Auditor of State Bulletin 2025-013

Auditor of State Bulletin 2025-013

Ohio Revised Code (R.C.) §5739.02(A) imposes an excise tax, commonly referred to as a sales tax, on each retail sale made in the State of Ohio. R.C. §5739.02(B)(1) provides that the state and any of its political subdivisions, like townships, are exempt from this excise tax. Additionally, R.C. §5739.02(B)(12) provides a similar sales tax exemption to organizations that are exempt from taxation under section 501(c)(3) of the Internal Revenue Code of 1986. Accordingly, many entities that are audited by the Auditor of State are exempt from the payment of Ohio’s retail sales tax.

The Ohio Department of Taxation has issued guidance regarding the use of the sales tax exemption. That guidance provides the exemption is not transferable to an individual employee of the tax-exempt entity. Rather, the exemption applies only when the sale is made to and paid for by the tax-exempt organization. Therefore, purchases “of tangible personal property and selected services made by federal, state, and local governmental employees (who will later seek reimbursement from their government employer) are subject to the Ohio sales or use tax, since the employee is considered the purchaser not the government.”

In accordance with this guidance, if an official or employee of a tax-exempt public office uses his or her own personal credit card or checking account to make purchases on behalf of the public entity, that person must pay sales tax and cannot use the public entity’s tax-exempt certificate. In contrast, purchases directly made by and charged to a tax-exempt public office are considered sales to the public office and are not subject to Ohio sales tax even though the goods or services are picked-up by an employee of the public office. In these instances, the invoice or bill of sale must clearly indicate the sale was to the tax-exempt public office and the public office’s credit card or account must be charged.

Tax-exempt public offices should adopt a written policy on the use of the entity’s tax-exempt certificate and when an official or employee is allowed to pay sales tax the public office will reimburse. The policy should:

• Require that all expenditures are made pursuant to a proper government purpose;
• Limit the number of officials and employees who have access to the public office’s tax-exempt certificate;
• Prohibit an official or employee who makes a purchase for the tax-exempt public office using his or her personal credit card or checking account from presenting the entity’s tax-exempt certificate;
• Require an official or employee who makes a purchase on behalf of the public office using his or her own personal credit card or checking account to pay the sales tax at the point of sale; and
• Ensure that direct purchases made on the public office account include an invoice or bill of sale clearly indicating the sale was to the public office.

As a best practice, the tax-exempt public office should consider adopting a policy provision that sets a reasonable, maximum dollar threshold, such as $500.00, for reimbursable purchases that an official or employee may make using their own personal credit card or checking account. The provision should state that in the event the combined purchase price and sales tax exceed this threshold amount, the purchase must be made using the public office’s credit card or account and sales tax exemption.

The failure to adhere to reimbursement policy guidance concerning the use of the entity’s tax-exempt status or reimbursement for expenditures could result in the issuance of a Finding for Recovery or other implications authorized under Ohio law.

The OTA has created sample policy drafts that can be viewed in our Resource Center. To read AOS Bulletin 2025-013, please click here.