Legal Resources - Tax Rules

Tax Rules: Final: 5703-9

5703-9-08 Sales and use tax; authority to prepay (predetermine) or prearrange sales tax.

(A) Section 5703.05 of the Revised Code covers situations where particular aspects of a business are not compatible with the bracketed tax system or with the record requirements which are specified in other sections of the Revised Code. Depending on the circumstances the tax commissioner may grant a vendor one of two types of authority which relieve the vendor from burdensome compliance costs.

(1) Prepay authority is designed for situations where a lack of primary records exists or where a constriction of sales volume would occur if a separate collection of tax was imposed. For example, vending machines cannot differentiate between taxable and nontaxable food sales, produce a record of individual sales, nor separately collect tax on a taxable sales amount. Likewise, sales of taxable commodities at large spectator events would be negatively affected if each sale had to be recorded and tax was individually computed and collected. Adding tax also contributes to the potential of making small change, a circumstance detrimental to this type of vendor.

(2) Prearranged authority is designed for enterprises that generate large daily quantities of primary records. These records have little or no intrinsic value themselves and often would not be kept except for sales tax purposes. Their volume creates storage concerns and expense. A restaurant with a large number of customers is the type of business eligible for this authority.

The tax commissioner issues prepay and prearranged authorities under the conditions and procedures explained in paragraphs (B) and (C) of this rule.

(B) Prepayment (predetermined) authority

Where the conditions of any business activity are such that collection of the sales tax from the consumer in the manner provided in section 5739.03 of the Revised Code, imposes an unreasonable burden on the vendor, the tax commissioner may authorize the vendor to predetermine the bracketed tax as specified by section 5739.025 of the Revised Code, instead of collecting the tax from the consumer. This privilege is provided for in division (B) of section 5739.05 of the Revised Code and is called a prepayment authority, although no tax is actually paid until sales are made.

Situations particularly suited for prepayment authority are where sales of food are made from vending machines and the taxability of the food is governed by where it is consumed, and situations where a constant need to make small change would hinder a vendor's capacity to make sales.

A qualifying vendor must apply for prepayment authority and agree in writing to the terms and conditions set forth by the commissioner. The agreement will specify the percentage of total sales subject to tax and the effective rate of taxation thereon. These percentages will be derived from a representative sample of the vendor's business activity and other information available to the commissioner.

Compliance with the provisions of the prepayment authority will absolve the vendor from any additional tax liability based on sales other than that which may result from unreported sales, provided the vendor notifies the commissioner in writing of any change in the business activity which would increase the tax liability.

To ensure remittance of the proper amount of tax due, the percentages authorized by a prepayment authority issued to a vendor are subject to review upon written request of the vendor or at the discretion of the commissioner. An adjustment in the ratio of tax to taxable sales because of a change in a county's combined state and local tax rate may be reflected in an amendment to the prepayment agreement without a complete review of the vendor's business activity and is effective beginning the first day of the change in the combined state and local rate. Any changes in the provisions of an existing authorization which are prescribed by the commissioner as the result of a review of the vendor's business activities will, upon agreement thereto by the vendor, become effective at the beginning of the vendor's next reporting period.

The vendor may cancel the subject authority at the end of a current reporting period by filing a written notice thereof with the commissioner.

Notice that prepayment authority has been issued by the commissioner must be posted in a conspicuous place on the premises of the business location or of a group of vending machines for which such authority has been granted. Where sales from isolated vending machines constitute the business activity, notice is to be posted on each vending machine utilized.

The failure of a vendor to whom the prepayment authority has been granted to comply with the provisions thereof or to report a change in the conditions of the vendor's business activity will constitute sufficient cause for cancellation of such authority and reinstatement of the requirement to collect tax from the consumer.

Nothing in paragraph (B) of this rule is to be construed as a waiver of the requirement provided in rule 5703-9-02 of the Administrative Code pertaining to the maintenance of records.

(C) Prearranged authority

Where the maintenance of primary records in the manner specified in section 5739.11 of the Revised Code and rule 5703-9-02 of the Administrative Code imposes an unreasonable burden on a vendor, the commissioner may authorize the vendor to report and pay sales tax based upon established percentages. The privilege, provided for in division (C) of section 5739.05 of the Revised Code is called prearranged authority and allows a vendor, for sales tax purposes, to dispose of primary sales records with impunity.

Eligibility for this authority is limited to food service operators licensed under section 3732.03 of the Revised Code. A qualifying vendor must apply for prearranged authority and agree in writing to the terms and conditions as set forth by the commissioner. The agreement will specify the percentage of total sales subject to tax and the effective rate of taxation thereon, for each vendor's license covered by the authority. These percentages will be computed based on a test check of a representative sample of the vendor's business activity.

Compliance with the provisions of the prearranged authority requires that the vendor continue collecting tax from the consumer on taxable sales and report the tax computed under the terms of the agreement.

The vendor or commissioner may request a recomputation of the percentages specified in the agreement, if either believes the nature of the vendor's business has changed sufficiently to question the continuing validity of the most recent test check. A change in the provisions of an authorization because of a recomputation will, upon the written agreement of the parties, become effective at the beginning of the vendor's next reporting period. An adjustment to the ratio of tax to taxable sales because of a change in the combined state and local sales tax rate may be reflected in an amendment to the prearranged agreement without performing a new test check and becomes effective beginning the first day of a change in the combined state and local rate.

A prearranged authority may be cancelled by the vendor or commissioner effective at the end of a reporting period by filing, personally or by certified mail, a written notice thereof with the other party. Failure by the vendor to comply with the provisions of the authority is sufficient reason to cancel the authority and to reimpose the responsibility to maintain adequate primary records, as specified in rule 5703-9-02 of the Administrative Code.

Nothing in paragraph (C) of this rule is to be construed as a waiver of the requirement provided in rule 5703-9-02 of the Administrative Code pertaining to the maintenance of secondary records.

Effective: 11-4-91

Promulgated under: 5703.14

Authorized by: 5703.05

Amplifies: 5739.05, 5741.06

Prior effective dates: 7-9-65, 1-1-70