Nearly 450 Ohio businesses have a “direct pay permit” (DPP) that allows them to pay sales tax on their taxable purchases directly to the state rather than paying each vendor at the time the item or service is bought. Most of the DPP holders (permit holder) are larger companies that would have to cope with large volumes of invoices, such that conferring the DPP status saves these companies money in terms of their sales tax compliance costs.

The Ohio Department of Taxation’s Audit Division has started a program to contact all permit holders in order to facilitate more timely and accurate sales and use tax compliance. This is, in part, because there have been instances where the permit holder reconciles its books after filing their sales tax return and determines that it has overpaid and thus requests a refund. This significantly affects local governments because they have generally allocated that revenue to their respective budgets or actually spent it. Likewise, when the reconciliation results in a large tax liability for the permit holder, the local government receives an unexpected increase in revenue that is difficult for them to determine whether or not it is a one-time payment, due to taxpayer confidentiality requirements.

The tax department has acknowledged that the program has not been managed well for a long period of time. Consequently, the department will soon send letters to each of these 450 companies having DPPs notifying them of the need to update their DPP procedures, with a follow-up phone call to arrange a meeting to review their direct pay program. This update will likely include some type of sunset provision (up to five years) for the DPP and bookkeeping benchmarks that allow for more accurate month-by-month assessments of the permit holder’s sales and use tax liabilities.