On June 30, 2017, Ohio Governor John Kasich signed the 2018-2019 Ohio Biennial Budget Bill (HB No. 49), which rolled out several changes to Ohio tax policy. Significant areas of change include an elimination of the two lowest Ohio income tax brackets, municipal income tax centralization, and sales and use tax nexus.
Ohio is providing another tax amnesty program that will run from January 1, 2018, through February 15, 2018, and apply to taxes due as of May 1, 2017, and remain unpaid on the date the tax amnesty begins, including the following taxes:
- Most delinquent state taxes (except Ohio resort area excise taxes),
- Tangible personal property taxes,
- County and transit authority sales taxes, and
- School district income.
Taxpayers who participate in the program will receive an abatement of penalties and half of any interest owed on qualifying delinquent taxes.
Ohio excludes from the tax amnesty program certain “qualifying delinquent taxes" defined as any tax for which:
- A notice of assessment or audit has been issued,
- A bill has been issued, which relates to a tax period that ends after the effective date of the law, or
- An audit has been conducted or is currently being conducted.
The Ohio Tax Department is currently evaluating the amnesty language and how this may or may not effect taxpayers currently under audit. This will likely create uncertainly for many taxpayers currently under audit when evaluating whether to agree to a proposed assessment or defer settling until the tax amnesty program begins. We expect the state will issue guidance later this year.
Municipal Income Tax
Below are the primary changes affecting city income taxes:
- Municipal Throwback Provision. The commonly misunderstood municipal throwback provision will be eliminated for tax years beginning on or after January 1, 2018. Prior to 2018, Ohio cities require companies selling tangible goods to throwback receipts originating from an Ohio facility but destined to a location outside their city limits. The law also includes sales destined outside the State of Ohio, unless the taxpayer can show an employee solicits regularly at the place of delivery.
- Municipal Centralized Reporting. Ohio took a small step to address the municipal filing complaint posed by most taxpayers doing business in multiple Ohio jurisdictions. In an effort to streamline the municipal filing process, beginning in 2018 a business may choose to file their municipal returns centrally with the Ohio Business Gateway. This process will be entirely run by the Ohio Department of Taxation, including the review and audit of the municipal income tax returns. This process is not mandatory, so a business may continue to file returns with each local jurisdiction. The Ohio Department of Taxation will charge a fee to the municipalities of 0.5% of the tax collected.
- Individual Taxpayer Reporting Deadline. Ohio moved back the fourth quarter due date for calendar-reporting individual taxpayers to January 15 beginning in 2018, which is consistent with the date imposed by most municipalities prior to HB 5. This due date change is not applicable to business taxpayers. Calendar-year business taxpayers must still remit their fourth quarter estimated payment by December 15.
- Late Payment Penalty for Withholding Taxes. HB 5 instituted language that imposed a 50% penalty on the unpaid amount, whereas the budget bill modified this language to “not exceeding 50%” of the unpaid amount. As such, municipalities will have more flexibility when assessing late payment penalties.
Personal Income Tax
Below are personal income tax changes to be aware of:
- Elimination of Tax Brackets. Beginning with the 2017 tax year, the new budget will eliminate the two lowest brackets of the personal income tax in Ohio. This means that individuals who earn less than $10,500 will not be taxed on that income. With the elimination of the lowest two tax brackets, the Ohio low-income tax credit is no longer available.
- Income Tax Deduction. Effective in 2018, Ohio will increase the maximum possible personal income tax deduction from a contribution to a qualified college savings plan from $2,000 to $4,000 per beneficiary.
- Fourth Quarter Estimate Payment Deadline. As discussed previously, beginning 2018 the due date for the fourth quarter estimate payments for individual taxpayers has been moved to January 15.
Sales and Use Tax
Sales and use tax also saw significant changes in the new budget:
- Sales Tax Holiday. Ohio will once again authorize a sales tax holiday in August 2018 similar to the one that will take place this August 2017.
- Non-Ohio-based Internet Retailers. Ohio adopted a nexus provision for non-Ohio-based internet retailers, also known as remote sellers. A seller will be deemed to have substantial nexus in Ohio if their gross receipts in the state are greater than $500,000 in the current or proceeding tax year and the seller:
- Uses in-state software to sell or lease their tangible personal property. In-state software is defined as software that is stored on property located in Ohio or distributed within Ohio for the purpose of facilitating a sale; or
- Enters into an agreement with another person to provide a content distribution network in the state to accelerate or enhance the delivery of the seller’s website to consumers. A content delivery network is defined as a systems of distributed servers that deliver websites and other web content to a user based on his or her geographic location, the origin of the website or web content, and a content delivery server.
- Direct Mail. “Other direct mail” is direct mail not used for advertising or promotions, regardless of whether advertising and promotional direct mail is included in the same mailing. Beginning January 1, 2018, direct mail that falls into the “other” category will collect tax according to the location of the consumer; the consumer may no longer provide delivery locations for this purpose. Advertising and promotional direct mail will continue to collect tax according to delivery information, when provided by the consumer.
Ohio made numerous changes to various economic development incentives:
- Job Creation Tax Credit. Businesses who claim the job creation tax credit may now include qualifying work-from-home employees. A “qualifying work-from-home employee” is an employee who is a resident of the state and whose services are supervised from the employer’s project location and preformed primarily from a residence of the employee located in the state.
- Enterprise Zone Provisions. The enterprise zone provisions, which allow businesses to enter into an enterprise zone agreement with a municipality, have been made permanent.
- Data Center Exemption. The data center exemption for sales and use tax was modified to provide qualifying taxpayers an additional year to complete a qualifying project. For projects that began in 2013, the taxpayer now has six years, instead of five, to make qualifying capital expenditures.
- InvestOhio. While this program is not changing, it has been extended to taxpayers into the new biennium, from July 1, 2017, through June 30, 2019. This program offers a valuable incentive for taxpayers making new equity investments in either new or existing qualifying Ohio small businesses. The Ohio Business Gateway will begin accepting new applications for InvestOhio in a few weeks. Learn more about the program in “InvestOhio Still Offers Great Opportunity for Investors and Businesses.”
For specific questions or to learn further details about the recent Ohio budget changes, contact Hannah Prengler, partner-in-charge of our State and Local Taxation Group, at email@example.com or a member of your service team.
Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts and circumstances.