What You Need to Know About Ohio’s Use Tax

What You Need to Know About Ohio’s Use Tax

Ohio’s use tax is an important component of the state’s tax system, aimed at ensuring that residents pay taxes on purchases made outside Ohio that would have been taxable if bought within the state. Understanding the use tax is crucial for individuals and businesses alike to remain compliant and avoid penalties.

What is Use Tax?
Use tax is a tax imposed on the storage, use, or consumption of tangible personal property in Ohio when sales tax has not been paid. This typically occurs when purchases are made from out-of-state sellers who do not charge Ohio sales tax, which is common with online purchases.

When is Use Tax Applicable?
Use tax applies when:

  • You purchase goods online from out-of-state retailers and they do not charge Ohio sales tax.
  • You buy items from a catalog or through another means where sales tax is not collected.
  • You bring items from outside Ohio for personal use or business use without paying Ohio sales tax.

Rate of Use Tax
The use tax rate in Ohio is generally the same as the state’s sales tax rate—which is currently 5.75%—but local jurisdictions may impose additional taxes. Therefore, depending on the location of the buyer, the total rate could vary.

How to Report Use Tax
Ohio residents can report their use tax liability when filing their annual state income tax return. This can be accomplished through:

  • Completing the Ohio Individual Income Tax Return (IT 1040), where a section is specifically designated for reporting use tax.
  • For businesses, use tax may be reported on various business tax returns, such as the Commercial Activity Tax (CAT).

Penalties for Non-Compliance
Failing to report and pay use tax can result in penalties and interest on the unpaid tax amount. It’s advisable for individuals and businesses to maintain detailed records of purchases made outside of Ohio to ensure proper reporting and compliance.

Exemptions and Special Considerations
There are exemptions to the use tax, including:

  • Property purchased for resale.
  • Certain types of machinery and equipment used in manufacturing.
  • Goods that are used exclusively outside of Ohio.

Understanding Ohio’s use tax is essential for anyone making purchases online or from out-of-state vendors. Staying informed about your obligations can help you avoid penalties and contribute positively to the state’s revenue system.