Ohio’s New Budget Offers Tax Friendly Environment


July 6, 2011

On June 30th, the eve of the state’s new fiscal year, Governor Kasich signed Ohio’s FY 2012-2013 budget into law with hopes of eliminating the state’s $8 billion budget gap. The resulting legislation yields a much more friendly tax environment for Ohio businesses and individual taxpayers for the next two years. Provided below are highlights of some of the most significant provisions.

Temporary Tax Amnesty Program. From May 1, 2012 through June 15, 2012, the Ohio Department of Taxation will offer individuals and businesses a reprieve on penalties owed for unpaid taxes. Those who come forward under this program may be eligible for amnesty on state personal income, sales, use, corporate franchise, estate, county and transit authority sales, and school district income tax, as well as on the commercial activity tax.

Specific considerations for use tax - Amnesty on use tax can be sought beginning October 1, 2011 through May 1, 2013 for taxes owed on or after January 1, 2009. Interest and penalties will be waived under the program for those who: 1) did not have a use tax account with the state prior to June 1, 2011 and, 2) pay their use tax owed on or after January 1, 2009. A payment plan of up to seven years is available. Consumers who do not participate in the Use Tax Amnesty Program may be subject to an audit for Ohio use tax looking back to January 1, 2008.

Note: the Temporary Tax Amnesty Program supersedes the state’s Use Tax Education Program (UTEP) initiated earlier this year. Up until the passage of this budget, all previous communication from the state of Ohio indicated that the UTEP was the best course of action. Upon review, the new Temporary Tax Amnesty Program is now the most advantageous option.

Estate (Death) Tax Repeal. The estate tax is repealed for those individuals dying on or after January 1, 2013. Ohio estate tax applies to estates worth more than $338,333, with a top marginal rate of 7%. The measure will provide more than $300 million in tax relief to individuals annually and will help farmers and small business owners keep their enterprises in the family from generation to generation. Local municipalities, however, may be hit hard by this repeal, as 80% of the estate tax monies collected go to local governments.

Invest Ohio/Small Business Credit. Ohioans who invest up to $10 million in an Ohio small business (i.e., a business with less than $50 million in assets or $10 million or less in sales) will receive a 10% nonrefundable tax credit if the investment is held for a specified amount of time. A two-year holding period applies to investments made between July 1, 2011 and June 30, 2013. Investments made after June 30, 2013 must be held for five years. Credits are claimed at the end of the holding period and can be carried forward for seven years. The maximum credit per investor is $1 million per biennium. Total credits to be authorized by the state are limited to $100 million per any fiscal biennium. Credits may be claimed for either direct investments by the taxpayer or indirect investments made by a pass-through entity.

New Refundable Job Retention Tax Credit. Between July 1, 2011 and December 31, 2013, the Tax Credit Authority is now authorized to issue credits to eligible businesses that undertake a capital investment project. Qualifying projects are those that either: 1) retain at least 500 full-time employees and an annual payroll of at least $20 million, or 2) maintain an annual payroll of $35 million and invest at least $5 million at a project site in the same jurisdiction where its principal place of business is located. Other existing requirements must be met as well. Total credits issued between July 1, 2011 and June 30, 2013 may not exceed $25 million.

Historic Building Credit Extension. The credit for the rehabilitation of an historic building, set to expire July 1, 2011 is now permanent. The provision changes aggregate credit limits from $60 million per application period to $60 million per fiscal year; allows foreign and domestic insurance companies to apply for the credit; and requires recipients to repay amounts received if the project is not completed. The provision also acknowledges today’s difficult lending environment by allowing the Director of Development the option-instead of the prior requirement-to rescind an application due to lack of financing within 18 months of being approved for the credit. This change may allow developers more time to fund projects while keeping their credit.

Ohio Incumbent Workforce Training Vouchers. To help the state’s workforce remain competitive, this voucher program provides $20 million in FY 2012 and $30 million in FY 2013 in funding that will provide employers up to $6,000/year per employee for training costs. Employers are required, however, to pay at least 33% of the total eligible training costs.

Prevailing Wage Requirements for Development Projects. Aimed at increasing overall competition for new construction projects, prevailing wage requirements in Ohio have been eliminated for a variety of projects—including some economic development programs of the Department of Development, the construction or repair of a port authority facility, and public improvements undertaken by a port authority.

For those projects still subject to Prevailing Wage, the minimum qualifying project amounts have been increased. For public improvements other than roads, sewers, ditches and other related projects, the trigger amount has been raised from $78,258 to $125,000 for new construction for the first year after July 1, 2011; $200,000 for the second year; and $250,000 thereafter, with no biennial adjustments. For reconstruction projects, the trigger has been raised from $23,447 to $38,000 for the first year after July 1, 2011; $60,000 for the second year; and $75,000 thereafter, with no biennial adjustments.

Construction Reform. The state has eliminated the mandate of four separate "prime" contractors for public construction projects. Public projects now will be allowed to have one general contractor, which will save taxpayers, state and local governments, and universities millions of dollars caused by confusion and conflict on job sites.

Ohio’s budget offers a variety of opportunities for individuals and businesses over the next two years. Contact a member of your service team to discuss your specific situation and how you may benefit from these and other provisions outlined in the new budget.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.