The recently passed Ohio budget bill contains important changes within many areas of the tax code, and some of the key tax provisions are presented and analyzed below. Skoda Minotti will continue to monitor the latest developments, analyze the various provisions of the bill and provide additional alerts to keep you updated on how you and/or your business could be impacted.
Municipal Income Tax Changes
State-level reporting and collection of municipal business net profits: This change allows, but does not require, businesses to file a single annual or estimated tax return through the Ohio Business Gateway (OBG) on which the business can report and pay the total tax due to all of the municipalities in which the business earned net profits. If the business makes the election to file through OBG, (1) it renews automatically every year until terminated by the taxpayer, and (2) the Ohio Department of Taxation (ODT) would solely administer and audit those business taxes. This change is available starting Jan. 1, 2018.
Current “throw-back” provision is eliminated: This will eliminate the required provision requiring taxpayers to throw sales back to a city where the goods are shipped from if the taxpayer is not taxable in the state and/or city where the goods are shipped to. The other two current law rules for apportioning the sale of goods whereby sales are apportioned to a municipality if the goods are either (1) both shipped from and delivered within the municipal corporation, or (2) delivered within the municipal corporation, but shipped from elsewhere, if employees of the business regularly solicit sales within the municipal corporation. The change applies to taxable years beginning in 2018.
Withholding tax penalty: This authorizes municipal corporations to impose a penalty not exceeding 50% (and thus allowing for less than 50%) of the unpaid amount for employers that do not timely remit municipal income tax withholding. Current state law mandates that the penalty equals 50% of the unpaid amount.
Personal Income Tax
Reduction of the number of brackets: The bill reduces the number of brackets from nine to seven by eliminating the bottom two income tax brackets ($0-$5,000 and $5,000-$10,000). Additionally, it repeals the low income tax credit, and specifies taxpayers with Ohio adjusted gross income less exemptions and less taxable business income of $10,500 or less will owe no tax. Finally, it requires the Tax Commissioner to annually adjust this value for inflation.
College or disability savings tax deduction increase: The bill increases the maximum income tax deduction for contributions to a federally tax advantaged college savings plan or disability expense savings account to $4,000 (from $2,000) annually for each beneficiary. The effective date is taxable years beginning in 2018 or thereafter.
Sales Tax Changes
Local sales and use taxes: With regard to tax rate increments, the bill allows counties and transit authorities to increase their local sales and use tax levies in increments of 0.1%, rather than 0.25%, and allows such incremental adjustments beginning in July 2018.
Use tax collections by certain out-of-state retailers: The bill requires out-of-state sellers to collect and remit state and local use taxes, beginning Jan. 1, 2018, if the seller has annual Ohio sales of at least $500,000 and either uses in-state computer software to make Ohio sales or provides or enters into an agreement with a third party to provide content distribution networks in Ohio to accelerate or enhance the delivery of the seller’s website to Ohio consumers.
Sales tax holiday: The bill provides a three-day sales tax “holiday” in August 2018 during which sales of clothing, school supplies and instructional materials within certain price ranges are exempt from sales/use taxes.
Commercial Activity Tax (CAT)
Historic rehabilitation credit against the CAT: The bill extends, to July 1, 2019, a temporary provision authorizing owners of an historic rehabilitation tax credit certificate to claim the credit against the CAT if the owner cannot claim the credit against another tax. Otherwise, the credit may be applied only against the income tax, financial institutions tax, and the insurance company franchise taxes.
General Provisions Impacting Tax
Tax Amnesty Program: The bill requires the Tax Commissioner to administer a temporary tax amnesty program from Jan. 1, 2018 to Feb. 15, 2018.
Do you have questions concerning provisions of the newly passed Ohio budget bill, or other state and local tax (SALT) questions? Please contact Mary Jo Dolson at 440-449-6800 or email email@example.com.