Chapter 5703-9 Sales and Use Tax

5703-9-01 Vendor's license requirements.

(A) A vendor engaged in making retail sales subject to the Sales Tax at a fixed place of business must obtain a license therefor and, in case such vendor makes retail sales from vehicles operated by his agents, such sales in the county in which the fixed place of business is located may be made under the license issued for the fixed place of business.

A license for a fixed place of business will not permit the vendor, or employees of the vendor, to operate vehicles in any other county in the State without securing additional licenses. A vendor who makes retail sales from vehicles in more than one county must obtain a license for each county in which he makes such sales.

A license obtained by a vendor for a fixed place of business does not cover retail sales of property purchased from the vendor having the license and resold from vehicles where the operators of such vehicles are not the agents of the vendor having the license but are making the sales for their own profit and in connection with their own business.

A person who does not have a stock of merchandise from which orders are filled, selling on a commission basis for a vendor who has a fixed place of business is not required to procure a vendor's license as he is in fact the agent for the vendor with the license.

Persons selling on a straight commission basis, who sell from a stock of goods which they carry with them, are vendors and will be required to procure a vendor's license and collect the tax in the regular manner.

(B) Vendors having no fixed place of business and selling from vehicles must procure a vendor's license for each vehicle, which vehicle shall constitute his place of business. Such license shall cover all sales made from the one vehicle only in one county. If sales are made from the vehicle in more that one county, licenses shall be procured in each county in which sales are made. The application for each license must set forth a residence or permanent mailing address in the state to which all communications from the Department of Taxation may be sent. A change in this address must be reported promptly to the Department.

Vendors having no fixed place of business and not selling from a vehicle shall procure one license in each county in the state in which sales are made. The application for each license must set forth a residence or permanent mailing address in this state to which all communications from the Department of Taxation may be sent. A change in this address must be reported promptly to the Department.

(C) In those cases where an individual incorporates his business a new license will be required. Likewise, where a corporation is dissolved and is operated by a sole owner, a new license is required. In the case of a dissolution of a partnership by death, the surviving partner or partners may operate under the existing license for sixty days only, at the expiration of which time a new license must be procured for the operation of the business. Trustees in bankruptcy, legal representatives of deceased persons and receivers, when appointed by competent authority, may operate indefinitely under the existing license but must immediately notify the Department of Taxation of their appointment.

A vendor's license shall terminate and be null and void if the business is moved to a new location or if the business is sold, or if an individual or partnership incorporates his or their business, or if a partnership is dissolved, or if a corporation dissolves.

Corporations upon making application for a vendor's license must display their corporation charter number, as registered with the Secretary of State, immediately following their name on the application for license.

If the applicant for a vendor's license is a holder of Liquor Permit issued by the Ohio Department of Liquor Control such vendor's license must conform with Liquor Permit in name and address so as to establish the identity of the actual owner.

In the case of two or more persons constituting a single vendor who operates a single retail establishment under one license, the Department of Taxation must be promptly notified of the retirement of any such person from business in such establishment or the entrance of any person under an existing arrangement.

(D) Hotels, which includes all establishments having five or more rooms which are used or offered for use as sleeping accommodations for transient guests, must hold a vendor's license for the location in which the business is conducted.

(E) No license need be procured by public and parochial schools where the only sales consist of serving meals in cafeterias amd selling school supplies to students, not as a business and at no profit.

(former TX-11-01); Eff 10-12-69; 9-28-76
Rule promulgated under: RC 5703.14

5703-9-02 Maintenance of records.

(A) Since all sales of tangible personal property in this State are presumed to be subject to Sales Tax until the contrary is established, the burden of proof rests upon each vendor to show what part, if any, of their gross receipts from sales resulted from nontaxable sales.

Each vendor must maintain complete and accurate records which include both:

(1) Primary records such as purchase invoices, bills of lading, sales invoices, guest checks, exemption certificates, tax payment receipts, and cash register tapes;

(2) Secondary records such as bank deposit receipts and day books, journals, or any other records in which accumulated data is recorded.

Any record in which accumulated data is recorded by the vendor must be supported by complete detail records from which such data was accumulated.

Sales invoices and cash register tapes for taxable sales must have separately stated thereon the total price and the tax amount charged, which amounts are to be accumulated and recorded in a secondary record. Invoices for lodging must also clearly show the length of stay, in terms of consecutive days for each guest.

All records must be preserved for a period of four years unless the Commissioner consents, in writing, to their destruction within that period or by order requires that they be kept for a longer period.

The tax collected by a vendor, as trustee for the State of Ohio, is a collection for the benefit of the State and no person other than the State shall derive any benefit from such collection other than that provided for in Revised Code 5739.12 .

(B) If any vendor fails to maintain complete primary sales records which may be utilized in verifying the accuracy of the figures reflected in their secondary records and/or reported on their tax returns, the Commissioner will use one of the following methods for such verifications:

(1) Determine taxable and nontaxable sales and the tax due on sales subject to the bracket tax levied in Revised Code 5739.02 , as provided for in Revised Code 5739.13 .

(2) Determine "net receipts" as the basis for application of the four percent tax levied in Revised Code 5739.10 .

"Net receipts" means the total amount of the prices of all sales less (a) the sale price of property returned by the consumers when the full price of tax has been refunded either in cash or by credit, (b) sales under sixteen cents, (c) and sales of food for human consumption off the premises where sold.

The above described determinations will be based upon (i) purchase records, (ii) a sampling of the vendor's business activity for a representative period, and/or (iii) other information relating to the sales made by such vendor.

If any vendor fails to maintain complete secondary records reflecting the total amount of the prices of sales subject to tax and the tax due thereon which may be utilized in verifying the tax liability reported on their tax return, the Commissioner will verify the reported tax liability by use of a sample of the vendor's business activity for a representative period. If this verification method reveals an error in the reported tax liability, the rate of tax as determined by the Commissioner will be deemed to be the rate of tax collection by such vendor and will be applied to the receipts from taxable sales made during the entire period of time under review.

(former TX-11-02); Eff 4-27-65; 9-1-67
Rule promulgated under: RC 5703.14

5703-9-03 Sales and use tax; exemption certificate forms.

(A) As used in this rule, "exception" refers to transactions excluded from the definition of retail sale by division (E) of section 5739.01 of the Revised Code. "Exemption" refers to retail sales not subject to the tax pursuant to division (B) of section 5739.02 of the Revised Code.

(B) All sales are presumed to be taxable until the contrary is established. If a purchaser believes an exception or exemption is available, the purchaser must provide, electronically or in hard copy, a fully completed exemption certificate to the vendor or seller. Unless the vendor or seller fraudulently fails to collect the tax or solicits a purchaser to participate in an unlawful claim of exemption, the vendor or seller is relieved of the duty to collect sales tax on any sale covered by a fully completed certificate. However, the purchaser remains responsible for any tax found to be due.

(C) Pursuant to section 5739.031 of the Revised Code, no exemption certificate need be obtained by or furnished to a vendor or seller who receives and retains notice, from a purchaser who holds a direct payment permit that has not been canceled, of the purchaser's direct payment permit number and that the tax is being paid directly to the state. While it is advisable to obtain an exemption certificate for the following types of transactions, it is not mandatory that a certificate be obtained when the identity of the consumer is such that the transaction is never subject to the tax imposed, when the item of tangible personal property or the service provided is never subject to the tax imposed, regardless of use, or when the sale is in interstate commerce.

(D)

(1) A unit exemption certificate should be used to cover a single purchase and must be maintained with the primary purchase record. The unit exemption certificate may be incorporated into a purchase order, invoice, or bill of sale.

(2) A blanket exemption certificate should be used to cover all purchases made on or after the effective date unless the purchaser specifies that a purchase is subject to the tax. Blanket certificates must be maintained in a separate exemption file or may be part of a customer file. The vendor or seller must charge tax when the purchaser indicates that a purchase is subject to the tax.

(E)

(1) If a vendor or seller is claiming the resale exception on the purchase of a motor vehicle, watercraft, or outboard motor, the vendor or seller may use the forms required to be prescribed by rule that are hereby prescribed for use as a unit exemption certificate or as a blanket exemption certificate . The forms may be obtained from the department of taxation and are available on the department's web site. They may be reproduced as needed. Substitute exemption certificates may be developed and used as long as they contain the basic elements prescribed in paragraph (G) of this rule.

(2) If a vendor, seller, or consumer is purchasing a motor vehicle, a watercraft that is required to be titled, or an outboard motor that is required to be titled and is claiming exception or exemption from the sales and use tax based on a reason other than resale, the vendor, seller, or consumer must comply with provisions of rule 5703-9-10 or 5703-9-25 of the Administrative Code.

(3) If a construction contractor is claiming exemption from sales or use tax on the purchase of materials for incorporation into real property, the construction contractor must comply with the provisions of rule 5703-9-14 of the Administrative Code.

(F) To cover sales claimed to be excepted or exempted, an exemption certificate must be obtained within ninety days subsequent to the date of sale.

(G) To be valid, exemption certificates must contain the following data elements:

(1) The consumer's name and business address,

(2) A tax identification (e.g. vendor's license or consumer's use tax account) for the consumer issued by this state, if any,

(3) The name and address of the vendor or seller from whom the purchase is being made,

(4) The purchaser's type of business or organization.

(5) The reason for the claimed exemption, and

(6) If the certificate is in hard copy, the signature of the purchaser.

If any of these elements is missing the certificate is invalid.

(H) The following forms are incorporated in this rule by reference:

(1) The unit exemption certificate, revised March 15, 2004;

(2) The blanket exemption certificate, revised March 15, 2004 , and

(3) The exemption certificate form adopted by the governing board of the streamlined sales tax system.

Effective: 11/29/2010
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5739.01 , 5739.02 , 5739.03 , 5741.02
Prior Effective Dates: 10/5/76, 11/18/78, 7/2/81, 10/18/82, 7/13/92, 6/11/04

5703-9-04 Use tax; taxable use of tangible personal property manufactured for sale or purchased for resale.

(A) A vendor, wholesaler, lessor, manufacturer, or other person who removes tangible personal property from inventory which had been purchased by the person without payment of sales or use tax on the basis that the personal property was intended to be resold pursuant to division (E)(1) of section 5739.01 of the Revised Code, and temporarily or permanently stores, uses, or otherwise consumes such personal property in a taxable manner inconsistent with such claim of exception, shall accrue and pay use tax on the price of the personal property, as defined in division (G) of section 5741.01 of the Revised Code.

(B) A manufacturer who produces tangible personal property which he has manufactured from raw materials or component parts purchased without payment of sales or use tax on the basis that the raw materials or parts were intended to be incorporated into a product for sale pursuant to division (E)(2) of section 5739.01 of the Revised Code, and who temporarily or permanently stores, uses, or otherwise consumes such personal property in a taxable manner inconsistent with such claim of exception, shall accrue and pay use tax on the price of such personal property, as defined in division (G) of section 5741.01 of the Revised Code and in accordance with paragraph (A) of rule 5703-9-21 of the Administrative Code.

Replaces rule 5703-9-04; Eff 1-1-62; 7-13-92
Rule promulgated under: RC 5703.14
Rule authorized by: RC 5703.05
Rule amplifies: RC 5739.01 , 5741.01 , 5741.02 , 5741.12

5703-9-05 Transactions where tangible personal property is or is to be stored.

(A) A transaction in which "tangible personal property is or is to be stored" under division (B)(8) of section 5739.01 of the Revised Code means transactions involving any keeping or holding of another's tangible personal property or any provision of space that is used to store another's tangible personal property.

(B) In a transaction in which "tangible personal property is or is to be stored" pursuant to division (B)(8) of section 5739.01 of the Revised Code, it is not relevant whether the storage of the tangible personal property is at a location that constitutes personal property or real property. The tax must be charged on the full fee or charge for the transaction. Accordingly, the tax imposed under that division is not subject to division (A)(2) of section 5739.02 of the Revised Code, or division (A)(2) of section 5741.02 of the Revised Code.

(C) Transactions are taxable when payment, relating to storage on or after August 1, 2003, is made on or after August 1, 2003.

(D) "Tangible personal property is or is to be stored" includes, but is not limited to, the following and similar transactions related to:

(1) Except as provided in paragraph (E) of this rule, the holding of tangible personal property for the consumer for which there is a charge;

(2) The short-term or long-term holding of clothing for a consumer in a vault or other facility;

(3) Any other bailment of personal property for which a fee is charged;

(4) The provision of a locker, self-storage unit, building, or other property, both real and personal, for the lessee's or renter's use in storing tangible personal property;

(5) The provision of dry-dockage or of out-of-water storage for watercraft;

(6) The provision of safe deposit boxes;

(7) Except for parking as provided in paragraph (E)(2) of this rule, the holding of, or provision of space to keep a motor vehicle: or

(8) Airplane storage. "Airplane storage" is an aircraft at rest, either in a hangar or by tie-downs, during which the engine of the aircraft is not maintained in an active or operational condition pursuant to the directives found in the Pilot's Operating Handbook for the aircraft.

(E) "Tangible personal property is or is to be stored" does not include the following and similar transactions related to:

(1) Transactions where the tangible personal property being stored by or for the consumer is held by the consumer for sale in the regular course of the consumer's business, including raw materials and works-in-progress;

(2) Parking provided as an adjunct to residential accommodations and parking in a public or private commercial facility or lot, used for the parking of vehicles. Parking of vehicles is to be distinguished from the storage of vehicles. Examples of parking would include parking at an airport and parking in a parking lot where the fee is paid on a monthly basis. An example of storage would include the storing of a collectible automobile that is occasionally removed and returned;

(3) The in-water moorage of watercraft at a dock or pier;

(4) The kenneling or boarding of an animal where the true object of such service involves animal care that includes additional services such as the care and feeding of the animal and the charges for such additional services are not separately stated; The provision of private mail boxes; or

(5) The provision of private mail boxes; or

(6) Bailments where no fee is imposed as a condition of the bailment, even if tipping is permitted.

(F)

(1) Determination of the tax due on currency or coin-operated storage modules, such as coin-operated lockers, shall be made either by using the pre-determined method provided in this paragraph or by a method approved by the tax commissioner under section 5739.05 of the Revised Code. Vendors using the following predetermined method do not need to apply to the tax commissioner for authorization:

(a) The average charge per transaction is broken down into two components, one representing price and the other representing sales tax.

(b) The average charge per transaction for the reporting period shall be determined and divided by the sum of one plus the percentage total rate of tax applicable in the taxing jurisdiction which the storage space is located to arrive at the "price component" of the average charge per transaction. Any fraction of a cent included in such price shall be dropped.

(c) The average charge per transaction minus the "price component" determined under paragraph (F)(1)(b) of this rule yields the "sales tax component."

(d) The total receipts for the reporting period shall be divided by the average charge per transaction to arrive at the number of transactions.

(e) The number of transactions as determined under paragraph (F)(1)(d) of this rule shall be multiplied by the "sales tax component" determined under paragraph (F)(1)(c) of this rule. This result is the amount to report as the tax on such sales for the reporting period. Taxable sales for the reporting period is total receipts less the sales tax.

(2) The following is an example of the procedure to be used pursuant to paragraph (F)(1)(b) to (F)(1)(e) of this rule:

(a) The average charge per transaction is fifty cents and the rate for the taxing jurisdiction is seven per cent. The resulting calculation under paragraph (F)(1)(b) of this rule is $ 0.46728972. ($ 0.50 / 1.07 ) The fractions of a cent are dropped, yielding a "price component" of forty-six cents for the average charge per transaction.

(b) The forty-six-cent "price component" of the transaction is subtracted from the fifty-cent average charge per transaction, resulting in the "sales tax component" of four cents included in each fifty-cent charge.

(c) The total receipts of $ 1.025.25 are divided by the fifty-cent average charge to arrive at 2.050.5, the number of transactions.

(d) The 2.050.5 transactions are multiplied by the "sales tax component" of four cents per transaction, resulting in the amount to report as the tax on such sales of $ 82.02.

Eff 7-31-03 (Emer.); 10-19-03; 1-16-04
Rule promulgated under: RC 5703.14
Rule authorized by: RC 5703.05
Rule amplifies: RC 5739.01 , 5739.02 , 5741.07
RC 119.032 review date: 10/19/08

5703-9-06 Imposition of tax on transportation services.

(A) "Transportation service" means the provision of transportation wholly within the state of Ohio by means of a motor vehicle or aircraft with a driver or pilot.

(1) Transportation service includes, but is not limited to, all of the following:

(a) Intrastate transportation by taxicab;

(b) Intrastate transportation by limousine;

(c) Intrastate bus transportation; and

(d) Shuttle service;

(2) Transportation service does not include:

(a) Transportation by ambulance. As used in this rule, "ambulance" means any motor vehicle or aircraft specially designed and equipped to provide medical transportation and includes ambulettes that are specially designed and equipped to provide transport to persons that require the use of a wheelchair;

(b) Transportation provided by transit bus as defined by section 5735.01 of the Revised Code;

(c) Transportation sold to, or provided by, a political subdivision or agency of the federal or state government, including, but not limited to, a county, municipal corporation, county transit board, regional transit authority, or regional transit commission; and

(d) Tour services, except for the transportation component as provided in paragraph (D) of this rule.

(B) A person providing a transportation service shall charge sales or use tax on the entire price paid by the consumer for the transportation service.

(C) "Tour service" means the provision of travel packages that include transportation services along with one or more of the following: admissions to events/locations; the services of guides; overnight accommodations; and any similar travel package element. A person providing only food and beverages for consumption on the motor vehicle or aircraft, in addition to a transportation service, is not providing a tour service.

(D) The transportation element of tour services is subject to the tax on providing transportation service.

(1) A tour service provider that uses a transportation service purchased from another shall be subject to the sales or use tax on transportation services in the following manner:

(a) If it does not separately state the charge for the transportation service to its customer the tour service provider is the consumer of the transportation service and it is subject to the tax based on the price it pays for the transportation service; or

(b) If it does separately state the charge for the transportation service to its customer the tour service provider is reselling the transportation service to that customer. Subject to paragraph (G) of this rule, the tour service provider shall collect and remit the tax from the customer based on that transportation service charge.

(2) A person providing a tour service using transportation equipment it owns, leases, or otherwise has a license to use shall be subject to the sales or use tax in the following manner:

(a) If it does not separately state the charge for the transportation service to its customer, the tour service provider is subject to the tax based on the costs it incurs for providing the transportation service as set forth in paragraph (E) of this rule; or

(b) If it does separately state the charge for the transportation service to its customer, subject to paragraph (G) of this rule, the tour service provider shall collect the tax from the consumer and remit the tax based on that transportation service charge.

(E) Absent special and unusual circumstances, the price charged or costs incurred by the person for the transportation service shall include, at a minimum, the following costs:

(1) The costs for the use of the vehicle or plane (depreciation) including overhead costs;

(2) The costs for the fuel and maintenance costs of the vehicle or plane;

(3) The costs for the driver(s) or pilot(s) including any costs for such person's(') food and accommodations;

(4) The costs for parking and tolls; and

(5) Any additional costs for providing a transportation service.

(F) Transportation services that do not include the costs in paragraph (E) of this rule shall be considered sham transactions and will be disregarded pursuant to section 5703.56 of the Revised Code.

(G) Nothing in this rule shall prohibit a tour service provider providing transportation under paragraph (D)(1)(b) or paragraph (D)(2)(b) of this rule from allowing the customer to claim an exemption from the tax if the exemption is claimed following the procedures prescribed by section 5739.03 of the Revised Code.

Effective: 12/16/2005
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5739.01(B)(3)(s)
Prior Effective Dates: 10/19/03, 01/16/04

5703-9-07 Application for refund of sales and use taxes.

(A)

(1) An application for refund of sales or use tax, additional charge or penalty illegally or erroneously paid or paid on an illegal or erroneous assessment shall be made on a form provided by the department of taxation and filed with the department in accordance with instructions thereon. The application may be filed by a vendor, seller, or consumer, or by a tax representative designated on a form prescribed for such purposes, e.g. form TBOR-1, declaration of tax representative.

(2) When an application is filed by a vendor or a seller, the vendor or seller must show that the tax was remitted to the state. The vendor or seller must include the following with the application: the reasons why the payment of the tax was illegal or erroneous, and if the tax was collected from a consumer, proof that the applicant has either reimbursed the consumer for the amount of refund claimed or the consumer has agreed to await reimbursement until the final determination of the application.

(3) When an application is filed by a consumer, the consumer must show that it paid the tax to the vendor or seller or directly to the state. The consumer must include the following with the application: copies of invoices or similar documents for which a tax refund is being sought, proof of payment of the tax either to the vendor or seller or directly to the state, and the reasons why the payment of the tax was illegal or erroneous. The tax commissioner may require the consumer that paid the tax to a vendor or seller to submit an affidavit from the vendor or seller that states that the vendor or seller has not claimed refund of the tax.

(4) An application for refund of sales or use tax must be filed no later than four years after the date of the illegal or erroneous payment of the tax. Tax is paid on the date it is remitted to the state and not on the date it is collected by a vendor or seller from a consumer.

(B)

(1) A consumer seeking refund of over-collected sales or use tax must either:

(a) File an application for refund directly with the tax commissioner pursuant to division (A)(3) of this rule; or

(b) Request a refund from the vendor or seller that collected the tax in question. A request for refund from a vendor or a seller is not an application for refund to the commissioner.

(2) If a vendor or seller denies a consumer's refund request, the consumer may file an application for refund with the tax commissioner pursuant to paragraph (A)(3) of this rule. That is the consumer's sole remedy to claim refund of the tax. Any such application must be filed with the commissioner within the time prescribed in paragraph (A)(4) of this rule.

(C) Any amount that is determined to be due a taxpayer on account of an application for refund of sales or use tax or request for reimbursement of the additional charge shall first be applied to any outstanding indebtedness of that taxpayer pursuant to section 5739.072 of the Revised Code. Any amount remaining after the satisfaction of such outstanding indebtedness shall be paid to the taxpayer.

Effective: 12-16-04
Promulgated under: 5703.14
Authorized by: 5703.05
Amplifies: 5703.14 , 5739.07 , 5739.072 , 5739.12 , 5739.13 , 5739.14 , 5741.10 , 5741.12 , 5741.17
Prior effective dates: 1-1-62, 1-8-82, 10-18-02

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.

Replaces rule 5703-9-08; Eff 7-9-65; 1-1-70; 11-4-91
Rule promulgated under: RC 5703.14
Rule authorized by: RC 5703.05
Rule amplifies: RC 5739.05 , 5741.06

5703-9-09 Return by vendor operating more than one place of business.

Upon application to the Tax Commissioner, and subject to his approval, a vendor who operates two or more places of business within the State may be authorized to file a cumulative form of return, reporting thereon the cumulative totals of the data required to be reported for each establishment. Cumulative returns shall be supplemented by a detailed report of such data and information applicable to each individual establishment as the commissioner may require.

(former TX-11-09); Eff 1-1-62
Rule promulgated under: RC 5703.14

5703-9-10 Motor vehicles, off-highway motorcycles, and all-purpose vehicles; tax payment or exemption claim required for certificate of title; remittance of tax by clerk of courts.

(A) If any sale of a motor vehicle, off-highway motorcycle, or all-purpose vehicle is claimed to be exempt from the sales or use tax on the basis either of the intended use of the vehicle by the purchaser in this state or of the sale being made to a church or nonprofit organization whose purchase is exempt from the tax levied by or pursuant to Chapters 5739. and 5741. of the Revised Code, the clerk of courts shall refuse to issue a certificate of title unless the application is accompanied by a certificate of exemption executed by the purchaser that specifies the reason the sale is not legally subject to the tax. A form required to be prescribed by rule is hereby prescribed for use as a certificate of exemption regarding sale of a motor vehicle, off-highway motorcycle, or all-purpose vehicle. The form may be obtained from the department of taxation and is available on the departmentæs web site. The form may be reproduced as needed.

(B) If any sale of a motor vehicle, off-highway motorcycle, or all-purpose vehicle is claimed to be exempt from the sales tax on the basis that the sale is in interstate commerce, the clerk of courts shall refuse to issue a certificate of title unless the application is accompanied by a statement of fact regarding the sale. A form not required to be prescribed by rule is available for use as a statement regarding sale of a motor vehicle, off-highway motorcycle, or all-purpose vehicle in interstate commerce. The form is not prescribed by or a part of this rule. The form may be obtained from the department of taxation and is available on the departmentæs web site. The form may be reproduced as needed.

(C) If any sale of a motor vehicle, off-highway motorcycle, or all-purpose vehicle is claimed to be exempt from the sales tax on the basis that the sale is to an out-of-state resident for immediate removal of the motor vehicle from Ohio for exclusive use outside this state, the clerk of courts shall refuse to issue a certificate of title unless the application is accompanied by an exemption certificate and affidavit signed by the purchaser. A form required to be prescribed by rule is hereby prescribed for use as an exemption certificate and affidavit regarding sale of a motor vehicle, off-highway motorcycle, or all-purpose vehicle to an out-of-state resident. The form may be obtained from the department of taxation and is available on the departmentæs web site. The form may be reproduced as needed.

(D) A copy of each of the above described statements and/or certificates is to be retained by the applicant and two copies presented to the clerk of courts, who shall retain one copy and submit the other copy to the department of taxation.

(E) The clerk of courts shall issue a receipt upon collection of the tax resulting from sales of motor vehicles, off-highway motorcycles, and all-purpose vehicles. The clerk shall retain the original and give a copy to the remitter of the tax.

(F) On Monday of each week, each county clerk of courts shall forward to the treasurer of state the Ohio sales and use tax collections resulting from sales of motor vehicles, off-highway motorcycles, and all-purpose vehicles, accompanied by the remittance report, and shall forward to the department of taxation a copy of each statement and/or certificate required herein to be obtained in lieu of tax payment.

(G) The following forms are incorporated in this rule by reference:

(1) The certificate of exemption regarding sale of a motor vehicle, off-highway motorcycle, or all-purpose vehicle, revised March 15, 2004;

(2) The exemption certificate and affidavit regarding sale of a motor vehicle, off-highway motorcycle, or all-purpose vehicle to an out-of-state resident, revised March 15, 2004.

(former TX-11-10); Eff (Amended) 12-10-71; (Amended) 4-18-74; 1-18-79; Rescinded and reenacted eff. 6-3-04
Rule promulgated under: RC 5703.14
Rule Authorized by: RC 5703.05 , 5739.03 , 5741.02
Rule amplifies: RC 4505.06 , 5703.05 , 5739.01 , 5739.02 , 5739.03 , 5741.02
R.C. 119.032 review dates: Exempt

5703-9-11 Returned merchandise and rejected services.

(A) A vendor or seller may deduct from his gross sales an amount equal to the purchase price of merchandise returned and services rejected by his customers during the reporting period. The vendor or seller must refund to the customer or credit the customer's account with the full purchase price of the tangible personal property returned or the service rejected plus the full amount of sales or use tax applicable thereto.

(B) In no event shall a transaction be treated as a return of merchandise or a rejection of services for purposes of reporting sales or use tax if the vendor or seller deducts from the customer's refund any amount for use, damage, or wear and tear of the merchandise returned, any restocking or handling charge, or otherwise fails to refund to the customer or credit the customer's account with the full purchase price and applicable tax.

(C) This rule does not apply to trade-ins and core charges which constitute part of the purchase price pursuant to sections 5739.01 and 5741.01 of the Revised Code and rule 5703-9-26 of the Administrative Code.

R.C. 119.032 review dates: 06/27/2014 and 06/27/2019
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5739.01 , 5739.12 , 5741.01 , 5741.12
Prior Effective Dates: 1/1/62, 10/18/82

5703-9-12 Exchanged merchandise.

In the event merchandise purchased from a vendor, upon the sale of which tax has been charged, is returned to the vendor in exchange for another item the vendor may, provided he allows the customer the full purchase price of the item returned plus the tax thereon, either by credit or refund, record the net difference between the selling price of the item returned and the item delivered to the customer in the exchange as an addition to or deduction from gross sales, whichever is appropriate.

If the price of the item delivered to the customer in the exchange is greater than the price of the item returned the vendor must report the difference as an addition to gross sales and collect the appropriate amount of Sales Tax thereon.

If the price of the item delivered to the customer in the exchange is less than the price of the item returned the difference in price may be deducted from gross sales.

The provisions of this Rule shall not apply to "trade-ins" so as to conflict with the statutory definition of "sale" and "price" as provided in Revised Code 5739.01 .

(former TX-11-12); Eff 1-1-62
Rule promulgated under: RC 5703.14

5703-9-13 Sales and use tax; reporting periods.

(A) Vendor's sales tax returns:

(1) Vendors licensed under section 5739.17 of the Revised Code are required to file returns and remit tax due each month unless the tax commissioner authorizes filing at less frequent intervals as provided in paragraph (A)(2) of this rule.

(2) Vendors that do not hold a permit to sell alcoholic beverages will be authorized to file returns and remit tax due on a semiannual basis if their average monthly sales tax collections are less than two hundred dollars.

(3) Notwithstanding paragraph (A)(2) of this rule, the commissioner may require any vendor that fails to timely file returns and remit tax due to file returns and remit tax on a monthly basis.

(B) Seller's use tax returns:

(1) Sellers required to register under division (A) of section 5741.17 of the Revised Code are required to file returns and remit tax due in the same manner as vendors under paragraph (A) of this rule.

(2)

(a) Sellers registered voluntarily under division (B) of section 5741.17 of the Revised Code are required to file returns and remit taxes due on a calendar year basis. Additionally, such seller shall file a return and remit tax collected for any month in which the seller has collected an accumulated amount of state and local use taxes of one thousand dollars or more.

(b) If at any point in a calendar year the seller has collected over eighteen thousand dollars of tax, the seller shall thereafter be required to file on a monthly basis unless the seller can substantiate to the commissioner that its future tax collections are expected to be less than one thousand dollars per month.

(C) Direct pay returns:

(1) Holders of direct pay permits issued pursuant to section 5739.031 of the Revised Code are required to file returns and remit tax due each month unless the tax commissioner authorizes filing at less frequent intervals as provided in paragraph (C)(2) of this rule.

(2) Holders of direct pay permits will be authorized to file returns and remit tax due on a quarterly basis if their average monthly liability is less than five thousand dollars.

(D) Consumer's use tax returns:

(1) Business consumers:

(a) Business consumers that file returns pursuant to section 5741.12 of the Revised Code are required to file returns and remit tax due each month unless the tax commissioner authorizes filing at less frequent intervals as provided in paragraph (D)(1)(b) of this rule.

(b) Business consumers will be authorized to file returns and remit tax due on a quarterly basis if their average monthly liability is less than five thousand dollars.

(2) Individual consumers:

(a) Individuals that do not file consumer's use tax returns under paragraph (D)(2)(c) of this rule and whose use tax liability in the current calendar year is anticipated to be not more than one thousand dollars may file and remit the tax due in any year either on their income tax return for that year by the due date of that return or on a voluntary payment return form for the calendar year.

(b) Individuals that report and remit tax under paragraph (D)(2)(a) of this rule that make either an extraordinary individual purchase on which the tax exceeds seven hundred fifty dollars or a purchase of a motor vehicle, titled watercraft or titled outboard motor, on which tax is neither collected by a vendor nor, in the case of a motor vehicle, titled watercraft or titled outboard motor, paid by the consumer to the clerk of courts, must separately report and remit tax on that purchase using a voluntary payment return form for the calendar quarter in which the purchase was made. Any such extraordinary purchase shall not be considered in calculating the tax liability for the current calendar year under paragraph (D)(2)(a) of this rule.

(c) Except as provided in subparagraph (d) of paragraph (D)(2) of this rule, individuals whose annual tax liability is greater than one thousand dollars or any other individuals that the commissioner requires to obtain a consumer's use tax account or voluntarily obtain such an account shall file returns in the same manner as business consumers under paragraph (D)(1) of this rule.

(d) The tax commissioner may, by agreement with any individual taxpayer required to file monthly consumer's use tax returns, authorize an alternate method of filing if that method will make the individual's tax reporting more accurate and expeditious.

(E)

(1) As used in this rule, returns filed on a semiannual basis will be for the reporting periods January through June and July through December. Returns filed on a quarterly basis will be for the reporting periods January through March, April through June, July through September and October through December.

(2) Except as otherwise provided in this rule, any sales tax, seller's use tax, direct pay, or consumer's use tax return, including a voluntary payment return, must be filed on or before the twenty-third day of the month following the end of the reporting period.

(3) The tax commissioner shall establish a filing interval for each newly registered vendor, seller, direct pay holder or consumer's use tax account holder within a reasonable amount of time of setting up the account and shall inform the vendor, seller, direct pay holder or consumer of that filing interval. Except as provided in paragraph (B)(2) or (D)(2) of this rule, unless the taxpayer is notified by the commissioner of an alternate filing period the filing period shall be monthly.

(F) Partial returns may be required for any taxpayer reporting on a semiannual or quarterly basis as a result of a tax rate change that becomes effective during a reporting period. The partial returns are necessary to separate the two tax rates in effect during the reporting period.

(G) For purposes of computing any applicable penalty, interest, and additional charges, unreported sales or use tax that was not but should have been reported pursuant to paragraph (A) to (D) of this rule shall be considered due on the filing date of the tax return for such unreported tax as determined using the filing basis authorized under those paragraphs.

(H) Notwithstanding the provisions of paragraphs (A) and (B) of this rule, the returns must be filed and tax due remitted on a monthly basis for any vendor or seller that elects to employ a certified service provider, as defined in division (C) of section 5740.01 of the Revised Code, or that uses a certified automated system, as defined in division (B) of section 5740.01 of the Revised Code.

(I) Any holder of an active vendor's license, seller's use tax account, direct pay account or consumer's use tax account shall file returns according to the filing schedule established under this rule for every filing period, regardless of whether there is tax liability for that period.

(J) The tax commissioner shall calculate the "average monthly liability," as that term is used in paragraphs (A)(2), (C)(2), and (D)(2) of this rule, using the liability of the vendor, seller, direct pay holder or consumer's use tax account holder for a previous period of not less than one year and not more than two years.

(K)

(1) The tax commissioner may require any vendor, seller, direct pay holder or consumer to use a different filing period than required by paragraphs (A), (B)(1), (C), or (D) of this rule if the commissioner finds that it would result in improved compliance or increased administrative efficiency.

(2) Any vendor, seller, direct pay holder or consumer may file a request with the tax commissioner to change their reporting period. The commissioner may agree to the request if the commissioner finds the alternate filing period would improve compliance or increase administrative efficiency.

(3) Whenever the commissioner changes a filing period for a vendor, seller, consumer or direct pay holder, the commissioner shall determine the date on which the change in filing period takes effect.

(L) Except as provided in division (B)(2) of this rule, nothing in this rule shall be construed to have any impact on whether a vendor, seller, direct pay holder or consumer is required to make remittances by electronic funds transfer or to make accelerated payments of tax liability.

Replaces: 5703-9-13

Effective: 09/25/2005
R.C. 119.032 review dates: 09/01/2010
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5739.031 , 5739.17 , 5740.01 , 5741.12 and 5741.17
Prior Effective Dates: 8/10/64, 1/1/83, 7/13/92

5703-9-14 Sales and use tax; construction contracts; exemption certificates.

(A) A "construction contract" is any agreement, written or oral, pursuant to which tangible personal property is or is to be transferred and incorporated into real property, as defined in section 5701.02 of the Revised Code, so as to become a part thereof without regard to whether it is new construction or an addition to or alteration of an existing building or structure. A "construction contractor" is any person who performs such an agreement, whether as prime contractor or subcontractor.

(B) Tangible personal property that is permanently affixed to real property, but that primarily benefits the business conducted on the premises by the occupant, is a "business fixture," as defined in section 5701.03 of the Revised Code, and retains its status as personal property after such affixation is made. An agreement to transfer and install a business fixture is a sale and not a construction contract.

The transfer and affixation of personal property where title to the personal property does not transfer to the owner or lessee of the premises is a sale and not a construction contract. The item affixed remains personal property since the failure to transfer title displays an intention not to make the affixation permanent.

Tangible personal property that is temporarily affixed during construction, such as temporary electricity or water service hook-ups, fencing, construction elevators, shoring lumber, and concrete forms, is not incorporated into real property for sales and use tax purposes. This applies even if these items remain affixed after construction is completed due to inadvertence, convenience, or economic necessity.

(C) The sale and installation of the following items is never a construction contract and such transactions are to be treated as the sale and installation of tangible personal property for sales tax purposes:

(1) Carpeting, including carpet padding, tack strips, adhesive, and similar materials that are integral and necessary components of a carpet installation transaction;

(2) Agricultural land tile as defined in division (B)(5)(a) of section 5739.01 of the Revised Code;

(3) Portable grain bins as defined in division (B)(5)(b) of section 5739.01 of the Revised Code; and

(4) Trees, shrubs, sod, seed, fertilizer, mulch, and other tangible personal property transferred as part of a landscaping and lawn care service as defined in division (DD) of section 5739.01 of the Revised Code.

This provision shall not be construed to alter or affect the classification of such items after installation is completed.

(D)

(1) A construction contractor who purchases materials or taxable services for incorporation into real property is the consumer of those materials or services and shall pay sales or use tax on their purchase price, except as provided by paragraph (F) of this rule. The construction contractor is the consumer, even if a subcontractor provides the actual labor to incorporate those materials into the real property. Nevertheless, a construction contractor may purchase exempt from tax those materials or services that will be incorporated:

(a) Into real property under a construction contract with the United States government or its agencies, the state of Ohio, or an Ohio political subdivision;

(b) Into real property that is owned, or will be accepted for ownership at the time of completion, by the United States government or its agencies, the state of Ohio, or an Ohio political subdivision;

(c) Into a house of public worship or religious education or a building used exclusively for charitable purposes by a nonprofit organization operated exclusively for charitable purposes as defined in division (B)(12) of section 5739.02 of the Revised Code;

(d) Into the original construction of a sports facility under section 307.696 of the Revised Code;

(e) Into real property in another state, if the materials or services, when sold to a construction contractor in that state for incorporation into real property in that state, would be exempt from a tax on sales levied in that state;

(f) Into a horticulture structure or livestock structure as defined in section 5739.01 of the Revised Code for a person engaged in the business of horticulture or producing livestock; or

(g) Into a hospital facility entitled to exemption under section 140.08 of the Revised Code.

(2) When claiming exemption under paragraph (D)(1) of this rule, the contractee and contractor must issue exemption certificates in accordance with paragraphs (I) and (J) of this rule. The contractee shall be deemed to be the consumer of all materials and services purchased under the claim of exemption and liable for the tax on the incorporated materials or services in the event the tax commissioner ascertains that the contractee was not entitled to exemption.

(E) A construction contractor who also makes substantial sales of the same types of tangible personal property that the contractor incorporates into real property in performing construction contracts may purchase those types of tangible personal property excepted from sales and use tax on the basis of resale under division (E) of section 5739.01 of the Revised Code. The contractor, unless granted direct payment authority, must have a consumer's use tax account with the department of taxation and accrue and pay use tax on the price of all materials consumed in performing construction contracts, in accordance with rule 5703-9-04 of the Administrative Code.

Similarly, a construction contractor who purchases materials without payment of the tax because the contractee has claimed an exemption under division (D) of this rule, must pay use tax on any materials not used on the exempt job and consumed by the contractor in a taxable manner.

(F)

(1) A person who manufactures or fabricates items of tangible personal property , and then sells some of the items and incorporates some into real property, must elect whether to be treated as a manufacturer or as a construction contractor on the purchase of raw materials incorporated into the manufactured items. The manufacturer/construction contractor need not notify the tax commissioner of such election and may elect to treat purchases of raw materials for distinct manufactured items differently. However, complete records must be maintained to show how the person elected to treat each purchase of raw materials.

(a) If the person elects to be treated as a manufacturer, the purchase of all raw materials may be exempted from the tax on the basis that they will be incorporated as a material or part into an item manufactured for sale under division (B)(43)(a) of section 5739.02 of the Revised Code. The manufacturer must accrue and pay use tax on the price of any self-manufactured item subsequently consumed in performing a taxable construction contract, or in any other taxable manner, in accordance with paragraph (A) of rule 5703-9-21 of the Administrative Code.

(b) If the person elects to be treated as a construction contractor, the person must pay sales or use tax on the acquisition cost of all raw materials, unless such materials are ultimately consumed in performing a nontaxable construction contract under paragraph (D) of this rule. The construction contractor must pay sales or use tax on all raw materials, and no refund of such tax will be allowed, even though the raw materials are incorporated into an item manufactured for sale. If such sale is a retail sale, the construction contractor is acting as vendor and must appropriately collect sales tax on such transaction.

(2) The election required by paragraph (F)(1) of this rule applies only to the purchase of raw materials that will become parts or components of a manufactured items. Machinery and equipment used by the person in manufacturing shall be taxed based upon its quantified primary use without regard to how the manufacturer/construction contractor elects to treat the raw materials for sales and use tax purposes.

(G) The contractee may, or upon request of the contractor pursuant to the procedure specified in division (C) of section 5739.03 of the Revised Code shall, certify to the contractor what portions of a contract will be, at the completion of the contract, classified as personal property and what portions will be classified as real property. The fact that a certification has been made by the contractee must be noted in every written construction contract, and the contractor, subcontractors, and contractee shall each maintain a copy of the certification with the job documentation. If the tax commissioner subsequently determines that property certified by the contractee as personal property is, in fact, real property, the contractee shall be deemed the consumer of all materials incorporated into such real property and may be assessed sales or use tax thereon along with applicable interest and penalty.

The certification of the contractee has application only to the tangible personal property installed or incorporated pursuant to the contract. Equipment, tools, and supplies used by the contractor in performing the contract shall be taxed based upon their primary use without regard to the contractee's certification.

(H) Machinery, equipment, tools, supplies, and other tangible personal property purchased or leased by a construction contractor and used or consumed in performing a construction contract, including a contract specified in paragraph (D) of this rule, are taxable. The repair or installation of these items is also taxable.

(I)

(1) A contractee claiming an exemption specified in division (D) of this rule must complete and deliver to the contractor a construction contract exemption certificate. If the contractee is a governmental entity, a government official must sign under the "political subdivision" section of the certificate. All other contractees claiming exemption must sign under the "owner/contractee" section. If there is one prime contractor on the job, the contractee need only supply one exemption certificate to the prime contractor.

The contractor should make copies of the construction contract exemption certificate signed by the contractee and use those copies when making purchases of materials that will be incorporated into real property pursuant to the construction contract. A prime contractor must provide copies to all subcontractors for their use in purchasing materials for the job. The contractor or subcontractor must sign each certificate copy used when purchasing materials.

The original exemption certificate must be retained in the records of the contractor. A copy of the certificate also must be retained in the records of each subcontractor.

(2) Rather than using copies of the construction contract exemption certificate when making purchases of materials, the contractor or subcontractor may use a contractor's exemption certificate when purchasing materials for incorporation into real property pursuant to a contract where the contractee claims exemption under paragraph (D) of this rule.

(J) Forms required to be prescribed by rule are hereby prescribed for use as a construction contract exemption certificate and as a contractor's exemption certificate. The forms may be obtained from the department of taxation and are available on the department's web site. They may be reproduced as needed. To be valid, a construction contract exemption certificate must be signed by the contractee claiming exemption. Each certificate, or copy of a certificate, submitted to a vendor must be signed by the contractor or subcontractor making the purchase. A certificate covers all sales of materials made by the vendor to a contractor or subcontractor for incorporation into real property under that construction contract. The vendor must maintain the certificate to document the reason tax was not charged.

To be valid, all necessary signatures must be dated and all certificates must specify the reason for exemption and must clearly identify the contract and specify the job site.

(K) The following forms are incorporated in this rule by reference:

(1) The construction contract exemption certificate, revised March 15, 2004;

(2) The contractor's exemption certificate, revised March 15, 2004.

Effective: 12-16-04
Promulgated under: 5703.14
Authorized by: 5703.05
Amplifies: 5701.02 , 5739.01 , 5739.02 , 5739.03 , 5741.01 , 5741.02
Prior effective dates: 5-31-68, 7-2-81, 10-18-82, 7-20-92

5703-9-15 Sales and use tax; coupons, coupon books, and gift certificates.

(A) For the purposes of this rule:

(1) "Coupon" means a certificate, ticket, card or other document which entitles the bearer thereof to a specified discount on the purchase of tangible personal property or services. Discounts may include either fixed amount or percentage reductions from the cost of merchandise or free merchandise with the purchase of other items.

(2) "Coupon book" means a bound collection of coupons that are redeemable by a merchant or several designated merchants and includes, such things as dining or entertainment discount clubs.

(3) "Gift certificate" means a document which has a face value toward the purchase of tangible personal property or services.

(B) Coupons published by a vendor or on behalf of a vendor in a newspaper, handbill, magazine, or by any method and distributed to the public without charge, other than the cost of the newspaper or magazine, and for which the redeeming vendor receives no reimbursement, are considered to be discounts allowed prior to the consummation of the sale and are not part of the taxable price.

(C) When coupons that are published by a manufacturer, distributor, wholesaler, or any other person, and for which the vendor is reimbursed by the manufacturer, distributor, or wholesaler upon surrender of the coupons, are redeemed by a consumer, the price for tax purposes is the selling price of such property or services before application of the coupon amount. If the vendor enhances the value of a coupon, the amount of the unreimbursed enhancement will be treated in the manner described in paragraph (B) of this rule.

(D)

(1) Coupons, coupon books, and gift certificates which are sold, either by the vendor which anticipates redeeming them or by any corporation, association, or other person for use among a variety of vendors, are not to be treated as the sale of tangible personal property and no tax should be collected on such sales.

(2) When a purchased coupon, coupon book, or gift certificate is used to purchase taxable tangible personal property or services, the price for tax purposes is the selling price of such property or services before application of the discount or gift certificate amount.

Replaces rule 5703-9-15, 5703-9-16 , 5703-9-36 ; Eff 7-11-39; 1-1-62; 6-12-82; 11-4-91
Rule promulgated under: RC 5703.14
Rule authorized by: RC 5703.05
Rule amplifies: RC 5739.01

5703-9-16 Affiliated Group.

"Affiliated group" as used in Chapter 5739. and 5741. of the Revised Code has the same meaning as in division (B)(3)(e) of section 5739.01 of the Revised Code. In the case of a partnership, a general partner that has or controls at least a fifty per cent partnership interest will be considered to control the partnership.

Eff 5-6-04
Rule promulgated under: RC 5703.14
Rule authorized by: RC 5703.05
Rule amplifies: None
RC 119.032 Review Date: Exempt

5703-9-17 Conditional sales.

(A) A "conditional sale" is a transaction in which the vendor retains a security interest in the tangible personal property sold to insure fulfillment of one or more conditions before full ownership is granted to the consumer. A "layaway sale" is a conditional sale in which the vendor transfers title but retains possession of the property sold. An "approval sale" is a conditional sale in which the vendor transfers possession but retains title to the property sold. A lease under the terms of which the lessee is obligated to accept ownership and to pay for tangible personal property at a future time is a conditional sale. A lease which does not so obligate the lessee is not a conditional sale and tax must be collected either at the time the lease is consummated or on periodic billings as specified in divisions (H)(1) and ((H)4) of section 5739.01 of the Revised Code and divisions (G)(1) and (G)(4) of section 5741.01 of the Revised Code.

(B) A conditional sale is effected at the time and place of acceptance of the purchase offer by the vendor. The sales tax must be charged on the full agreed price at that time and reported on the vendor's return for the period in which the sale is effected.

(C) In the event the consumer fails to fulfill the conditions of the sale so that title and possession revert to the vendor, the vendor may treat the transaction as one involving returned merchandise in accordance with rule 5703-9-11 of the Administrative Code if it is shown that the vendor refunded the full amount of all payments made by the consumer, including the sales or use tax paid. The transaction may otherwise be treated as a bad debt in accordance with section 5739.121 of the Revised Code and rule 5703-9-44 of the Administrative Code.

Eff 5-11-55; 1-1-62; 7-2-81; 4-28-03
Rule promulgated under: RC 5703.14
Rule authorized by: RC 5703.05
Rule amplifies: RC 5739.01 , 5739.12 , 5739.121
Replaces: 5703-9-17, 5703-9-18
R.C. 119.032 review dates:

5703-9-18 Definition of subscriber for satellite broadcasting service.

"Subscriber" as used in division (XX) of section 5739.01 of the Revised Code includes both residential and business customers. "Subscriber" does not include an AM or FM radio or television broadcast station, a cable television system, or a telecommunications or mobile telecommunications service provider.

Eff 1-1-04
Rule promulgated under: RC 5703.14
Rule authorized by: RC 5703.05
Rule amplifies: RC 5739.01
RC 119.032 review date: 1-1-09

5703-9-19 Installment and credit sales.

An "installment sale" is a sale in which the vendor agrees to accept payment of the price in two or more partial payments at intervals over a period of time. A "credit sale" is a sale in which the vendor agrees to accept payment of the price in minimum partial payments over an indefinite period of time.

The vendor must collect from or charge to the customer the entire amount of the tax as computed on the price of an installment or credit sale, irrespectve of the amount of the installment or down payment made by the consumer if any. Each installment sale or credit sale and the tax applicable thereto must be reported on the vendor's return covering the period in which the sale occurred. If the account is underpaid in whole or in part by the consumer, the transaction may be treated as a bad debt in accordance with section 5739.121 of the Revised Code and rule 5703-9-44 of the Administrative Code.

Eff 1-1-62; 7-2-81
Rule promulgated under: RC 5703.14
Rule amplifies: RC 5703.14 , 5739.01 , 5739.12 , 5739.121

5703-9-20 Sales and use tax; production or fabrication of tangible personal property.

(A) Production or fabrication of tangible personal property for a consideration is included in the definition of "sale" and "selling," as defined in division (B) of section 5739.01 of the Revised Code, whether all or a portion of the materials are supplied by the person performing the production or fabrication, by the consumer, or by a third party. Any change in the substance or form of tangible personal property, so as to create a new article or substantial change in an existing article of tangible personal property, constitutes "production" or "fabrication."

(B) The price of the transaction is the entire amount charged to the purchaser for such production or fabrication, including charges for the cost of materials, labor, overhead, and profit, pursuant to division (H) of section 5739.01 of the Revised Code and rule 5703-9-26 of the Administrative Code.

(C) A person engaged in production or fabrication of tangible personal property for consideration is deemed to be manufacturing for sale and subject to the provisions of rule 5703-9-21 of the Administrative Code.

Eff 10-7-47; 10-18-82; 11-4-91
Rule promulgated under: RC 5703.14
Rule authorized by: RC 5703.05
Rule amplifies: RC 5703.14 , 5739.01

5703-9-21 Sales and use tax; manufacturing.

(A) For purposes of this rule, all purchases of tangible personal property are taxable, except those in which the purpose of the consumer is to incorporate the thing transferred as a material or a part into tangible personal property to be produced for sale by manufacturing, assembling, processing, or refining or to use the thing transferred, as described in section 5739.011 of the Revised Code and this rule, primarily in a manufacturing operation to produce tangible personal property for sale.

This means that a person who buys tangible personal property and will make it a part or constituent of something that he is manufacturing for sale, or buys something that is used in a manufacturing operation, does not have to pay sales or use tax on the thing purchased.

Tangible personal property purchased by a manufacturer as a component or constituent of a product to be manufactured for sale is excepted from sales and use tax. The purchase of all such tangible personal property is not taxable, even though a portion will be lost or removed as waste or for testing. The manufacturer must pay use tax on the price, as defined in division (G) of section 5741.01 of the Revised Code, of any completed product not sold and stored or used by the manufacturer in a taxable manner, except such product that is consumed in testing or is disposed of because it is defective or otherwise unsalable.

(B)

(1) "Manufacturing operation" means a process in which materials are changed, converted, or transformed into a different state or form from which they previously existed and includes refining materials, assembling parts, and preparing raw materials and parts by mixing, measuring, blending or otherwise committing such materials or parts to the manufacturing process. "Manufacturing operation" does not include packaging.

Tangible personal property purchased by a manufacturer for use in packaging is taxable unless exempted pursuant to division (B)(15) of section 5739.02 of the Revised Code.

Any business whose sole activity is a process that does not include conversion or alteration of tangible personal property into a different state or form is not a manufacturer and is not covered by this rule.

The manufacturing operation begins when the raw materials or parts are committed to the manufacturing process. If the raw materials or parts are stored after being received at the manufacturing facility, the raw materials or parts are not committed until after they are removed from such initial storage. The point of commitment is where the materials handling from such initial storage has ceased or the point where the materials or parts have been mixed, measured, blended, heated, cleaned, or otherwise treated or prepared for the manufacturing process, whichever first occurs. If the raw materials or parts are not stored, they are committed at the point where materials handling from the place of receipt ceases or where they are mixed, measured, blended, heated, cleaned, or otherwise treated or prepared for the manufacturing process, whichever first occurs. The commitment of the materials or parts need not be irrevocable, but they must have reached the point, after materials handling from initial storage has ceased, where they normally will be utilized within a short period of time. The point of commitment frequently will be different for particular materials and parts, since they are introduced at different times in the manufacturing operation.

Things used in any activity, including movement or storage of the materials or parts before they are committed are taxable.

See examples 1, 2, 3, 4, 6, 9, 40, 61, 63, and 64.

(2) "Refining" means removing or separating a desirable product from raw or contaminated materials by distillation or physical, mechanical, or chemical processes.

This definition of "refining" describes a type of manufacturing process and is not limited to the petroleum industry. A business whose sole activity is sorting material by size or other physical characteristic, or washing dirt or other contaminates from the surface of parts or other materials is not engaged in refining.

See examples 4, 5, and 63.

(3) "Assembly" and "assembling" mean attaching or fitting together parts to form a product, but do not include packaging a product.

Assembly generally refers to the process whereby previously manufactured parts or components are brought together and attached to create a complete, or more complete, item.

See example 15.

(4) "Manufacturer" means a person who is engaged in manufacturing, processing, assembling, or refining a product for sale.

(5) "Manufacturing facility" means a single location where a manufacturing operation is conducted, including locations consisting of one or more buildings or structures in a contiguous area owned or controlled by the manufacturer.

The manufacturer does not have to own or lease the property, but must have the legal right to use it. If the property under the control of the manufacturer is not contiguous, it is not a single manufacturing facility.

See examples 21, 23, and 57.

(6) "Materials handling" means the movement of the product being or to be manufactured, during which movement the product is not undergoing any substantial change or alteration in its state or form.

(7) "Testing" means a process or procedure to identify the properties or assure the quality of a material or part.

(8) "Completed product" means a manufactured item that is in the form and condition as it will be sold by the manufacturer. An item is completed when all processes that change or alter its state or form or enhance its value are finished, even though the item subsequently will be tested to ensure its quality or be packaged for storage or shipment.

A product may be completed, as far as a particular manufacturer is concerned, even though it is not in the form in which it will be sold to the ultimate consumer because it will be further manufactured by another manufacturer. If the product will be further manufactured by the same manufacturer at a different manufacturing facility, the product is still in-process and is not completed.

See examples 8, 13, and 64.

(9) "Continuous manufacturing operation" means the process in which raw materials or components are moved through the steps whereby manufacturing occurs. Materials handling of raw materials or parts from the point of receipt or pre-production storage or of a completed product, to or from storage, to or from packaging, or to the place from which the completed product will be shipped, is not a part of a continuous manufacturing operation.

The continuous manufacturing operation begins at the point where the raw materials or parts are committed and ends at the point where the product is completed.

There may be several continuous manufacturing operations at the same manufacturing facility, each producing a different product.

The things used in the continuous manufacturing operation include all production machinery, the materials handling equipment that moves the product between the production machines, and any equipment, such as tanks, shelves, or racks, that temporarily store or hold the product in between production machines. Even though testing equipment used to test in-process product is not taxable under this rule, no testing procedure is part of the continuous manufacturing operation unless it is physically and functionally integrated between steps on the production line.

See examples 1, 6, 8, 11, 19, and 63.

(C) Things transferred for use in a manufacturing operation include, but are not limited to, any of the following:

(1) Production machinery and equipment that act upon the product or machinery and equipment that treat the materials or parts in preparation for the manufacturing operation.

Production machinery is the equipment that actually changes the state or form of the product, that is, the tangible personal property being manufactured for sale. Also included is the equipment that treats the product by blending, mixing, measuring, washing, agitating, filtering, heating, cooling, or similar processes after the material or parts have been committed to the manufacturing operation and before the product is completed.

See examples 1, 4, 7, 8, 18, 24, 27, 32, 35, 56, 60, 61 and 63.

(2) Materials handling equipment that moves the product through a continuous manufacturing operation; equipment that temporarily stores the product during the manufacturing operation; or, excluding motor vehicles licensed to operate on public highways, equipment used in intraplant or interplant transfers of work in process where the plant or plants between which transfers occur are manufacturing facilities operated by the same person.

Any equipment, except motor vehicles registered for highway operation, used to move or transport the in-process product between manufacturing facilities of the same manufacturer, is considered to be used in the manufacturing operation.

See examples 1, 8, 9, 10, 11, 57, 59, 60, 63, and 64.

(3) Catalysts, solvents, water, acids, oil, and similar consumables that interact with the product and that are an integral part of the manufacturing operation.

This describes those substances that do not appreciably become a component part of the product, but which usually come in contact with the product during the manufacturing process.

See examples 1, 13, 14, 28, 35, and 62.

(4) Machinery, equipment, and other tangible personal property used during the manufacturing operation that control, physically support, produce power for, lubricate, or are otherwise necessary for the functioning of production machinery and equipment and the continuation of the manufacturing operation.

Materials which are used to make foundations, supports, and other things which are incorporated into a building or structure and become accessions to the real estate may not be purchased without payment of tax under this rule. Foundations, structural steel, and similar items which provide physical support and which retain their status as personal property must be treated for purposes of taxation separately from the equipment which they support.

Foundations and supports for production machinery, materials handling equipment, and other equipment used in a continuous manufacturing operation are not taxable. Similarly, foundations and supports for tangible personal property used to manufacture tangible personal property used in the manufacturing operation, as described in paragraph (C)(5) of this rule; for testing equipment, as described in paragraph (C)(6) of this rule; and for equipment used to handle or store scrap for recycling at the same facility, as described in paragraph (C)(7) of this rule, are deemed necessary for the continuation of the manufacturing operation and are not taxable.

Tangible personal property that monitors in-process product or that lubricates, cools, monitors, or controls production machinery, materials handling equipment, and other equipment used in a continuous manufacturing operation is not taxable. Similarly, tangible personal property that lubricates, cools, monitors, or controls equipment used to manufacture tangible personal property used in the manufacturing operation, as described in paragraph (C)(5) of this rule; testing equipment, as described in paragraph (C)(6) of this rule; and equipment used to handle or store scrap for recycling at the same facility, as described in paragraph (C)(7) of this rule, is deemed necessary for the continuation of the manufacturing operation and is not taxable. However, all equipment that makes or stores records of monitoring is taxable.

See examples 1, 15, 16, 17, 18, 25, 29, 52, 55, 57, and 59.

(5) Machinery, equipment, fuel, power, material, parts, and other tangible personal property used to manufacture machinery, equipment, or other tangible personal property used in manufacturing a product for sale.

If a manufacturer makes an item that is used in the manufacturing operation as described in this rule, such as tools, tooling, replacement parts for machinery, or consumable substances, such as acid or solvents, the raw materials and components that go into that item are not taxable.

Certain things used by the manufacturer to make the item that will be used in the manufacturing operation are also not taxable. These things include the machinery which manufactures the item by changing the state or form of the raw materials or components, the materials handling equipment which moves the item between such machinery, and any fuel or power used to operate the machinery or materials handling equipment.

After the item is in the form in which it will be used in the manufacturing operation, any equipment that stores it or moves it to or from the manufacturing operation is taxable.

See example 18.

(6) Machinery, equipment, and other tangible personal property used by a manufacturer to test raw materials, the product being manufactured, or the completed product.

The equipment and supplies that the manufacturer uses to perform testing, and tangible personal property used to physically support, control, lubricate, cool, or monitor such equipment are not taxable. Those things that are merely used in the lab or other area where testing occurs, but play no part in the actual testing procedures, such as furniture, storage equipment, and computers that record or store the test results, are taxable. The testing activity is not part of the continuous manufacturing operation unless it is physically and functionally integrated between steps on the production line. Materials handling equipment used to transport test samples is taxable. Equipment and supplies used to test fuel, consumables, equipment, or anything else that is not a raw material, the product being manufactured, or a completed product are taxable.

See examples 3, 4, 19, and 60.

(7) Machinery and equipment used to handle or temporarily store scrap that is intended to be reused in the manufacturing operation at the same manufacturing facility.

In this context, scrap is any portion or component of the product being manufactured that is removed, intentionally or unintentionally, from the manufacturing process or that is residual after the process is completed. If the manufacturer recycles the scrap back into the manufacturing operation at the same facility, the equipment which moves or stores the scrap is not taxable.

Scrap which is to be sold or to be reused as a raw material by the manufacturer at another facility, is considered to be processed in a manufacturing operation if the state or form of the scrap is changed or altered. In such a case, the scrap, as it is removed from the manufacturing operation, is a raw material and the equipment which transports or stores it before it is committed to the operation where it undergoes manufacturing is taxable. After such manufacturing is over, the processed scrap is a completed product.

See examples 22 to 24, 47, and 61.

(8) Electricity, coke, gas, water, steam, and similar substances used in the manufacturing operation; machinery and equipment used for, and fuel consumed in, producing or extracting those substances; and machinery, equipment, and other tangible personal property used to treat, filter, pump, alter voltage, or otherwise make the substance suitable for use in the manufacturing operation.

Anything that is a fuel or a source of power for machinery used in the manufacturing operation, or that provides energy for the manufacturing process itself, is not taxable. Similarly, substances which transmit energy, such as steam or cooling water which transmits heat to or from the process or machinery, are not taxable. Any equipment that the manufacturer uses to generate, produce, or extract these substances, as well as fuel used to power such generation or extraction, is not taxable.

Tangible personal property which treats the fuel or power is not taxable. Such things may include coal crushers, electrical transformers, fuel or water filters, and water treatment chemicals.

See examples 22 to 32, 59, and 64.

(9) Machinery, equipment, and other tangible personal property used to transport or transmit electricity, coke, gas, water, steam, or similar substances used in the manufacturing operation from the point of generation, if produced by the manufacturer, or from the point where the substance enters the manufacturing facility, if purchased by the manufacturer, to the manufacturing operation.

Such equipment includes wires, conduit, pipes, larry cars, and conveyors.

See examples 12, 22 to 32.

(10) Machinery, equipment, and other tangible personal property that treats, filters, cools, refines, or otherwise renders water, steam, acid, oil, solvents, or similar substances used in the manufacturing operation reusable, provided that the substances are intended for reuse and not for disposal, sale, or transportation from the manufacturing facility.

See examples 1, 20, 33, 34, 35, 36, 37, and 64.

(11) Parts, components, and repair and installation services for items used in the manufacturing operation as described in paragraph (C) of this rule.

Replacement parts for nontaxable equipment are not taxable. Any repair service or installation service purchased from an independent contractor for repairing or installing nontaxable equipment is not taxable.

See examples 38, 44, 55, and 56.

(D) Things transferred for use in a manufacturing operation do not include:

(1) Tangible personal property used in administrative, personnel, security, inventory control, record keeping, ordering, billing, or similar functions.

Those things that are used in the "non-manufacturing" aspects of the manufacturer's business are generally taxable. This includes what is broadly known as office equipment, furniture, and supplies. Anything, including computers and software, used for communication, ordering, billing, inventory control, or record keeping, including testing or production records, is taxable.

Things used in providing security include devices to monitor or observe personnel or detect intruders.

See examples 7, 15, 16, 19, 39, and 55.

(2) Tangible personal property used in storing raw materials or parts prior to the commencement of the manufacturing operation or used to handle or store a completed product, including storage that actively maintains a completed product in a marketable state or form.

(3) Tangible personal property used to handle or store scrap or waste intended for disposal, sale, or other disposition, other than reuse in the manufacturing operation at the same manufacturing facility.

(4) Tangible personal property used to store fuel, water, solvents, acid, oil, or similar items consumed in the manufacturing operation.

All types of storage, be it of raw materials or parts, product (except in-process product), completed product, consumables, fuel, waste, scrap, equipment, tools, supplies, repair parts, etc., is taxable.

Similarly, anything used to handle, move, or transport people or personal property in the manufacturing facility is taxable, except for materials handling during a continuous manufacturing operation or during the manufacture of an item which will be used in the manufacturing operation, as described in paragraph (C)(5) of this rule, or the transmission of fuel, power, and similar substances as described in paragraph (C)(9) of this rule.

See examples 1, 2, 3, 4, 6, 9, 11, 20, 37, 40, 41, 42, 43, 44, 47, 59, 60, 61, and 64.

(5) Tangible personal property that is or is to be incorporated into realty.

Any tangible personal property that will become part of the real estate is taxable under this rule.

See examples 32, 45, and 46.

(6) Machinery, equipment, and other tangible personal property used for ventilation, dust, or gas collection, humidity or temperature regulation, or similar environmental control, except machinery, equipment, and other tangible personal property that totally regulates the environment in a special and limited area of the manufacturing facility where the regulation is essential for production to occur.

All equipment and supplies that monitor, regulate, or improve the environmental conditions in the manufacturing facility are taxable. This includes all lighting, heaters, air conditioning equipment, fans, heat exhaust equipment, air make up equipment, dust control or collection equipment, and gas detection, collection, and exhaust equipment. This should not be read to change the traditional classification of real and personal property.

The only exception to the taxing of these items is equipment which totally regulates the environment in a special and limited area of the facility, such as a clean room or paint booth, where such total regulation is essential for production to occur. Even in such a special area, things that do not provide essential environmental regulation, such as safety or communication equipment, are taxable.

See examples 7, 47, 48, and 49.

(7) Tangible personal property used for the protection and safety of workers, unless the property is attached to or incorporated into machinery and equipment used in a continuous manufacturing operation.

Protective clothing and devices, such as safety shoes, gloves, earplugs, hard hats, respirators, first aid supplies, etc. are taxable. Similarly, equipment installed to protect workers or shield them from harm is taxable, unless it is made a part of machinery or equipment used in a continuous manufacturing operation.

Equipment and supplies used to detect, extinguish, prevent, cure, or mitigate fire, explosion, flood, or other calamity in the manufacturing facility are taxable.

See examples 9, 43, 50, 51, 52, and 53.

(8) Machinery, equipment, and other tangible personal property used for research and development.

See examples 18 and 54.

(9) Machinery, equipment, and other tangible personal property used to clean, repair, or maintain real or personal property in the manufacturing facility.

Tools, equipment, and supplies made or purchased by the manufacturer for use in maintaining, installing, repairing, or cleaning its property, real or personal, are taxable. This includes any such items used on nontaxable equipment. This does not apply to repair or replacement parts or supplies which are taxable or not, depending on the taxability of the equipment into which they are installed.

See examples 32, 55, 56, and 58.

(10) Motor vehicles registered for operation on the public highways.

See examples 21, 57, and 63.

(E) For purposes of this rule, any tangible personal property used by a manufacturer in both a taxable and a nontaxable manner shall be totally taxable or totally exempt from taxation based upon its quantified primary use. If the tangible personal property consists of fungibles, they shall be taxed upon the proportion of the fungibles used in a taxable manner.

See examples 19, 25, 59 and 64.

(F) Persons whose only activity is printing and whose product produced for sale consists wholly of printed matter are not manufacturers under this rule. The taxability of things used by printers must be determined pursuant to division (E)(8) of section 5739.01 of the Revised Code.

If a portion of a manufacturer's manufacturing process involves printing, the taxability of the tangible personal property primarily devoted to the printing operation shall be determined pursuant to division (E)(8) of section 5739.01 of the Revised Code.

(G) Nothing in this rule restricts or denies any exception or exemption that may be available to a manufacturer under other provisions of the sales tax statutes or rules of the tax commissioner. EXAMPLES

Example 1

A steel manufacturer galvanizes its flatroll steel to provide its customers with a corrosion resistant product. Through electrolysis and a recirculating zinc solution, zinc is chemically bonded to the steel. Recirculation of the zinc solution involves an intricately-woven system of fibrecast pipes, pumps, dissolution tanks, and electrolytic recirculating tanks, all of which are controlled by computers. As with many other types of manufacturing-related equipment, the size, weight, and configuration of these items require special foundations and supports. The entire system provides the necessary recipe and volume of solution for precise applications of zinc in a high velocity rolling mill.

* The zinc solution is a raw material which becomes a component of the completed product.

* The solution in which the zinc is dissolved is a consumable that interacts with the product and is not taxable.

* The piping system, dissolution tank, pumps, and electrolytic holding tanks are all used in a continuous manufacturing operation and are not taxable.

* The computers are used to control production machinery and in-process materials handling. The foundations and structural supports similarly are used in connection with production machinery. Therefore, these items are all not taxable.

Example 2

A manufacturer of concrete owns a ready-mix batch plant. Cement and aggregate are purchased from and delivered by outside suppliers. Cement is removed from delivery trailers by a vacuum system, which deposits the cement in a storage silo. Aggregate of particular sizes is delivered by dump trucks. The aggregate is stored in piles, segregated by size. As needed, cement is removed from the silo by screw conveyor and batched into a mixing drum. Aggregate is moved from the proper pile(s) by a front loader, which deposits the aggregate on a belt conveyor which lifts the stone up and into the mixing drum. Water is added into the drum and mixing commences. After a short time, concrete is discharged into mixer trucks. The mixing drums on the trucks operate via power take off from the truck engines. The concrete continues to be mixed as the trucks deliver it to the customer. One hundred per cent of this batch plant's output is sold to others by the manufacturer.

* The cement and water are committed to the manufacturing operation at the mixing drum. The cement vacuum system, storage silo, and screw conveyor are taxable.

* The aggregate is committed to the manufacturing operation when materials handling (via the front loader) from initial storage ceases and the aggregate is deposited on the conveyor which deposits it into the mixing drum.

* The aggregate conveyor and mixing drum are not taxable.

* The manufacturing operation continues in the mixer truck and is not completed until the concrete is discharged from the truck's mixer. Because the truck's mixer operates by power take off from the truck engine, the entire vehicle is production machinery and is not taxable.

Example 3

A secondary smelter of aluminum uses a scale as part of an automated process which measures out quantities of purchased aluminum scrap for use in the casting process in the foundry. The aluminum is delivered to the scale by a crane which removes the material from storage and puts it into a hopper which feeds the scale.

* The aluminum scrap is a purchased material, not scrap which is generated at this manufacturing facility; therefore, the equipment for its storage and handling are taxable. This includes whatever storage facility is set up for it and the crane.

* Because the raw material is committed to the manufacturing process at the hopper, neither the hopper nor the scale is taxable.

Example 4

An oil refinery obtains supplies of raw crude from numerous sources. It stores this crude in various tanks, withdrawing samples from each so that, in a laboratory in another part of the plant, it can conduct tests to determine the composition of each lot. Subsequently, various crude is metered and piped to another tank for blending to meet process specifications. Thereafter, the blended crude is desalted to remove impurities such as bottom sediments and water, and then is pumped to a preheat furnace to commence the distillation process.

* The storage tanks in which the raw crude is placed upon receipt are taxable. The fact that the tanks store the crude while laboratory tests are being conducted upon the samples makes no difference to the status of these tanks.

* The meters and piping used to transport the raw crude to the blending tank are not taxable from the point of metering. The crude is committed to the manufacturing process when it is metered after initial storage.

* The equipment used to blend the crude is not taxable as the crude has been committed to the manufacturing process.

* The storage and handling equipment used after the blending tank is not taxable.

* The desalting equipment and preheat furnace treat the crude in preparation for the manufacturing operation after is has been committed to the process and are thus not taxable.

* The equipment used to test the raw crude is not taxable.

Example 5

A cement manufacturer purchases limestone which is stored in piles at its facility. Prior to committing the limestone to the process, the manufacturer periodically hoses down the limestone to keep down the dust.

* This activity does not constitute refining. Consequently, the hose and other equipment used to hose down the pile would be taxable.

Example 6

A manufacturer makes roofing shingles. It first makes a paper felt. This is passed through a saturator tank which contains asphalt that has been heated with steam to a very high temperature. This saturates the felt with the asphalt. The saturated felt is coated with granite dust; colored granules are then applied to one side and talc to the other. The material is then cooled and either cut to size or rolled up for shipment.

The colored granules are placed in storage when they are purchased. When they are to be used, they are transported to the blending box, where different colors are mixed together and applied to the roofing material. The purchased talc is also placed in a storage tank and then is transported to the manufacturing line by a series of pneumatic handling devices, which deposit it into a hopper over the production line. It then falls onto the shingle material passing underneath the hopper.

* The storage facilities for the granules and talc are taxable as they are storing raw materials which will be incorporated into the product.

* The handling devices for both the granules and talc are also taxable as they are handling raw materials from their initial storage and before they are committed to the manufacturing process.

* The blending box is the point at which the processing involving the colored granules begins, as the granules are mixed and applied to the roofing material at that point. It is therefore not taxable.

* The talc hopper is also not taxable as it is the point where handling from initial storage has ceased and the material is committed to the manufacturing process.

Example 7

A paper manufacturer makes special paper for use in full color photocopying. The process to apply the paper coating must be done in a dust and pollution free environment. Rolls of paper are passed through a machine where the coating is applied and dried. This process occurs in a clean room, which is separated from the rest of the plant by airtight partitions and ceiling coated with an easily cleaned plastic. Three of the walls and the ceiling are free standing and not part of the walls and ceiling of the building itself; the fourth wall, however, is a section of a wall of the larger structure. Employees can only enter the clean room through two airlocks, which prevent dirty air from entering. All air is filtered and regulated as to temperature and humidity by heat pumps, electric heaters, dehumidifiers, and exhaust fans that serve only the clean room and maintain a positive air pressure in the room. This equipment is automatically controlled by a small computer using data from air monitoring sensors in the room. Employees must wear disposable paper coveralls, overshoes, and caps. The room has an intercom to minimize personnel traffic in and out of the room. Lighting in the room is by normal fluorescent fixtures attached to the ceiling.

* The paper coater is production machinery and is not taxable.

* The clean room, including the heaters, heat pumps, light fixtures, etc., remains tangible personal property, since its special use primarily serves the business rather than the real estate.

* Since the clean room provides environmental regulation in a special and limited area, and such regulation is essential for the manufacturing to occur, it is not taxable. This includes the partitions and ceiling, airlocks, heat pumps, heaters, dehumidifiers, exhaust fans, ductwork, air monitors, lights, regulating computer, and the special clothing used by the workers to prevent product contamination within the room.

* The intercom is taxable.

Example 8

In manufacturing glassware, molten glass is dropped into molds in a forming machine, where it is spun into the desired form. The formed glassware is released from the molds onto a conveyor where it gradually cools. The conveyor enters and annealing lehr which tempers the glass. From annealing, the glassware moves on a long conveyor which again allows it to cool. The glassware is then sprayed with silicone which makes it scratch resistant.

* The manufacturing operation ends with the silicon sprayer.

Example 9

A manufacturer purchases castings which will be a component part of the manufacturer's product. The castings are received on trucks in metal boxes on pallets. The pallets are unloaded by forklift and placed in racks in the receiving area of the warehouse. As they are needed, a pallet is removed from storage by a different forklift and moved to a cleaning process. A worker removes the castings from the box by hand, placing them in a wire basket that is attached to a counterweighted arm which allows the worker to lower the basket into a tank containing chemicals which remove dirt, grease, and similar contaminants. After dipping, the worker, who wears rubber gloves to protect her hands from the strong chemicals, places the castings on a conveyor which moves them to a grinding operation.

* The holding of the castings after receipt is initial storage. Both forklifts and the storage racks are taxable.

* The castings have been committed to the manufacturing operation when deposited by the second forklift at the washing operation. The chemicals, dip tank, basket, and arm are not taxable, since they treat a component part after materials handling from initial storage has ended.

* The conveyor that moves the castings to the first production machine (the grinder) is not taxable because the continuous manufacturing operation began at the dip tank.

* The rubber gloves used to protect the worker are taxable.

Example 10

A manufacturer of clay pipe uses forklift tractors to transport the pipe from the machine in which it is formed to the kiln.

* The forklift tractors are used to handle an in-process product and are are not taxable.

Example 11

A petroleum refinery produces an intermediate feed, such as naphtha, which is temporarily stored. It eventually will be further processed into a completed product which will be sold.

* The equipment used to transport the feed to and from the storage tank, as well as the storage tank, are used to handle an in-process material and are not taxable.

Example 12

Water purchased from a public utility is used by a refiner to quench (cool) a gaseous product stream flowing from a distillation tower so as to lower its temperature or convert it to a liquid for further processing. Since the water does not touch the product directly, it does not need any treatment to make it suitable for use in the manufacturing operation.

* The water is used in the manufacturing operation. Any equipment used to handle it from the point where it enters the manufacturing facility is not taxable. Any piping from the utility supply line is therefore not taxable.

Example 13

A steel fabricator purchases coil steel. After the steel is committed to the manufacturing operation, it is dipped in solvent to remove dirt, oil, and grease. It is then further cleaned by dipping in an acid bath. After fabrication is completed, the steel is sprayed with oil to prevent formation of rust on the surface of the product. After the oil spray, the steel is transported to the truck dock for loading and shipping.

* The solvent and acid are consumables used to prepare the product during the manufacturing operation and are not taxable.

* The spraying of the protective oil on the completed product constitutes the end of the manufacturing operation.

* The oil is a consumable which interacts with the product and is therefore not taxable.

Example 14

A catalyst is used by a chemical manufacturer to facilitate or cause a reaction between other chemicals during the processing operation.

* The catalyst interacts with the product, is an integral part of the manufacturing operation, and is therefore not taxable.

Example 15

At a motor vehicle assembly plant, the manufacturer uses a bar code system to track the flow of components. As components are received from other manufacturing facilities or outside suppliers, a bar code label is attached and then scanned with a wand to record it in the plant mainframe computer, along with pertinent data keyed in by the employee to identify the part. This computer is also used for various administrative functions. It does not control the assembly line. Particular components are assigned to particular vehicles, in order to assemble vehicles conforming to those ordered by dealers, etc. After the vehicle is fully assembled, an employee scans all labels. A printout is made that permits a comparison between what components were supposed to be included in each vehicle and which components actually were assembled. The label on the emissions equipment is also scanned prior to emissions testing, in order to record the component in the emissions test data base. Purchases include labels, label printers, scanners, printers, computer terminals, and equipment to interface with the plant mainframe.

* This bar code system is primarily used to monitor the progress of the product in the continuous manufacturing operation. The labels and scanning wands are not taxable, except for first scanner and the scanner used prior to emissions testing. The first scanner is used to record a part in inventory and is therefore taxable. The scanner prior to emissions testing is taxable because the vehicle is completed before it is used. The scanner is not testing equipment.

* Since the bar code labels are used in the manufacturing operation, the label printers are not taxable.

* The computer terminals allow employees to monitor the progress of the scanned parts and are not taxable.

* The equipment that interfaces with the mainframe computer is taxable. The computer printers, similarly, produce records of the information and are taxable.

Example 16

The functioning of the melt furnace in a glass manufacturing facility is monitored and controlled from an operator's booth, which is on a raised platform about fifty feet from the furnace. Heat sensors in the furnace are wired to the control booth, where the temperature data is drawn on a continuous graph. The operator watches the graph and can adjust the furnace by altering the flow of fuel (natural gas) or oxygen, batch material proportions, or by adjusting the flue in the furnace stack.

* The sensors in the furnace monitor production and are not taxable.

* The control booth and the equipment and controls in it are not taxable.

* The temperature graphing device which records the temperature data is taxable since it functions as a recordkeeping device.

* The platform that supports the control booth is not taxable, since it supports the operator of production machinery.

* The furnace stack and flue assembly within the stack are not taxable, since they provide regulation of the furnace temperature.

Example 17

A manufacturer of high technology electronic equipment provides its workers with microscopes which enable them to manipulate the components as they are assembled into the product.

* The microscopes are not taxable because they are necessary for the continuation of the manufacturing operation.

Example 18

A castings manufacturer upgrades its foundry by installing a new computer controlled mold maker and an automatic caster. Because of their size and weight, both machines require special concrete foundations. Casting sand is blended to proper consistency with water and certain chemicals in a muller. An auger moves the sand to a feed bin attached to the mold maker. Molds are made automatically in accordance with computer instructions. The instructions for each job are developed in the engineering shop using a microcomputer and software which was purchased from the manufacturer of the mold making equipment. The instructions are placed on a computer disk which an employee carries to the computer that controls the mold maker. The completed molds leave the molder on a conveyor which moves them to the caster.

* The mold maker and its foundation are not taxable, since the molds are used in manufacturing the product for sale. The nontaxable equipment includes everything from the sand muller to the exit of the molds from the mold maker.

* The computer that controls the molder is not taxable.

* The purchased software and the computer in the engineering shop are taxable, since they do not actually control the machinery.

* The conveyor that moves the molds from the mold making process is taxable, since the molds do not enter the manufacturing operation until they reach the caster.

* The caster is production machinery. The caster and its foundation are not taxable.

Example 19

A paint manufacturer makes paint pursuant to customer specifications. After a batch is finished, a sample is ladled into a quart jar and taken to the lab for testing to assure adherence to the customer's specs. In the lab, twenty cubic centimeters are placed in a beaker which is then placed in a centrifuge. After centrifuging, the separated components of the paint are examined under a microscope for content. The test results are manually entered into a computer. The computer generates a printed report and a label, both listing the test results and other information about the particular paint batch, e.g., name of customer and date of manufacture. The label is attached to the quart jar which contains the remainder of the paint sample. The jar is placed in a storage cabinet where it is retained for five years.

* The testing procedure assures the quality of the completed product and the equipment which is used in conducting the testing is not taxable. This includes the centrifuge, beaker, and microscope.

* The ladle, quart jar, and the storage cabinet are not used in testing nor in any other aspect of the manufacturing operation and are taxable. In addition, the quart jar and storage cabinet are used primarily in a function related to storage, record-keeping, and therefore are taxable.

* The computer, computer printer, and jar label are used only to record the test results and are taxable.

Example 20

A manufacturer operates a job shop foundry where it melts ingots of raw pot metal in an electric furnace. The molten metal is poured into jacketed molds, through which water is circulated to speed up the cooling and solidification of the metal. The water is pumped from a tank, chemically treated, and conveyed by pipes to the molds. The heated water is filtered and pumped from the molds to an outside cooling tower and then returned to the same tank. Make-up water is pumped from a well on premises into the tank. The treatment chemicals are stored in liquid form in a tank, from which they are pumped and metered.

* The furnace and molds are part of the continuous manufacturing operation and are not taxable.

* The water is an energy transmitting substance since it removes heat from the manufacturing operation. The water treatment chemicals, water pumps, pipes, well and cooling tower are not taxable. Since the water tank is part of the recirculation system, it also is not taxable.

* The chemical storage tank, meter, and pump are taxable, since they are merely storing or handling consumables prior to their initial use in the manufacturing operation.

* Since the trucks are registered for highway use, they are taxable.

Example 21

A large manufacturing facility is located on three hundred fifty acres of land on the outskirts of a large metropolitan area. The production machinery and equipment is spread over several miles. The plant property is divided at various points by a river, a railroad, and a public highway. Work in process is moved from one production phase to another by large licensed trailer trucks. A private bridge was constructed to cross the river, a tunnel was constructed under the railroad, and the trucks cross the public highway.

* This property is contiguous since the separations are only public or private rights of way and not land used for other public or private interests.

* Since the trucks are registered for highway operation, they are taxable.

Example 22

A plastics manufacturer uses injection molds to form the product. Excess plastic trim is knocked off the molds and collected on a conveyor. The conveyor moves the trim to a grinder where it is reduced in size. Another conveyor moves the plastic to a regrind bin where it is stored until needed. The reground trim is manually removed from the storage bin in hoppers and added, in certain proportions, to the purchased plastic pellets in the feed bins for the mold injection presses.

* Since the trim is recycled back into the manufacturing operation, the entire process of collecting, transporting, regrinding, and reintroducing the trim is part of the manufacturing operation and not taxable. The regrind storage bin is holding in-process product between stages of production and is not taxable.

Example 23

A steel manufacturer operates two plants. Plant A produces basic steel in a BOF furnace and has bar and hot rolled strip steel producing lines. Plant B, located several miles away, produces cold rolled strip coils. All production lines produce steel scrap in the form of trimmings or defective product. At plant A, scrap from both lines is chopped to size and taken to a storage area. When needed it is added back to the furnace to be again used in steel production. The scrap from plant B is chopped to size and taken to plant A where it also is used to make new steel.

* Since plants A and B are not contiguous, they are separate manufacturing facilities.

* Since the scrap at plant A is returned to the furnace, all items of property used to handle and store the scrap are not taxable.

* The equipment used to handle and transport scrap produced at plant B is taxable since the scrap is transported to plant A for reuse.

* Since the choppers at both plants change the form of the scrap, they are not taxable.

Example 24

During paper manufacturing, the fibers that will comprise the finished paper product are put into a water solution. The water is drawn by an intake pipe and pump from a river that flows next to the manufacturing facility. The water is filtered and chemically treated and pumped into the hydropulper where it is combined with wood chips and other fiber source material. The resulting slurry is pumped to a fourdrinier which removes most of the water by means of vacuum pumps. The water so removed, as well as slurry that otherwise escapes the process is collected, since it contains usable fibers. This slurry is returned to the hydropulper by pumps and pipes.

* The water is a consumable that is used in the manufacturing operation. The river intake, pumps, filter, and chemicals are not taxable since they either treat the water or transport the water from the point of extraction at the river.

* The hydropulper and fourdrinier are production machinery and not taxable.

* The slurry recovery and recirculating is part of the manufacturing operation, since it recycles the product back into the manufacturing operation at the same manufacturing facility. The pumps and piping are not taxable.

Example 25

A plastics manufacturer generates steam in coal-fired boilers. Eighty-five per cent of the steam is used to heat reactor tanks, in which the first step in the manufacturing operation takes place. An insulated steam line carries the steam from the boiler to the reactor vessels. Fifteen per cent of the steam is diverted from the main steam line to heat the buildings in the manufacturing facility.

The coal purchased to fire the boilers is received at a river dock. The coal is unloaded from barges by a crane and is moved from the dock by a conveyor belt to a conical storage tower. As needed, the coal is pushed by a small bulldozer into a feed bin, which dumps the coal onto another conveyor belt which moves it to a coal pulverizer. A screw conveyor moves the pulverized coal from the pulverizer to a storage bin. Another screw conveyor removes the pulverized coal from the bin and a forced air system injects it into the boiler combustion chamber. The rate of injection is computer controlled.

Water for the boiler is pumped from the river, filtered, chemically treated, and stored in a water tank outside the boiler building. As the water is pumped from the storage tank, additional chemicals are added. Both the water and the air used to inject the pulverized coal are preheated by means of a heat exchanger in the boiler exhaust stack.

* Eighty-five per cent of the coal and boiler water chemicals are not taxable, since eighty-five per cent of the resulting steam is used in the manufacturing operation.

* The boiler and main steam line, including the latter's insulation, are not taxable, since a majority of the steam is consumed in the manufacturing operation. The line which carries steam for building heat is taxable.

* The coal unloading and handling equipment and the pulverizer are not taxable. The conical storage tower and the pulverized coal bin are taxable, since they merely store the coal.

* The forced air pulverized coal injection system is not taxable.

* The river water inlet, pumps, lines, filters, and treatment chemicals are not taxable. The water storage tank is taxable.

* The boiler exhaust heat exchanger is not taxable.

* The computer that controls the pulverized coal injection is taxable.

Example 26

A manufacturer of ready-mix concrete uses a steam generator to heat water which is used in mixing and warming component materials in the manufacture of ready-mix concrete. The concrete is sold to construction contractors and other consumers.

* The water is not taxable, as it transmits heat used in the manufacturing operation and becomes part of the product produced for sale.

* The generator is not taxable as it makes the water suitable for use in the manufacturing operation.

Example 27

A manufacturer of extruded rubber products uses injection molding machines to force rubber through dies in order to form the desired shapes. The molding machines are operated by compressed air. The air compressor is fed air from an air dryer. The dryer is necessary to keep moisture out of the air compressor lines and production machinery.

* The injection molding machines are not taxable as they are production machinery which act upon the product.

* The air dryer and compressor are not taxable because they make the air used to power the molding machines suitable for use in that function.

Example 28

A steel manufacturer uses coke in the production of iron. Coke is a fuel which provides some of the heat required for smelting and it is also the source of carbon, a necessary ingredient in the manufacture of steel, which dissolves into the hot metal.

Coke is manufactured from metallurgical grade coal in a coke plant. The coal is crushed, blended (high and low volatile coals are mixed) and transferred to the ovens by means of conveyor systems. The crushed, blended coal is placed in a larry car which runs across the top of the coke ovens and charges the coal into the ovens. The coke battery consists of a series of ovens lined with refractory brick which bake the coal to produce coke. The coke battery is built from the ground up and does not have a separate foundation.

* The coke battery and the coal crushing, blending, and charging systems, and larry cars are not taxable.

Example 29

A manufacturer buys a new coal pulverizer. The coal is fed to a boiler to produce steam to generate electricity to power equipment used to manufacture products.

* The pulverizer is used to make the coal suitable for use in the manufacturing operation and is not taxable.

Example 30

A boiler is used to produce steam which primarily operates machinery and equipment used in the manufacturing operation. Other equipment feeds water into the boiler. This includes items such as pumps and a piping system. There is also a system which filters and treats raw water drawn from a creek running through the manufacturing facility.

* The boiler is used to produce power for the manufacturing operation and is therefore not taxable.

* The water is used to transmit energy to the manufacturing operation and is not taxable.

* The piping, pumps, filters, and water treatment equipment are not taxable.

Example 31

A manufacturer installs an electrical distribution system, including generators, transformers, electrical switchgear, cable and related equipment. The electricity is used solely to produce and supply electricity to the manufacturing operation.

* The entire electrical generation and distribution system is not taxable.

Example 32

A manufacturer of specialty coil steel products uses natural gas to heat annealing furnaces. The furnaces heat treat the manufacturer's product and are part of the continuous manufacturing operation. In a field owned by the manufacturer and adjacent to the plant, the manufacturer drills two natural gas wells, using a drilling rig, trencher, and various other tools, and installs drips, pumps, and transmission lines to provide gas for these furnaces. The manufacturer also installs a gas line connected to the local utility company line through which purchased gas is piped for heating the buildings in the manufacturing facility. A branch line connects this purchased gas line to the line going from the wells to the annealing furnaces, in order to supplement, if necessary, the gas produced from the wells. One hundred per cent of the well-produced gas is burned in the annealing furnaces. No more than twenty per cent of the purchased gas is burned in the furnaces.

* The line connected to the utility's line is incorporated into the real estate, since it primarily carries gas to heat the buildings. The wells, pumps, transmission lines and associated equipment, and the branch line remain personalty, since they carry gas for use in the manufacturing operation only.

* The wells, pumps, transmission lines and associated equipment, and the branch line are part of the manufacturing operation and are not taxable since they are extracting and transporting fuel used in the manufacturing operation.

* The material for the line connected to the utility's line is taxable.

* The drilling rig, trencher, and other tools used to install the well and gas lines are taxable.

Example 33

A manufacturer purchases pumping and filtering equipment and related tanks and tubing to supply lubricating and coolant fluids to drilling and cutting machinery. This equipment is used to recirculate the fluids so that they may be reused in the manufacturing operation.

* As the fluids are being treated for reuse in the manufacturing operation, the equipment which moves and treats the fluid is not taxable.

Example 34

A manufacturing operation uses water as a coolant in its production operation. The water is continuously recirculated in a closed system. The recirculation system includes a cooling tower and related pumps and piping.

* As the water is a substance used in the manufacturing operation, the recirculation system equipment is not taxable.

Example 35

The production of flatroll metal products requires that an oil mixture, which serves as both a rolling lubricant and a coolant, be continuously sprayed on sheets in the rolling mill. Spent oil is simultaneously removed and passed through a filtering process which is interconnected with the rolling mill, after which the oil is resprayed onto the sheets.

* The rolling mill is a production machine and is not taxable.

* The oil filtration machinery treats the oil for reuse; therefore, this equipment is not taxable.

Example 36

A manufacturer of truck and tractor engines uses what are known as wet machines in its engine head and block assembly lines. These machines require the presence of a liquid coolant to operate. In the absence of such a coolant the machines would heat up rapidly, ultimately destroying the tool and the part being machined. Therefore, the interface between the tool and the block or head is flooded by spraying it with liquid coolant, a water soluble oil.

In order to save on the expense of the oil, the manufacturer devised a system to recapture the used liquid. After the coolant is sprayed on the component, it drops through a funnel-like chamber into an underground trough. The coolant collects in a u-shaped channel along with the scrap metal chips and dust produced by the machining operations. The coolant is conveyed through the underground trough by means of air pressure to a collecting tank outside the plant where a conveyor lifts the bigger chips from the coolant. These chips then enter a chipwringer which wrings out excess coolant. From the tank, the coolant is pumped back into the plant through a series of pipes. Along the way, it passes through a series of filters which removes any remaining metal particles. Thereafter the coolant is returned to the machining lines where the process begins anew.

* The entire recirculating system is not taxable. The oil is used in the manufacture of the engine heads and blocks. The recirculating system is used to filter this oil to make it reusable for the manufacturing operation. The substances are in fact intended for reuse and not for disposal or sale.

Example 37

A producer of alloy steel uses an acid solution to pickle its products. The pickling process removes scale. After pickling, the used acid is filtered to remove impurities. The filtered solution is then pumped into a tank where pure acid is added to the solution in order to raise the acid content. From this tank, the solution is pumped and piped into the pickling tanks. After the acid is reused a certain number of times it can no longer be purified and strengthened sufficiently to be economically useful. It is therefore transported through a series of pipes to an acid disposal plant, where the acid is neutralized by mixing it with lime in a tank designated the neutralizing tank. The mixture is then pumped into a sludge pond.

* The acid solution would not be taxable as it interacts with the product. The pickling tanks are production machinery and thus also not taxable.

* The pipes from the pickling tanks through the filtration system are not taxable, as this is a treatment system which makes a substance used in the manufacturing operation reusable, and the substance is in fact intended for reuse.

* The piping system used to transport the spent acid to the acid disposal plant, the pump into the neutralizing tank, the tank itself, the lime, and the pumps and pipes used to dispose of the neutralized solution are taxable under this rule as at this point the substance is not intended for reuse.

Example 38

An automobile manufacturer has a plant which stamps out steel to make automobile body parts. The manufacturer employs an engineering firm to procure and generally oversee the installation of a cold press machine which presses sheet metal into doors. The engineering firm contracts out the labor for installation of the piece of production machinery in the manufacturer's plant. The contractor which installs the machine bills the manufacturer directly.

* The charges from the contractor for the services to install the machine are not taxable as they involve the installation of an item used primarily in a manufacturing operation to produce tangible personal property for sale.

Example 39

A manufacturer builds and furnishes a new administration building. The building contains offices for executives and the personnel and accounting department. The manufacturer leases a computer to process personnel, payroll, accounting, and billing information.

* All office equipment and furnishings located in the administration building are taxable.

* The computer is taxable.

Example 40

A food processor has an automated batch system for dry ingredients. The ingredients are received from outside suppliers on pallets in bags, cartons, paper drums, etc. They are moved from the receiving warehouse area by forklift, which deposits the pallets near the dry batch mixer. Some ingredients are dumped by employees directly into the mixer. Some are dumped into feed bins which discharge directly onto a scale. The proper amount of ingredient per batch is programmed into the scale by an employee. The scale controls the feed bins, opening them in turn and shutting them when the proper weight is reached. The dry ingredients are mixed and discharged by a covered conveyor to the next stage, where water is added.

* The dry ingredients do not undergo a change in state or form until mixed with water; however, the manufacturing operation begins as to the dry ingredients when they are dumped into the feed bins or directly into the dry batch mixer, since they have been committed to the manufacturing operation when the materials handling (via the forklift) from the warehouse ceases. Thus, the bins, mixer, and scale are not taxable.

* The forklift is taxable.

Example 41

A manufacturer uses a forklift primarily to move finished goods from a storage warehouse and load them on trucks for shipment to customers.

* The tangible personal property in the warehouse and the forklift are taxable, since they are storing or handling a completed product.

Example 42

A manufacturer purchases storage equipment for the purpose of storing raw materials prior to commitment to the manufacturing operation includes tanks, racks, holding bins, and similar equipment.

* Such storage equipment is subject to tax.

Example 43

A fiberglass manufacturer generates fiberglass waste as part of its manufacturing process. The waste is collected in various ways, including a vacuum system with collection hoses that permit workers to clean up small particles. The vacuum system deposits the fiberglass into a holding bin. Larger pieces, including rejected material that fails quality assurance testing, is transported in skid boxes by lift truck. All waste fiberglass is baled and transported by the manufacturer's trucks to a landfill for disposal. All employees in the plant are required to wear masks to prevent them from inhaling glass fibers.

* Since the waste fiberglass is not sold or recycled by the manufacturer, the baler and all of the handling equipment, including the vacuum system, is taxable.

* The protective masks worn by the employees are taxable.

Example 44

Replacement parts for production machinery are kept in storage bins in the plant storeroom.

* While the parts are not taxable, the storage bins are taxable.

Example 45

A manufacturer has its employee parking lot repaved. It separately purchases the required materials and contracts the labor.

* The materials incorporated into the parking lot are taxable as the lot is real property. The labor is not taxable as it pertains to an improvement to realty. Had the manufacturer entered into an agreement whereby the contractor provided both material and labor, there would be no direct tax consequences to the manufacturer.

Example 46

A manufacturer purchases a heating system and other related parts to be incorporated into a manufacturing facility. The heating system will provide heat and serve solely for the building.

* The heating system and all related parts purchased will be taxable since it is used to produce heat for the building and not used in any manufacturing operation.

Example 47

A manufacturer of unassembled furniture has an extensive dust collection system throughout the manufacturing facility. Collecting units are located over the boring mills, saws, edgebanders, planes, and other places in the plant. Fans and ductwork exhaust the dusty air through a series of filters. The saw dust falls from the filters into movable hoppers. These hoppers are periodically dumped into a mixer, where the saw dust is blended with a small amount of liquid adhesive. The mixture is removed from the mixer by a screw conveyor to a press which forms it into briquettes which the manufacturer sells. The briquettes fall onto a conveyor belt which moves through a heat tunnel which causes rapid drying.

* The entire dust collection system is taxable, since it provides environmental control throughout the entire manufacturing facility.

* The portable dust hoppers are taxable, since they are handling a waste product.

* The adhesive, mixer, screw conveyor, press, belt conveyor, and heat tunnel are not taxable, since they are used to manufacture a product for sale.

Example 48

A manufacturer makes various kinds of candy canes. The process requires that temperature and humidity in the plant be maintained within certain narrow parameters.

* Since the temperature and humidity are regulated in the plant as a whole, rather than a special, limited area within the plant, all the equipment used to provide such regulation is taxable.

Example 49

A manufacturer of automotive parts paints the parts as part of its manufacturing process. The painting is done in paint booths, which are enclosures containing ventilation and other equipment that provide the booth with a controlled atmosphere so that paint is applied to each piece under nearly identical conditions, resulting in a uniform product. The paint is applied by a spraying system which results in a considerable amount of overspray. To flush this excess paint from the booth, a water spray flows through continuously. The water is drained from the booth into a treatment system which filters out the paint. Neither the paint nor the water is reusable in the process, so they are disposed of in accordance with pollution control regulations.

* The paint booth and its ventilation equipment are not taxable since they regulate the environment in a special and limited area of the manufacturing facility.

* The water spray equipment is also not taxable as it is necessary for the continuation of the manufacturing operation.

Example 50

An automotive parts manufacturer is ordered by a federal inspector to install guardrails along the sides of aisles traveled by forklifts and a floor sweeper in order to provide a barrier for the protection of employees operating nearby machinery. The inspector also requires the installation of flashing lights on the moving equipment. The forklifts are primarily used to move in-process product.

* The guardrails are taxable.

* The forklifts themselves are not taxable since they are used for materials handling during the continuous manufacturing operation, so the flashing lights attached to them are not taxable. The flashing lights attached to the floor sweeper are taxable.

Example 51

All of the manufacturer's employees must wear ear plugs, safety glasses, hard hats, and steel toed shoes when in production areas. Some employees must wear leather or rubber gloves and aprons, depending on their jobs. The manufacturer provides all of these protective articles to the employees without charge, except eyeglasses and shoes. Employees must provide their own eyeglasses. However, the manufacturer usually buys, by special order, safety shoes for the employees and sells them, with a minimum markup to cover administrative expenses.

* All of these protective articles and clothing are used in taxable functions. The manufacturer consumes everything except the eyeglasses and shoes and must therefore pay tax on its purchases of those items.

* Since the manufacturer is making retail sales of safety shoes, it must have a vendor's license and collect sales tax on such sales made to the employees.

* The employees must pay tax to the suppliers of their safety glasses.

Example 52

A manufacturer produces electronic equipment. Its process requires that static electricity be eliminated from the environment. If it is not, the static will destroy the electrical components. In order to ensure that the static electricity is properly discharged, the manufacturer has its production employees wear a wrist bracelet which attaches to a grounded object. The manufacturer also requires that the production employees wear contaminant-free overalls so that the production area remains free of dirt.

* The wrist bracelets are not taxable since they are equipment necessary to the production process.

* The overalls are taxable since they are clothing worn throughout the plant instead of in a special and limited portion of the manufacturing facility where the environment is totally regulated.

Example 53

A manufacturer has several safety concerns in the manufacturing plant for which it has taken various measures. It has attached guards to certain of the production machinery to protect the workers from injury and placed safety signs at various points throughout the plant. It also furnishes clothing and other equipment to workers primarily for the workers' safety and protection. Finally, the manufacturer hangs fire extinguishers on walls throughout the plant.

* Machinery guards are attached to the production machinery and are therefore not taxable.

* General safety items, unless actually attached to production machinery, are taxable. Therefore, the safety signs, clothing, and other equipment are taxable.

* The fire extinguishers are taxable.

Example 54

A manufacturer of household products purchases a computer and software for use in designing packaging for its products (a "CAD" system). The CAD equipment allows the manufacturer's design engineers to create and evaluate various package sizes and shapes and the effects of using different package materials. Similarly, the system can be used to design and layout different labeling. A plotter prints out the designs for review by management. When a new design is selected, the system generates detailed drawings which are sent to package manufacturers and printers who will produce the new items.

* The entire CAD system, including the software, is used in research and development and is taxable.

Example 55

A manufacturer installs probes on a grinding machine, in part by using a special tool that was purchased for that purpose. The grinder is production machinery. The probes measure vibrations in the bearings of the machine while it is operating. A chart recorder records the data from the probes. When vibrations exceed a certain tolerance, new bearings are ordered and installed, thus allowing the manufacturer to make the repair in a controlled fashion and avoid extended downtime and/or more extensive damage to the grinder.

* The probes are not taxable, since they monitor the functioning of equipment used in the continuous manufacturing operation.

* The chart recorder merely makes a record of the monitoring and is taxable.

* The tool purchased to install the probes is taxable.

* The replacement bearings are not taxable, since they are incorporated into equipment used in the manufacturing operation.

Example 56

A manufacturer shuts down a reactor, which is used in the manufacturing operation, for routine maintenance. During shutdown, a section of the reactor wall is cut out, removed by crane, and a new section is welded in. Thereafter, the reactor is cleaned and the lines are flushed in preparation for start-up. All work is done by employees of the manufacturer.

* The labor performed to remove the old section, install the new section, clean the reactor and flush the lines is not taxable.

* The new section of the reactor wall is not taxable as it is part of a production machine.

* The welding torch, crane, equipment used to clean and flush the reactor, and related consumables, such as acetylene and cleaning compounds, are items used to clean, repair, install, or maintain personal property in the manufacturing facility and are therefore taxable.

Example 57

A manufacturer purchases two trucks to move work in process between buildings within the manufacturing facility. One truck is not registered for highway use since it is used solely on the manufacturer's private property. The second truck is registered, since it must travel a short distance on a public highway which passes through the manufacturing facility.

* The unregistered truck is not taxable, since it is used in materials handling of in-process product.

* The truck registered for highway operation is taxable.

Example 58

A manufacturer of paper products uses an extremely large and complex paper-making machine. The machine consists of many parts and requires constant servicing. Some parts themselves are massive and heavy. These parts must periodically be removed and replaced.

The manufacturer uses what it calls the wet end crane to lift, remove, and replace these heavy parts. The crane is sixty feet above the plant floor and it traverses the entire length of the paper-making machine by means of overhead rails.

* The wet end crane is taxable as it is machinery used to repair, install, or maintain real or personal property in the manufacturing facility.

Example 59

Concrete pipe is made in a forming kiln. The formed pipe is moved by lift truck to a steam room where it cures for one day. The steam curing speeds up the necessary chemical reaction to harden the pipe. Steam is produced by a propane fueled boiler. The propane is stored in six tanks, with lines going to a single vaporizer which converts the liquid into gas. The concrete pipe is removed from the steam room to an area where employees patch and smooth pits and flaws in the pipe. The pipe is then moved to an outside storage area where it remains for at least twenty days to allow final curing. When sold, the pipe is loaded onto flatbed trailers by a yard boom truck. Movement of the pipe in the facility is done by three interchangeable lift trucks. The lift trucks are used seventy-five per cent of the time moving the pipe to and from the steam room, twenty per cent of the time moving from the finishing area to the yard, and five per cent of the time in miscellaneous activities. The lift trucks are battery powered and share the use of a single battery charger.

* The propane, propane lines and vaporizer, boiler, and hand tools used in finishing are not taxable. The propane storage tanks are taxable.

* The lift trucks are primarily used for materials handling as part of the continuous manufacturing operation. The lift trucks and battery charger are not taxable.

* The boom truck is taxable.

Example 60

A manufacturer produces bottle caps and furnace air filters at its single facility. The bottle caps are die punched from coils of sheet steel strip. The bottle caps are then passed through an inspection device and any caps which are found unacceptable are carried by a conveyor to a bin where they are held for sale. Acceptable caps continue through additional steps which include printing and the insertion of a gasket. After the bottle caps are punched from the sheet steel strip, the remaining perforated strip is recoiled and moved by a lift truck to temporary storage racks, from which point it is further trimmed to length during its assembly into furnace air filters.

* This constitutes a single manufacturing operation that produces two different products at the same manufacturing facility.

* The punching, printing, and gasket insertion equipment are all used in the production of the bottle caps and are therefore not taxable.

* The recoiling equipment and trimming equipment are production machines and not taxable.

* The device for inspecting the bottle caps is not taxable since it is used for testing the product.

* The lift truck and storage racks are not taxable because they handle or temporarily store in-process product.

Example 61

A manufacturer purchases sheet metal for fabrication into various products. After initial storage, the sheet metal is transported to slitters by a propane powered lift truck. The slitters cut the sheet metal to length, after which it is transported to the stamping presses. As the steel goes through the stamping process, excess metal in the form of chips is produced. The metal chips are removed from the stamping area through a chute and conveyor system which transports the metal chips to a baler. The baler compresses the chips into bales which are then sold to industrial customers as scrap metal.

* The sheet metal is committed to the manufacturing operation when deposited at the slitters by the lift truck. The lift truck and the propane used to power it are taxable.

* The slitters and stamping presses are production machinery and are not taxable.

* The metal chips are scrap. Since the scrap is sold, rather than being reused in the manufacturing operation at the same facility, the chutes and conveyors which handle the scrap metal chips are taxable.

* Since the baler changes the form of the chips which are intended to be sold, the baler is production machinery and not taxable.

Example 62

A meat processor makes sausage, wieners, salami, bologna, and similar products. After grinding and mixing, the meat is extruded into casings of various types and sizes. The meat is then smoked and/or cooked. After cooking the casings are removed and discarded.

* The casings are consumables that physically interact with the product during the continuous manufacturing operation and are not taxable.

Example 63

A dairy purchases raw milk from farmers. The milk is picked up by trucks owned by the dairy. Upon arrival at the dairy facility, a pump removes the milk from the truck through a pipe and pumps it into a clarifier, which is a centrifuge that removes particle contaminants. From the clarifier, the raw milk is pumped into a storage silo where it is held for period of time. After the raw milk is removed from the silo, it proceeds through various processes, including separation (where cream is removed), blending (where cream is added back to reach proper butterfat content), standardization (where vitamin supplements are added), pasteurization, and homogenization. After homogenization, the milk is pumped to filling equipment which packages the milk in cartons or jugs.

* The trucks which deliver the milk from the farmers and the pump which removes the milk from the trucks are taxable.

* The clarifier actively refines the raw milk by centrifuging and is not taxable. The clarifier is the beginning of the manufacturing operation and the raw material (milk) is committed at that point.

* All equipment, pipes, pumps, and tanks (including the silo holding the raw milk), which process, move, or temporarily store the milk up to and including the homogenization process, are part of the continuous manufacturing operation and not taxable.

Example 64

An ice cream manufacturer purchases cream, skim milk, sugar, and various flavorings and additives. The cream and milk are placed into refrigerated tanks when received. Any particular flavoring is placed into one of several storage tanks. All of these tanks are connected by piping to a mixing tank. In-line meters control the amount of cream, milk, and flavoring withdrawn from the tanks and batched in the mixing tank. After mixing, the ice cream is packaged into cartons and moved by conveyor through a freeze tunnel, where most of the ice cream becomes solid. After the freeze tunnel, the packaged product moves slowly through a hardening room on roller conveyors. The hardening room is a large freezer where the temperature is maintained at minus thirty degrees. The solidification of the ice cream is completed in the hardening room. On exit from the hardening room, the product is shrink-wrapped in appropriate quantities (e.g., four half gallons), palletized, and moved by lift truck into a large freezer to await shipment.

The tanks, freezers, and some in-process piping is cooled by a refrigeration system, which consists of compressors, condensers, piping, and an in-line tank for the coolant. Based upon an analysis of the refrigeration system piping used in the various areas of the facility, it has been determined that twenty per cent of the system is used to cool the cream and milk tanks, ten per cent for the mixing tank, in-process piping, and packaging operation, thirty per cent for the freeze tunnel and hardening room, and forty per cent for the freezer warehouse.

* The initial storage tanks for the cream, milk, and flavorings are taxable.

* The milk, cream, and flavoring are committed to the manufacturing operation at the point they are metered prior to entering the mixing tank. The meters and subsequent piping and the mixing tank are not taxable.

* The ice cream is not completed until it leaves the hardening room. The freeze tunnel, hardening room, and roller conveyors are not taxable.

* The forklift that moves the palletized product into the freezer warehouse is taxable.

* The freezer warehouse is taxable, since it is storing a completed product.

* Sixty per cent of the coolant is taxable, since that is the proportion of this fungible used in a taxable manner.

* The condensers, compressors, and tank for the refrigeration system are taxable, since their quantified primary use (sixty per cent) is taxable.

* Since the refrigeration system piping is essentially identical, it is properly treated as fungible for sales tax purposes and is sixty per cent taxable.

Replaces rule 5703-9-21; Eff 10-29-77; 11-18-78; 12-1-90
Rule promulgated under: RC 5703.14
Rule authorized by: RC 5703.05
Rule amplifies: RC 5739.01 , 5739.011 , 5741.02

5703-9-22 Personalty used or consumed directly in mining.

Persons engaged in the production of tangible personal property for sale by mining, may claim exemption when purchasing:

(A) Machinery, equipment, or other personal property used or consumed principally in a mine or excavation for the extraction from the earth of a substance classified geologically as a mineral.

(B) Machinery, equipment, or other personal property used or consumed primarily to transport the substance extracted from the earth from the mine or excavation to a plant, factory or tipple where the substance extracted is to be processed by the person conducting such mining operation.

(C) Aggregate, gravel or other materials which will be incorporated into and become a part of temporary private roads or haulways, either during construction or in repair and maintenance, used principally for the transportation of the substance extracted from the earth from the mine or excavation to a plant, factory, or tipple where the substance extracted is to be processed by the person conducting such mining operation.

(D) Machinery, equipment, or other personal property used to repair or maintain the machinery, equipment, and other personal property in paragraphs (A) and (B) of this rule.

(E) Articles primarily for the physical protection of production employees from a danger of the operation in which they are engaged, when used principally in the mine or excavation or in the transportation of the substance mined to a plant, factory or tipple where the substance extracted is to be processed by the person conducting such mining operation.

The tax status of purchases of items for use or consumption in a plant, factory or tipple where the substance extracted from the earth is to be processed by the person conducting such mining operation shall be determined in accordance with rule 5703-9-21 of the Administrative Code.

Effective: 12/21/2006
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5739.02(B)(42)(a)
Prior Effective Dates: 9/1/67, 9/28/76

5703-9-23 Personalty used or consumed in farming, agriculture, horticulture or floriculture.

For the purpose of this Rule, farming is defined as the occupation of tilling the soil for the production of crops as a business and shall include the raising of farm livestock, bees, or poultry, where the purpose is to sell such livestock, bees, or poultry, or the products thereof as a business.

Agriculture is defined as the cultivation of the soil for the purpose of producing vegetables and fruits and includes gardening or horticulture, together with the raising and feeding of cattle or stock for sale as a business.

Horticulture is defined as the production of vegetables, vegetable plants, fruits, or nursery stock for sale as a business and shall include the operation of commercial vegetable greenhouses or nurseries.

Floriculture is defined as the production of flowers and plants for sale as a business, either in the field or greenhouse.

Persons engaged in rendering farming, agricultural, horticultural, or floricultural services for others are deemed to be engaged directly in farming, agriculture, horticulture or floriculture.

Sales of articles of tangible personal property to farmers, agriculturists, horticulturists and floriculturists, who purchase such items for the purpose of incorporating them into tangible personal property to be produced for sale, are not subject to the tax.

Sales of articles to be used or consumed in farming, agriculture, horticulture, or floriculture, directly in producing tangible personal property for sale, are not subject to the tax.

Sales of articles to be used or consumed in farming, agriculture, horticulture, or floriculture directly in the production of tangible personal property which will, in turn, be used directly in the production of products of any of the activities defined above, for sale, are not subject to the tax.

Sales of articles to be incorporated, as a material or part, into the tangible personal property described in the preceding paragraph, are not subject to the tax.

Sales of articles to be used or consumed in the conditioning or holding of products produced for sale, or produced for further use in production for sale, by farming, agriculture, horticulture or floriculture, are not subject to the tax.

The foregoing exemptions do not apply to any article which is incorporated into real property.

The taxability or non-taxability of sales is determined by the use of articles sold. For the sale to be exempt, it is necessary that the articles sold be used in an exempt manner as defined above. Implements and articles used to cultivate or stimulate the growth of crops or flowers which are to be sold are within the scope of the exemptions as is livestock and poultry purchased for purposes or resale, or for the purpose of selling the products thereof.

Sales of materials such as lumber, nails, glass and similar items to be used in the construction or repair of buildings shall be subject to the tax.

(former TX-15-10); Eff 1-2-62
Rule promulgated under: RC 5703.14

5703-9-24 Household good movers engaged in highway transportation for hire.

(A) Household goods movers engaged in "highway transportation for hire" as defined by division (Z) of section 5739.01 of the Revised Code may claim the exemption provided for under division (B)(32) of section 5739.02 of the Revised Code on the purchase or lease of motor vehicles, such as trucks and trailers, used by the household goods mover engaged in highway transportation for hire. Equipment carried on a motor vehicle is exempt under division (B)(32) of section 5739.02 of the Revised Code if it is "attached to or incorporated in" the motor vehicle.

For the purpose of providing guidance as to what is "attached to or incorporated in ... motor vehicles" this rule sets forth nonexclusive examples of equipment that do and do not qualify for the (B)(32) exemption.

(1) The following are examples of items, not inclusive, that are considered "attached to or incorporated in" the motor vehicles and are exempt under division (B)(32) of section 5739.02 of the Revised Code:

(a) Spring loaded logistic straps.

(b) Decking bars.

(c) Auto tie downs.

(d) Tie down straps.

(e) Walkboards.

(f) Padlocks and seal locks.

(2) The following are examples of items, not inclusive, that are not considered "attached to or incorporated in" the motor vehicles and are not exempt under division (B)(32) of section 5739.02 of the Revised Code:

(a) Pads (including "Blue pads", burlap moleskin, and door jamb pads).

(b) Dollies and carts (including 4-wheel dollies, appliance dollies and carton dollies),

(c) Piano boards.

(d) Ladders.

(e) Refrigerator covers.

(f) Rug runners.

(g) Rubber bands and bungie cords.

(B) No exemption may be claimed under division (B)(32) of section 5739.02 of the Revised Code on a purchase that includes taxable and non-taxable equipment unless the invoice provided by the vendor separates charges for taxable equipment from charges for non-taxable equipment. Failure to separate charges will likely subject both taxable and non-taxable equipment to the tax.

(C) Incidental storage-in-transit provided by household goods movers engaged in "highway transportation for hire" is not the provision of storage under division (B)(8) of section 5739.01 of the Revised Code. As used in this paragraph, "incidental storage-in-transit" means the storage is associated with a move provided by a person engaged in "highway transportation for hire" and at the time the contract was entered into for the move the anticipated time of storage was for one hundred eighty days or less. Any storage that is anticipated to be longer or extends beyond one hundred eighty days is not incidental storage-in-transit.

Eff. 1-1-04
Rule promulgated under: RC 5703.14
Rule authorized by: RC 5703.05
Rule amplifies: RC 5739.01 , 5739.02

5703-9-25 Watercraft, outboard motors, and personal watercraft; tax payment or exemption claim required for certificate of title; remittance of tax by clerk of courts.

(A) If any sale of a watercraft, outboard motor, or personal watercraft is claimed to be exempt from the sales or use tax on the basis either of the intended use of the item by the purchaser in this state or of the sale being made to a church or nonprofit organization whose purchase is exempt from the tax levied by or pursuant to Chapters 5739. and 5741. of the Revised Code, the clerk of courts shall refuse to issue a certificate of title unless the application is accompanied by a certificate of exemption executed by the purchaser that specifies the reason the sale is not legally subject to the tax. A form required to be prescribed by rule is hereby prescribed for use as a certificate of exemption regarding sale of a watercraft, outboard motor, or personal watercraft. The form may be obtained from the department of taxation and is available on the departmentæs web site. The form may be reproduced as needed.

(B) If any sale of a watercraft, outboard motor, or personal watercraft is claimed to be exempt from the sales tax on the basis that the sale is in interstate commerce, the clerk of courts shall refuse to issue a certificate of title unless the application is accompanied by a statement of fact regarding the sale. A form not required to be prescribed by rule is available for use as a statement regarding sale of a watercraft, outboard motor, or personal watercraft in interstate commerce. The form is not prescribed by or a part of this rule. The form may be obtained from the department of taxation and is available on the departmentæs web site. The form may be reproduced as needed.

(C) A copy of each of the above described statements and/or certificates is to be retained by the applicant and two copies presented to the clerk of courts, who shall retain one copy and submit the other copy to the department of taxation.

(D) The clerk of courts shall issue a receipt upon collection of the tax resulting from sales of watercraft, outboard motors, and personal watercraft. The clerk shall retain the original and give a copy to the remitter of the tax.

(E) On Monday of each week, each county clerk of courts shall forward to the treasurer of state the Ohio sales and use tax collections resulting from sales of watercraft, outboard motors, and personal watercraft, accompanied by the remittance report, and shall forward to the department of taxation a copy of each statement and/or certificate required herein to be obtained in lieu of tax payment.

(F) The following form is incorporated in this rule by reference: The certificate of exemption regarding sale of a watercraft, outboard motor, or personal watercraft, revised March 15, 2004.

Eff. 6-3-04
Rule promulgated under: RC 5703.14
Rule authorized by: RC 5703.05 , 5739.03 , 5741.02
Rule amplifies: RC 1548.06 , 5703.05 , 5739.01 , 5739.02 , 5739.03 , 5741.02
RC 119.032 review dates: Exempt

5703-9-26 Sourcing ancillary services and internet access.

(A) As used in this rule:

(1) "Ancillary service" has the same meaning as in division (AA)(1)(h) of section 5739.01 of the Revised Code:

(2) "Internet access service" means a type of electronic information service, as that term is defined in division (Y)(1)(c) of section 5739.01 of the Revised Code, wherein the consumer of the service is granted access to the service provider's computer equipment for the purpose of connecting to the Internet for the purpose of accessing content, information or other services offered over the Internet.

(3) "Place of primary use" has the same meaning as in division (A)(6) of section 5739.034 of the Revised Code.

(B) A sale of ancillary service shall be sourced to the consumer's place of primary use.

(C) A sale of Internet access service shall be sourced to the consumer's place of primary use.

(D) For purposes of section 5739.034 of the Revised Code:

(1) "Communications channel" means a physical or virtual path of communications over which signals are transmitted between or among customer channel termination points.

(2) "Customer channel termination point" means the location where the customer either inputs or receives the communications.

Effective: 06/28/2012
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5739.033 , 5739.034 , 5741.05
Prior Effective Dates: 11/29/2010

5703-9-27 Sale of food to students by public, private and parochial schools, colleges and universities.

Sales of food to students only by a private, public or parochial school, college or university off the premises of such school when made by or under the direct control and supervision of such school shall be deemed to be within the exemption provided in Revised Code 5739.02(B)(3) .

The Sales Tax shall not apply to the sales of food to students only by fraternities, sororities, cafeterias and dormitories in public, parochial and private schools, colleges and universities.

Dormitories shall include those buildings operated by public, parochial and private schools, colleges and universities in which students make their homes while attending such schools. Dormitories, cafeterias and dining rooms shall not include boarding and rooming houses operated by private individuals.

Fraternities and sororities shall include all student social organizations officially recognized by, under the supervision of and maintained in public, parochial and private schools, colleges and universities operating dining rooms for their student members. Such organizations do not include rooming and boarding houses operated by private individuals.

(former TX-15-14); Eff 1-2-62
Rule promulgated under: RC 5703.14

5703-9-28 Sales and use tax: newspapers and magazines.

(A) As used in this rule:

(1) "Newspaper" means an unbound publication bearing a title or name which is regularly published at least as frequently as biweekly and distributed from an established place of business to the general public primarily in a specific geographic area for a definite price per copy or subscription period. A newspaper must contain in all editions substantial news matter of international, national, or local events and will normally contain advertisements, photographs, illustrations, editorial comment, opinions, legal notices, and other announcements of public interest. Newspaper does not include a newsletter or similar unbound periodical of interest only to certain trade, professional, commercial, or hobby interests and which does not serve the purpose of providing instruction, enlightenment, or entertainment to the general public.

(2) "Community newspaper" means an unbound publication bearing a title or name that is regularly published from a fixed place of business at least as frequently as biweekly, the majority of copies of which are distributed to households in its service area, which contains news, editorial comment, opinions, features, advertisements, or other matters of public interest, provided that such publication is not owned or controlled by individuals or business concerns which publish it as an auxiliary to and essentially for the advancement of another non-newspaper business of those who own or control such publication. "Community newspaper" includes any advertising insert actually published by the same person who publishes the community newspaper and is distributed therewith.

(3) "Magazine" means a bound publication bearing a title or name which is regularly published at least as frequently as quarter annually from an established place of business for a definite price per copy or subscription period, containing articles, photographs, illustrations, news, advertisements, opinions, or similar information of interest to the general public or an identifiable portion of the general public.

(4) "Controlled circulation publication" means a magazine containing at least twenty-four pages, at least twenty-five per cent editorial content, regularly published at least as frequently as quarter annually, and circulated without charge to the recipient, provided that such publication is not owned or controlled by individuals or business concerns which conduct such publication as an auxiliary to and essentially for the advancement of the main business or calling of those who own or control them.

(B) Sales and use tax do not apply to the sale or use of:

(1) Newspapers;

(2) Community newspapers;

(3) Magazine subscriptions shipped to the consumer by second-class mail; and

(4) Magazines distributed as controlled circulation publications.

Replaces rule 5703-9-28; Eff 2-17-75; 9-27-84
Rule promulgated under: RC 5703.14
Rule authorized by: RC 5703.05
Rule amplifies: RC 5739.01 , 5739.02 , 5741.02

5703-9-29 Outdoor advertising concerns.

Persons engaged in the business of furnishing space on poster panels, situated on real property owned or leased by them, for the purpose of displaying advertisements to the general public, are not vendors and the charges collected by them are not subject to the tax imposed by Revised Code 5739.02 . The tax shall apply on all sales of tangible personal property to such persons for use or consumption in furnishing such service.

(former TX-15-16); Eff 7-21-61
Rule promulgated under: RC 5703.14

5703-9-30 Auctions and auctioneers.

Where auction sales are conducted at regular or frequent intervals by the same person or persons, at a place of business subject to their control, the person or persons conducting such sales must procure a vendor's license and collect the tax regardless of whether the merchandise sold is owned by them or by other individuals who have contracted to pay, in some way, for the services of the auctioneer in making the sale.

Where the owner of goods sold at auction at the owner's place of business is engaged in the business of selling tangible personal property, the auctioneer is deemed to be the agent of the owner and the owner is responsible for collection of the tax on each transaction.

The auctioneer is not responsible for collecting tax when the transaction is a casual sale of items acquired for non-business use which are sold by the auctioneer employed directly by a person for such purpose, provided the location of such sale is not the auctioneer's permanent place of business. "Permanent place of business" includes any location where such auctioneer has conducted more than two auctions during the year.

(former TX-15-18); Eff 9-28-76
Rule promulgated under: RC 5703.14

5703-9-31 Florists.

Florists and nurserymen are vendors and must procure a vendor's license and collect the tax on all sales of tangible personal property.

In cases of sales of tangible personal property by one florist or nurseryman to another florist or nurseryman for the purpose of propagation or resale, the tax does not apply.

The tax shall be collected on orders taken by an Ohio florist or nurseryman to be telegraphed to a second florist or nurseryman, whether the delivery is to be made within or without the State. A florist or nurseryman making deliveries pursuant to telegraph orders received from another florist or nurseryman, shall not collect the tax regardless of whether the florist or nurseryman forwarding the order is within or without the State of Ohio.

(former TX-15-18); Eff 7-11-39
Rule promulgated under: RC 5703.14

5703-9-32 Sales and use tax: morticians funeral transactions.

(A) Morticians and funeral directors are the retailers of all items of tangible personal property and taxable services which must be separately stated in the billing and tax collected on the full selling price. Examples of such tangible personal property and services include, but are not limited to:

(1) Clothing

(2) Vaults - All kinds

(3) Outside containers (except pine box furnished with casket)

(4) Flowers

(5) Caskets

(6) Urns or other containers for ashes from cremation

(7) Limousine service if entirely within Ohio

(8) Guest books and prayer cards

(B) Personal and professional services that are not subject to tax should be stated separately from the taxable tangible personal property and services in the billing. Examples of nontaxable personal or professional services include, but are not limited to:

(1) Funeral notices

(2) Gratuities to clergymen and pallbearers, churches, etc.

(3) Cash advances

(4) Embalming and care of the remains

(5) Transportation of the remains

(6) Cremation

(7) Use of the funeral home or chapel for showing or services

(8) Counseling or other professional services

(C) Morticians and funeral directors are the consumers of all items of tangible personal property or taxable services used in performing their personal or professional services and shall pay the tax on the purchase of such articles. Examples of such items include, but are not limited to:

(1) Embalming fluids, cosmetics, and instruments used in preparation of the remains

(2) Crematory equipment and supplies

(3) Funeral home or chapel furnishings

(4) Motor vehicles used for transporting the remains

(D) Cemetery associations are vendors of all items of tangible personal property sold such as vaults and markers, including grave and lot markers, and are responsible for the collection of the tax on taxable transactions.

(E) If the casket and remains are to be shipped to a point outside the state, no Ohio tax shall be collected by the Ohio mortician or funeral director for the tangible personal property shipped.

Effective: 05/06/2007
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5739.01 , 5739.02 , 5741.02
Prior Effective Dates: 10/7/1947, 12/23/1992 (Emer.), 3/21/1993

5703-9-33 Photographers.

The production of still photographs or prints, motion pictures, the developing of negatives, or the mounting of transparencies in frames to create slides, for a consideration, are sales. Unless the sale is otherwise exempted by law, the entire charge is subject to the sales tax without any deduction on account of the cost of property sold, cost of materials used, labor or service cost, or any other expense.

(former TX-15-20); Eff (Amended) 4-19-60; 9-28-76
Rule promulgated under: RC 5703.14

5703-9-34 Sign manufacturers, sign painters and sales agents.

Persons engaged in selling, leasing, installing, maintaining, or repairing electric, neon, or other illuminated signs, where such sale or lease involves a transfer of title or possession or a license to use or consume such signs, are making retail sales and must collect the tax on the selling price or rental fee.

Persons engaged in the business of painting signs on articles of tangible personal property, whether furnished by themselves or by the customer, for the purpose of selling or leasing such signs as finished articles, are vendors of such signs. Each such vendor must possess a vendor's license and collect the tax on the selling price or rental fee of each sign, including the labor charge for painting such signs.

Persons engaged in the business of painting signs on real property owned or leased by others are rendering a service and the charges therefor are not subject to the tax. The tax shall apply on all sales of tangible personal property to such persons for use or consumption in furnishing such service.

Eff 7-10-88
Rule promulgated under: RC 5703.14
Rule authorized by: RC 5703.05
Rule amplifies: RC 5739.01

5703-9-35 Purchases, as a liquidator of closed institutions, by superintendents of insurance, banks, and building and loan associations.

Sales of tangible personal property to the Superintendent of Insurance of Ohio, the Superintendent of Banks of Ohio and the Superintendent of Building and Loan Associations of Ohio, in their capacities as liquidators of closed institutions under their respective jurisdictions, are not sales to the State or any of its political subdivisions within the meaning of Revised Code 5739.02(B)(1) and are subject to the tax.

(former TX-15-23); Eff 1-1-62
Rule promulgated under: RC 5703.14

5703-9-36 Sales and use tax, negative equity in motor vehicle sales and leases.

(A) "Negative equity" is a term applied when a motor vehicle purchaser is trading in a vehicle with a current value that is less than the amount owed on the existing loan for that vehicle. For example, a customer trades in a motor vehicle to a dealer in connection with the purchase of another vehicle. The dealer allows a $5,000 trade-in credit towards the purchase of the second vehicle, but the customer still owes $7,000 on the existing loan. The negative equity amount is $2,000.

(B) A motor vehicle dealer may state the amount of negative equity several ways on a retail buyer's agreement. How the trade-in allowance, negative equity, or loan payoff amount is displayed on the retail buyer's agreement determines if it is part of the total vehicle price paid for the newly acquired vehicle and subject to sales tax. If the negative equity amount is included by the dealer in the total vehicle price, it will be included in the base on which sales tax must be charged. If it is not included in the total vehicle price, the negative equity amount will not be included in the calculation of sales tax.

(C) The examples below will show several situations involving the application of Ohio sales and use tax to sales of motor vehicles when the purchaser is trading in a vehicle with negative equity. All examples will involve the same assumed facts: A dealer is selling a motor vehicle to a purchaser for the negotiated cash price of $25,000; the purchaser is trading in a vehicle; the dealer allows the purchaser a trade-in credit of $5,000 towards the purchase of the newly acquired motor vehicle; the trade-in vehicle has an outstanding loan balance of $7,000; the negative equity amount is $2,000; the consumer has consented to include the negative equity amount as part of the current transaction; documentary fees are assumed to be $250; title fees are assumed to be $15. The applicable tax rate, for the purpose of the examples is assumed to be 7%.

To reflect the difference in the treatment of trade-in vehicles when determining the amount subject to sales tax, the examples are given both as a purchase of a new vehicle and as a purchase of a used vehicle. (Note: for purposes of these examples only, all figures, including tax, have been rounded to the nearest dollar.) For the examples involving sales of new vehicles, sales tax is calculated by subtracting the applicable trade-in allowance from the total vehicle price to arrive at a "tax base". The "tax base" is multiplied by the applicable sales tax rate, 7% in each example. Calculation B in each example reflects this calculation. For the examples involving sales of used vehicles, sales tax is calculated on the total vehicle price as Ohio law does not allow a deduction from price for the value of a trade-in.

Example 1: In this example, the dealer includes the negative equity amount in the total vehicle price. In this example, the negative equity is itemized. However, whether the negative equity is separately itemized or simply reflected in the base vehicle price (See Example 2 below), when negative equity is added to the base vehicle price, it is subject to the tax.

Example 1a: New Vehicle Transaction

Calculation A: Negotiated Vehicle Price

Base Vehicle Price $25,000

Negative Equity $ 2,000

Doc Fee $ 250

Total Vehicle Price $27,250

Calculation B: Sales Tax

Total Vehicle Price $27,250

Trade-in Allowance ($ 5,000)

Tax Base $22,250

Tax @ 7.00 % $ 1,558

Calculation C: Total Due/Amount Financed

Total Vehicle Price $27,250

Tax $ 1,558

Title Fee $ 15

Total Due/Amount Financed $28,823

Example 1b: Used Vehicle Transaction

Calculation A: Negotiated Vehicle Price

Base Vehicle Price $25,000

Negative Equity $ 2,000

Doc Fee $ 250

Total Vehicle Price $27,250

Calculation B: Sales Tax

Total Vehicle Price $27,250

Tax @ 7.00 % $ 1,908

Calculation C: Total Due/Amount Financed

Total Vehicle Price $27,250

Tax $ 1,908

Title Fee $ 15

Total Due/To Be Financed $29,173

Example 2: In this example, the dealer increases the base vehicle price by the negative equity amount. Unlike Example 1, the negative equity amount is not separately itemized. However, as noted in Example 1, the result would be the same if the negative equity were itemized separately before calculating the total vehicle price. The dealer in this example also increases the trade-in allowance to the full amount of the consumer's outstanding loan balance ($7,000).

2a: New Vehicle Transaction

Calculation A: Negotiated Vehicle Price

Base Vehicle Price $27,000 (includes $2,000 negative equity without itemization)

Doc Fee $ 250

Total Vehicle Price $27,250

Calculation B: Sales Tax

Total Vehicle Price $27,250

Trade-in Allowance ($ 7,000) (increases allowance by $2000 to offset negative equity)

Tax Base $20,250

Tax @ 7.00 % $ 1,418

Calculation C: Total Due/To Be Financed

Total Vehicle Price $27,250

Tax $ 1,418

Title Fee $ 15

Total Due/To Be Financed $28,683

2b: Used Vehicle Transaction

Calculation A: Negotiated Vehicle Price

Base Vehicle Price $27,000

Doc Fee $ 250

Total Vehicle Price $27,250

Calculation B: Sales Tax

Total Vehicle Price $27,250

Tax @ 7.00 % $ 1,908

Calculation C: Total Due/To Be Financed

Total Vehicle Price $27,250

Tax $ 1,908

Title Fee $ 15

Total Due/To Be Financed $29,173

Example 3: In this example, the dealer does not include the negative equity amount in the total vehicle price. Rather, the negative equity is shown as an additional amount due to a third party (perhaps financed) after the computation of the total vehicle price.

3a: New Vehicle Transaction

Calculation A: Negotiated Vehicle Price

Base Vehicle Price $25,000

Doc Fee $ 250

Total Vehicle Price $25,250

Calculation B: Sales Tax

Total Vehicle Price $25,250

Trade-in Allowance ($ 5,000)

Tax Base $20,250

Tax @ 7.00 % $ 1,418

Calculation C: Total Due/To Be Financed

Total Vehicle Price $25,250

Tax $ 1,418

Title Fee $ 15

Negative Equity(Amounts Paid To Others) $ 2,000

Total Due/To Be Financed $28,683

3b: Used Vehicle Transaction

Calculation A: Negotiated Vehicle Price

Base Vehicle Price $25,000

Doc Fee $ 250

Total Vehicle Price $25,250

Calculation B: Sales Tax

Total Vehicle Price $25,250

Tax @ 7.00 % $ 1,768

Calculation C: Total Due/Amount Financed

Total Vehicle Price $25,250

Tax $ 1,768

Title Fee $ 15

Negative Equity (Amounts Paid To Others) $ 2,000

Total Due/To Be Financed $29,033

(D) In the case of a motor vehicle lease, if the lease agreement includes an amount for negative equity or a payoff for a previous loan or lease, that amount is part of the total amount paid by the lessee and is part of the price and subject to sales and use tax.

Effective: 10/25/2009
R.C. 119.032 review dates: 10/25/2014
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5739.01

5703-9-37 Sales and use tax: tire retreading and repairs.

(A) Persons engaged in the business of retreading, recapping, or relugging of tires for consideration are deemed to be producing tangible personal property for sale by processing, as defined in rule 5703-9-20 of the Administrative Code. The taxability of tools and equipment purchased by such persons will be determined under the provisions of rule 5703-9-21 of the Administrative Code.

With respect to sales of retreated, recapped, or relugged tires, the full amount charged to the consumer, including materials and labor, is the price subject to the sales tax, regardless of the manner in which the consumer is billed for such charges.

(B) Persons engaged in performing tire repairs for consideration are engaged in making sales of a service subject to sales tax. The full amount charged to the consumer, including materials and labor, is the price subject to sales tax.

Eff 11-23-53; 10-18-82; 12-23-92 (Emer.); 3-21-93
Rule promulgated under: RC 5703.14
Rule authorized by: RC 5703.05
Rule amplifies: RC 5739.01 , 5739.011 , 5741.02

5703-9-38 Photostats and blue prints.

A person engaged in producing by photostating, blueprinting, Ozaliding, and other similar processes, copies of documents, drawings, photographs, prints, and like items, and transferring the copies so produced for a price charged to customers, is a vendor. Such transfers meet the statutory definition of "sale" and constitute "selling". Hence, a person engaged in the business of making such sales at retail must procure a vendor's license and collect the proper amount of tax with respect to each transaction or obtain from the consumer a properly executed certificate of exemption in the event the tax does not apply.

(former TX-15-26); Eff 3-16-55
Rule promulgated under: RC 5703.14

5703-9-39 Interstate commerce.

When tangible personal property is sold within the State and the vendor is obligated to deliver it to a point outside of the State, or to deliver it to a carrier or to the mails for transportation to a point outside of the State, the Ohio Sales Tax does not apply. However, where tangible personal property pursuant to a sale is delivered in this State to the buyer or to an agent of his other than an interstate carrier the retail Sales Tax applies notwithstanding that the buyer may subsequently transport the property out of the State.

(former TX-15-27); Eff 7-13-51
Rule promulgated under: RC 5703.14

5703-9-40 Sales of personalty belonging to another.

Persons engaged in the business of selling tangible personal property who are authorized, engaged or employed to sell tangible personal property belonging to another are the vendors of such tangible personal property and shall be responsible for the proper collection and remittance of the Sales Tax with respect to such sales.

Persons engaged in the business of selling tangible personal property shall include persons who hold themselves out to the public as conducting a business regardless of whether the merchandise sold is owned by them or by other persons who have authorized, engaged or employed them to sell tangible personal property.

(former TX-15-28); Eff 2-24-65
Rule promulgated under: RC 5703.14

5703-9-41 Person engaged in advertising field.

A person engaged in the field of advertising or in the preparation of advertising matter who sells tangible personal property obtained from others or who produces tangible personal property for transfer to another for a consideration is a vendor with respect to such transactions. If the sales are retail sales the vendor must hold a vendor's license, collect the sales tax, file returns and remit the tax.

The production of tangible personal property for the advertiser is a sale irrespective of whether the material used in the production is supplied either directly or indirectly by the advertiser or is obtained by the producer on his own behalf. The production of items such as photographs, photostats, art work, plates, mats, printed material, etc., for another for a consideration is a sale of such items.

The full amount charged on the sale or production of tangible personal property is subject to the sales tax even though a part of the charge may be billed as "service charge", "fee", or "commission". Where preliminary art has been prepared, the price or tax base for the finished art work includes the amount attributable to the preliminary art.

A person purchasing tangible personal property from others for the purpose of resale or for the purpose of incorporating it into tangible personal property produced for sale may purchase such property exempt from the sales or use tax. Exemption may also be claimed on the purchase or use of tangible personal property used directly in producing the property for sale.

A person in the advertising field who does not sell or produce tangible personal property, but who is engaged solely in rendering service to others as a true agent, is not considered to be a vendor with respect to such services. In determining whether such a person is acting as a true agent, consideration should be given to the contract between the parties, the conduct of the parties with respect to the property involved, and the facts and circumstances of the transaction. A person who, for example, operates under an agreement wherein the agency relationship is specifically set forth and under which advertising is placed in selected media or tangible personal property is purchased on behalf of, and in the name of, the principal, would be considered a true agent. An agent purchasing for another must either pay the sales tax or furnish a properly executed exemption certificate in the name of, and on behalf of, the principal. In claiming exemption based upon the use of the thing transferred the purpose of the principal, not the agent, is the determining factor.

Transactions not involving the sale of tangible personal property or the production of tangible personal property are considered to be the performance of a service. Examples of such services are:

Recommendations for advertising themes or for merchandising plans;

The placing of advertising matter in or the purchase of space or time from advertising media;

The writing of original manuscripts, news releases, copy for use by newspapers or other publications or for broadcast on television or radio;

The purchase of tangible personal property as an agent of the advertiser; or

The preparation of preliminary art (roughs, visualizations, thumbnails) solely for the purpose of displaying the advertising idea to the advertiser.

Where an advertiser is billed for a fee which represents a charge for service not subject to the sales tax, as distinguished from services which are a part of a retail sale or services in the production of tangible personal property, such billing must clearly show the nature of the service rendered.

A person engaged solely in the performance of services is the consumer of the tangible personal property used by him in performing such service and the tax is applicable to these purchases.

(former TX-15-29); Eff 12-21-65
Rule promulgated under: RC 5703.14

5703-9-42 Installation or sale of septic tanks.

A person who, upon order of the owner of land or upon order of a building contractor or subcontractor, furnishes a septic tank for a building and delivers it by placing it in an excavation prepared by another, but does not connect the inlet of the tank to the building and the outlet to the leaching bed, is the vendor of the septic tank and is responsible for collection of the sales tax on the sale.

The mere fact that several sections of the tank may be cemented together by the vendor in the excavation, at the time of delivery, does not result in the tank being incorporated into the structure or an improvement to real property at that time, since it is still unavailable for use until connections are completed.

(former TX-15-30); Eff 3-1-67
Rule promulgated under: RC 5703.14

5703-9-43 Books, manuals, bulletins, lists or similar materials.

Transactions which involve the transfer, for a consideration, of title or possession of books, manuals, bulletins, lists or similar materials providing current information or data on a particular subject which are furnished and/or supplemented on a continuing basis pursuant to a contract are sales.

Books include but are not limited to textbooks, dictionaries, bound volumes of all kinds, instruction books or booklets, and loose leaf information services such as tax information services, labor information services, credit or financial information services. Printed materials which may supplement, explain, amend, revise or otherwise alter, expand, or render current a book previously issued (including a so-called supplement or pocket part) are also included. Printed materials includes matter which is mimeographed or multigraphed or duplicated in any other manner.

(former TX-15-31); Eff 1-1-72
Rule promulgated under: RC 5703.14

5703-9-44 Bad debts.

(A) In reporting gross sales and net taxable sales a vendor may exclude an amount equal to the sum of the vendor's bad debts arising from sales occurring on or after July 1, 1980 and charged off as uncollectible on his books during the sales tax reporting period. The tax collected for the current period may be adjusted by deducting therefrom the amount of tax previously reported and paid as tax collected on the sale giving rise to the bad debt.

"Bad debt" means any debt or account receivable arising from the sale of tangible personal property or a taxable service by the vendor upon which sales or use tax has been reported and paid in a prior reporting period which has become worthless or uncollectible during the period between the vendor's preceding tax return and the present return and which has been uncollected for at least six months. The bad debt must be of a type that is properly deductible pursuant to the "Internal Revenue Code of 1954" 68a Stat. 50, 26 U.S.C. 166 , as amended, and the regulations adopted pursuant thereto, or would be so deductible if the vendor kept his accounts on an accrual basis.

The amount of the bad debt is equal to the price, or portion thereof, of the tangible personal property that is uncollectible. No amount can be excluded as a bad debt that represents:

(1) Interest or finance charges on the debt or account;

(2) Sales tax charged on the purchase price;

(3) Uncollectible amounts on property that remains in the possession of the vendor until the full purchase price is paid;

(4) Expenses incurred in attempting to collect the debt or account;

(5) Any portion of the debt or account that is, in fact, collected; or

(6) Any debt or account that is sold to a third party for collection; or

(7) Any uncollectible amount on property repossessed by or on behalf of the vendor.

(B) The burden of establishing the right to, and the validity of, a bad debt deduction is on the vendor claiming such deduction. For each bad debt excluded from gross sales, the vendor must maintain a record of:

(1) The name of the purchaser/debtor;

(2) The date of the sale or sales giving rise to the bad debt;

(3) The price of the property and the amount of sales tax charged thereon;

(4) The amount of interest, finance and service charges charged to the debt or account;

(5) Whether or not the property was retained by the vendor or repossessed;

(6) Any amounts charged to the debt or account representing costs of collection;

(7) The dates and amounts of any payments made on the debt or account; and

(8) Any portion of the debt or account which represents a charge that was not subjected to tax in the original transaction.

All records must be preserved for four years after the filing of the return upon which the bad debt deduction is taken, unless the commissioner consents in writing to a shorter period or requires by order a longer period.

(C) In the event that the commissioner determines that a vendor has not maintained adequate records, the commissioner may test check the vendor's business in order to verify the amounts deducted as bad debts.

In the absence of adequate records showing the contrary, it is presumed that any payments made on a debt or account are applied first to the price of the property and sales tax thereon and secondly to interest, service charges and any other charges. The amount of interest charged to the account is presumed to be computed at the maximum rate of interest charged by the vendor on that type of account that gives rise to the bad debt.

If the vendor maintains a reserve for bad debts, only actual charges against the reserve representing uncollectible debts or accounts may be deducted for sales tax bad debt purposes. Contributions to the reserve are not deductible as a sales tax bad debt.

(D) The tax due on any bad debt found to have been improperly or illegally deducted may be recovered by assessment in the manner provided in section 5739.13 of the Revised Code.

(E) A bad debt may only be deducted on the return for the sales tax reporting period during which the uncollectible debt was written off on the books of the vendor. In the event that the bad debt deduction exceeds the net taxable sales of the vendor for that period, the tax attributable to the excess amount can only be recovered by refund claim pursuant to sections 5739.07 and 5741.10 of the Revised Code. If all or a portion of a bad debt is subsequently paid by the consumer or any other person, the vendor must include the amount paid in gross sales and net taxable sales on the return for the period during which the payment was made and he must remit the tax thereon.

(F) If the vendor's business consists of taxable and nontaxable sales of tangible personal property, and if the vendor is unable to document whether the sale of the property that gives rise to the bad debt was a taxable or nontaxable sale, the amount of the bad debt deduction shall not exceed the amount of the bad debt multiplied by the quotient obtained by dividing the vendor's taxable sales for the preceding calendar year by his gross sales for the preceding calendar year. In the event that the vendor was not engaged in business during at least six months of the preceding calendar year, the amounts of his taxable sales and gross sales for the preceding twelve months, or the amounts for each of the months that he has been engaged in business, whichever period is shorter, shall be the amounts used in computing the bad debt deduction pursuant to this paragraph.

In order to ensure that a bad debt deduction accurately reflects the tax imposed on the sale which gave rise to the bad debt, whenever the sales tax rate applicable to the vendor's place of business changes, such as by statutory change or the enactment of county or transit authority sales and use tax, the amount of the bad debt deduction must be adjusted before it is excluded from gross sales and net taxable sales. The amount to be excluded shall be the amount of the bad debt multiplied by the quotient obtained by dividing the tax rate applicable at the time of the sale by the tax rate applicable at the time of the deduction.

In case the vendor receives payment after the bad debt deduction has been excluded, the amount that must be included in gross sales and net taxable sales is the amount of the payment multiplied by the quotient of the tax rate applicable at the time of sale divided by the tax rate applicable at the time of the payment. This will assure that the vendor only remits the amount of tax that he previously recovered by excluding the bad debt.

In addition to all other records required to be kept by this rule, the vendor must maintain a record of any computation and adjustments made pursuant to this paragraph.

(G) The provisions of this rule also apply to sellers registered with the tax commissioner pursuant to section 5741.17 of the Revised Code.

(H) In situations where the books and records of the vendor or seller claiming the bad debt allowance support an allocation of the bad debt allowance among multiple states, the vendor or seller may make the allocation and claim the appropriate share of the bad debt with this state.

Effective: 12/16/2005
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5739.01(I) , 5739.121 , 5741.17
Prior Effective Dates: 9/26/80

5703-9-45 Sales; alleged exempt sales; submission of additional evidence.

(A) A vendor who files a petition for reassessment pursuant to section 5739.13 of the Revised Code contesting the assessment of sales tax on sales for which the vendor obtained no valid exemption certificate and for which the vendor failed to establish that the sale was not subject to the tax within sixty days after receiving notice by the tax commissioner of the intent to levy an assessment may, pursuant to division (E) of section 5739.03 of the Revised Code, present additional evidence to the commissioner for the purpose of establishing that the contested assessed transactions are properly subject to a statutory claim of exception or exemption from the tax.

(B) Such additional evidence shall be in written or graphic form and may contain whatever factual information the vendor reasonably believes to be relevant and material to the assessed sales contested by the petition for reassessment.

(C) Such additional evidence shall be filed with the legal division of the department of taxation within ninety days after the vendor's receipt of the notice of assessment, except that, upon application and for reasonable cause, the period for submitting such additional evidence shall be extended thirty days. The vendor or the vendor's representative, at any time prior to any administrative hearing on the petition, may review the results of any preliminary determinations made on the additional evidence submitted.

(D) In making the final determination on the petition, the commissioner shall give due consideration to the additional evidence in order to determine if the vendor has carried the burden of proof in establishing that the contested assessed sales are properly subject to a statutory claim of exception or exemption.

(E) Evidence received subsequent to ninety days after the vendor's receipt of the notice of assessment, or after one hundred twenty days if an extension has been granted pursuant to paragraph (C) of this rule, shall not be considered by the commissioner in making the final determination on the petition.

Eff 5-6-83; 3-22-85
Rule promulgated under: RC 5703.14
Rule authorized by: RC 5703.05
Rule amplifies: RC 5739.03 , 5739.013

5703-9-46 Sales and use taxes: automatic data processing, computer services, and electronic information services.

(A) As used in this rule:

(1) "Automatic data processing" means:

(a) Processing others' data, including all activities incident to processing of data such as keypunching, keystroke verification, rearranging, or sorting of previously documented data for the purpose of data entry or automatic processing, changing the medium on which data is stored, and preparing business documents such as reports, checks, or bills, whether these activities are done by one person or several persons; or

(b) Providing access by any means to computer equipment for the purpose of processing data.

(2) "Computer services" means:

(a) Specifying computer hardware configurations, which is the service of instructing others in the proper set-up, installation, and start-up of computer hardware;

(b) Evaluating technical processing characteristics, which is the service of reviewing, testing or otherwise ascertaining the operating capacity or characteristics of computer hardware or systems software. It does not include conducting feasibility studies or analysis of hardware or software needs or alternatives;

(c) Computer programming, which is, for purposes of the definition of "computer services," the service of writing, changing, debugging, or installing systems software; or

(d) Training computer programmers and operators in the operation and use of computer equipment and its system software.

Computer services must be provided in conjunction with and to support the sale, lease, or operation of taxable computer equipment or systems to fall within the scope of this rule.

(3) "Electronic information services" has the same meaning as in division (Y)(1)(c) of section 5739.01 of the Revised Code. "Electronic information service" includes such services as providing Internet access, providing access to database information, and providing access to electronic mail systems.

(4) "Systems software" includes all programming that controls the basic operations of the computer, such as arithmetic, logic, compilation or similar functions, whether it is an integral part of the computer hardware or is contained on magnetic disks or other storage media. "Systems software," solely for purposes of Chapter 5739. and 5741. of the Revised Code because of division (Y)(2)(e) of section 5739.01 of the Revised Code, does not include application software programs that are intended to perform business functions or control or monitor processes.

(5) "Personal and professional services" has the same meaning as in division (Y)(2) of section 5739.01 of the Revised Code.

(6) "Provider", for purposes of this rule, means a vendor or seller who provides or supplies automatic data processing, computer services, electronic information services, or personal or professional services for a consideration, and "provision" means the sale of such services.

(7) "Business" means the ongoing conduct of commercial, manufacturing, mining, agriculture, professional, service, or similar enterprise, whether or not the person or persons conducting such enterprise are for-profit or nonprofit entities and includes any activity engaged in by any person with the object of gain, benefit or advantage, either direct or indirect. Business does not include the activity of an individual in managing and investing the individual's own funds.

(B) For purposes of Chapter 5739. and 5741. of the Revised Code:

(1) The provision of automatic data processing services, computer services, or electronic information services in this state for a consideration for use in business by the consumer is a sale that is subject to the sales tax.

(2) The receipt of the benefit of these services in this state for use in business by the consumer constitutes a use subject to the use tax.

(3) When a transaction includes the provision of automatic data processing, computer services, or electronic information services:

(a) The true object of the transaction is the receipt of automatic data processing, computer services, or electronic information services if such services render a significant benefit to the consumer;

(b) The true object of the transaction is the receipt of personal or professional services to which the automatic data processing, computer services, or electronic information services are merely incidental or supplemental if:

(i) The automatic data processing, computer services, or electronic information services are merely utilized by the provider in the performance or delivery of such personal or professional services;

(ii) The benefit sought to be received by the consumer is the personal or professional service; or

(iii) The automatic data processing, computer services, or electronic information services themselves provide no significant benefit to the consumer.

(4) A transaction may include separable components such that the true object of one or more separately stated components is the receipt of automatic data processing, computer services, or electronic information services and the true object of any other separately stated components is the receipt of personal and professional services or consequential tangible personal property or other taxable services. A transaction separable in this manner is a "mixed transaction." The various components of a mixed transaction shall be separately stated in the contract or initial billing and the price applicable to each component shall similarly be separated. It shall be sufficient for purposes of this rule to separate components to the extent they are separate categories under section 5739.01(B) of the Revised Code. Such categories include, but are not limited to, all tangible personal property; all repair and installation services; all personal and professional services; and all automatic data processing, computer services, and electronic information services.

(5) The provision of computer services for consideration is a sale, regardless of whether the provider is also a vendor of computer equipment or software and regardless of whether the work is performed on or off the premises of the consumer, and whether the person performing the service acts under the immediate supervision of the provider or the consumer. Services performed by an employee for the employer are not sales.

(C) Every person in this state who is making sales of automatic data processing, computer services, or electronic information services for use in business must be licensed pursuant to section 5739.17 of the Revised Code. Every person outside this state who is providing automatic data processing, computer services, or electronic information services in this state, and who has substantial nexus with this state as provided in division (H) of section 5741.01 of the Revised Code must be registered as a seller pursuant to section 5741.17 of the Revised Code.

(D) For purposes of Chapter 5739. and 5741. of the Revised Code, the provision of automatic data processing, computer services, or electronic information services does not constitute manufacturing.

(E) A provider of automatic data processing, computer services, or electronic information services may claim exemption on purchases of automatic data processing, computer services, or electronic information services when both the following are met:

(1) The purchased service is an integral part of the automatic data processing, computer service, or electronic information services being provided; and

(2) The total cost of the purchased service will be included in the price of the service provided.

(F) A provider of automatic data processing, computer services, or electronic information services may claim resale on any purchase of tangible personal property that is or is to be transferred permanently to the consumer of the service as an integral part of the performance of the service.

Eff 11-1-85; 12-23-92 (Emer.); 3-21-93; 5-6-04
Rule promulgated under: RC 5703.14
Rule authorized by: RC 5703.05
Rule amplifies: RC 5739.01 , 5739.02 , 5739.071 , 5739.17 , 5741.02 , 5741.17
RC 119.032 Review Dates: Exempt

5703-9-47 Cash register adjustment reimbursement.

(A) For purposes of this rule:

(1) "Cash register" means a point of sale electro-mechanical device used to accept tender from customers in the consummation of retail sales and whichthat computes the sales or use tax liability on the retail sales, either by means of its own internal systems or by means of connection to a remote computing device.

(2) "Costs incurred" means payments made to an independent contractor, or the reasonable value of labor and materials utilized, by a vendor or seller in modifying or adjusting a cash register to compute sales or use tax.

(B) Whenever county sales and use taxes are imposed or increased pursuant to sections 5739.021 and 5741.021 or sections 5739.026 and 5741.023 of the Revised Code, and when regional transit authority sales and use taxes are imposed or increased pursuant to sections 5739.023 and 5741.022 of the Revised Code, any vendor or seller who must reprogram or otherwise modify or adjust the vendor's or seller's cash register so that the higher aggregate tax rate can be correctly computed, is entitled to claim reimbursement of the costs incurred in making such adjustment, subject to the limits in paragraph (C) of this rule. The reimbursement must be claimed from the county auditor within six months after the date of the tax imposition or increase. The claim shall be made on a form essentially identical to the form specified in paragraph (F) of this rule.

(C) For each place of business in which the vendor or seller has only one cash register, the vendor or seller may claim reimbursement of the lesser of the actual cost incurred or one hundred dollars. For each place of business that has more than one cash register, the vendor or seller may claim the lesser of the actual cost incurred or the number of cash registers multiplied by fifty dollars.

(D) If the modification or adjustment was done by an independent contractor, the reimbursement claim shall be accompanied by a copy of the invoice or invoices from the independent contractor. The invoice must separately state the charges for each place of business and must indicate the number of cash registers at each location.

(E) If the modification or adjustment was done by the vendor or seller or the vendor's or seller's employee, the reimbursement claim must be accompanied by a statement explaining how the costs incurred were calculated. Normally, this statement should indicate the hourly wage of the employee or employees who made the adjustments, the hours spent in doing the adjustments, and the cost of any materials consumed.

(F) A form required to be prescribed by rule is hereby prescribed for use as an application for refund of costs or charges for cash register modifications required for proper collection of county or transit sales tax. The form is for use by vendors and sellers in claiming reimbursement for costs incurred for modifications or adjustments to cash registers that were required to be made to compute the correct sales or use tax after the tax was imposed or increased pursuant to a resolution of the board of county commissioners or a regional transit authority.The form should be obtained by the vendor or seller from the county auditor. A template of the form for the auditor's use may be obtained by the auditor from the department of taxation and is available on the department's web site. The auditor must add county name and address information and then reproduce the form as needed. The form, after completion by the vendor or seller, must contain all the information required to identify the vendor or seller and to properly calculate the cost incurred by the vendor or seller that will be allowed as a refund pursuant to section 5739.212 of the Revised Code. The required information must include, but is not limited to, the licensed name and any business name of, and the federal employer identification number or social security number of, the vendor or seller; the date of the increase in the rate of the sales tax; the amount of refund claimed; the number of qualifying cash registers and locations; and supporting documentation of the costs incurred.

(G) The following form is incorporated in this rule by reference: The application for refund of costs or charges for cash register modifications required for proper collection of county or transit sales tax, revised March 15, 2004.

Eff 11-30-87; 6-3-04
Rule promulgated under: RC 5703.14
Rule authorized by: RC 5703.05 , 5739.212
Rule amplifies: RC 5739.212
R.C. 119.032 review dates: Exempt

5703-9-48 Sales tax; purchases made with food stamp coupons.

The sales tax does not apply to sales of food to persons using food stamp coupons to purchase the food. As used in this rule, "food" has the same meaning as in the Food Stamp Act of 1977, 91 Stat. 958, 7 U.S.C. 2012 , as amended, and federal regulations adopted pursuant to that act.

When a person using food stamp coupons has insufficient coupons to pay the full amount of a transaction, the vendor shall apply the value of the coupons first to any food that would otherwise be subject to sales tax if not purchased with food coupons.

Eff 11-15-87
Rule promulgated under: RC 5703.14
Rule authorized by: RC 5703.05
Rule amplifies: RC 5739.02

5703-9-49 Corporate officer liability.

(A) As used in this rule and in sections 5739.33 and 5741.25 of the Revised Code:

(1) "Officer" or "corporate officer" means the president, vice-president, treasurer, secretary, or chief executive officer of a corporation, or any person holding a similar title or position in a corporation, limited liability company, or business trust. Any person who holds an ownership interest in a corporation or limited liability company or a beneficial interest in a business trust and performs any of the functions specified in paragraphs (C) to (G) of this rule shall be deemed an officer. In the case of an affiliated group of corporations, as that term is defined in paragraph (A)(10) of rule 5703-9-46 of the Administrative Code, any officer of one corporation in that group that performs any of the functions listed in paragraphs (C) to (G) of this rule for another corporation in the group shall be deemed an officer of that corporation.

(2) "Employee" means a person who works for a corporation, limited liability company, or business trust, whether for pay or not. An employee may also be an officer.

(3) "Trustee" means any person responsible for the management, administration or control of a business trust.

(4) "Business trust" has the same meaning as in division (A) of section 1746.01 of the Revised Code.

(B) The officers, employees, or trustees of a corporation, limited liability company, or business trust that fails to file returns or remit taxes required to be filed and paid under Chapter 5739. or 5741. of the Revised Code, are liable for the unpaid sales tax, direct pay, or seller's use tax liability that entity under the conditions set forth in paragraphs (C) to (I) of this rule. The failure to determine liability under any of those paragraphs does not preclude the establishment of liability under any of the other paragraphs. Personal liability may be assessed as provided in section 5739.13 , 5741.11 , or 5741.13 of the Revised Code.

(C) An officer or trustee is personally liable for the sales tax, direct pay, or seller's use tax liability of a corporation, limited liability company, or business trust if the officer or trustee was responsible for the execution of that entity's fiscal responsibilities on the date on which the return for the period is filed or is required to be filed, whichever is earlier. A person has demonstrated such responsibility if any of the following apply:

(1) The officer or trustee signs any sales tax, direct pay, or seller's use tax return required under Chapter 5739. or 5741. of the Revised Code or prepares and submits without signing any such return;

(2) The officer or trustee signs or prepares and submits without signing any other tax returns required by the laws of this state or any of its subdivisions or the Internal Revenue Code of the United States unless the officer or trustee can provide sufficient evidence to establish that the entity divided the responsibility for filing of tax returns in such a manner that the responsibility for filing sales tax, direct pay, or seller's use tax returns required by Chapter 5739. or 5741. of the Revised Code was assigned explicitly to another officer or trustee;

(3) The officer or trustee exercises management control or authority over employees whose duties include the preparation, signing, or filing of returns described in paragraph (C)(1) or (C)(2) of this rule;

(4) The officer or trustee retains, directs or otherwise exercises control over outside accountants, bookkeepers, or other persons who are charged with filing sales tax, direct pay, or seller's use tax returns required under Chapter 5739. or 5741. of the Revised Code on behalf of the entity;

(5) The officer or trustee exercises authority to sign checks or authorizes the use of his signature stamp or facsimile to sign checks, drawn on the entity's accounts, in payment of tax liabilities;

(6) The officer or trustee determines priorities by which the entity's creditors are paid instead of the state. A payment to a creditor in the form of an in-kind distribution of entity assets is a payment for purposes of this paragraph;

(7) The officer or trustee uses or manages sales or seller's use taxes paid by consumers to the entity as required by division (A) of section 5739.02 or 5741.02 of the Revised Code and held by the entity in trust for the benefit of the state;

(8) The officer or trustee instructs any employee of the entity to use or manage sales or seller's use taxes paid by consumers to the entity as required by division (A) of section 5739.02 or 5741.02 of the Revised Code and held by the entity in trust for the benefit of the state; or

(9) The officer or trustee performs any other function which would indicate control over the fiscal operations of the entity.

(D) An employee is personally liable for the sales tax, direct pay, or seller's use tax liability of a corporation, limited liability company, or business trust as provided in section 5739.33 or 5741.25 of the Revised Code if, for the benefit of that entity, the employee performs one or more of the following actions:

(1) The employee signs or prepares and submits without signing sales tax, direct pay, or seller's use tax returns required under Chapter 5739. or 5741. of the Revised Code;

(2) The employee supervises or controls other employees who perform the activities listed in paragraph (D)(1) of this rule; or

(3) The employee exercises the authority to sign checks drawn on the account of the entity in payment of tax liabilities.

(E) An employee of a corporation, limited liability company, or business trust who meets one or more of the conditions listed in paragraph (D)(1) to (D)(3) of this rule will not be considered responsible if the employee can establish that his failure to comply with the requirements of Chapter 5739. or 5741. of the Revised Code resulted from orders from an officer, trustee, or supervisory employee of the entity which prevented the employee from complying with the requirements of that chapter.

(F) If the officers of a corporation or limited liability company own, either collectively or individually, more than fifty per cent of the ownership interest in the entity, the shareholder/officers are responsible for the execution of the fiscal responsibility of the entity and personally liable under section 5739.33 or 5741.25 of the Revised Code, regardless of any attempt to delegate such responsibility, if one or more of the following apply:

(1) The entity filed sales tax, direct pay, or seller's use tax returns required under Chapter 5739. or 5741. of the Revised Code showing the liability without submitting payment;

(2) The entity failed to file sales tax, direct pay, or seller's use tax returns required under Chapter 5739. or 5741. of the Revised Code;

(3) The records of the entity or other evidence indicates that the entity collected the sales or seller's use tax required under Chapter 5739. or 5741. of the Revised Code; or

(4) The owner/officer of the entity actually controlled or supervised the preparation and submission of sales tax, direct pay, or seller's use tax returns required under Chapter 5739. or 5741. of the Revised Code.

(G) If the trustees of a business trust own, either collectively or individually, more than fifty per cent of the beneficial interest in the business trust, the owner/trustees are responsible for the execution of the fiscal responsibility of the business trust and liable under section 5739.33 or 5741.25 of the Revised Code, regardless of any attempt to delegate such responsibility, if one or more of the following apply:

(1) The business trust filed sales tax, direct pay, or seller's use tax returns required under Chapter 5739. or 5741. of the Revised Code showing the liability without submitting payment;

(2) The business trust failed to file sales tax, direct pay, or seller's use tax returns required under Chapter 5739. or 5741. of the Revised Code;

(3) The records of the business trust or other evidence indicates that the business trust collected the sales or seller's use tax required under Chapter 5739. or 5741. of the Revised Code; or

(4) The owner/trustee of the business trust actually controlled or supervised the preparation and submission of sales tax, direct pay, or seller's use tax returns required under Chapter 5739. or 5741. of the Revised Code.

(H) If more than one person is personally liable under section 5739.33 or 5741.25 of the Revised Code for the unpaid liability of a corporation, limited liability company, or business trust, their liability shall be joint and several.

(I) The provisions of paragraph (C) to (H) of this rule are not exclusive and the commissioner may use any available evidence to establish the liability of an officer, trustee, or employee for the unpaid sales tax, direct pay, or seller's use tax liability of the corporation, limited liability company, or business trust.

Eff 12-7-90; 12-9-04
Rule promulgated under: RC 5703.14
Rule authorized by: RC 5703.05
Rule amplifies: RC 5739.33 , 5741.25
R.C. 119.032 review dates: Exempt

5703-9-50 Registration using central registration system.

(A)

(1) Any time after the effective date of Ohio's membership in the streamlined sales tax system, any vendor or seller that wishes to register to collect and remit Ohio tax may register through a multi-state central registration system provided by the governing board of the streamlined sales tax system. As used in this rule, that central registration system is the "CRS." By registering through the CRS, the vendor or seller agrees to collect and remit tax on all taxable sales into Ohio and is subject to all applicable penalties, additional charges, and interest for failing to timely and properly remit the taxes or file the tax returns.

(2) A vendor's or seller's registration through the CRS will not be used by the tax commissioner as a factor, in and of itself, to determine whether the vendor or seller has nexus with this state for any tax.

(B)

(1) When registering through the CRS, the vendor or seller may select one of the following models to remit taxes collected:

(a) Model 1, where the vendor or seller selects a "certified service provider" as that term is defined in division (C) of section 5740.01 of the Revised Code, as an agent to perform all the vendor's or seller's sales or use tax functions, other than the vendor's or seller's obligation to remit tax on its own purchases.

(b) Model 2, where a vendor or seller selects a "certified automated system" as that term is defined in division (B) of section 5740.01 of the Revised Code, to use to calculate the amount of tax due on its sales transactions.

(c) Model 3, where a vendor or seller utilizes its own proprietary automated sales and use tax system that has been certified as a certified automated system.

(2) Any vendor or seller that does not use one of the three models of remitting tax provided in paragraphs (B)(1)(a) to (B)(1)(c) of this rule shall collect and remit tax as required in Chapter 5739. or 5741. of the Revised Code.

(C)

(1) Any vendor or seller registering through the CRS may be registered by an agent. The appointment of an agent for this purpose must be in writing and submitted to this state if requested.

(2) A request by an agent of the vendor or seller for tax return information must be made using a form prescribed for such purposes, e.g., form TBOR-1, declaration of tax representative.

(D) Subject to paragraphs (E) to (H) of this rule, any vendor or seller that registers through the CRS to collect and remit Ohio's sales or use tax on sales made into Ohio will not be assessed or held liable for its failure to collect tax on sales made into Ohio prior to its registration, provided the following conditions are met:

(1) The vendor or seller must register to collect this state's tax on or after the date on which Ohio first becomes either a full or associate member of the streamlined sales tax system and not later than twelve months after the effective date of Ohio's participation as a full member of the streamlined sales tax system.

(2) The vendor or seller was not registered to collect Ohio's sales or use tax on sales made into Ohio at any time in the twelve-month period preceding the date of registration or the effective date of Ohio's participation in the streamlined sales tax system, whichever is earlier.

(3) Prior to the date of registration, the vendor or seller has not received notice of the commencement of an audit that has not been finally resolved.

(E) Paragraph (D) of this rule does not apply to any vendor or seller that has already paid or remitted sales or use taxes to Ohio and does not apply to any Ohio sales or use taxes that were collected by the vendor or seller and not remitted to Ohio or were assessed by the tax commissioner and not paid by the vendor or seller.

(F) Absent fraud or intentional misrepresentation of a material fact, paragraph (D) of this rule is effective for any vendor or seller as long as the vendor or seller continues its registration with Ohio and continues to collect and remit sales or use taxes on its taxable sales into Ohio for a period of at least thirty-six months. Any vendor or seller that ceases registration or collection and remittance of the tax before the end of such thirty-six month period will be deemed to have waived the application of the statute of limitations for any liability that would have been subject to assessment on the day of its registration with Ohio had the vendor or seller not received the benefit provided by paragraph (D) of this rule. The tax commissioner may require the vendor or seller to put this waiver in writing. Unless mutually agreed to for another term, the waiver shall be until the end of one hundred eighty days following the cancellation of the vendor's or seller's registration or following the failure of the vendor or seller to remit taxes to Ohio as required by applicable law or rule of the commissioner.

(G) Paragraph (D) of this rule applies only to sales or use tax liability due from a vendor or seller in its capacity as a vendor or seller and not to taxes due from the vendor or seller in its capacity as a consumer.

(H) Paragraph (D) of this rule does not apply to a vendor or seller whose failure to collect and remit Ohio's sales or use tax is due to fraud or intentional misrepresentation of a material fact. A vendor's failure shall be rebuttably presumed to be due to such cause if the vendor has a fixed location in Ohio and is required to be licensed under Chapter 5739. of the Revised Code.

Effective: 11/07/2005
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5739.17 , 5740.03 , 5740.05 , 5741.17
Prior Effective Dates: 12/9/2004

5703-9-51 County and transit authority rates and boundary database.

(A)

(1) After providing the tax commissioner with at least sixty-five days notice, county and transit authority sales and use tax rate changes adopted on or after January 1, 2004 shall become effective only at the beginning of a calendar quarter, i.e., January 1, April 1, July 1, or October 1.

(2) Any county or transit authority sales or use tax adopted on or after January 1, 2004 for a limited period of time must expire on the last day of a calendar quarter, i.e., March 31, June 30, September 30, or December 31.

(3) The tax commissioner will provide notice of a rate change by posting information at least sixty days prior to the effective date of the rate change on the department of taxation website. This posting shall constitute the notice required by division (H) of section 5739.021 , division (C) of section 5739.023 , and division (G) of section 5739.026 of the Revised Code. The commissioner may provide additional notice to vendors, sellers, and other interested parties in any other manner the commissioner deems appropriate.

(B)

(1) The tax commissioner will make available electronic databases that:

(a) Describe boundary changes for all taxing jurisdictions.

(b) Provide all sales and use tax rates for all counties and transit authorities levying sales and use taxes.

(c) Assign each five digit zip code area within this state to the proper tax jurisdiction and rate. If a zip code area contains more than one tax rate, the vendor, seller, or certified service provider may apply the lowest rate in that zip code area unless the vendor, seller, or certified service provider has sufficient information to apply the rate in paragraph (B)(1)(d) or (B)(1)(e) of this rule.

(d) Assign each nine digit zip code area within this state to the proper tax jurisdiction and rate. If a zip code area contains more than one tax rate, the vendor, seller, or certified service provider may apply the lowest rate in that zip code area unless the vendor, seller, or certified service provider has sufficient information to apply the rate in paragraph (B)(1)(e) of this rule.

(e) Assign, to the extent possible, each address in the state to the proper tax jurisdiction and rate.

(2)

(a) If a vendor, seller, or certified service provider has an address for a transaction for which a rate at the time of sale is provided in the database described by paragraph (B)(1)(e) of this rule, the vendor, seller, or certified service provider must apply that rate to the transaction and will not be responsible for any under-collection or over-collection of tax resulting from reliance on that rate.

(b) If a tax rate cannot be determined in the manner described in paragraph (B)(2)(a) of this rule, the vendor, seller, or certified service provider may determine the applicable tax rate for a sale by using the tax rate associated with the nine digit zip code associated with the address for the transaction. If a nine digit zip code designation is not available for a street address or if the vendor, seller, or certified service provider is unable to determine the nine digit zip code after exercising due diligence, the vendor, seller, or certified provider may apply the tax rate associated with the five digit zip code area. If a five digit or nine digit zip code area contains more than one applicable tax rate, in the absence of actual information determining which rate applies to the sale, the vendor, seller, or certified service provider may determine the tax due based on the lowest rate imposed in the appropriate zip code area.

(3) No vendor, seller, or certified service provider will be relieved of liability for collection of an incorrect rate of tax when the sale is sourced to the vendor's or seller's location under the provisions of division (A)(1) of section 5739.033 of the Revised Code.

(C) A customer is not relieved of any additional use tax that may be owed from a vendor, seller, or certified service provider under-collecting by using the incorrect rate of tax and also is not prevented from filing a refund for the over-collection of tax.

Eff 12-9-04
Rule promulgated under: RC 5703.14
Rule authorized by: RC 5703.05 , 5739.021 , 5739.023 , 5739.026
Rule amplifies: RC 5739.021 , 5739.023 , 5739.026 , 5740.03 , 5740.05 , 5741.021 , 5741.022 , 5741.023
R.C. 119.032 review dates: Exempt

5703-9-52 Delivery charges.

(A)

(1) Charges by the vendor or seller for preparation and delivery to a location designated by the consumer of taxable tangible personal property or of a taxable service, including charges for transportation, shipping, postage, handling, crating, and packing, are defined as part of the price for determining the tax.

(2) Charges paid by a customer to a delivery company, and not imposed or collected by the vendor or seller of the delivered property or service, are not subject to sales or use tax.

(B) A vendor or seller should allocate the delivery charge in any shipment to a consumer that includes separately stated taxable and exempt property by using either of the following ratios:

(1) The ratio of the total sales prices of all taxable property in the shipment to the total sales prices of all property in the shipment, or

(2) The ratio of the total weight of the taxable property in the shipment to the total weight of all property in the shipment.

(C)

(1) When a vendor or seller allocates a delivery charge as provided in paragraph (B) of this rule, the vendor or seller must tax the portion of the delivery charge allocated to the taxable property but not the portion allocated to the exempt property.

(2) If a vendor or seller does not allocate the delivery charge in any transaction as described in paragraph (B) of this rule, and any portion of the transaction is taxable, the vendor or seller must charge tax on the entire delivery charge for the shipment.

(D) In any case where a vendor or seller allocates a delivery charge in accordance with paragraph (B)(1) or (B)(2) of this rule, no refund shall be allowed based on an objection to the method of allocation chosen.

Eff 12-9-04
Rule promulgated under: RC 5703.14
Rule authorized by: RC 5703.05
Rule amplifies: RC 5739.01
R.C. 119.032 review dates: Exempt

5703-9-53 Rate changes; application of effective date to services.

(A) The effective date of any sales or use tax rate change shall apply to sales of services with a billing period starting before and ending after the statutory effective date as follows:

(1) For a rate increase, the new rate shall apply to the first billing period starting on or after the effective date.

(2) For a rate decrease, the new rate shall apply to bills rendered on or after the effective date.

(B) The provisions of this rule do not apply to any rate change effective prior to the effective date of this rule.

Eff 12-9-04
Rule promulgated under: RC 5703.14
Rule authorized by: RC 5703.05
Rule amplifies: RC 5739.02 , 5739.021 , 5739.023 , 5739.026 , 5741.02 , 5741.021 , 5741.022 , 5741.023
R.C. 119.032 review dates: Exempt

5703-9-54 Taxability Matrix.

(A) In compliance with section 328 of the "Streamlined Sales and Use Tax Agreement," the tax commissioner will provide a taxability matrix as required by the governing board. The entries into the matrix will be provided and maintained in a downloadable database in a format approved by the governing board.

(B) A vendor, seller or certified service provider that charged and collected an incorrect amount of sales or use tax resulting from the tax commissioner providing erroneous data in the taxability matrix is not liable for any additional liability that may be owed.

Appendix to Rule 5703-9-54TaxabilityMatrix

"Section 328: TAXABILITY MATRIX

A. To ensure uniform application of terms defined in the library of Definitions each member state shall complete a taxability matrix adopted by the governing board. The member state's entries in the matrix shall be provided and maintained in a database that is in a downloadable format approved by the governing board. A member shall provide notice of changes in the taxability of the products or services listed in the taxability matrix as required by the governing board.

B. A member state shall relieve sellers and CSP's from liability to the member state and its local jurisdictions for having charged and collected the incorrect amount of sales or use tax resulting from the seller or CSP relaying on erroneous data provided by the member state in the taxability matrix."

Effective: 12/16/2005
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5740.03 , 5740.05
Prior Effective Dates: 4/26/05

5703-9-55 Sales and use tax, change in state tax rate.

(A) In the case of a state sales and use tax rate change where the effective date of the rate change is less than thirty days after the legislation adopting the rate change is enacted, a vendor or seller who has erroneously collected tax at the preceding rate will not be held liable for the failure to collect the tax at the new rate if:

(1) The vendor or seller collected the tax at the immediately preceding rate, and

(2) The vendor or seller's failure to collect the tax at the new rate does not extend beyond thirty days after the enactment of the new rate.

(B) The relief in paragraph (A) of this rule will not apply to a vendor or seller that fraudulently fails to collect tax at the new rate or solicits purchasers based on the immediately preceding rate.

Effective: 11/29/2010
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5740.03

5703-9-56 Streamlined sales and use tax - review and approval of certified automated system software and liability relief.

(A) The tax commissioner shall review software submitted to the streamlined sales tax governing board for certification as a certified automated system ("CAS") under Section 501 of the "Streamlined Sales and Use Tax Agreement" ("SSUTA"). Such review shall include a review to determine that the program accurately reflects the taxability of the product categories included in the program. Upon approval , the state shall certify to the governing board its acceptance of the determinations of the taxability of the product categories included in the program.

(B) A certified service provider ("CSP"), a vendor, or a seller using a CAS will not be held liable for not collecting sales or use taxes as a result of the CSP, vendor, or seller relying on the certification provided by the tax commissioner.

(C) The tax commissioner is not responsible for the classification of an item or transaction within the product categories certified. The relief from liability provided in this section shall not be available for a CSP, vendor, or seller using a CAS that has incorrectly classified an item or transaction into a product category certified by the tax commissioner. This paragraph shall not apply to the individual listing of items or transactions within a product definition included within the SSUTA.

(D) If the tax commissioner determines that an item or transaction is incorrectly classified as to its taxability, the commissioner shall notify the CSP, vendor, or seller using a CAS of the incorrect classification. The CSP, vendor, or seller will have ten days to revise the classification after receipt of notice from the commissioner of the determination. Upon expiration of the ten days, the CSP, vendor, or seller shall be liable for the failure to collect the correct amount of sales or use taxes due and owing.

Effective: 11/29/2010
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5740.03 , 5740.07

5703-9-57 Relief from liability for certified service providers where the consumer claims exemption.

The provisions of division (B) of section 5739.03 of the Revised Code and division (E) of section 5741.02 of the Revised Code that relieve a vendor or seller of liability for sales or use tax on transactions where the consumer has provided the vendor or seller with a fully completed exemption certificate will be applied to a certified service provider, as defined in division (C) of section 5740.01 of the Revised Code, that has been contracted to perform the tax collection and remittance functions for the vendor or seller. If a fully completed exemption certificate has not been provided, the provisions of those sections relating to the establishing of the exempt nature of the transaction on audit will apply to the certified service provider.

Effective: 11/29/2010
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5739.03 , 5740.07 , 5741.03

5703-9-58 Sales and use tax, relief of liability for purchasers.

(A) No purchaser shall be held liable for unpaid state or local sales or use tax, interest, or penalty in the following circumstances:

(1) The purchaser's vendor, seller, or certified service provider relied on erroneous data provided by the state on tax rates, boundaries, taxing jurisdiction assignments, or, in the taxability matrix provided pursuant to paragraph (A) of rule 5703-9-54 of the Administrative Code; or

(2) The purchaser is a holder of a direct payment permit authorized under section 5739.031 of the Revised Code and the purchaser relied on erroneous data provided by the state on tax rates, boundaries, taxing jurisdiction assignments, or, in the taxability matrix provided pursuant to paragraph (A) of rule 5703-9-54 of the Administrative Code.

(3) The purchaser relied on erroneous data provided by the state in the taxability matrix provided pursuant to paragraph (A) of rule 5703-9-54 of the Administrative Code. In this situation, relief is limited to the erroneous classification in the taxability matrix of items as"taxable" or "exempt," "included in sales price" or "excluded from sales price," or "included in the definition" or "excluded from the definition."

(4) The purchaser using the database provided pursuant to paragraph (B) of rule 5703-9-51 of the Administrative Code relied on erroneous data provided by that database for an address on tax rates, boundaries, or taxing jurisdiction assignments.

Effective: 11/29/2010
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5740.03

5703-9-59 Sales and use tax, transactions involving optional computer software maintenance contracts.

(A) As used in this rule:

(1) "Computer software maintenance contract" means a contract that obligates a vendor or seller of computer software to provide a customer with future updates or upgrades to computer software, support services with respect to computer software or both.

(2) "Mandatory computer software maintenance contract" means a computer software maintenance contract that the customer is obligated by contract to purchase as a condition to the retail sale of computer software.

(3) "Optional computer software maintenance contract" is a computer software maintenance contract that a customer is not obligated to purchase as a condition to the retail sale of computer software.

(B) A charge for a mandatory computer software maintenance contract is considered to be part of the sales price of the computer software to which it relates.

(C) In any case where an optional computer software maintenance contract for prewritten computer software is sold to an Ohio consumer by a vendor or seller, the following treatment shall apply.

(1) If the optional computer software maintenance contract only obligates the vendor or seller to provide upgrades and updates, the contract will be deemed to be a sale of prewritten computer software, which is defined to be tangible personal property by division (YY) of section 5739.01 of the Revised Code. Such a sale will be considered taxable unless the consumer has a claim of exemption.

(2) If the optional computer software maintenance contract only obligates the vendor or seller to provide support services, and no upgrades or updates, the transaction will be considered to be the sale of a non-taxable personal or professional service.

(3) If the optional computer software maintenance contract includes both upgrades or updates and support services that are not itemized separately on the invoice or similar billing document, the contract shall be characterized as a sale of prewritten computer software, which is defined to be tangible personal property by division (YY) of section 5739.01 of the Revised Code. Such a sale will be considered taxable unless the consumer has a claim of exemption.

Effective: 11/29/2010
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: 5739.01 , 5739.012 , 5739.02 , 5741.02

5703-9-60 Consumer's use tax amnesty payment plan.

(A) House Bill ("H.B.") 153, 129th General Assembly, (uncodified section 757.42 ) authorizes the tax commissioner to enter into a no-interest payment plan with a qualifying taxpayer who elects to participate in the consumer's use tax amnesty established by H.B. 153.

(B) The tax commissioner may enter into a consumer's use tax amnesty payment plan if the taxpayer satisfies the following conditions:

(1) The taxpayer cannot have previously held or currently hold a consumer's use tax account as of June 1, 2011.

(2) The amount of consumer's use tax due under the taxpayer's amnesty application must exceed five hundred dollars.

(3) At least one corporate officer, LLC member, general partner or other person authorized to execute contracts on behalf of the taxpayer must agree to the terms of the payment plan on behalf of the taxpayer.

(4) The taxpayer must agree to extend the time limit for the tax commissioner to assess unpaid consumer's use tax due under amnesty until six months after the end of the payment plan.

(C) The consumer's use tax amnesty payment plan terms are as follows:

(1) The minimum monthly payment is five hundred dollars. The initial monthly payment must be submitted with the amnesty application.

(2) The maximum term of a consumer's use tax amnesty payment plan is seven years (eighty-four months).

(3) The taxpayer must return the fully executed consumer's use tax amnesty payment plan agreement to the tax commissioner within fifteen days after receipt.

(4) The taxpayer must make each payment due under the consumer's use tax amnesty payment plan on or before the first business day of each month.

(D) If the taxpayer misses a monthly payment, fails to return a fully executed copy of the consumer's use tax payment plan agreement, or fails to remain current with all of its Ohio tax obligations, the tax commissioner will notify the taxpayer of such default ("Default Notice") via U.S. mail or a similar method of delivery. The taxpayer will have 15 days from the date of the default notice to provide documentation supporting that the disputed payment was made, the fully executed agreement has been returned, or that the taxpayer is current with all of its Ohio tax obligations. If within the fifteen-day period the taxpayer fails to provide such documentation, the tax commissioner may assess the taxpayer for the entire outstanding consumer's use tax balance, including interest. Interest will be calculated from the date the tax was required to be paid. Any assessment issued for amounts due under consumer's use tax amnesty will be immediately certified to the Ohio attorney general for collection and may be subject to any and all costs and additional fees assessed by the attorney general.

Effective: 02/13/2012
R.C. 119.032 review dates: Exempt
Promulgated Under: 5703.14
Statutory Authority: 5703.05
Rule Amplifies: none

5703-9-61 Electronic filing and payment of "Consumer's Use Tax".

(A) Every person required to file a return pursuant to division (B) of section 5741.12 of the Revised Code shall file the return electronically using the Ohio business gateway, as defined in section 718.051 of the Revised Code, the Ohio telefile system, or any other electronic means prescribed by the commissioner.

(B) The electronic returns required by this rule shall be filed as required by sections 5741.12 and 5741.121 of the Revised Code.

(C) Payment of the tax shown due on the return shall be made electronically or in another manner approved by the commissioner.

Effective: 02/01/2013
R.C. 119.032 review dates: 02/01/2018
Promulgated Under: 5703.14
Statutory Authority: R.C. 5703.05 , 5703.14 , 5703.059
Rule Amplifies: 5703.059