On June 30, 2017, Ohio Governor John Kasich signed into law Ohio Am. Sub. H.B. 49 2018-2019 Budget Bill. The Bill contains a number of Ohio tax law changes that taxpayers and tax preparers need to be aware of.
Some notable changes include:
File Local Returns through the Ohio Business Gateway
On January 1, 2018, businesses may now elect, but are not required to, file municipal income tax returns through the Ohio Business Gateway. The business can report and pay the total tax due to all of the Ohio municipalities. If a business decides to file on the Ohio Business Gateway it must make the election on or before the first day of the third month following the start of the tax year. Once the taxpayer makes the election, it will be renewed automatically every year until terminated by the taxpayer.
The ‘Throwback Rule’ Eliminated for Municipalities
Beginning in tax year 2018, the sales factor “throwback rule” is eliminated. Under the Budget Bill, sales of tangible personal property are only sourced to a municipality if the goods are either:
- both shipped from and delivered within the municipal corporation,
- delivered within the municipal corporation, but shipped from elsewhere, if the employees of the business regularly solicit sales within the municipal corporation.
This elimination of the throwback rule means sales of property shipped outside to a municipality where the business has no employees or property will not be included in the sales apportionment factor where the business is located.
Fourth Quarter City Estimates
For taxable years beginning in 2018, individuals are allowed to pay fourth quarter city estimates until the 15th day of the first month following the close of the tax year (e.g., January 15 for calendar taxpayers). Businesses remain the same with the current fourth quarter estimate deadline being December 15th for calendar year taxpayers.
Personal Income Tax & Business Income Deduction
The Budget Bill also changed some items concerning personal income tax. The bill eliminates the bottom two personal income tax brackets which means income up to $10,500 will not be taxed. The other income brackets will be adjusted for inflation in the future. Also, the current Business Income Deduction remains the same where 100% of business income is deductible up to $250,000 and any amount that exceeds that will be taxed at the 3% rate. Increases in the allowable deduction for contributions to a qualified college savings plan or disability expense savings account doubled. The maximum deduction increased to $4,000 per beneficiary annually; previously the deduction was capped at $2,000.
Sales and Use Tax
The Budget Bill affects sales and use tax as well. Out-of-state sellers that use in-state software or enters into an agreement with a third party vendor to provide content distribution networks in Ohio to sell or lease taxable tangible personal property or services to consumers must collect and remit use taxes if the seller has annual Ohio sales of at least $500,000. In August of 2018, the 3-day sales tax holiday will still occur. This sales tax holiday allows certain items of clothing, instructional materials, and school supplies under a certain dollar amount to be exempt. Starting July 2018, counties and transit authorities are permitted to increase local sales and use tax from the current increment of 0.25% to increments of 0.10%.
Other Tax Provision Changes
Some additional updates contained in the Budget Bill include changes to the Ohio Historic Rehabilitation credit, Board of Tax Appeals process, and introduces a tax amnesty program. The Ohio Historic Rehabilitation credit extends to July 1, 2019, and allows qualifying taxpayers to reduce their CAT liability. Also, taxpayers no longer have the ability to appeal Board of Tax Appeal decisions directly to the Ohio Supreme Court.
Lastly, the Tax Commissioner is administering a temporary tax amnesty program from January 1, 2018 to February 15, 2018 for all sales taxes, tangible personal property taxes, county and transit authority taxes, and school district income taxes that were due and payable as of May 1, 2017. This program allows the Commissioner to waive all penalties and half of any interest accrued.
If you have questions about the Ohio 2019 Budget Bill, have a Barnes Dennig team member reach out to you by sharing your questions here.