Ohio Tax Ohio Sales & Use Tax In-depth Review of Major - PDF document

27th Annual Tuesday & Wednesday, January 23‐24, 2018 Hya� Regency Columbus, Columbus, Ohio Workshop CC Ohio Tax Ohio Sales & Use Tax – In-depth Review of Major Developments Including Recent Ohio Supreme Court & Ohio Board of Tax Appeals (BTA) Decisions & New Audit Policies Wednesday, January 24, 2018 11:00 a.m. to 12:30 p.m.

Biographical Information Edward J. ("Ted") Bernert, Partner, Baker & Hostetler LLP 65 E. State Street, Suite 2100, Columbus, Ohio 43215 ebernert@bakerlaw.com 614.462.2687 Fax 614.228.1541 Edward J. (“Ted”) Bernert concentrates his practice in the area of state and local taxes with a particular emphasis on the major Ohio taxes affecting businesses and business owners–sales and use, financial institution, personal income, commercial activity and real property taxes. He represents national companies concerning Ohio tax matters related to compliance, planning and tax legislation. Mr. Bernert regularly deals with various tax department officials upon audit or administrative appeals. He has an active tax litigation practice before the Ohio Board of Tax Appeals and upon appeal to the courts, including the Supreme Court of Ohio. Mr. Bernert is a member of the Executive Committee of the American Bar Association’s State and Local Tax Committee and is a past chair of the Ohio State Bar Association Taxation Committee and the State and Local Tax Section of the Columbus Bar Association. Mr. Bernert was appointed by the Governor to the Ohio Business Gateway Steering Committee to address the continued development of an electronic link for filing taxes and other matters affecting business. He also serves as a member of The Ohio Chamber of Commerce Taxation Committee. Mr. Bernert is an adjunct professor of state and local taxes at the Capital University Law and Graduate Center and served as Chief Editor of Ohio Tax Review, formerly published by the Center. He currently serves as the co-editor of the Guidebook to Ohio Taxes, published by Commerce Clearing House. He has repeatedly been named an “Ohio Super Lawyer” in the area of Taxation and holds an AV rating by Martindale-Hubbell. Allan R. Thompson, Manager - Corporate Taxes, AK Steel 9227 Centre Pointe Drive, West Chester, OH 45069 513-425-2685 Fax: 513-425-5251 allan.thompson@aksteel.com Mr. Thompson is a graduate of the University of Toledo (1977 - B.B.A., Accounting) and Cleveland- Marshall College of Law at Cleveland State University (1980 - J.D., Taxation). He has 9 years of tax consulting experience in public accounting and over 25 years in tax management positions at several, large multistate manufacturers that are domiciled in Ohio. Mr. Thompson has over 30 years of experience with Federal, state and local tax audits - much of it involving Ohio taxes. During this time he has achieved equitable resolutions of compliance audits with representatives of taxing jurisdictions ranging from field auditors to tax commissioners, crafted voluntary disclosure agreements and presented at administrative appeal and litigation proceedings. Mr. Thompson has made numerous presentations for the Manufacturers’ Education Council, Lorman Education Services, the Ohio Society of CPAs and Institute for Professionals in Taxation. His primary subjects are the Ohio sales & use tax exemptions affecting manufacturers and best practices for managing compliance audits. His career includes two tours of duty as Chairman - Tax Committee of the Ohio Manufacturers’ Association.

Biographical Information Marshall C. Stranburg, Deputy Executive Director, Multistate Tax Commission 444 North Capitol Street NW, Suite 425, Washington, D.C. 20001 202-650-0300 mstranburg@mtc.gov Marshall C. Stranburg became Deputy Executive Director of the Multistate Tax Commission on April 1, 2016. Previously Marshall had served as Executive Director of the Florida Department of Revenue since being named to that position on April 23, 2013, by the Governor and Florida Cabinet. Marshall had been appointed Interim Executive Director of the Florida Department of Revenue effective July 1, 2012. Prior to this appointment, he had been named Deputy Executive Director for the Department on December 1, 2011. Marshall had previously been the Department’s General Counsel since October 2007. Since first joining the Department in 1991, he also served as Deputy General Counsel, Chief Assistant General Counsel for General Tax Administration, and Assistant General Counsel. In addition to serving as a legal advisor to the Department for many years, he made numerous presentations and has been known and respected nationally in matters of state taxation. Marshall was selected by State Tax Notes as a Top 10 Tax Administrator for 2011. While with the Department, his work primarily was related to Florida’s corporate income tax, sales and use tax, nexus questions, voluntary disclosures, and on many other topics and issues. He received his J.D. from the University of Tulsa and LL.M. in Taxation from the University of Florida. Marshall is a member of the Florida Bar and the Oklahoma Bar. In 2015, he received the Marvin C. Gutter Outstanding Public Service Award from the Tax Section of the Florida Bar.

Workshop CC Ohio Sales and Use Tax Major Developments A L L A N R . T H O M P S O N M A R S H A L L C . S T R A N B U R G A K S T E E L C O R P O R A T I O N M U L T I S T A T E T A X C O M M I S S I O N A L L A N . T H O M P S O N @ A K S T E E L . C O M M S T R A N B U R G @ M T C . G O V ( 5 1 3 ) 4 2 5 - 2 6 8 5 ( 2 0 2 ) 6 2 4 - 8 6 9 9 T E D B E R N E R T B A K E R H O S T E T L E R L L P E B E R N E R T @ B A K E R L A W . C O M ( 6 1 4 ) 4 6 2 - 2 6 8 7

Agenda 2 • Conduct of audits • Refunds • Avoiding audits • Defending employment service audits

Conduct of Audit 3  New method in Ohio for selection of audit candidates: Less based on auditor initiation  Less based on geographic location  Less based on recurring audits 

Conduct of Audit 4  Selection of audit candidates Department’s in-house software is more  analytical and based on public sources, e.g. Dun & Bradstreet. Department evaluates other filings, e.g.  withholding returns, especially for detecting non-filing of consumer use tax returns.

Conduct of Audit 5 How candidates are selected for Multistate Tax Commission audits.

Conduct of Audit 6 • Widely-used methods for selecting audits Audits of other taxpayers;  Filing with agencies, e.g. Federal Aviation  Administration for aircraft hangered in Ohio; Customs filings; and  Contracts with state agencies. 

Conduct of Audit 7 • Audit Software Replacing OFAST with BRUTUS  Used in Pennsylvania and other states.  Current audits are still being conducted  using OFAST.

Conduct of Audit 8  Audit software New software will be better at  isolating tax implications of individual items for samples. New software will be better at  isolating interest.

Conduct of Audit 9 Penalty • History of penalty in Ohio • Four phases Mandatory addition of penalty and taxpayer was required to seek  remission. After a statutory change, the addition of penalty became  permissive rather than mandatory. Thereafter, the penalty worksheet was employed-never  promulgated as a rule. Current system. 

Conduct of Audit 10 Penalty Current system  Statute makes addition of penalty permissive and not mandatory. Compare provisions of R.C. 5739.133 for addition of penalty versus interest: A penalty m ay be added to every amount assessed … . • • All assessments… shall include preassessment interest . Emphasis added.

Conduct of Audit 11 Penalty • Under the current system, penalty is routinely added. • Tax Department decides whether to remove and not whether to impose penalty.

Conduct of Audit 12 Penalty • Decision is not left to the auditor. • Department is trying to become more uniform in the treatment of penalty by having a group of senior staff look at penalties: the “Gang of Five.”

Conduct of Audit 13 Penalty • The treatment of penalty is not supposed to be mechanical, even if the compliance meets an acceptable percentage but if consistently underpaying, could still have penalty.

Conduct of Audit 14 Penalty • Taxpayer/ representative should ask for penalty rem ission before assessm ent. • If penalty is not removed, can appeal that decision to Tax Appeals Division.

Conduct of Audit 15 Penalty • It appears that if the tax agents expect an appeal, the penalty will be left intact and the taxpayer must seek removal of the penalty at Tax Appeals Division.

Conduct of Audit 16 Penalty • Current penalty system lacks transparency—a black box. • Traditionally, the Tax Commissioner has been accorded wide deference in determination to add and not remove penalty.

Conduct of Audit 17 Penalty • Because the provision for penalty is not transparent and the file normally does not explain any basis for the decision to impose penalty, perhaps the Board of Tax Appeals and courts will be more inclined to consider whether the penalty is appropriate.

Conduct of Audit 18 Assessments • Vital that the audit does not result in an assessment that is overlooked. • Department may use a different address for assessment than was used to contact the taxpayer during audit.