Ohio State Tax Liens: How to Protect Your Assets If You Owe Back Taxes

If you don't pay Ohio taxes, the State can file a tax lien against you. Tax liens are registered in counties where you live, operate a business, or own property. They attach to all of your assets, ensuring that the state has the right to the proceeds if you sell the asset and making it very difficult to borrow against or transfer the asset. 

A tax lien protects the State of Ohio's interest in your tax debt, and it lays the legal groundwork for the state to seize your assets. Liens have significant financial consequences for taxpayers, and if you're facing a lien, you should consider reaching out to a tax professional for guidance.

Unpaid Taxes Subject to Liens in Ohio

If you fail to pay the following taxes, the Ohio Department of Taxation may issue a state tax lien against you:

• Personal state income tax
• Payroll/withholding tax
• Business taxes including the commercial activity tax and sales and use tax.

You may also have a tax lien issued if you do not pay your property taxes. However, that happens at the local level, and generally, those liens only attach to your home, not to other property, but the rules may vary depending on the jurisdiction.

How the Tax Lien Filing Process Works

If you do not pay your state taxes, the tax commissioner may file a tax lien in the clerk of the court of common pleas in the county where you live, have employees, or operate your business. 

The clerk will file a judgment in a loose-leaf book based on whether the tax debt is personal or related to a business or other entity. The books are called "special judgments for state and school district income taxes" and "special judgments for qualifying entity taxes. 

The Attorney General's Office can refile a tax lien every 15 years to keep it active. Liens must be canceled within 40 years. In other words, once in place, an Ohio state tax lien will be attached to your assets for a significant amount of time. Waiting out a lien will take most of your adult life.

What to Expect When There Is a Lien Against Your Assets

To get a sense of how a lien affects you, look at these examples of how it affects your assets in several different scenarios.

Let's say you owe $100,000 on your home mortgage and you have a state tax lien for $20,000. You sell the home for $250,000. The closing company will send $100,000 to the mortgage company and $20,000 to the Ohio Department of Taxation, and you will be allowed to keep the rest. There is almost no way to get around this. Generally, the title cannot be transferred to the buyer with a tax lien attached to it. 

Now, imagine that you own a car outright with no loan against it, but there is a state tax lien against your assets for $20,000. You decide to give the car to your child. Even if they are able to transfer the title to their name, the lien will stay attached to the vehicle, and if they sell the vehicle, the proceeds will go to the state. Additionally, the state may decide to execute the lien and seize the vehicle. 

To give you a final example, imagine that you own a rental property worth $400,000 and you owe $250,000. There is also a $20,000 tax lien attached to the property as well as your other assets. You want to refinance the mortgage on this property and use some of the cash to pay off the taxes. However, the lender refuses to give you a loan while there is a tax lien against you. 

To get the loan, you must contact the Department of Taxation and convince them to subordinate their lien to the mortgage lender. That simply means the state agrees to take priority behind the other lienholder, and generally, the state will only do that if it believes doing so will help get the tax debt paid faster.

How to Get Rid of a Tax Lien

The most effective way to get rid of a tax lien is to pay the taxes in full. The Department must also withdraw the lien if it was issued in error- for example, if the tax debt was owed by someone else.

Beyond that, you should reach out to the Department or talk with a tax pro for more options. In some cases but not always, if you make arrangements such as setting up a payment plan on the tax debt, the Department will remove the tax lien. 

The Department may also be willing to subordinate the debt so that you can borrow money against one of your assets to pay off the debt. Or, the Department may be willing to discharge the debt from a certain asset if you prove that doing so will help you earn the money you need to pay off the tax debt. Unfortunately, the state will generally not remove tax liens for financial hardship.

How to Avoid a Tax Lien

To prevent the Department from filing a tax lien, you must be proactive about dealing with your taxes. Always file and pay your taxes on time, and if you cannot afford to pay in full, reach out to the Department about setting up a payment plan. 

If there are penalties on your account, consider applying for penalty abatement. The state may be willing to waive penalties in certain cases, and reducing your total amount due can help you to pay off the debt faster.

If you're facing a tax assessment due to an adjustment on a filed return or due to an audit, appeal if you don't agree with the assessment. The notice of assessment letter should contain appeal instructions and deadlines. You should appeal in writing, but generally, you can take care of the situation through an informal conference. Talk with an attorney if you disagree with the tax and have missed the appeal deadline or aren't sure what to do.

FAQs About Ohio Tax Liens

Do tax liens appear on your credit report?

Tax liens may appear on your credit report. The Ohio Department of Taxation does not send reports of tax liens to the credit bureaus. However, once a lien is filed with the county clerk of courts, it becomes public record. If the reporting bureaus see the lien, they may note it on the credit report.

What should I do if I'm filing for bankruptcy?

If filing for bankruptcy, you should list the Ohio Department of Taxation as one of your creditors. You can also contact the ODT with information about the bankruptcy including the case number, docket number, date filed, and court. Then, the ODT will file a proof of claim with the court.

However, it's very important to note that you can only discharge certain taxes through bankruptcy. Always consult with an attorney before filing.

Will settling taxes through an offer in compromise remove the tax lien?

Unfortunately, if you settle Ohio state taxes through an offer in compromise, the Attorney General may still be able to file a tax lien against you. To ensure you're making the best decision for your situation, talk with a tax pro before applying for an offer in compromise.

Can the state issue tax liens against individuals for unpaid payroll taxes?

If a business does not pay taxes that were withheld from an employee's paycheck, the Ohio Department of Taxation can hold an individual liable for the taxes. The state can easily "pierce the corporate veil" when it comes to these types of taxes.

Get Help With Ohio Tax Liens

If you're facing state tax problems, you need a tax pro with experience in that state. Unfortunately, most of the big tax resolution firms that you see advertising on the TV or internet lack state experience, and they're also notorious for not providing clients with the customized high-quality services they need. 

To get help dealing with or avoiding an Ohio tax lien, use TaxCure to search for a local tax pro based in your area. When you search on TaxCure, you can narrow down your search to find tax pros with the exact experience you need.