By Chea Romine
April 25, 2013
Most everyone is familiar with the principals of sales tax, but few are privy to its counterpart, use tax.
The following article will shed light on what to consider regarding use tax and your dental practice. Taxes are not a fun topic for any business owner, but to continue on your mission as smile creators, your best bet is to work diligently with a CPA firm. The enormity of impact on dental practices owing sales and use tax, plus interest and penalties, can be extreme enough to bankrupt your business, if proper tax filing is not instituted.
Dental office deductions extended under the American Taxpayer Relief Act of 2012
Use tax benefits to reduce your office construction costs
When use tax is a factor
Use tax in the United States is complementary to sales tax, which means if you buy taxable products without paying sales tax to the vendor, you owe use tax. It is important to also consider service transactions, as not all services are tax exempt. Examples of situations involving use tax:
- You buy something in another state and bring that item into your home state.
- You buy something from someone who is not authorized to collect sales tax. For example, you buy equipment from a group through Craigslist or a newspaper ad.
- You purchase an item by subscription, through the Internet, or from a mail order catalog company without being charged sales tax.
- You acquire personal property, like furniture and equipment, with the purchase of real estate.
- You distribute property within a state for promotional purposes, like goody bags with toothbrushes and tooth paste.
Ohio: May 1, 2013 Use Tax Amnesty deadline
May 1 marks the deadline to apply for the Use Tax Amnesty Program in the state of Ohio. Governor John Kasich has hired 93 auditors with the specific purpose of auditing and collecting up to 10 years of unpaid use tax, both with businesses and individuals. Such an aggressive number of hires were made namely because only 19,000 of the 300,000 Ohio businesses have use tax accounts. Since the opening of amnesty registration in October 1, 2011, only 12,000 business have signed up. For those who do not apply for amnesty, you will be subject to the following:
- On-site audits
- Payment plans for taxes owed will not accepted. You will be required to pay taxes owed in one lump sum, with penalties and interest attached. Those participating in the amnesty program will be allowed to set up payment plans and will not owe penalties and interest.
- Mandatory 10-year records review
Use tax & your practice
- Medical supplies & use tax
Purchases of medical and laboratory supplies by a dentist are exempt from tax if they are used directly on patients as part of treatment. However, items used during a procedure that do not serve a treatment purpose, but instead serve a sanitary purpose (like bibs and tongue depressors) are not exempt. - Dental services & use tax
Dentists are required to pay use tax on items used when rendering services if the vendor the practitioner purchased from did not charge sales tax. A situation prompting the payment of use tax by a dental practice include purchasing implants and braces from an out-of-state vendor that did not charge sales tax. This is one of many situations to consider in regards to use tax exposure.
The takeaway
- Ohio dental practices
Immediately apply for amnesty, which can be done online at the Ohio Department of Taxation site: http://www.tax.ohio.gov/sales_and_use - Dental practices outside of Ohio
Contact your CPA firm immediately to review your situation and assess and liability. If you are liable, one option is to enter into a Voluntary Disclosure Agreement (VDA) with the state. A VDA is a binding agreement that allows a taxpayer to proactively disclose tax liabilities in exchange for more favorable tax treatment. Typically, the VDA results in a limited look-back period and a waiver of penalties. Again, rather than crossing your fingers hoping to avoid an audit, which would most certainly result in harsher treatment, work proactively to clean your slate. Your CPA can submit your information to the state, anonymously, to determine the amount of tax and interest due, at which point you would reveal your practice to negotiate an agreement with lesser, if any, penalties and a shortened review time of purchase records. A three-year review, which is typical of VDAs, is much better than a 10-year review.
Chea Romine is the managing partner of Romine CPAs & Associates of Columbus, OH. Romine CPAs is a full service CPA firm with 7 CPAs and three locations in Reynoldsburg, WA and Logan, OH. They are a comprehensive firm that specializes in tax, accounting, auditing, bookkeeping and consulting services. Chea Romine is a graduate of The Ohio State University, a husband to Taesen Romine and a father of four children.
