ST 2005-05 – Sales and Use Tax Calculation and Rounding
Change Effective 01/01/2006 - December, 2005
The purpose of this information release is to address the
changes to the method of calculating Ohio’s sales and use tax
on and after January 1, 2006. Prior to this date, the
law required vendors and out-of-state sellers to collect Ohio
tax according to bracket schedules found in Ohio Revised Code
section 5739.025(A) through (C) or by the calculation in R.C.
5739.025(D). These calculations were to ensure that no
less than the statutory tax rate was collected on any sale.
As part of Ohio’s active participation in the Streamlined
Sales Tax Project*, Ohio has changed its method of
calculating the tax on a sale to conform to the uniform
rounding used by most other states and to conform to the
requirements of the Streamlined Sales and Use Tax
Agreement. The new rounding provision is found in R.C.
5739.025(E), which provides:
On and after January 1, 2006, a vendor shall compute the tax
on each sale by multiplying the price by the aggregate rate
of taxes in effect under sections 5739.02 and 5741.02, and
sections 5739.021, 5739.023, 5739.026, 5741.021, 5741.022,
and 5741.023 of the Revised Code. The computation shall be
carried out to three decimal places. If the result is a
fractional amount of a cent, the calculated tax shall be
rounded to a whole cent using a method that rounds up to the
next cent whenever the third decimal place is greater than
four. A vendor may elect to compute the tax due on a
transaction on an item or an invoice basis.
This change uses more traditional arithmetic rounding than
the previous tax calculation method. Instead of always
rounding up in any case where the tax calculation yielded any
fractional amount over a whole cent, the new method will
round the calculation either up or down to the nearest whole
cent based on the third decimal place.
Examples:
- Sale amount $12.95, the tax rate 6.25%. The tax
calculation would be $0.809375. The third decimal place
is greater than four so the tax would be rounded up to the
next cent and would be $0.81.
- Sale amount $14.35, the tax rate 6.5%. The tax
calculation would be $0.93275. The third decimal place
is less than four so the tax would be rounded to the nearest
whole cent and would be $0.93.
- Sale amount $14.38, the tax rate 6.5%. The tax
calculation would be $0.9347. The third decimal place
is four so the tax would be rounded to the nearest whole cent
and would be $.93. (Note that the calculation is
not to be rounded at the third decimal
place, which in this case would have resulted in a
calculation of $0.935 and a tax of $0.94.)
The last sentence of R.C. 5739.025(E) addresses a situation
where multiple taxable items appear on a single
invoice. For example, a customer may purchase from a
hardware store a drill, a package of drill bits and a box of
wood screws at one time. One vendor’s tax collection
system may apply the tax rate to the price of the drill, to
the price of the bits and to the price of the screws, and
then total the three tax amounts to arrive at the tax to be
charged to the consumer. A different vendor may have a
system that would total the prices of the drill, the bits,
and the screws, and then apply the tax rate to the total
price. Under the statute, either approach is
acceptable.
The Sales and Use Tax Division has produced tax rate
schedules to assist vendors and sellers in collecting the
proper amount of tax. Rate schedule cards have been
mailed to vendors with license numbers beginning 01- through
88- (as of December, 2005) and are also available from any
Taxpayer Service Center. You may also obtain the
schedules by going to the Sales and Use Tax section of the
Ohio Department of Taxation website:
tax.ohio.gov.
If you have any questions regarding this matter, please call
1-888-405-4039 (Ohio Relay Services for the Hearing or Speech
Impaired: 1-800-750-0750).
*One of the goals of the project is that by the participating
states having more uniform sales and use tax laws,
out-of-state businesses not required to collect a
participating state’s tax will be more willing to collect the
tax for all the participating states.