The Ohio Department of Taxation has completed a long-overdue revision of Regulation 5703-9-32 governing the imposition of sales tax on funeral transactions. The overhaul of the regulation was triggered by several events, including the itemization now required by the Funeral Rule and the 2003 modification to Ohio's sales tax laws which made intrastate limousine transportation subject to sales tax.
The new version of Section 5703-9-32, which took effect on May 6, 2007, spells out that sales tax should be collected by funeral homes when selling any of the following:
* Caskets and cremation containers (provided they are not shipped outside of Ohio).
* Vaults and grave liners.
* Flowers (unless they are included as cash advance items).
* Urns and containers holding cremated remains.
* Register book, prayer cards, acknowledgement cards, crucifixes, cremation jewelry.
* Limousine service (as long as the transportation is entirely in the state of Ohio).
As far as services rendered by funeral homes, these are not subject to sales tax with the sole exemption of limousine service taking place entirely within Ohio. Therefore, the following services are not subject to sales tax when sold to a consumer by an Ohio funeral home.
* Basic service fee.
* Embalming and other preparation of the remains.
* Transportation of the remains by hearse or service vehicle.
* Use of funeral home facilities.
* Supervision of any type of ceremonies or services.
* Preparation of obituaries.
* Cremation.
* Cash advances.
It is important to note that sales tax may be collected on an item by a funeral home depending upon how it is listed on the Statement of Funeral Goods and Services Selected. For example, flowers that are listed on the Statement as merchandise sold by the funeral home would be subject to sales tax. However, if the funeral home lists the flowers as a cash advance item, then it does not collect sales tax from the consumer. Of course, in the latter transaction, the funeral home will have already paid the sales tax to the florist because it is paying for the flowers as the agent of the family. In cases where the funeral home has itself sold the flowers, it would not pay the florist because it is buying the flowers on a wholesale basis for the purpose of resale to the consumer.
Two items customarily subject to sales tax limousine service and the casket are exempt if there are interstate aspects to the transaction. If transportation by a limousine involves any crossing of state borders, it is not taxable. This is true even if the origin and the destination are both in Ohio. For example, a limousine in a funeral procession that starts in Cincinnati and passes into Kentucky on the way to Batavia, Ohio would be exempt from sales tax. Also, if the final destination of the casket is outside of Ohio, the sale of the casket is exempt from sales tax.
One material change found in the new regulation is the elimination of the tax treatment of packages. Under the old version of Section 5703-9-32, the regulation provided that funeral homes should collect sales tax on 50% of the retail price of a package funeral that included a casket and other merchandise. Obviously, this package price mechanism was installed in the days prior to the itemization now required by the Funeral Rule.
Recognizing that it is outdated, the Ohio Department of Taxation has eliminated it from the new regulation. Now, when funeral homes sell packages, they will need to separately list any taxable merchandise, such as a casket and vault, so that the sales tax calculation can be made.
The latter section of Regulation 5703-9-32 reiterates that when funeral homes are the ultimate consumer of items they purchase, they must pay sales tax on those transactions. Examples include embalming fluid, embalming instruments, funeral home furnishings, hearses and service vehicles used to transport the remains, and crematory equipment. Funeral homes should note that sales tax should not be paid on the purchase of limousines since these will be used to render transportation service which is taxable. Therefore, when purchasing limousines or family cars that will be used to render transportation services to families, the funeral home should claim the TS Exemption Code upon titling the vehicle at the title clerk's office.
If any OFDA members have questions regarding sales tax, please contact Scott Gilligan at (513) 871-6332.