Ohio Sales & Use Tax Guide: Rates, Nexus Rules & Filing

Sales and Use Tax Basics in Ohio

Sales Tax

In Ohio, sales tax applies to the purchase, lease, or rental of tangible personal property and certain specified services. Interestingly, the Ohio Department of Taxation considered sales tax a “trust” tax because retailers and certain service providers collect it on behalf of the State. The Department of Taxation further added that consumers pay the tax to sellers, expecting them to report and remit on time accurately.

Use Tax

In cases where retailers or service providers do not collect the sales tax at the time of sale, the consumer must pay use tax directly to the State. Local consumers who make frequent purchases without tax collection should register for a use tax account and file returns. In contrast, those who occasionally make these purchases can make voluntary payments to the Ohio Department of Taxation or include the tax on their Ohio income tax return.

Ohio Sales and Use Tax Rates

The state sales and use tax is set at 5.75%. In addition to state tax, local authorities, such as counties and regional transit authorities, may impose additional sales and use taxes. In Ohio, there are 88 counties and five transit areas. 

The transit areas include the Cities of Columbus, Dublin and Westerville, located in Delaware County, the Cities of Columbus and Reynoldsburg, located in Fairfield County, the City of Reynoldsburg, located in Licking County, the City of Dublin, located in Union County, and the City of Rossford located in Wood County. 

Therefore, the applicable local tax rates depend on where the transaction is taxed. For example, different rates apply in Licking and the Licking transit area. If the consumer is located in Licking, a 1.5% sales and use tax applies. However, in the Licking transit area, local sales and use tax is set at 2.5%. Notably, the total combined rate, including state, county, and transit, cannot exceed 8.75%.

Tax-Exempt Transactions

In Ohio, transactions relating to purchases by the State or its political subdivisions are tax-exempt. Furthermore, transactions including food for human consumption, if sold for off-premises consumption, including take-out and grocery food purchases, are generally exempt. Also, sales of newspapers and a specific type of magazines are exempt from sales and use tax.

Exemptions are also provided for certain sales by non-profit, charitable organizations, or churches, if specified conditions are met. Most goods and services used in construction or specific specialized industries may be exempt when sold to a contractor for incorporation into real property, including public‑sector projects, charitable institution buildings, specific agricultural or horticultural structures, and other specified real‑property improvements. 

Casual sales, such as occasional, one-time, or non-business sales by individuals, are excluded from sales and use tax. However, certain big-ticket items, such as motor vehicles, watercraft, and similar items, remain subject to taxes.

Nexus Rules in Ohio

For individuals or businesses to be treated as taxable persons, they must have a nexus or substantial presence in Ohio. The nexus can be established in three ways, depending on the business model, and whether taxable persons are from Ohio or from another US state or abroad.

Physical Nexus

Businesses and individuals that are physically located in Ohio must register for sales tax by obtaining a vendor's licence. Physical presence or nexus is established by having a store, showroom, or distribution center in the State or by owning or leasing real property there. Also, holding inventory or having employees in Ohio is sufficient to establish a nexus.

Economic Nexus

In 2019, Ohio enacted a Bill, which requires all out-of-state or remote sellers to obtain a vendor's license if they exceed USD 500,000 in gross sales to consumers located within the State. However, the economic nexus threshold was amended and lowered to the current USD 100,000 in gross receipts from Ohio or 200 or more separate transactions into the state. Therefore, if out-of-state sellers exceed either of these two thresholds, they must register for sales tax in Ohio.

Marketplace Nexus

As of September 2019, marketplace facilitators with a substantial nexus in Ohio are required to register for a seller’s use tax license, collect sales tax from consumers, file returns, and remit the tax on all taxable retail sales made into Ohio through their platform. This includes both own and facilitated sales. Marketplace facilitators are considered to have established a substantial nexus if they have had gross receipts of more than USD 100,000 or 200 or more separate transactions in the current calendar year or the previous calendar year.

Taxable Goods and Services in Ohio

In general, all sales of tangible goods are taxable by default, unless specifically defined as eligible for exemption. In contrast, most services are non-taxable unless explicitly defined as taxable. Therefore, sales of clothing, soft drinks, and entertainment media, and certain services are taxable in Ohio.

Regarding services, short-term hotel stays in establishments with five or more rooms, landscaping or lawn care when annual sales exceed USD 5,000, private investigation and security services, 1-900 information services, and the production of tangible property from customer-supplied materials, are taxable. 

Other taxable services include building maintenance, janitorial work, exterminating, fitness and recreation club memberships, repairs and installations of tangible property, vehicle washing and towing, non-coin-operated laundry and dry cleaning, business-related computer and electronic information services, certain telecommunications and satellite services, personal care services, transportation of persons within Ohio, snow removal over USD 5,000 annually, and storage of tangible personal property not held for resale.

Bundled Transactions and the True Object Test

When two or more distinct and identifiable products, excluding real estate or real‑property services, are sold together for a single, non‑itemized price, that is considered a bundled transaction. Under Ohio law, if one or more products are taxable, the entire transaction is taxable. 

However, exemptions exist. For example, when a bundled transaction includes taxable and non‑taxable items, if the taxable portion is de minimis, meaning below 10% of the total price, or if the non‑taxable portion is predominant and consists of specific exempt categories, the transaction is non-taxable. 

Additionally, when tangible goods are sold together with services, where the goods are essential for the service and provided solely because of the service, the transaction is treated as a service sale rather than a bundled sale. Consequently, the tax treatment depends on the service's taxability.

E-Commerce Framework

Since August 2019, out-of-state sellers that exceed the economic nexus threshold are required to collect and remit Ohio taxes on all sales of taxable goods and services made from sources other than provided by marketplace facilitators. By definition, this means that out-of-state sellers selling through their own website, online stores, or similar medium, must collect and remit sales tax on those sales.

Marketplace Rules

Out-of-state sellers that make sales solely through marketplace facilitators are not required to collect and remit sales tax on taxable sales if the marketplace facilitator is collecting and remitting sales tax on their behalf. 

Nevertheless, those sales are included in the economic nexus calculation. In cases where out-of-state sellers make both marketplace and their own sales, they are still required to report all gross sales on line one of the tax return, then subtract sales made through a marketplace facilitator by including them with exempt sales on line two.

Digital Goods and Services

As clarified by the Ohio Department of Taxation, digital products delivered electronically, such as e‑books, digital music or movies, and other specified digital products, including digital audiovisual works, audio works, or digital books, are subject to sales and use tax. Examples of taxable goods and services include Netflix, Hulu, iTunes, e-books for Kindle, and other electronic readers. On the other hand, providing internet connectivity and digital advertising services, such as services facilitating display or delivery of digital ads, are tax-exempt.

Digital Marketplace

Businesses or individuals that own, operate, or control a marketplace and help facilitate sales on that marketplace are considered marketplace facilitators. Digital marketplaces include platforms or services that enable the sale of goods or services, such as digital distribution services, digital distribution platforms, online portals, application stores, computer software applications, and in-app purchase mechanisms. 

To facilitate a sale means that the marketplace promotes or manages the sale by advertising, communicating offers, providing infrastructure, handling fulfillment, setting prices, managing customer service, branding, or software development, and handling payments, including collecting the price, processing payments, transmitting payments to sellers, or providing virtual currency.

Digital Platform Operator

Marketplace facilitators that exceed the threshold must register for a seller’s use tax license. Unlike out-of-state sellers, who account only for their own sales toward the threshold, marketplace facilitators must include both their own and the facilitated sales. Notably, marketplace facilitators must have a separate account to collect and remit tax on sales made on behalf of marketplace sellers and maintain an account for their own sales to Ohio consumers.

Filing and Payment Requirements in Ohio

All taxable persons must submit their sales and use tax returns electronically, regardless of sales volumes. The filing frequency depends on the assigned schedule. The Ohio Department of Taxation assigns a filing and payment schedule to a taxable person based on the amount of tax they owe annually and the type of taxable person. 

Therefore, vendors, sellers, service providers, transient vendors, and Consumers Use taxable persons must submit tax returns and pay taxes monthly. If, however, taxable persons owe more than USD 75,000 annually, they must also make accelerated and final payments electronically. 

Quarterly filing and payment are available for Consumers Use taxable persons, if their quarterly liability stays below USD 15,000. Finally, semi-annual filing and payment apply to vendors, sellers, and transient vendors with tax liabilities under USD 1,200 for each six-month period.

Penalties for Non-Compliance with Sales and Use Tax Requirements

Under the Ohio Law, those who fail to file a tax return or do not make a timely payment face a penalty of either USD 50 or 10% of the tax you owe, whichever is higher. However, if, after the audit, the Department of Taxation determines that additional taxes are owed, a further 15% penalty may be imposed on that amount. Taxable persons who fail to register after the State issues a notice may be penalized with up to 35% of the tax due.