Ohio Enacts 2018-2019 Biennial Budget
Last week, the Ohio General Assembly passed and the Governor signed a biennial budget containing many tax provisions:
Municipal Income Tax
Administration. The Act allows business entities (not individuals) to elect to file their municipal net profit returns with the Ohio Department of Taxation through the Ohio Business Gateway rather with their usual local tax administrator. For entities making the election, the Department will administer the tax in all respects in a manner similar to the way it administers state taxes, including prescribing its own forms.
The election will apply to taxable years beginning on or after January 1, 2018. The election must be made by the first day of the third month of the taxpayer’s taxable year (March 1 for calendar filers) and continues indefinitely unless the taxpayer revokes it. This election will be of benefit to businesses currently filing returns with multiple tax administrators.
Throwback. The Act eliminates a provision called the “throwback rule,” which for a business shipping goods into multiple municipalities, affects how much of the business’ income will be taxed in the “shipped from” municipality. For businesses that do not regularly send sales personnel to solicit business in other municipalities (e.g., a retail store with internet sales), the throwback rule elimination will reduce the business’ tax in the “shipped from” municipality without increasing its liability in the “shipped to” municipalities. This provision applies to taxable years beginning on or after January 1, 2018.
Estimated Tax Payments. For individuals, the Act pushes the due date for the fourth quarter estimated tax payment by one month.
Sales / Use Tax
The Act creates another three-day sales tax holiday (August 3, 4, and 5, 2018) similar to the one to occur this August 4th, 5th, and 6th. It also exempts juke box music.
The Act greatly expands the circumstances under which a non-Ohio business making sales into Ohio will be required to collect Ohio sales tax. A business with more than $500,000 in Ohio sales that uses in-state software or an in-state content delivery network will be presumed to have “substantial nexus” with Ohio. The Act’s definition of “in-state software” and “in-state content delivery network” suggests this provision is intended to affect all sellers whose websites or advertisements reach Ohio consumers’ computers and mobile devices. This provision applies to sales occurring on or after January 1, 2018.
Ohio has now joined a growing number of states that have enacted legislation attempting to compel remote internet sellers to collect the state’s sales tax. Ohio’s approach has differed, however, from other states’ in that it has not openly challenged the “physical presence” standard affirmed in Quill v. North Dakota. By referring to “in-state” software or content delivery networks, Ohio’s argument appears to be that use of such software or networks constitutes physical presence.
Tax Administration
The Act eliminates the right of direct appeal from the Board of Tax Appeals (BTA) to the Ohio Supreme Court. This means taxpayers who lose in the BTA can appeal only to the court of appeals of the district where the taxpayer lives. The party losing at the court of appeals can appeal to the Ohio Supreme Court, but under continuing law the Ohio Supreme Court has discretion not to hear an appeal from a court of appeals, so the court of appeals might have the final say. With twelve appellate districts, conflicting rulings on the same tax issue could result.
Tax Amnesty
The Act requires the Tax Department to conduct a tax amnesty program from January 1, 2018 to February 15, 2018, applicable to CAT, income, sales, use, and other taxes due and unpaid as of May 1, 2017. Civil and criminal penalties and one-half interest will be waived for participants in the program.
Personal Income Tax
The Act increases the deduction limit for contributions to a section 529 college savings plan from $2,000 to $4,000.
Credits & Incentives
The Act makes permanent the Enterprise Zone program, through which local governments can provide property tax abatements for economic development purposes. The Act also appears to appropriate $1.25 million to fund the Incumbent Workforce Training Program. The Act authorizes up to $6,000 in benefits per worker per year.
Other
The Act contains numerous other tax-related provisions. For a comprehensive list, contact our expert – Steve Estelle.