Ohio sales tax guide

Sales tax is a tax paid to a governing body (state or local) on the sale of certain goods and services. Ohio first adopted a general state sales tax in 1934, and since that time, the rate has risen to 5.75 percent. On top of the state sales tax, there may be one or more local sales taxes, as well as one or more special district taxes, each of which can range between 0 percent and 2.25 percent. Currently, combined sales tax rates in Ohio range from 5.75 percent to 8 percent, depending on the location of the sale.

As a business owner selling taxable goods or services, you act as an agent of the state of Ohio by collecting tax from purchasers and passing it along to the appropriate tax authority. Sales and use tax in Ohio is administered by the Ohio Department of Taxation (DOT).

Any sales tax collected from customers belongs to the state of Ohio, not you. It’s your responsibility to manage the taxes you collect to remain in compliance with state and local laws. Failure to do so can lead to penalties and interest charges.

When you need to collect Ohio sales tax

In Ohio, sales tax is levied on the sale of tangible goods and some services. The tax is collected by the seller and remitted to state tax authorities. The seller acts as a de facto tax collector.

To help you determine whether you need to collect sales tax in Ohio, start by answering these three questions:

1. Do you have nexus in Ohio?
2. Are you selling taxable goods or services to Ohio residents?
3. Are your buyers required to pay sales tax?

If the answer to all three questions is yes, then you’re required to register with the state tax authority, collect the correct amount of sales tax per sale, file returns, and remit tax to the state.

Failure to collect Ohio sales tax

If you meet the criteria for collecting sales tax and choose not to, you’ll be held responsible for the tax due, plus applicable penalties and interest.

It’s extremely important to set up tax collection at the point of sale — it’s near impossible to collect sales tax from customers after a transaction is complete.

The need to collect sales tax in Ohio is predicated on having a significant connection with the state. This is a concept known as nexus. Nexus is a Latin word that means "to bind or tie," and it’s the deciding factor for whether the state has the legal authority to require your business to collect, file, and remit sales tax.

Nexus triggers

Sales tax nexus in all states used to be limited to physical presence: A state could require a business to collect and remit sales tax only if it had a physical presence in the state, such as employees or an office, retail store, or warehouse.

In June 2018, the Supreme Court of the United States overruled the physical presence rule with its decision in South Dakota v. Wayfair, Inc. States are now free to tax businesses based on their economic and virtual connections to the state, or economic nexus.

While physical presence still triggers a sales tax collection obligation in Ohio, it’s now possible for out-of-state to have sales tax nexus with Ohio.

Out-of-state sellers

Out-of-state sellers with no physical presence in Ohio may establish sales tax nexus in the following ways:

Affiliate nexus: Having ties to businesses or affiliates in Ohio. This includes, but isn’t limited to, the design and development of property sold by the remote retailer, or solicitation of sales of goods on behalf of the retailer.

Click-through nexus: Having an agreement to reward a person(s) in the state for directly or indirectly referring potential purchasers of goods through an internet link, website, or otherwise, and:

• The cumulative gross receipts from sales from such referrals are more than $10,000 within the preceding 12 months.

Economic nexus: Having a certain amount of economic activity in the state. Effective August 1, 2019, a remote seller that makes retail sales in Ohio must register with the state then collect and remit Ohio sales tax if, in the current or previous calendar year, the remote seller meets either of the following criteria (the economic thresholds):

• More than $100,000 in gross receipts; or
• At least 200 transactions

Marketplace sales: Making sales through a marketplace. Effective September 1, 2019, A remote marketplace facilitator must collect and remit sales or use tax on all sales into the state if it makes or facilitates more than $100,000 in gross sales or at least 200 transactions of taxable or exempt tangible personal property or services in the state in the current or previous calendar year. 

Inventory in the state: Storing property for sale in the state. This includes merchandise owned by Fulfillment by Amazon (FBA) merchants and stored in Ohio in a warehouse owned or operated by Amazon.

In-state software nexus: Repealed effective August 1, 2019

Network nexus: Providing a content distribution network in Ohio to accelerate or enhance the delivery of the seller’s website to consumers, and:

• The gross receipts from the sale of services or tangible personal property for storage, use, or consumption in Ohio exceed $500,000 in the current or preceding calendar year.

Trade shows: Attending conventions or trade shows in Ohio. You may be liable for collecting and remitting Ohio use tax on orders taken or sales made during Ohio conventions or trade shows. However, you generally would not have nexus if all the following are true:

• You’re in the state solely to engage in convention or trade show activities; and
• You have no more than seven instances of nexus-creating activities in Ohio in a calendar year and your gross sales in Ohio in that same calendar year do not exceed $25,000 (unless you have click-through nexus, in which case your gross sales into the state cannot exceed $10,000).

If you have sales tax nexus in Ohio, you’re required to register with the DOT and to charge, collect, and remit the appropriate tax to the state.

For more information, see ST 2001-01 – Use Tax Nexus Standards; ST 2017-02 – Software Nexus and Network Nexus; Out-of-State Sellers; Substantial Nexus and Marketplace Facilitator Changes

Trailing nexus

Sales tax nexus can linger even after a retailer ceases the activities that caused it to be “engaged in business” in the state. This is known as trailing nexus. As of May 2019, Ohio does not have an explicitly defined trailing nexus policy.

Fulfillment by Amazon (FBA)

If you’re an active Amazon seller and you use Fulfillment by Amazon (FBA), you need to know where your inventory is stored and if its presence in a state will trigger nexus. FBA sellers can also download an Inventory Event Detail Report from Amazon Seller Central to identify inventory stored in Ohio.

If you sell taxable goods to Ohio residents and have inventory stored in the state, you likely have nexus and an obligation to collect and remit tax. To begin to understand your unique nexus obligations, check out our free economic nexus tool or consult with a trusted tax advisor.

Sourcing sales tax in Ohio: which rate to collect

In some states, sales tax rates, rules, and regulations are based on the location of the seller and the origin of the sale (origin-based sourcing). In others, sales tax is based on the location of the buyer and the destination of the sale (destination-based sourcing).

Ohio uses both destination and origin sourcing. Sales by an Ohio vendor to an Ohio consumer (intrastate sales) are generally sourced to the location where the order was received (which may be different from where the order is processed or shipped). Sales from an out-of-state vendor to an Ohio consumer (interstate sales) are generally sourced to the location where the consumer receives the property.

For additional information, see ST 2009-03 – Sales and Use Tax: Sourcing.

After determining you have sales tax nexus in Ohio, you need to register with the proper state authority and collect, file, and remit sales tax to the state. We get a lot of questions about this and recognize it may be the most difficult hurdle for businesses to overcome. Avalara Licensing can help you obtain your Ohio business license and sales tax registration.

How to register for a seller's permit

You can register for a Ohio seller’s permit online through the Ohio Department of Taxation. To apply, you’ll need to provide the department with certain information about your business, including but not limited to:

• Business name, address, and contact information
• Federal EIN number
• Date business activities began or will begin
• Projected monthly sales
• Projected monthly taxable sales
• Products to be sold

Cost of registering for a seller's permit

There are several types of vendor licenses in Ohio, and some have a fee. There is currently no cost to register for consumers use tax, direct pay permits, or for out-of-state sellers to register. The cost to register for a vendor or transient vendor license is $25, and a separate license is required for each fixed place of business in the state.

Acquiring a registered business

You must register with the Ohio Department of Taxation if you acquire an existing business in Ohio. The state requires all registered businesses to have the current business owner’s name and contact information on file.

Streamlined Sales Tax (SST)

The Streamlined Sales and Use Tax Agreement (SSUTA), or Streamlined Sales Tax (SST), is an effort by multiple states to simplify the administration and cost of sales and use tax for remote sellers. Remote sellers can register in multiple states at the same time through the Streamlined Sales Tax Registration System (SSTRS).

Ohio has been a full member of SST since January 1, 2014.

Once you've successfully registered to collect Ohio sales tax, you'll need to apply the correct rate to all taxable sales, remit sales tax, file timely returns with the Ohio Department of Taxation, and keep excellent records. Here’s what you need to know to keep everything organized and in check.

How you collect Ohio sales tax is influenced by how you sell your goods:

Brick-and-mortar store: Have a physical store? Brick-and-mortar point-of-sale solutions like Revel allow users to set the sales tax rate associated with the store location. New tax groups can then be created to allow for specific product tax rules.

Hosted store: Hosted store solutions like Shopify and Squarespace offer integrated sales tax rate determination and collection. Hosted stores offer sellers a dashboard environment where Ohio sales tax collection can be managed.

Marketplace: Marketplaces like Amazon and Etsy offer integrated sales tax rate determination and collection, usually for a fee. As with hosted stores, you can set things up from your seller dashboard and let your marketplace provider do most of the heavy lifting.

Mobile point of sale: Mobile point-of-sale systems like Square rely on GPS to determine sale location. The appropriate tax rate is then determined and applied to the order. Specific tax rules can be set within the system to allow for specific product tax rules.

Ohio sales tax collection can be automated to make your life much, much easier. Avalara AvaTax seamlessly integrates with the business systems you already use to deliver sales and use tax calculations in real time.

Tax-exempt goods

Some goods are exempt from sales tax under Ohio law. Examples include most non-prepared food items, items purchased with food stamps, and prescription drugs.

We recommend businesses review the laws and rules put forth by the Ohio Department of Taxation to stay up to date on which goods are taxable and which are exempt, and under what conditions.

Some customers are exempt from paying sales tax under Ohio law. Examples include government agencies, some nonprofit organizations, and merchants purchasing goods for resale.

Sellers are required to collect a valid exemption or resale certificate from buyers to validate each exempt transaction.

Misplacing a sales tax exemption/resale certificate

Ohio sales tax exemption and resale certificates are worth far more than the paper they’re written on. If you’re audited and cannot validate an exempt transaction, the Ohio Department of Taxation may hold you responsible for the uncollected sales tax. In some cases, late fees and interest will be applied and can result in large, unexpected bills.

Sales tax holidays

Sales tax holidays exempt specific products from sales and use tax for a limited period, usually a weekend or a week. Approximately 17 states offer sales tax holidays every year. Ohio offered a one-time-only sales tax holiday in August 2018, but as of May 2019, there are no sales tax holidays in Ohio.

You're registered with the Ohio Department of Taxation and you've begun collecting sales tax. Remember, those tax dollars don't belong to you. As an agent of the state of Ohio, your role is that of intermediary to transfer tax dollars from consumers to state tax authorities.

How to file

Once you’ve collected sales tax, you’re required to remit it to the Ohio Department of Taxation by a certain date. The department will then distribute it to the appropriate state and local agencies.

Filing an Ohio sales tax return is a two-step process comprised of submitting the required sales data (filing a return) and remitting the collected tax dollars (if any) to Department of Taxation. The filing process forces you to detail your total sales in the state, the amount of sales tax collected, and the location of each sale.

All vendors, regardless of sales or use tax volume, are now required to file Ohio sales and use tax returns electronically. Form UST-1 is available to be submitted online.

Filing frequency

The Ohio Department of Taxation will assign you a filing frequency. Typically, this is determined by the size or sales volume of your business. State governments generally ask larger businesses to file more frequently. See the filing due dates section for more information.

Ohio sales tax returns and payments must be remitted at the same time; both have the same due date.

Online filing

Filing online is now required for all businesses in Ohio. You may file directly with the Ohio Department of Taxation by visiting their site and entering your transaction data manually. This is a free service, but preparing Ohio sales tax returns can be time-consuming — especially for larger sellers.

Using a third party to file returns

To save time and avoid costly errors, many businesses outsource their sales and use tax filing to an accountant, bookkeeper, or sales tax automation company like Avalara. This is a normal business practice that can save business owners time and help them steer clear of costly mistakes due to inexperience and a lack of deep knowledge about Ohio sales tax code.

Filing when there are no sales

Once you have an Ohio seller's permit, you’re required to file returns at the completion of each assigned collection period whether or not any sales tax was collected. When no sales tax was collected, you must file a "zero return."

Failure to submit a zero return can result in penalties and interest charges.

Closing a business

The Ohio Department of Taxation requires all businesses to "close their books" by filing a final sales tax return. This also holds true for business owners selling or otherwise transferring ownership of their business.

For more information, see the Ohio Department of Taxation.

Timely filing discount

Many states encourage the timely or early filing of sales and use tax returns with a timely filing discount.

As of May 2019, the Ohio Department of Taxation offers a timely filing discount of 0.75 percent of the tax due, with no maximum.

It's important to know the due dates associated with the filing frequency assigned to your business by the Ohio Department of Taxation. This way you'll be prepared and can plan accordingly. Failure to file by the assigned date can lead to late fines and interest charges.

The Ohio Department of Taxation requires all sales tax filing to be completed by the 23rd day of the month following the assigned filing period. Below, we've grouped Ohio sales tax filing due dates by filing frequency for your convenience. Due dates falling on a weekend or holiday are adjusted to the following business day.

Filing an Ohio sales tax return late may result in a late filing penalty as well as interest on any outstanding tax due. For more information, refer to our section on penalties and interest.

In the event an Ohio sales tax filing deadline was missed due to circumstances beyond your control (e.g., weather, accident), the Ohio Department of Taxation may grant you an extension. However, you may be asked to provide evidence supporting your claim.

Hopefully you don't need to worry about this section because you're filing and remitting Ohio sales tax on time and without incident. However, in the real world, mistakes happen.

If you miss a sales tax filing deadline, follow the saying, “better late than never,” and file your return as soon as possible. Failure to file returns and remit collected tax on time may result in penalties and interest charges, and the longer you wait to file, the greater the penalty and the greater the interest.

If you’re in the process of acquiring a business, it’s strongly recommended that you contact the Ohio Department of Taxation and inquire about the current status of the potential acquisition. Once you've purchased the business, you’ll be held responsible for all outstanding Ohio sales and use tax liability.

Because Ohio is the seventh most populous state in the U.S., most businesses have customers in the Buckeye State. If you’re collecting sales tax from Ohio residents, you’ll need to consider how to handle taxes on shipping and handling charges.

Taxable and exempt shipping charges

Delivery charges have been considered part of the sales price in Ohio since August 1, 2003. That means the taxability of shipping charges depends on the contents of the shipment.

Generally, charges to prepare and deliver taxable tangible personal property to a location designated by the consumer are taxable, as are charges for transportation, shipping, postage, handling, crating, and packing. This is true even if the delivery charges for taxable goods are separately stated.

Charges associated with the delivery of exempt goods are generally exempt.

If a shipment contains both taxable and exempt goods, the Ohio Department of Taxation asks vendors to allocate the delivery charge, either by the ratio of the total sales price of taxable property to the total sales price of all property in the shipment, or the ratio of the total weight of taxable property to the total weight of all property in the shipment.

Stand-alone delivery charges that aren’t related to a sale of tangible personal property are generally exempt. However, if such a delivery charge is passed on to the consumer, it becomes part of the sales price and taxable if the delivered goods are taxable.

Tax may also apply to drop shipping scenarios. If you use drop shipping to deliver items to customers in Ohio, you may be responsible for collecting and reporting tax.

The Ohio Department of Taxation recommends keeping clear invoices and records for all transactions, with specific terms to describe delivery-related charges. Acceptable forms of documentation include but are not limited to:

• Bills of lading
• Express receipts or express company invoices
• Freight invoices
• Parcel post receipts or shipment records
• Sales invoices showing transportation charges and shipping instructions

There are exceptions to almost every rule with sales tax, and the same is true for shipping and handling charges. Specific questions on shipping in Ohio and sales tax should be taken directly to a tax professional familiar with Ohio tax laws.

For additional information, see ST 1989-01 – Drop Shipments; ST 2003-07 – Changes to the Definition of Price; and 5703-9-52 Delivery charges.