The Ohio Department of Taxation recently hired 85 new auditors, which brings the Department’s total audit workforce to approximately 340 people. This hiring, together with the phase-out of the Personal Property tax and Corporate Income/Franchise tax, suggests that the focus will be on audits of the remaining Ohio business taxes - the Commercial Activity Tax (CAT), Sales and Use tax, Pass-Through Entity tax and Employer Withholding tax.
The audit division of the Ohio Department of Taxation was a fairly young group, even before the hiring of 85 new auditors. The inexperience of this group may lead to erroneous and overstated assessments. Inexperienced auditors generally pick up all issues they are unsure of, just to be safe when conducting an audit. Companies should be aware that the preliminary audit results are a work-in-progress and a starting point for discussion. Scanning through the preliminary audit results will allow the taxpayer to prioritize the issues based upon materiality and provide additional documentation when needed to address ambiguity.
Ohio prefers to conduct a statistical sample audit on all of their business tax audits. Statistical sample audits are a good way of speeding up the audit process and are usually accurate in their results, assuming that the auditor has determined taxability properly. If errors are made by the auditor, this can mean that even small dollar invoices could potentially lead to large assessments due to extrapolation.
The Ohio Department of Taxation is under legislative pressure to increase revenue, and this pressure will ultimately be pushed down upon the audit staff. Ideally, companies should have a tax professional specializing in Ohio business tax law look at the audit assessment prior to agreeing to an assessment.
Schneider Downs provides accounting, tax, wealth management and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA, and Columbus, OH.
This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax-related matter.