Ohio Tax Whats on the Horizon Amnesty, Net Profit Tax and Other - - PDF document

27th Annual

Tuesday & Wednesday, January 23‐24, 2018

Hya Regency Columbus, Columbus, Ohio

Ohio Tax

What’s on the Horizon

Amnesty, Net Profit Tax and Other Ohio Tax Department Initiatives

Joseph W . Testa Ohio Tax Commissioner, Ohio Department of Taxation Columbus

Tuesday, January 23, 2018 12:45 p.m. to 1:20 p.m.

Presented by: Joe Testa Tax Commissioner

Municipal Net Profit & Other Tax Law Changes

House Bill 49: Biennial Budget

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Ohio Tax Conference

• Eliminates the two lowest income tax brackets; now

seven brackets.

– Incomes below $10,650 are no longer subject to tax.

• This threshold will be annually adjusted for inflation.
• College Savings Plan and STABLE Account deductions

doubled from $2,000 to $4,000 in 2018 (filed 2019).

Personal Income Tax

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• Exempts digital music purchased and played from digital
• jukeboxes. Effective 10/1/17.
• Sales & use tax nexus for out-of-state retailers.

− Annual sales of at least $500,000. − Utilizes in-state computer software to make Ohio sales or a third party to enhance delivery of seller’s website to Ohio consumers. − Court challenge pending; American Catalog Mailers Association questioning constitutionality.

• Adjust local sales tax rates by increments of 0.1%

(not 0.25%) − effective July 1, 2018.

• Sales tax holiday: Aug. 3 – 5, 2018.

− Clothing/school supplies.

Sales & Use Tax

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• Runs January 1 − February 15, 2018
• Applies to the following taxes:

– Financial Institutions Tax – Commercial Activity Tax – State Income Tax – Alcohol, Tobacco, and Cigarette Excise Taxes – State and Local – State and Local Sales and Use Taxes – School District Income Tax

• Impose no penalty and forgive 50% interest.
• Marketing and advertising campaign began late November; radio &

TV ads runs throughout; heavy emphasis last 2 weeks.

Tax Amnesty Program

• Owe unreported or underreported tax due prior to May 1,

2017 (no contact from ODT).

• Download and complete application (paper only); include

all appropriate tax returns.

• New business must include a completed registration form.
• Pay in full / principle & interest amount due.
• For Information: ohiotaxamnesty.gov or 1-800-304-3211

You Can Apply for Tax Amnesty if…..

• Fact Sheet -- summary of amnesty benefits/features.
• Talking Points – use on your website, in emails, hosting meetings.
• Newsletter content / Written outreach.
• Social Media posts – share tax amnesty messages with your followers
• n social media.

@ ohiotaxamnesty.gov

Tax Professional Resource Kit – outreach and informational materials re: Tax Amnesty

• Board of Tax Appeals decisions– No direct appeals

to Ohio Supreme Court → local Court of Appeals.

• Transfer of local taxing authority funds

Other Tax Changes

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• 25 Tax Simplification Items submitted − 25 accepted,

including:

• Require tax compliance with all excise taxes before

transfer/renewal of liquor permit.

• Require vendors in the Habitual Offenders Program (HOP)

to remain current in both sales tax and employer withholding.

• No ODT fee (2.5%) for IT1040 donations (military, sick

children, wildlife, etc.).

• No ODT fee for Exempt Facility Applications; entire fee

(O.5% of total project cost) to OH EPA.

Tax Simplification

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• Sen. Bill 8: wages and guaranteed payments paid by a PEO to

an owner of a pass-through entity may be considered business income.

– Subject to the 20% direct/indirect ownership (R.C. 5733.40(a)(7) ) – Professional Employer Organizations defined in RC 4125.01

• Retroactive to Tax Year 2013.
• Taxpayers must file amended return, petition for

reassessment or application for refund.

• State Revenue impact: $5 - $10M (2018, includes

retroactive); $1 - $2M in subsequent years.

Professional Employer Organizations (PEO): Wages & the Business Income Deduction

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• Sen. Bill 8: Effective July 1, 2019, corrective lenses –

eyeglasses, contact lens – will be exempt from Ohio sales tax.

• Revenue impact: Nearly $60 million annually, state & local

taxes (CY 2021). – State (all funds): $48.8M – Local: $11.0M

Prescription Eyewear: Sales Tax Free

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Centralize and Standardize

Municipal Net Profit Tax Reform

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• 2016 ‘Listening tour’ with Ohio business associations

and their members.

• -Ohio State Fair: input from fairgoers

Q: “What is the biggest and most burdensome tax impediment you face?” A: Consensus: Municipal income tax on business net profits.

• Compliance can be more costly than the amount of tax

paid.

Municipal Net Profit Tax Reform / Background

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• More than 600 cities/villages levy municipal

income tax.

• Collected against:
• -Individual income
• -Employer withholding
• -Business net profit (approx. 14% of total collections)

Municipal Net Profit Tax Reform / Background

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• Total collections: $4.99 billion (CY 15).
• Administered by individual municipalities and 3rd

party administrators.

• Business taxpayers required to file & pay in every

municipality where income is earned.

• “Worst local tax system in the country” (Tax

Foundation).

Municipal Net Profit Tax Reform / Background

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• Administer business net profit tax at state

level.

• ODT already handles some local taxes

(sales, SDIT, muni. Electric light, etc.).

• Could save businesses $800M if all

businesses file centrally.

• NOTE: Sole proprietors and single member

LLCs will continue to file with municipalities.

Municipal Net Profit Tax Reform / The Plan

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• Support: more than 30 statewide business assns. (OH Chamber, CPAs,

Mfg., Contractors, NFIB, Restaurants, Retail Merchants, etc.).

• Advantages:
• -Consistency / uniformity
• -Reduced costs for businesses and municipalities
• -More efficiencies / more data analysis

Municipal Net Profit Tax Reform / The Plan

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• ‘Opt-in’.
• Business taxpayers choose: file and have NP tax

administered by multiple individual municipalities or file a single return with ODT.

• Electronic filing through OBG.
• No federal returns needed.
• Data sharing: ODT municipalities.

Municipal Net Profit Tax Reform / The Plan

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• Revenue distributions monthly, with interest
• Administration fee = 0.5%
• Conduct reviews/audits at request of

municipality (if supported by evidence)

• Repeal ‘throwback rule’

Municipal Net Profit Tax Reform / The Plan

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• Propose rules.
• View at tax.ohio.gov
• Prescribe forms.
• Issue bills, assessments, refunds.
• Conduct audits, certify debts.
• Handle appeals & all other

administrative matters.

Municipal Net Profit Tax Reform / The Plan: ODT Role

One uniform tax return One consistent governing body

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• Retain responsibility for Emp. Withholding &

Individual filings (approx. 86% of total tax revenue).

• Retain control over tax rate and tax credits.
• Retain access to taxpayer information.

Municipal Net Profit Tax Reform / The Plan: Municipality Role

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• Sign up for new MNP Tax Alert for news & info.
• Adopted 3 New Rules: posted at tax.ohio.gov

(1) Filing of returns and payments by electronic means.

(2) Joint economic develop zones and districts (JEDZ & JEDD).

– Info. Release issued 11/27; can submit information now.

(3) Change in taxable year and declaration of estimated taxes for short taxable years.

Municipal Net Profit Tax: Focus on Business

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• Forms (draft)

− MNP Tax Registration (Registration Open@ tax.ohio.gov / after February 5 @ OBG) * Schedule: (municipalities / filed in previous year) * Schedule: (members of Consolidated Group) Note: Businesses can choose to file consolidated or separate returns for different municipalities. − MNP Tax Return * Schedule A: Adjustments to federal income * Schedule B: Apportionments − MNP Declaration of Estimated Taxes (w/Payment Sched.)

Municipal Net Profit Tax: Focus on Business

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• Soliciting input to maximize utility of new system from:
• -Business advisory group: top priorities for

taxpayer simplicity.

• -Municipalities working group: how best to

coordinate data sharing.

Municipal Net Profit Tax Reform / Collaboration

Municipalities Businesses & Practitioners

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• Working group of 6 municipalities and RITA.
• Clarifying roles & responsibilities under the law.
• Developed information booklet for municipalities
• n MNP requirements in R.C. Chapter 718

(and a separate booklet for taxpayers)

Municipal Net Profit Tax: Focus on Municipalities

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• Business Advisory Group working to help test and

refine the system

• -6 Members: 3 CPA firms, 2 Contractor groups, 1 Large industry
• Reviewing and providing feedback on forms &

processes

• Helping with user testing of registration and filing

systems

Municipal Net Profit Tax: Focus on Business

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• By March 1, 2018, businesses (calendar yr. filers).
• By April 15, 2018, make first quarterly estimated

payment.

• By April 15, 2019, file Tax Year 2018 tax return.
• Several municipalities have filed a lawsuit in

Franklin Co. Common Pleas Court to challenge state’s authority.

Municipal Net Profit Tax Reform: Timeline

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• Process/interface with commercial tax

preparation software.

• Developing with IRS the use of Modernized

Electronic Filing (MeF) for Muny NP Tax for Ohio.

Municipal Net Profit Tax Reform: Ohio Business Gateway (OBG)

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Questions?

Joe Testa Tax Commissioner

contactthecommissioner@tax.state.oh.us

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