Ohio, a land of rolling hills and bustling cities, isn’t just about scenic beauty and vibrant urban life. There’s a key challenge for anyone diving into the business scene here: mastering Ohio’s sales tax landscape. With rules that vary as much as their landscapes, understanding these nuances is crucial for business success in the Buckeye State.
This guide breaks down everything you need to know about Ohio’s sales tax, from determining the right sales tax rates to understanding exemptions and filing processes. By the end of this comprehensive guide, you’ll be equipped to handle Ohio’s sales tax with confidence and ease.
Sales Tax Nexus in Ohio
When a business creates either a physical or economic nexus, it is required to collect sales tax in Ohio.Physical Nexus
A physical nexus means having a significant physical presence or engaging in enough activities within a state to require the collection and payment of sales tax. The factors that determine a physical nexus in Ohio include:- Physical Location: This includes having an office, a place for distribution, sales, or showcasing products, a warehouse or storage facility, or any other place where you conduct business.
- Inventory in the State: This covers situations where you store your products within the state, even if it’s done through a third-party fulfillment center or 3PL (like Amazon FBA) or an online marketplace.
- Employees, independent contractors, agents, or other representatives operating on your behalf.
- Affiliate Nexus Nexus: A seller has a substantial nexus with Ohio if it has an affiliated person with a substantial nexus with Ohio.
Economic Nexus
States have established regulations to collect sales tax from out-of-state sellers who meet certain revenue and/or transaction thresholds. This rule is known as economic nexus. Beginning August 1, 2019, the threshold for economic nexus in Ohio is $100,000 in gross revenue or 200 transactions in the previous or current calendar year’s sales. While the nexus criteria mentioned above generally apply to most businesses, additional methods exist for establishing economic sales tax nexus. To access a comprehensive list of these rules, please refer to governing laws for economic sales tax nexus requirements in Ohio.
Ohio Sales Tax on Goods and Services
One of the first things you need to know is whether the goods you’re selling or services you offer are taxable in Ohio.Tangible Products
Almost all goods are taxable in Ohio, including- Cosmetics
- Electronics
- Clothing
- Furniture
- Jewelry
- Home Goods
- Groceries – In Ohio, food isn’t taxed. Food includes anything eaten by people for nutrition or flavor, no matter if it’s solid, liquid, or dried.
- Baby Products (i.e. Diapers, Strollers, Cribs, therapeutic and preventative creams and wipes, and child restraints and booster seats) – Effective October 1, 2023, a bill was passed to include sales tax exemptions for various children’s products so that the State can provide tax relief for families with young children.
- Feminine Hygiene Products (i.e. pads, tampons, and menstrual cups)
- Prescription Medications
- College Textbook required or recommended for enrollment
- Medical Devices
- Agricultural Supplies – Generally, agricultural purchases specifically for agricultural productions are exempt. However, items used in farming but not directly in making products for sale are taxed. This includes vehicles, lawnmowers, office supplies, and building materials like lumber and nails.
- Newspapers – Local community papers and major national ones like the Wall Street Journal and USA Today, along with other similar unbound publications.
Services
In Ohio, the majority of service-based transactions, such as professional services and advertising, are not subject to sales tax. However, there are specific situations where certain services are taxable. For instance, taxable services are:- Short-term hotel room rentals.
- Landscaping or lawn care services with annual sales over $5,000.
- Private investigation or security services.
- Information services via 1-900 calls.
- Producing goods from customer-supplied materials.
- Building maintenance and janitorial services with annual sales over $5,000.
- Exterminating services.
- Physical fitness facility services.
- Recreation and sports club services.
- Repairing tangible personal property, unless exempt from sales tax.
- Installing tangible personal property, unless exempt from sales tax.
- Vehicle washing, cleaning, waxing, polishing, or painting services.
- Towing services for motor vehicles.
- Laundry and dry cleaning services, excluding coin-operated.
- Business-related data processing, computer, and electronic information services.
- Certain telecommunication services.
- Satellite broadcasting services.
- Personal care services (skin care, cosmetics, manicures, pedicures, hair removal, tattoos, piercings, tanning, massage), excluding hair care.
- In-state person transportation, excluding public transit and commercial airlines.
- Snow removal services with annual sales over $5,000.
- Storage of tangible personal property, except for inventory storage.
Software-As-A-Service (SaaS)/Digital Products
SaaS is taxable in the state of Ohio. Digital products (i.e., printed books, CDs, and DVDs, whether rented or owned) are also taxable.Shipping/Handling
Shipping and handling charges in the state of Ohio are taxable. Sales tax is exempt if:- the buyer/customer paid the shipping charge separately from the sale of the product to the shipping carrier, or
- delivery/freight company or item is exempt.
Sales Tax Permits and Licenses in Ohio
Now that you’ve got a handle on when sales tax nexus applies and which products are taxable in Ohio, the next important step is getting your Ohio Seller’s Permit, also known as a sales tax permit.Seller’s Permit
You can obtain an Ohio sales tax permit by registering online at the Ohio Business Gateway. Ensure you have specific information on hand when registering for a seller’s permit, including, but not limited to:- Business Identification Information (name, address, phone number, email address)
- Business Entity Structure (sole proprietorship, partnership, corporation, LLC, etc.)
- Federal Employer Identification Number (EIN or FEIN)
- Owner/Partner/Officer Information
- Business Activity Details (description of products or services sold, sales volume, date of the first sale or the expected date to start dates)
- NAICS code
Resale Certificate
A resale certificate is a document that allows businesses to buy products without paying sales tax on them, as long as they plan to resell those items to customers, who will then pay the tax. As a seller, you can also accept resale certificates from others looking to buy for resale. In Ohio, sellers use resale certificates to buy goods from their suppliers that they intend to resell. The issuance of the certificates is always done in good faith that the seller would report tax on the final sale of the items. You can also fill out the Streamlined Sales and Use Tax Certificate of Exemption if you would like to get sales tax exemption for multiple states simultaneously. If you don’t want the hassle of registering, sign up for our all-inclusive service that includes sales tax registration.Streamlined Sales Tax (SST)
The Streamlined Sales Tax (SST) is an initiative to simplify and standardize sales tax regulations across multiple states. Ohio is a party to this program, meaning it follows the uniform rules and definitions established by SST. Check with the Ohio Department of Taxation for the most current information on Ohio’s participation in the Streamlined Sales Tax initiative.Calculating and Collecting Sales Tax in Ohio
Sales Tax Computation
In Ohio, sales tax isn’t just one simple rate; it’s a combination of state and local taxes. To figure out the total sales tax for your calculation, you’ll need to add up the rates for the state, county, and city (if applicable) where your transaction occurs. Use TaxHero’s Ohio Sales Tax Calculator to compute for sales tax. Here’s an example. Suppose an out-of-state seller satisfies the economic nexus criteria in Ohio and sells to a customer in Columbus, OH, with a ZIP code of 43215. In that case, the seller has to charge the customer a total sales tax, which can be broken down as follows:
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Origin-based vs. Destination-based
When making in-state sales, it is important to determine if you are located in an origin-based or destination-based state to figure out what rate to charge for sales tax. Ohio is an origin-based state, meaning sales tax is determined based on the buyer’s location. That means for an Ohio-based seller, sales tax is generally based on the location of the buyer when selling within the state. For out-of-state or remote sellers, the sales tax rate is always determined by the buyer’s location. For instance, if you’re selling a product from Pennsylvania to a customer in Columbus, Ohio, where you have nexus, you’d apply Columbus’ sales tax rate to that sale. To make life easier, consider using sales tax software or consulting a tax professional, like TaxHero, to ensure accurate tax calculations and collections. Understanding these tax rules helps you stay compliant, whether you’re in-state or out-of-state.Filing and Remitting Sales Tax Returns in Ohio
The next step after collection is filing and remitting your Ohio sales tax returns. Filing and remittance can vary in frequency, typically monthly, quarterly, or annually.- Monthly: Payment due by the 23rd of the following month. Required for those with an annual liability over $75,000, including accelerated and final payments via electronic funds transfer.
- Quarterly: Payment due by the 23rd of January, April, July, and October, covering the previous three months. Suitable for accounts with less than $15,000 in quarterly tax liability.
- Semi-annual: Payment due by the 23rd day after a six-month period ends, covering the previous six months. Applicable for vendors and sellers with a tax liability under $1,200 per six-month period.
Due Dates
In Ohio, the due date falls on the 23rd day of the following month. For instance, sales tax collected in January is due by February 23rd for monthly filers. However, if this day is a holiday, weekend, or in the rare occurrence of a natural disaster, the deadline is typically extended to the next business day. For instance, if you’re a monthly filer and filing sales tax for the month of April, and the May 23rd deadline falls on a holiday or weekend, you’ll have until May 24th, the following business day, to submit.Monthly Prepayments
Businesses with a notable sales tax liability may need to make monthly prepayments ahead of their monthly return filings. The specifics of these prepayments depend on the business’s prior year’s tax liabilities. When making a prepayment for taxes, it’s required that this payment be at least 75% of the estimated tax liability for that month. This rule ensures that taxpayers are meeting a significant portion of their anticipated tax obligations in advance.Filing Sales Tax Returns
To file your sales tax return for Ohio, a few options are available:- File online through the Ohio Department of Taxation.
- File by mail – You can use Form UST-1 and file and pay through the mail.
- File with TaxHero – Let TaxHero take care of it so you don’t have to worry about missing a payment or return.
Timely Filing Discount
Some states offer a discount to businesses for collecting, filing, and remitting sales tax on time as an incentive to process sales taxes promptly. The discount rate for sales tax returns filed is 0.75% of the sales tax liability reported on line 6 of the sales tax form (UST-1). This discount only applies if the Ohio Department of Taxation receives the UST-1 return and full payment on or before the due date.Sales Tax Holiday
Currently, for 2024, the planned sales tax holidays in Ohio are:- No Tax Weekend (August 1, 2024 – to be determined) – Starting August 1, 2024, Ohio will not charge sales tax on items costing less than $500, excluding motor vehicles, watercraft, outboard motors, alcohol, tobacco, vaping products, and medical marijuana. This tax exemption aims to include school supplies, home items, durable goods, clothing, and restaurant meals. The duration of this tax holiday is yet to be decided.
Ohio Sales Tax Penalties
Like in most states, sales tax is a big part of how Ohio generates revenue. Thus, maintaining compliance with sales tax regulations is of utmost importance. Failure to do so can lead to consequences and sales tax penalties. Therefore, it is crucial always to ensure you are up-to-date in filing, collecting, and remitting sales tax to the state. Here are the specific penalties for non-compliance with sales tax regulations in Ohio:- Civil penalties amounting to greater than 10% of sales tax due or $50.
- On the criminal side, offenses can be classified as either misdemeanors or felonies, depending on the severity and specific circumstances.
| Questions? Connect with TaxHero today for a free sales tax consultation about your business in Ohio or any state! |