The tax attorneys at Nardone Law Group in Columbus, Ohio, routinely advise individuals and businesses on state and federal tax issues, including those involving the Ohio Department of Taxation. When faced with a sales tax audit, appeal, or other litigation, many owners of bars and restaurants find themselves in unfamiliar territory. It is not uncommon for these owners to end up owing additional sales tax, interest, and penalties as a result of the audit, despite doing their best to maintain adequate records of their sales. Ohio law permits the Department of Taxation to hold responsible parties/individuals personally liable for the underlying sales tax due, plus any additional penalties. In many cases, the additional sales tax and penalties could have been avoided by maintaining adequate records. In a prior article, we discussed preemptive actions bar and restaurant owners can take to counter inflated liability. If care is taken to keep adequate records, it could decrease the likelihood of the bar or restaurant owner’s personal liability.
Sales tax is considered a trust-fund tax, meaning that it is collected from the customer by the vendor, and is held in trust until remitted to the state. For this reason, under Ohio law, a responsible party can be held personally liable for failure to collect or remit sales tax. Not only is the responsible party liable for the underlying sales tax obligation, they are also liable for the penalties and additional charges that come with the non-payment or late payment. A responsible party may include any of the business’ employees having control or supervision of or charged with the responsibility of filing returns and making payments, or any of its officers, members, managers or trustees who are responsible for the execution of the business trust’s financial responsibilities. R.C. § 5739.33.
Additional Penalties and Interest
In addition to the sale tax that is owed, the responsible party may have to pay additional charges and penalties associated with the non-payment or late payment. In the case of an assessment against a person who fails to collect and remit the required sales tax, up to 50 percent of the amount assessed may be owed as a penalty. R.C. § 5739.133(A)(1) and (2). An additional charge of fifty dollars or 10 percent of the tax required to be paid, whichever is greater, may be levied on every tax return not filed on time or when the tax liability is not paid in full. R.C. § 5751.06(A). Interest will also start to accrue on the unpaid tax beginning from the day the tax was required to be paid until the tax is paid or until the day an assessment is issued, whichever occurs first. R.C. § 5739.132(A).
For example, if the taxpayer owes $100,000 in sales tax, the Ohio Department of Taxation could issue a penalty of $50,000, for the non-payment. Further, let’s say the taxpayer owes $5,000 for one return period, but failed to file the return on time. The Ohio Department of Taxation will issue an additional charge of fifty dollars or 10% of the tax to be paid, whichever is higher. Here, since 10% of $5,000 is greater than fifty dollars, the department will issue an additional charge of $500 to the taxpayer for the period in which the return was not filed on time. The department of taxation can issue this additional charge on all return periods for which the sales tax was not paid on time. If the bar or restaurant owner has consistently failed to file returns or has consistently filed late sales tax returns, they may be facing significant additional charges and penalties.
However, the taxpayer may appeal the additional charges and penalties. For this reason it is important to seek the help of an experienced tax attorney if you are a bar or restaurant owner facing a sales tax audit. If you have failed to file timely returns, or have failed to remit all sales tax that is due, and are worried that you may be personally liable for the underlying sales tax obligations of your business, you should contact the tax attorneys at Nardone Law Group. Our attorneys have vast experience representing bars and restaurants in sales tax audits, examinations, and litigation with the Ohio Department of Taxation. We will thoroughly review your case and advise you of preemptive steps to avoid the risk of being held personally liable for your business’ debts. Contact us today for a consultation.