Ohio Practical Business Lawyer & Attorney : Teri Rasmussen : Lane Alton & Horst Law Firm : Commercial Law, Creditors, Business Formation : Columbus, Central Ohio

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Over the past few months, I have become much better acquainted with the ins and outs of state taxes in Ohio, as well as the consequences of a failure to pay when due,  than I would have thought likely.  So let me impart a bit of the knowledge I've gained mostly from hard work and experience. 

Unemployment Contributions.  I've become convinced that the absolute worst state  tax obligation in Ohio to fail to pay has got to be the unemployment contributions required to be paid to the Ohio Department of Job and Family Services (ODJFS) pursuant to Ohio Rev. Code §§4141.23 and 4141.27.  Why?  Well, mostly because the interest and penalties charged on these obligations is by far and away the most substantial of any unpaid state tax obligation in Ohio.  In addition, officers and others charged with responsibility for payment of unemployment contributions can be held personally liable for these amounts. 

Interest alone accrues at the rate of 14% per annum on the unpaid amounts required.  Moreover, unlike even the strictest lender, ODJFS charges interest on accrued interest, thus making it entirely possible that the interest and penalties on unpaid unemployment contributions will dwarf the actual amount originally due. 

On the brighter side, unlike many other state tax obligations, the State of Ohio is required to actually file a lawsuit and obtain judgment before moving on to the particularly intrusive collection activities such as bank account garnishment.  However, the assessment is presumed to be valid which considerably limits the options of the delinquent taxpayer and consequently shortens the litigation process.    

Sales, Withholding, and Use Tax.  In the case of Ohio state sales (Ohio Rev. Code §5739.13), withholding (Ohio Rev. Code §5747.13(C)), and use tax (Ohio Rev. Code §5741.14),  if the taxpayer fails to pay in a timely manner, the State of Ohio has the right to file a lien immediately without first filing a lawsuit.  This lien will then have the same effect as a judgment lien.  This means that the delinquent taxpayer may unexpectedly find bank accounts cleaned out through garnishment.  In addition, other post-judgment collection activities such as judgment debtor examinations and enforcement of the lien through foreclosure are a definite reality. 

To make matters worse, various penalties and interest add up quickly.  First  there is a "late" penalty for failing to file the required return in a timely manner in an amount equal to 10% of the amount assessed by the Ohio Department of Taxation.  In addition,  for failing to pay the required tax when due, there is another penalty  in the amount of the greater of $50 or 50% of the amount due.  There are also a variety of other charges and penalties levied upon the delinquent taxpayer.  And none of these are negotiable.  On top of everything else, interest will be assessed on the amount of the obligation.     

As further inducement to pay sales and withholding tax, the company's vendor license and/or liquor license may be suspended or revoked if this obligation is ignored.  During the period of suspension or revocation, no sales of items for which the license is required may be made.  There is also a charge to get the applicable license reinstated.   

In addition, sales, withholding, and use tax are all "trust fund" taxes.  This means that officers, employees, or other representatives of the delinquent taxpayer may find themselves subject to personal liability if they are a "responsible party" charged by the company with ensuring these amounts were properly paid in a timely manner. 

For more detailed information about the scope of sales and use tax, the Ohio Department of Taxation has a helpful Sales Tax FAQ on its website. 

Workers Compensation Premium Contributions.  Like state sales, withholding, and use taxes,  the workers compensation premium contributions required to be paid to the Ohio Bureau of Workers Compensation pursuant to Ohio Rev. Code §4123.35 are post-judgment type obligations.  Thus a failure to pay these amounts can result in unfavorable collection activities against the delinquent taxpayer relatively quickly as spelled out in Ohio Rev. Code §4123.37.  In addition, in some cases, liquor licenses can be suspended for failure to pay workers' compensation premiums when do.   

Income Tax.  If  business or personal state income tax is not paid promptly when required, a lien can be filed immediately against the taxpayer in a similar manner and with similar consequences as when state sales, withholding, or use tax is not paid.  In addition, any subsequent state income tax refunds due to the taxpayer will be rerouted to the State of Ohio. 

Corporate Franchise Tax.  Corporate franchise tax is being phased out and replaced by the corporate activities tax.  Until that transition is complete, corporate franchise tax works much the same way as state sales tax except that there is no personal liability for failure to pay.  However, if the corporation is in existence for even part of the year, it must pay at least the minimum tax of $50.00.   

Going Out of Business.  If you have ceased doing business, it is important to notify the State of Ohio IN WRITING of this fact so you do not continue to be assessed taxes and penalties.  To be certain it takes, you should consult the website for the applicable taxing authorities and follow the instructions concerning any forms or other procedures for providing notification that you are no longer in business.  In many cases, if you fail to make proper notification, you will still be required to pay penalties and other charges even though you weren't doing any business.