information on voluntary disclosure, please visit ODT's Web site at http://tax.ohio.gov/channels/other/voluntary_disclosure.stm. However, if you qualify for consumer's use tax amnesty, you are not eligible for voluntary disclosure for consumer's use tax.
PJCo: This does not clear things up entirely.
WHAT ARE THE ADVANTAGES OF AMNESTY?
The Tax Commissioner will waive all unasessed use tax liability due for any periods prior to January 1, 2009. Consumer's use tax paid under amnesty is not subject to interest or civil or criminal penalties. However, if you are registered for Ohio use tax as of June 1, 2011, you will be required to pay interest on any under-reported or unreported consumer's use tax.
PJCo: They will waive all “unasessed” use tax liability for periods before 2009. That makes this amnesty pretty generous relatively speaking. Most amnesty programs do not offer to waive tax, just penalty and/or interest.
AM I REQUIRED TO PAY TAX FOR PAST PERIODS?
Yes. You must make a nonrefundable payment of all consumer's use tax due on purchases made on or after January 1, 2009 through the last day of the month preceding the month in which you request amnesty. You will also be required to register for consumer's use tax and may be required to file returns on an ongoing basis. Even if you are not required to file use tax returns on a regular basis, you still must report and pay consumer's use tax on your annual personal income tax return (e.g., Schedule C filers), Form IT1040, or via a Use Tax Voluntary Payment Form VP-Use. Both forms are available on ODT's Web site.
IS THE INFORMATION I SUBMIT UNDER AMNESTY SUBJECT TO REVIEW?
The Tax Commissioner reserves the right to review the documentation provided under amnesty and any other records that support the amnesty submission in order to confirm that the amount of the amnesty payment accurately reflects your consumer's use tax liability.
WHAT HAPPENS IF I APPLY FOR AMNESTY BUT DON'T QUALIFY?
If you apply for amnesty but ODT determines that you don't qualify because of a prior consumer's use tax assessment or prior consumer's use tax amnesty submission, ODT will issue an assessment for the balance of your consumer's use tax liability, plus interest. Any payment submitted with your application will be applied to your consumer's use tax liability. A payment plan is not available to consumers who do not qualify for amnesty.
PJCo: Moral to the story: don’t apply if you’re not eligible.
IS THERE A PAYMENT PLAN AVAILABLE?
A no-interest payment plan is available to businesses that were not registered for consumer's use tax as of June 1, 2011. In order to qualify for a payment plan, the amount of consumer's use tax due under amnesty must exceed $1,000. The length of the payment plan will be determined by the total consumer's use tax liability and the payment period cannot exceed 7 years (84 months). Further, a minimum payment of $1,000 per month is required. If you request a payment plan:
1. At least one corporate officer, LLC member, general partner or other guarantor (“Guarantor”) must agree to the terms of the payment plan on behalf of the business and agree to accept personal liability for the entire debt; and
2. One additional Guarantor must agree to accept personal liability for the entire debt.
Guarantors signing the payment plan agreement must provide his or her social security number on the payment plan agreement. Further, the business must waive the statute of limitations for assessment of the consumer's use tax due under the payment plan. The first month's payment must be remitted at the time you submit your amnesty application.
PJCo: These payment plan terms are pretty reasonable EXCEPT for those 2 onerous conditions. An officer and someone else must agree to accept personal liability?? How many companies are going to be opting for the payment plan?
This plan helps you if you have use tax liabilities. The SSTP Amnesty plan could help you if you have sales tax liability.
OH SALES TAX AMNESTY VIA THE SSTP
OH is an associate member of the Streamlined Sales Tax Project (SSTP) and as such must offer full amnesty for all past due sales taxes, penalties and interest for any company that wishes to register through the SSTP. The amnesty period must be offered until 1 year after the state becomes a full member of the SSTP. It is important to note that the amnesty is for uncollected taxes only and does not include taxes collected but not remitted. Registering through the SSTP has some significant drawbacks and there is enough significant risk that you should only proceed with extreme caution or with someone familiar with the process. One of the biggest drawbacks is that you must register with all the members of the SSTP. There are currently 21 full members and 3 associate members. So, potentially, you would reap some benefits in OH, but you’d be immediately registered in these other states where there is no amnesty offered. On the plus side though is that the other 2 associate members are also offering full amnesties. Those states are TN and UT. Also, GA is a new full member of the SSTP so they must also offer full amnesty for the first 12 months after they became a full member (which was August 1, 2011). Therefore, if your liability is great enough in any one of these 4 states it may make sense to take advantage of this opportunity. Some of our clients have literally saved millions with this approach. All of this must be handled very carefully, or the tax impact could be very detrimental. There are many factors to address, but the bottom line is there are ways to minimize the damage and take advantage of the opportunities.