Ohio Sales Tax
Sales tax can be one of the most confusing issues for new business owners. Understanding how Ohio's sales tax works is important before you start selling in the state.
The state of Ohio imposes sales tax on most goods and services. However, it is up to individual consumers to pay any tax owed on out-of-state purchases via catalog or Internet if the seller does not collect it at the point of sale. For this reason, Ohio sales tax laws require vendors that have a significant connection with the state (known as nexus) to register, collect, and remit sales tax.
Nexus in Ohio includes having a physical presence here, but it also includes economic nexus. This means you make enough sales into the state to owe sales tax, such as through affiliates who operate in the state, having a warehouse here, or making sales through marketplaces. The state of Ohio levies a sales tax rate of 5.75%, and local jurisdictions can add to that with their own rates.
The complexity of managing sales tax across all these levels can be daunting, but the state provides some helpful resources for businesses and consumers alike. For example, the state’s sales tax website provides detailed guidance on registering and filing taxes.
Ohio Sales Tax Changes
Recently, Governor DeWine signed the fiscal year 2024-2025 biennial budget bill that will bring a number of changes to Ohio tax laws. The bill includes significant modifications to the state’s commercial activity tax (CAT). Starting in 2024, CAT thresholds will increase from $1 million to $3 million and then to $6 million beginning in 2025. The change is estimated to exempt 90% of businesses subject to CAT from filing and paying the tax.
The new CAT thresholds also introduce refund opportunities for businesses that ship products to wholesale and retail customers in Ohio. Additionally, two recent court decisions may support CAT refund claims for companies that use temporary storage facilities to hold goods before shipping them to customers within and outside the state.
Another major change relates to CAT addbacks and credits for Ohio resident owners who utilize pass through entity elections in other states. Previously, these credits could not be claimed due to the way the CAT statute was drafted. Now, the budget bill clarifies the credit and creates new planning opportunities.
Ohio Sales Tax Exemption
A sales tax exemption in Ohio allows consumers to avoid paying state-level taxes on certain goods and services. These exemptions can be used to purchase things like groceries, prescription drugs, and machinery. If a consumer wants to use an exemption certificate, they must provide the vendor with all of the data elements required by the Ohio Department of Taxation. The certificate can be submitted in either paper or electronic form.
