Ohio Governor John Kasich signed numerous bills into law last week, one of which – Amended Substitute House Bill 508 – creates significant tax changes. Below are the selected provisions of the Bill that are likely relevant to our clients:

Commercial Activities Tax (CAT)

Under prior law, a taxpayer subject to the CAT (a 0.0026 percent tax imposed on taxable gross receipts that are sourced to Ohio) paid a $150 tax and was allowed a $1 million gross receipts exemption from the 26 basis point tax. For a quarterly return filer, the $1 million was expressed as $250,000 per quarter. The unused exemption amount for a given quarter was eligible for carryforward to the next three quarters. That means the carryover might be to quarters that would extend beyond the calendar year-end.

Under the new law, the annual unused exemption amount can only be carried forward to a quarter that is within the same calendar year. This provision is effective January 1, 2013, so carryovers under the old law are still allowed through the end of 2012.

One additional note: The Cincinnati Enquirer’s Columbus bureau misreported the law change. The exemption is not $1 million per quarter. That would suggest the first $4 million of gross receipts are now exempt from the tax. In fact, the exemption is still $1 million.

The law also eliminates the automatic tax rate reduction (or increase) built into the originating CAT legislation when the tax receipts raised by the CAT exceeded (or fell below) a threshold amount. 

Sales Tax

The new law eliminates the “service vendor” and “delivery vendor” licensing categories, permits the Tax Commissioner to cancel a vendor’s license for the vendor’s failure to notify the Tax Commissioner of the vendor’s change in address, and requires all vendors to display their vendor’s licenses.

The Tax Commissioner is required to notify all vendors (not just those registered via SSTCR system) when local sales tax rates change.

Vendors making sales from catalogs are afforded until the first day of a quarter that follows the 120th day from the date notified by the Tax Commissioner of a local sales tax rate change to make changes to their catalog sales tax rates.

Transfers of ownership interests in pass-through legal entities (partnership or LLC) that hold motor vehicles as their only assets are subject to sales tax. Previously the rule only applied to transfers of shares of stock in corporations that held motor vehicles as their only assets.

Water of any type – distilled, mineral, carbonated, bottled or ice – for residential consumption is no longer subject to sales tax.

Financial Institutions Franchise Tax

An elective single sales factor is now provided for apportionment of the tax base for certain unitary savings and loan groups.

Tax Administration

The Tax Commissioner is now empowered to cancel a taxpayer’s liability for unpaid taxes, penalty, and interest if the total amount due for a single period is $50 or less. This does not change the current practice of a compromise of a tax debt (within the authority of the Ohio Attorney General with the consent of the Ohio Tax Commissioner).

Corporations filing certificates of dissolution will now be required to represent that all state taxes are current, not just certain enumerated taxes, as was the case before the law change.

Effective for persons dying on or after January 1, 2013, it will not be necessary for certain holders of assets of such decedents to obtain tax releases from the Ohio Department of Taxation before relinquishing possession of the assets to executors, etc.

The Tax Commissioner is authorized to exempt a motor fuel dealer from obtaining a surety bond (or cash deposit) securing payment of the Ohio motor fuel tax if the dealer only sells or distributes fuel for which the tax has already been paid.  Personal liability for unpaid motor vehicle fuel taxes now extends to non-corporate legal entities.

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