WHICH GOODS AND SERVICES ARE TAXABLE?
Determining whether or not the products or services your company sells are taxable in Ohio is the first step in sales tax compliance.
Traditional Goods or Services
Goods that are subject to sales tax in Ohio include physical property, like furniture, home appliances, and motor vehicles.
Prescription medicine, groceries and gasoline are all tax-exempt.
Some services in Ohio are subject to sales tax. For a detailed list of taxable services view Frequently Asked Questions from the Ohio department of taxation website.
Ohio requires businesses to collect sales tax on the sale of digital goods such as digital audiovisual work, digital audio work, and digital books.
Digital Goods or Services
A digital good or service is anything electronically delivered, such as an album downloaded from iTunes or a film purchased from Amazon.
Ohio requires businesses to collect sales tax on the sale of digital goods such as downloadable movies, music mp3s, and ebooks.
HOW TO REGISTER FOR OHIO SALES TAX
If you determined that you need to charge sales tax on some or all of the goods and services your business sells, your next step is to register for a seller's permit. This allows your business to collect sales tax on behalf of your local and state governments.
In order to register, you will need the following information:
- Business identification information
- Business entity
- Physical Locations of your business
- Date you will begin collecting Ohio sales tax
- NAICS Code classifying your business type
Save Money with a Resale Certificate
With a resale certificate, also known as a reseller's permit, your business does not have to pay sales tax when purchasing goods for resale.
COLLECTING SALES TAX
After getting your seller's permit and launching your business, you will need to determine how much sales tax you need to charge different customers. To avoid fines and the risk of costly audits, it's important for business owners to collect the correct rate of sales tax.
When calculating sales tax, you'll need to consider the following kinds of sales:
- Store Sales
- Shipping In-State
- Out-of-State Sales
For traditional business owners selling goods or services on-site, calculating sales tax is easy: all sales are taxed at the rate based on the location of the store.
Here's an example of what this scenario looks like:
Mary owns and manages a bookstore in Akron, Ohio. Since books are taxable in the state of Ohio, Mary charges her customers a flat-rate sales tax of 6.75% on all sales. This includes Ohio’s state sales tax rate of 5.75% and Summit county’s sales tax rate of 1.0%.
The state of Ohio follows what is known as an origin-based sales tax policy. This means that long-distance sales within Ohio are taxed according to the address of the buyer. This policy applies to state, county, and city sales taxes.
Consider the following example:
Steve runs his own business selling electronics on eBay out of his home in Dayton, Ohio. A customer living in Toledo, Ohio finds Steve’s eBay page and purchases a $350 pair of headphones. When calculating the sales tax for this purchase, Steve applies the 5.75% state tax rate for Ohio plus 1.5% for Montgomery county. At a total sales tax rate of 7.25%, the total cost is $375.38 ($25.38 sales tax).
Ohio businesses only need to pay sales tax on out-of-state sales if they have nexus in other states. Nexus means that the business has a physical presence in another state.
Common types of nexus include:
- A physical location, such as an office, store, or warehouse
- An employee who works remotely or who is a traveling sales representative
- A marketing affiliate
- Drop-shipping from a third party seller.
- A temporary physical location, including festival and fair booths.
FILE YOUR SALES TAX RETURN
Now that you’ve registered for your Ohio seller's permit and know how to charge the right amount of sales tax to all of your customers, you are all set to file your sales tax return. Just be sure to keep up with all filing deadlines to avoid penalties and fines.
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How to File
Ohio requires businesses to file sales tax returns and submit sales tax payments online.
How Often Should You File?
How often you need to file depends upon the total amount of sales tax your business collects.
- Semi-annual filing: If your business collects less than $200 in sales tax per month then your business should file returns on an annual basis.
- Quarterly filing: If your business collects between $200 and $5,000 in sales tax per month then your business should file returns on a quarterly basis.
- Monthly filing: If your business collects more than $6,250 in sales tax per month then your business should file returns on a monthly basis.
Note: Ohio requires you to file a sales tax return even if you have no sales tax to report.
All Ohio sales tax return deadlines fall on the 23rd day of the month, unless it is a weekend or federal holiday, in which case the deadline is moved back to the next business day.
- (Jan. - June): Due July 23
- (July. - Dec.): Due Jan. 23
- Q1 (Jan. - Mar.): Due April 23
- Q2 (April - June): Due July 23
- Q3 (July - Sept.): Due Oct. 23
- Q4 (Oct. - Dec.): Due Jan. 23
Monthly filing: The 23rd of the following month, or the next business day, e.g. April 23 for the month of March, or May 23 for the month of April.
Penalties for Late Filing
Ohio charges a Late Filing Penalty when failure to timely file a return or to remit the tax due subjects taxpayers to an additional charge of up to $50.00 or 10% of the tax liability due, whichever is greater.
Ohio also charges a Late Payment Penalty when failure to pay the entire amount of tax due also subjects taxpayers to an assessment that may include a penalty up to 15% of the tax due, plus interest.