On June 30, 2017, Governor John Kasich signed into law Ohio’s fiscal year 2018 – 2019 budget bill, Am. Sub. H.B. 49. The bill contains a number of important tax law changes that taxpayers and tax preparers should be aware of:
Municipal Income Tax
- A business now has the option to file a single annual or estimated tax return through the Ohio Business Gateway. In doing so, the business can report and pay the total tax due to all of the municipalities. Filing on the Ohio Business Gateway is not required, but if the business chooses to do so, they 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 this election, it will be renewed automatically and annually until the taxpayer opts out. This option is available for tax years beginning on or after January 1, 2018.
- The current “throwback” provision has been eliminated starting with tax year 2018. Under current law, a sale of tangible personal property will be sourced to a municipality only under two conditions: a) both shipped from and delivered within the municipal corporation, b) delivered within the municipal corporation, but shipped from elsewhere, if the employees of the business regularly solicit sales within the municipal corporation. The former throwback rule provided that when an Ohio business made sales to a municipality where the business does not have any employees soliciting sales, the sales must be apportioned to the originating municipality for apportionment purposes. The 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. This change applies to all businesses.
- Starting with tax year 2018, individual income tax payers have until the 15th of the month following the close of the tax year to pay fourth quarter city estimates (e.g., January 15 for calendar taxpayers). Businesses remain the same with the current fourth quarter estimate deadline (e.g., December 15 for calendar year taxpayers).
Personal Income Tax
- The current Business Income Deduction remains the same. Under current law, 100% of business income is deductible up to $250,000. Business income that exceeds that amount is taxed at a flat rate of 3%. All other income is taxed under the graduated rate schedules.
- The bottom two personal income tax brackets are eliminated, meaning income up to $10,500 will not be taxed. The income ranges in the other brackets will be adjusted for inflation in the future.
- Beginning with tax year 2018, the maximum income tax deduction for contributions to a federally tax-advantaged college savings plan or disability expense savings account increases to $4,000 (previously $2,000) annually for each beneficiary.
Sales & Use Tax
- Beginning January 1, 2018, out-of-state sellers are required to collect and remit state and local use taxes if the seller has annual Ohio sales of at least $500,000 and either uses in-state computer software to make Ohio sales, or enters into an agreement with a third party to provide content distribution networks in Ohio to accelerate or enhance delivery of the seller’s web site to Ohio consumers.
- A 3-day sales tax holiday will occur again in August 2018. Certain items of clothing, instructional materials, and school supplies under a certain dollar amount will be exempt.
- Beginning in July 2018, counties and transit authorities are allowed to increase local sales and use tax by increments of 0.10% versus the current increment of 0.25%
Miscellaneous Tax Provisions
- The Ohio Historic Rehabilitation credit is extended 2 years to July 1, 2019. This credit allows taxpayers qualifying for the credit to take it against their CAT liability if there is no other tax to claim the credit against.
- A taxpayer no longer has the ability to appeal Board of Tax Appeals decisions directly to the Ohio Supreme Court.
- The Tax Commissioner will administer a temporary tax amnesty program from January 1, 2018 to February 15, 2018 for all delinquent state 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. Under this program, the Commissioner will waive all penalties and half of any interest accrued. The program does not apply to certain specific circumstances, such as when an assessment or audit has been issued.
If you have any questions about these changes and how your tax liability might be affected, contact a member of the CSH State and Local Tax Practice.
CSH’s Katie Lash and Jesse MacDonald contributed to this article.