Taxation and Regulatory Compliance

Are Your Business Services Taxable in Ohio?

Navigate Ohio's sales tax regulations for business services. Understand what's taxable, what's exempt, and how to comply with state requirements.

Ohio imposes sales and use tax on the retail sale, lease, and rental of tangible personal property within its borders, as well as on specific services. The state’s sales tax rate is 5.75%, but local jurisdictions can add additional rates, leading to combined rates ranging from 5.75% to 8% depending on the location of the sale. Businesses that sell taxable goods or services act as agents for the state by collecting this tax from customers and remitting it to the Ohio Department of Taxation. If a business fails to collect sales tax when required, it may be held responsible for the unpaid tax, plus any applicable penalties and interest.

Identifying Taxable Services

Services in Ohio are not subject to sales tax unless they are specifically enumerated as taxable by statute. Ohio Revised Code Section 5739.01 outlines various services considered taxable sales.

Repair and installation services for tangible personal property are subject to sales tax. This includes the total cost of repairs for items like motor vehicles, including parts, labor, and other shop expenses. However, if labor charges for repair or installation are separately stated on the invoice, they may be exempt from sales tax.

Certain landscaping and lawn care services are taxable if the annual sales from these services reach or exceed $5,000. These services include planting, seeding, sodding, removing, cutting, trimming, pruning, mulching, aerating, applying chemicals, watering, and fertilizing. Once the $5,000 threshold is met, sales tax must be collected on all subsequent sales of that service for the remainder of the calendar year.

Washing, cleaning, waxing, polishing, or painting of motor vehicles are also subject to sales tax, with the exception of services provided through coin-operated machines. Towing services for motor vehicles, including the conveyance of wrecked, disabled, or illegally parked vehicles, are also taxable.

Automatic data processing (ADP), computer services, and electronic information services are taxable when provided for business use. This includes processing data, providing access to computer equipment for data processing, and offering services like computer programming or training related to computer equipment sales or operations. Electronic information services include providing access to computer equipment via telecommunications for examining, acquiring, or placing data.

Telecommunications services, including prepaid calling and wireless services, are subject to sales tax. Satellite broadcasting services (audio and video) are also taxable. However, sales of telecommunications services used directly and primarily to perform the functions of a call center may be exempt if the call center meets specific criteria, such as employing at least 50 full-time equivalent individuals.

Personal care services, which include skin care, cosmetic applications, manicures, pedicures, hair removal, tattoos, body piercing, tanning, and massage, are taxable. However, the cutting, coloring, or styling of an individual’s hair is not subject to sales tax. Services provided by or on the order of a licensed physician or chiropractor are also exempt.

Building maintenance and cleaning services are taxable if annual sales exceed $5,000. This includes cleaning the interior or exterior of a building and its tangible personal property, along with incidental services. Examples include washing, vacuuming, dusting, polishing, waxing, carpet cleaning, and power washing.

Pest control services, defined as eradicating vermin infestations from a building or surrounding area, are subject to sales tax. This includes inspection, detection, and prevention.

Snow removal services performed by mechanized means are taxable if annual sales exceed $5,000. Applying salt with mechanized snow removal is also taxable. However, if salt is applied only by hand, the service is not subject to sales tax.

Exemptions and Non-Taxable Services

Many services are taxable in Ohio, but several categories are exempt from sales tax. Professional services, such as those provided by lawyers, accountants, medical practitioners, and consultants, are not subject to sales tax. Similarly, insurance transactions are not taxed.

Educational services and real estate services also fall outside the scope of Ohio sales tax. Financial services are exempt unless specifically defined as taxable services under state law.

Services purchased for resale are exempt, meaning a business can buy a taxable service without paying sales tax if they intend to resell that service to a customer. The business must provide a valid exemption certificate to the supplier to claim this exemption.

Services provided to exempt organizations, such as churches, organizations exempt under Internal Revenue Code Section 501(c)(3), and other non-profit organizations operating exclusively for charitable purposes, are not subject to sales tax. The seller should obtain a properly completed exemption certificate from the buyer to document the exempt transaction.

Real property improvements and construction services are exempt from Ohio sales tax on the labor portion. However, contractors are considered the consumers of tangible personal property or services they purchase to complete these projects, and they must pay sales or use tax on those purchases.

Sales Tax Collection and Remittance

Businesses providing taxable services in Ohio are responsible for collecting sales tax from their customers. This collected tax belongs to the state and must be managed carefully to ensure compliance with state and local laws.

To legally collect Ohio sales tax, businesses must first obtain an Ohio Vendor’s License. This license is required for any business making retail sales of tangible personal property or taxable services from a fixed or transient location, including internet sales. The application fee for a vendor’s license is $25 to $50, and it can be obtained through the county auditor’s office, the Ohio Department of Taxation, or the Ohio Business Gateway.

Sales tax is calculated based on the sales price of the taxable service. The statewide sales tax rate is 5.75%, but businesses must also account for any additional local sales taxes levied by counties and regional transit authorities, which can increase the combined rate.

Collected sales tax must be remitted to the Ohio Department of Taxation. All vendors are required to file electronically, through the Ohio Business Gateway. Filing frequencies vary based on a business’s sales volume, with options including monthly, quarterly, or semi-annually. Monthly returns are due by the 23rd day of the following month, while semi-annual returns are due by the 23rd of July for the January through June period and by the 23rd of January for the July through December period.

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