Governor John Kasich recently signed Ohio’s biennial budget into law. We’ve highlighted key tax provisions below:
Commercial Activity Tax (CAT) Updates
Reallocation Of CAT Revenue
Imposed on businesses doing business in Ohio, the Commercial Activity Tax (CAT) is measured by taxable gross receipts from most business activities. Effective July 1, 2017, some CAT revenue will be redirected from school districts and other taxing units to the state’s general fund. Furthermore, moving forward, the 20 percent share once distributed to state school district’s will drop to 13 percent while other taxing units will see a reduced share as well – from 5 percent to 2 percent.
More Time To Claim Credit Against CAT
Owners or qualified lessees of historic buildings who are planning to claim the Historic Preservation Tax Credit should be aware of a few changes that will impact their ability to claim the Ohio Historic Preservation Tax Credit in the near future.
According to a new Ohio Development Services Agency (ODSA) policy, the effective date for the tax credit certificates will now be the date on which the certificate was signed by the ODSA director. Unfortunately, that means that certificates can no longer be back dated to the date a certification packet was initially received by the ODSA. However, once a project receives pre-approval by the ODSA, you will still have the option to claim the credit against the CAT, an option that was on track to expire.
The new budget extends a taxpayer’s ability to claim the credit against the CAT until July 1, 2019. Those who choose not to take advantage of the CAT option can only apply the credit against their income tax, financial institutions tax or insurance company franchise tax.
Since its inception, the Ohio Historic Preservation Tax Credit Program has approved 284 projects to rehabilitate 398 historic buildings in 52 different Ohio communities. The program is projected to leverage nearly $4.4 billion in private redevelopment funding and federal tax credits directly through the rehabilitation projects.
The highly competitive program receives applications every March and September. Currently, the credit is capped at $5 million per project for most projects.
Listen to episode 66 of unsuitable on Rea Radio: Demystifying Legislative Jargon & Leveraging The Ohio Society of CPAs
Sales/Use Tax Updates
Increment Adjustment Of Sales/Use Tax Levies
Beginning July 2018, a provision in the state budget will allow counties and transit authorities to increase their sales/use tax levies by increments .1 percent – down from 0.25 percent.
New Year, New Tax Collection Rules Out-Of-State Retailers
State legislatures have tried to get a handle on how to define a retailer’s nexus, or sufficient physical presence, for a while now. So, it’s no surprise that Gov. Kasich took a stab at it in his current budget.
Beginning on Jan. 1, 2018, a seller is deemed to have substantial nexus with the state if it:
- Uses in-state computer software to sell or lease tangible personal property or services and has gross receipts totaling more than $500,000 in the current or preceding calendar year from sales of tangible personal property consumed or intended for consumption in Ohio.
- Enters into an agreement with a third-party to provide a content distribution network in an attempt to accelerate or enhance the delivery of its web site to Ohio consumers and has gross receipts totaling more than $500,000 in the current or preceding calendar year from sales of tangible personal property consumed or intended for consumption in Ohio.
Personal Income Tax Updates
Changes Coming to Lowest Tiers of Income Brackets
Taxpayers with adjusted Ohio non-business income less than $10,500 are no longer subject to income taxes at the state level. You can still file to claim tax benefits. And those with income greater than $10,500 will be given an incentive rate of 0.74 percent on the first $10,500 of income, which means only about $80 will be owed on one’s first $10,500.
Business Income Deduction Remains Unchanged
Business Income is still subject to the Business Income Deduction and special 3 percent rate. This means that even if you have a lot of business income but make less than $10,500 in non-business income, you will only be required to pay taxes on your business income. Non-business income includes income from sources such as W-2 income, interest, dividends and some kinds of capital gains.
The rules continue to require payroll withholding on the first $10,500 of income though. So you may end up filing a tax return anyway to get a refund.
Municipal Tax Updates
OBG Filing/Payment For City Net Profits Returns
Beginning Jan. 1, businesses may begin to file their net profit tax returns and remit payment through the Ohio Business Gateway (OBG). While businesses are not necessarily required to use this option, those that do may find the OBG to be a significant time-saver, particularly among those required to file in 10 or more cities. Instead of completing and filing a stack of forms, business owners can file one form on the OBG which would satisfy the filing requirement in other Ohio municipalities. Additionally, rather than writing a handful of checks and mailing returns all over the state, the gateway would significantly simplify the payment process.
Throwing Out The Throwback Rule
Also starting Jan. 1, the law will change how sales are allocated on business returns. Currently, if a good is shipped from a warehouse in an Ohio municipality to an out-of-state customer, that sale would be apportioned to the Ohio municipality where the good was shipped. In 2018, that sale would not be apportioned to the Ohio municipality. Additionally, if a good is shipped from municipality A to municipality B, but employees do not regularly solicit business in municipality B, the sale is not apportioned to either municipality. Current law apportions this sale to municipality A.
The big winners here are our Ohio companies that ship out of state or to other municipalities without soliciting sales at the place of delivery. Ohio-based manufacturers and distributers could see significant tax savings starting in 2018.
Estimate and Penalty Housekeeping Changes
Starting in taxable years beginning in 2018, individual fourth quarter estimates for municipalities will be due by Jan.15. Business fourth quarter payments will still be due by Dec.15. So if a taxpayer is in alternative minimum tax (AMT) in 2018, he or she could wait until January to make a fourth quarter estimate for a potential Schedule A deduction in 2019.
Also, if municipal income tax withholding is not paid on time, the penalty is no longer required to be 50 percent of the unpaid amount – which is what current law dictates. Moving forward, while the penalty may be as high as 50 percent, depending on the municipality, it can also be less. Current law mandates a 50% penalty.
Let There Be Amnesty
Ohio’s Tax Commissioner is administering a temporary tax amnesty program Jan. 1-Feb. 15 applicable to a number of delinquent taxes including:
- Financial Institutions Tax
- Commercial Activity Tax
- State Income Tax
- State Alcohol, Tobacco and Cigarette Excise Taxes
- State and Local Sales and Use Taxes
- School District Income Taxes
- Local Alcohol and Cigarette Excise Taxes
The amnesty program only applies to taxes that were due and payable as of May 1, 2017, which remain payable to the state on Jan. 1, 2018. The program does not apply to those who have previously received a notice of assessment or to those who have had or are currently under an audit for the still-open tax period(s).
The amnesty program requires the commissioner to abate all applicable penalties and half of any interest assessed from the delinquent taxes provided that the participant pays the full amount of delinquent taxes owed and the remaining half of the interest accrued for those taxes.
Ohio Tax Help
Email Rea & Associates to speak with one of our state and local tax experts to learn what these changes mean to your bottom line.
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