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Summer Update – State and Local Tax News

It has been a busy time in the state and local tax arena. While we are going to highlight some of the important items below, we cannot begin to address all the recent law changes. Therefore, continue to stay tuned to Skoda Minotti for update on various tax issues.

GENERAL UPDATE

Many states have their normal back-to-school sales tax holiday coming up. See our recent article for full details on this issue.

OHIO UPDATE

Budget Bill – Ohio has just passed its budget for the current state biennium (July 1, 2017 through June 30, 2019). There will be a mid-year biennium budget adopted next year making any required tweaks to the current budget bill. Please view our recent blog, Just-Passed Ohio Budget Bill Contains Important Changes Across the Board.

Some highlights include:

City Consolidated Filing – The recently enacted budget bill continued the efforts started a couple of years ago with municipal reform. The current budget bill provides for business city returns to be filed on a consolidated basis through the Ohio Business Gateway. What this means for businesses is if you file multiple city tax returns in Ohio, you can now just file one return through the Ohio Business Gateway. The state will handle the auditing of these returns and provide the tax dollars to the respective cities. This should dramatically reduce the amount of city filings for businesses operating in Ohio.

City Throwback Provision – Another significant change dramatically impacts city tax returns for businesses with Ohio locations. The change impacts how a business computes its taxable income for city tax reporting. In the past, if a business shipped goods out of City A and was only filing city taxes in City A and two other cities, all sales shipped out of City A that were not shipped to cities A, B or C would be required to all be thrown back to City A – this was known as the “throwback” provision.

Not only would city sales be thrown back to City A, but any sales shipped to a state that the entity was not taxable in would be required to be thrown back to City A. The recently passed budget bill also eliminated this “throwback” provision. Now only sales that were shipped out of City A to customers located in City A will be considered a sale for City A.

Both of these provisions take effect in 2018.

Tax Amnesty – The budget bill included tax amnesty beginning January 1, 2018 through February 15, 2018. Skoda Minotti will be providing additional information on the amnesty program as we get closer to the dates.

Sales Tax Nexus – Ohio has joined many other states in enacting an economic nexus standard for businesses selling goods into Ohio. As part of the budget bill, sales tax nexus for Ohio was expanded to include certain out-of-state retailers if they have annual Ohio sales of at least $500,000 and either use in-state computer software to make Ohio sales or provide or enter 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. Out-of-state retailers meeting this definition are required to register and begin collecting Ohio use tax from customers beginning January 1, 2018.

InvestOhio – Even though not actually part of the budget bill, we wanted to share with you that InvestOhio will be continuing for the period July 1, 2017 through June 30, 2019. No provisions of InvestOhio were changed by the budget bill, so it will continue has it has been for the last several years.

OTHER OHIO TAX CHANGES

Temporary Employee Services – A very hot topic currently in Ohio is Ohio’s taxation of temporary employee services. Ohio recently passed legislation requiring any businesses claiming exemption from this tax to provide the vendor with an exemption certificate reflecting the reason why the transaction is not subject to sales tax. There are currently five exemptions in place to exempt a transaction from the temporary employee services tax, but the two most commonly utilized is that the transaction will cover more than one year and the employees are provided on a permanent basis. The other most commonly used exemption is the exemption provided for transactions between affiliated entities—these transactions are still exempt from sales tax in Ohio. The consumer must now provide the vendor with a properly completed exemption certificate.

ILLINOIS BUDGET BILL

Budget Bill – The Illinois Legislature overrode the Gov. Bruce Rauner’s recent veto of an Illinois budget bill to enact a budget bill for the current state fiscal year. The legislature and governor have been at an impasse for a couple of years trying to enact a budget for the state. After operating for five years without an actual budget bill, the legislature finally enacted a budget that includes some tax changes that might impact you personally, or your business. These changes are:

  1. Rate Increase – increase in individual income tax to 4.95% for individuals and 7% for corporations.
  2. Decoupling from Domestic Production Activities Deduction (DPAD)
  3. Research and Development tax credit has been reinstated retroactively to its expiration January 1, 2016.

FEDERAL LEGISLATION IMPACTING THE STATES

Physical Contact Required for Nexus – Federal legislation has been introduced that would require a taxpayer to have physical contact with a state before a state can require the taxpayer to collect its state taxes. The legislation is being called “No Regulation Without Representation Act of 2017.” Similar legislation has been introduced in the past but has failed to pass both houses of Congress. It is difficult to comment at this point whether this legislation will be enacted. Skoda Minotti will continue to monitor the legislation as it works its way through Congress.

If you have any questions concerning any of the items reflected above, please reach out to your Skoda Minotti contact, or anyone within the State and Local Tax Group. I can be reached at phone 813-386-3881 or mdolson@skodaminotti.com.

 

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