Should you collect sales tax in Ohio?
The retail sale of tangible personal property to your clients, including leasing or renting tangible property, is subject to sales tax. If, however, you establish a nexus in Ohio, you will be entitled to collect the sales tax. Nexus is the presence, either materially or financially.
Having an Ohio store, warehouse, or office establishes a physical nexus for your company. When you meet threshold restrictions that have already been established by the state, an economic relationship is formed. These limits may be based on revenue or transactional basis.
Let’s explore if your business has a Physical nexus in Ohio.
A physical nexus is integrated when your business is engaged in the following in Ohio:
- Servicing tangible personal property in Ohio.
- Maintaining, occupying, or using a place of business or an office in Ohio.
- Employing or retaining any contractor, including an agent, representative, or salesman, by whatever name called, engaged in activities relating to selling, delivering, installing, or taking business orders.
- Leasing or owning any tangible personal property in a state.
- Having a stock of goods in Ohio.
You may also refer to the Ohio Taxation Department advisory to know more about business activities that may create a physical nexus within the state.
Is it constituting an Economic nexus in Ohio?
You are required to comply and register under sales tax rules if you are a remote seller (i.e., don’t have a physical presence in the state) and business sales in Ohio exceed $100,000 during the current or previous calendar year or make 200 or more separate retail transactions or delivery into the state.
How can you Register for Sales tax in Ohio?
By visiting the Ohio Business Gateway, you must apply online to get the sales tax permit. Otherwise, you can also submit the licensing application using the ST-1 form and send it to their mailing address.
Additionally, before applying for a new tax account number, make sure you have the following information handy:
- EIN and Social Security numbers of all officers, partners, or owners.
- Address details (physical and mailing).
- Business incorporation dates in Ohio.
- Contact information.
- Estimated total monthly sales.
- NAICS Code.
- Nature of business.
Is your product or services liable to Sales tax in Ohio?
Tangible Property: Sales tax in Ohio is imposed primarily on the retail sale of tangible personal property, e.g., Furniture, giftware, toys, etc.
Services: Many services are subject to sales tax in Ohio, such as service or labor costs leading to creating tangible personal property, hotel stays, vehicle rentals, etc.
Digital Product: Sales tax is applied to digital products in Ohio. Therefore, if you offer digital goods like software, streaming services, e-books, etc., you must collect sales tax. Please see the Ohio Revenue Department advisory on digital transactions.
SAAS: Software as a service (SaaS) enables consumers to use cloud services over an internet connection. In Ohio, this is exempt if used for personal use and taxable if used for business. Please review the Ohio Revenue Department advisory on SAAS.
The state provides certain exemptions from the sales tax levy, such as food for home consumption, prescription drugs, manufacturing equipment, etc. To see what exemptions are covered, please click here.
You can read further by visiting the department website to know exactly what’s included in your list of items bound to pay sales tax.
How should you collect and calculate state taxes in Ohio?
Ohio is an origin-based sales tax system, therefore collecting and computing accurate sales tax to be remitted to the state may not involve those heightened efforts, which means you must collect taxes at the rate where your business is located. However, if you are not based in Ohio and create a business relationship through economic nexus in the state, you’ll have to collect and remit the sales tax.
Complexities involved where you have a business nexus even if not in the state. Any default may lead to severe concerns, penalties, or fines by the state. That is what TAXDO is here for you! Our specialized sales tax calculator and professional services will simplify your job and lighten your compliance burden and you can focus on other important business aspects.
Ohio has a base sales tax rate of 5.75%, followed by the local tax rates, which vary based on the city and municipality. You may visit the sales tax rates page to know the sales tax rates of each city or county.
Below is the simple formula you can use to calculate your sales tax collection on each merchandise sold:
Sales Tax collectible = Sale value * (5.75% plus local tax rate)
Do you need to collect sales tax on Shipping Charges?
If non-taxable items are sold, shipping charges associated with such sale are not liable to sales tax. However, when a sale includes taxable and non-taxable items, shipping charges need to be apportioned relatively between the taxable and non-taxable parts of the sale. Accordingly, sales tax is applicable on the taxable portion of the sale. This link will take you to the official guidance issued by the state on shipping charges.
How should you file sales tax in Ohio?
E-file: You can e-file your return using the Ohio e-filing portal.
File by Mail or In-person: Complete form UST-1 and mail it to their address or submit it in person.
Filing frequencies and due dates
Based on your reported sales tax or estimated taxable sales, the Ohio Department of Revenue assigns you a filing frequency, which can be Monthly or semi-annual. According to your filing frequency, the due date for filing sales tax would be the 23rd day of the month following the relevant reporting period.
Note: If the due date is a holiday or weekend, the next business day would be considered the final due date. This link will take you to the official website of the Ohio Taxation Department, where you can see what the state has to say about sales tax filing due dates.
Are there any fines or penalties for default when filing or paying sales tax?
The state levies a penalty that is higher than $50 or 10% of sales tax due if returns are filed or tax is paid after the due date, subject to a maximum penalty of 50% of tax due.
However, assigning your tax burden to TAXDO would not result in you paying any penalty or interest. We will adhere to the due dates. Please review the guidelines issued by the Ohio Department of Taxation for penalties and interest.
Sales tax holiday in Ohio
The Ohio sales tax holiday applies to back-to-school items or tangible personal property costing $500 or less, except watercraft or outboard motors. The sales tax holiday for 2024 will take place from 30th July (midnight) to 8th August (11:59 p.m.). For detailed information, refer to the Ohio Taxation Department advisory here.