Ohio Sales Tax Compliance by Funeral Homes
By: T. Scott Gilligan, OFDA General Counsel
Ohio funeral homes know that sales of funeral services are not subject to Ohio sales tax while the retail sales of funeral goods are taxable. Within those general rules, however, there are several exceptions which funeral homes must be aware of to avoid liability for unpaid sales tax and to avoid collecting sales tax when it is not due.
The retail sales of the basic services of funeral director and staff, embalming, other preparation of the body, visitation, funeral ceremony, committal service, transfer of remains, hearse, service vehicle, traffic escort, cremation, and cash advance items are not subject to Ohio sales tax. Therefore, nearly every service provided by a funeral home may be sold to a consumer without collecting sales tax. There is, however, one notable exception regarding the non-taxability of funeral services sales. Several years ago, the Ohio legislature imposed sales tax on the rental of limousines. Unfortunately, the legislature chose not to exempt funeral homes from this charge. Therefore, when a funeral home charges for limousine service, the funeral home must collect sales tax on that limousine charge.
While Ohio funeral homes generally understand that they must now charge sales tax on limousine services, what they may not understand is sales tax is not collected if the limousine service is provided as part of a funeral package. Funeral homes that include up to two limousines as part of a funeral service package do not have to separately collect sales tax for the limousine service. If the family selects more than two limousines, sales tax would be charged for the additional limousines.
Ohio does impose sales tax on the retail sale of caskets, outer burial containers, urns, acknowledgment cards, register books, memorial cards, crucifixes, cremation containers, air trays, burial clothing, and other merchandise that a funeral home would sell to a consumer. Sales tax is imposed not only if the items are sold, but also if the items are leased. Therefore, a funeral home that provided rental caskets to consumers would have to impose a sales tax on the full amount of the casket rental charge.
There is one exception which funeral homes should be aware of when selling caskets to consumers. If the casket is to be shipped outside of the State of Ohio, sales tax does not have to be collected by the funeral home.
Sales tax on funeral goods that are sold on a preneed basis must be collected from the consumer at the time of the preneed sale and remitted to the State of Ohio. When a funeral home enters into a preneed funeral contract, it must list on the contract the sales tax liability arising from the sale of the funeral goods. The amount of the sales tax should not be trusted; instead, it should be submitted to the Ohio Department of Taxation with the funeral home's sales tax payment.
Sales Tax Sourcing:
A retail vendor, such as a funeral home, historically has charged sales tax according to the sales tax rate applicable in the county where the business is located. As part of the Streamlined Sales Tax Project, Ohio and a number of other states will soon require vendors to collect sales tax in accordance with the sales tax rate that is applicable in the county where the goods will be delivered and not where they are sold. For example, if a funeral home located in Hamilton County sells a vault to a family to be used in Clermont County, the funeral home would have to collect the sales tax applicable to Clermont County.
Although the new sales tax sourcing requirements have been enacted into law, Ohio has provided for an extensive transition period. Vendors with taxable sales of less than $5 million have until January 1, 2008 to comply with the new sales tax sourcing provisions. Those with sales between $5 million and $30 million must change to designation sourcing by May 1, 2007. There are also discussions about providing a permanent exemption for businesses doing less than $1 million in taxable sales. However, those proposals have not gone beyond the discussion stage. OFDA will keep the membership advised of all new developments.
OFDA members with questions regarding sales tax responsibilities may contact T. Scott Gilligan at (513) 871-6332.