Now that we’re in the heart of winter, CSH advisors often get asked by clients if commercial snow removal services are subject to Ohio sales and use tax.
The short answer is that landscaping and snow removal services are subject to the Ohio sales and use tax. The responsibility to collect sales tax is primarily that of the service provider, so if you are providing snow removal service as an adjunct to your construction services, you need to be sure you are collecting the appropriate tax from your customers. If, as a real estate owner, you contract for snow removal services, make sure you are paying the tax, because in Ohio you are responsible for assessing use tax on services for which you owe tax but have not been charged.
What is taxed, and when?
Many companies that provide snow removal services might not normally provide a taxable type of labor when they perform fair-weather services, so they may not be used to collecting Ohio sales tax. Services are not consistently taxed across states and, as such, contractors who serve in multiple states may not have consistent policies. As a result, you could be subject to use tax on this service.
Like landscaping and lawn care services, Ohio Revised Code 5739.01 (B)(3)(t) subjects snow removal service to sales tax. Snow removal service is defined as “… the removal of snow by any mechanized means… .” However, the definition “does not include the providing of such service by a person that has less than $5,000 in sales of such service during the calendar year.” Note that the definition also excludes services by anybody using just a shovel, so the grade school child down the street shoveling driveways typically does not have to collect and remit sales tax.
Once a service provider has reached a threshold of $5,000 or more in gross sales in any year, the service provider should register for a vendor’s license and collect/remit sales tax until the service provider ceases to do business. The $5,000 exemption is NOT an annual exemption.
Practically speaking, this means most service providers should be charging sales tax on an invoice.
Other points as noted in Ohio Information Release ST 2003-02 (revised November 2012):
- Sales tax must be charged when salt is applied “in conjunction with mechanized snow removal.”
- Sales tax should not be paid on the purchase of the salt that will be applied by mechanized means, pursuant to R.C. 5739.02(B)(42)(m).
Ohio Department of Taxation is targeting noncompliance
Companies that use snow removal services should check vendor invoices to ensure that tax is being charged. If no tax is present, use tax exposure likely exists. While it may not seem like a big deal, companies with multiple locations using the same service can incur sizable use tax exposure if tax is not being charged by the vendor.
Remember that sales and use tax is a consumer tax; if audited, the Ohio Department of Taxation will likely assess use tax on purchases of snow removal service with no sales tax. The Ohio Department of Taxation is currently focusing on – and penalizing – consumers who have not paid use tax, so it is best to spend the time determining if there is a requirement to remit before they knock on your door.
In conclusion, check invoices to ensure tax is being charged. If it’s not, you should contact the vendor for them to correct the situation, or remit use tax. Just like the snow itself, the taxes for its removal can accumulate over a cold winter. After you dig out, you don’t want to find a tax collector at your door.