Businesswomen Reviewing Paperwork Ohio

The state of Ohio will waive all penalties and reduce interest amounts for individual and business taxpayers who come forward.

Tax strategies

Half Interest, No Penalties: Ohio Tax Amnesty Ends February 15

  • Theresa Mullen
  • 12/27/2017

The Ohio 2017 budget bill includes a tax amnesty program that allows taxpayers to voluntarily come forward and pay overdue taxes with reduced interest and no penalties. The program begins on January 1, 2018, and ends on February 15, 2018.

For taxpayers who voluntarily come forward during the amnesty period and pay the full amount of all taxes and one-half of the interest due, the state will waive all penalties, the other half-interest due, and will not pursue any potential civil or criminal action.

Ohio amnesty program eligibility

Unreported or underreported Ohio taxes which were due and payable as of May 1, 2017, qualify for this program. Both personal and business taxes are eligible. Eligible personal taxes include:

  • Ohio's personal income tax
  • School district income tax

Eligible business taxes include:

  • Ohio's commercial activity tax
  • State and local sales and use tax
  • Financial institutions tax
  • Excise taxes for alcohol and tobacco products
  • Employer withholding tax
  • Employer withholding school district income tax
  • Pass-through entity tax

Amnesty limitations

This program only applies to taxpayers who voluntarily come forward during the amnesty window. Taxpayers who have received an assessment notice, are under audit, or have been audited are not eligible. However, there are nuances to those rules.

Tax type

Companies that have been in contact with the state about a specific tax type are not eligible to participate for that tax type. For example, if a company files an estimate or extension payment for income tax, the entity is generally not eligible for amnesty for that state’s income tax. However, if a taxpayer was contacted on pass-thru entity tax in a prior year, the taxpayer can file for use tax amnesty because it falls under a different tax category.

Nexus questionnaire

If a company has received an Ohio nexus questionnaire, that does not, on its own, remove it for Ohio tax amnesty unless there was an audit or assessment initiated from the nexus questionnaire inquiry.

Prior participation penalties

There is no “post-amnesty” penalty for companies which have participated (or were eligible to participate) in a prior Ohio tax amnesty program, or which choose not to participate in this amnesty program. However, if and when a company is audited and when the statutory 25% penalty is applied and an abatement request is forwarded to the Ohio Tax Department for consideration, the choice not to participate in amnesty will be a consideration to keep the penalty at the 25% level and not abate to a lower penalty.

Amnesty program vs Ohio’s voluntary disclosure program (VDA)

The Ohio Tax Amnesty program is a special, limited time program provided through state legislation. However, the State of Ohio also provides an ongoing voluntary disclosure program which is available for a narrower range of tax types than those addressed under the amnesty program. It covers only the following tax types: individual income tax, commercial activity tax, sales and use tax, pass-through entities tax, employer withholding tax, and corporation franchise tax.

The VDA program is available to taxpayers who have not been contacted by any audit, compliance, or criminal investigation programs. Under the VDA, there is a limited look-back period (plus the current year), but the state will only waive the penalties related to the voluntary disclosure program. By contrast, in an amnesty filing, there is no limited look-back period.

Under both amnesty and VDA programs, filed returns are subject to the Ohio Department of Taxation review. In some cases, a VDA filing may make more sense for liabilities for periods older than three years; however, we encourage a discussion regarding both programs to ensure businesses understand which program (amnesty or VDA) is best for the given situation.

Commercial Activity Tax (CAT) audit program

The Ohio Department of Taxation also has a commercial activity tax (CAT) audit program, and is initiating an increased number of CAT audits. Because there is significant tax exposure for improper related party structures and/or unregistered CAT taxpayers, we recommend companies carefully evaluate whether they may be subject to CAT so that they can apply for Ohio’s amnesty or VDA programs if needed.

For purposes of CAT, an Ohio-based person or business with more than $150,000 annual Ohio ship-to sales revenues, based on a calendar year, or an out-of-state person or business with bright-line presence in Ohio is required to file.

An out-of-state person has bright-line presence in Ohio if any one of the following applies at any time during the calendar year:

  • Property in Ohio is at least $50,000
  • Payroll in Ohio is at least $50,000
  • Taxable gross receipts sitused to Ohio are at least $500,000
  • 25% of total property or total payroll or total gross receipts is within the state of Ohio
  • The person is domiciled in Ohio

An out-of-state person meeting one of the above criteria must also have at least $150,000 in taxable gross receipts sitused to Ohio during the calendar year to be subject to CAT.

How we can help

Knowing whether to file through the limited-time tax amnesty program or the existing VDA program depends on the tax type, the associated look back considerations, and other factors specific to your situation. CLA’s state and local tax professionals are available to explore exposure issues and help prepare your tax amnesty or VDA filings.