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
(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
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
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
Promulgated under: 5703.14
Authorized by: 5703.05
Amplifies: 5739.05, 5741.06
Prior effective dates: 7-9-65, 1-1-70