Ohio Tax Update: Ohio 2020-2021 Biennial Budget Tax Reform

Overview

The Ohio legislature passed HB 166, the FY 2020-2021 Biennial Budget and with it significant tax reform affecting both businesses and individuals. The reform is highlighted by an opportunity zone credit and a 4% individual income tax rate reduction. The bill also imposes sales tax for out-of-state sellers and marketplace facilitators. Ohio’s Biennial Budget is generally effective for tax year 2019. Governor Mike DeWine signed the Biennial Budget bill into law on July 18, 2019.

Opportunity Zone Credit

HB 166 creates a new Opportunity Zone Investment (OZ) tax credit in Ohio equal to 10% of an individual’s investment in a qualified Ohio Opportunity Zone investment fund or Opportunity Zone property. The credit issued to any single applicant may not exceed $1 million per Ohio biennium. The nonrefundable credit may be used to reduce personal income tax liabilities after an application process with the Director of Development Services. The total credit is limited in any fiscal biennium to the first approved $50 million in total credits. Under federal income tax law, investments must be made in an Opportunity Zone fund and held for at least five years to accrue the federal tax benefit of deferred and reduced taxable capital gains. The Ohio OZ credit does not have a minimum holding period; allows unused credits to be carried forward up to 5 years; and the credit can be claimed by individuals, taxable estates or trusts, and by taxpayers through a passthrough entity.

TechCred Program

HB 166 creates a “TechCred” program to reimburse eligible employers for training costs under the Ohio Incumbent Workforce Job Training Fund, TechCred Program. The appropriation as approved in the conference committee is $15 million each fiscal year. The TechCred Program will be administered in conjunction with the Ohio Incumbent Workforce Job Training Fund application process. Details and additional requirements will be issued soon.

Individual Tax Rate Reduction

The Bill lowers the Ohio personal income tax rates by 4% for all individual income tax brackets. The rate cut is effective for tax year 2019 and forward. Ohio individual income taxpayers with less than $21,750 of Ohio taxable income will pay no state income tax.

HB 166 lowered the individual income tax rate brackets other than business income from a pass-through entity to:

Income more than… But not more than… New Tax Rate… Plus…
$  21,750 $  43,450 2.850% $   310.47
$  43,450 $  86,900 3.326% $   928.92
$  86,900 $108,700 3.802% $2,374.07
$108,700 $217,400 4.413% $3,202.91
$217,400 4.797% $7,999.84

For example, an individual with Ohio wages of $200,000 a year will save about $354.

Attorneys and Lobbyists No Longer Eligible for the $250,000 Business Income Deduction

HB 166 eliminated the business income deduction for attorneys and lobbyists and applies to taxable years beginning on or after January 1, 2020. Also, attorneys and lobbyists are not eligible for the 3% flat tax rate on business income above the $250,000 threshold for tax years beginning on or after January 1, 2020.

Sales Tax Economic Nexus Changes

Following the U.S. Supreme Court’s Wayfair sales tax economic nexus case decided on June 21, 2018, HB 166 requires remote sellers with more than $100,000 in Ohio sales or 200 Ohio transactions to register and collect sales tax beginning August 1, 2019. The $100,000 of sales is based on the previous calendar year or the current calendar year. This may relieve small businesses from the sales tax registration and collection burdens imposed by the economic nexus provisions for at least part of their online sales. The new law repeals existing remote seller nexus provisions, i.e., internet “cookies” nexus, content distribution network nexus, and “click-through” nexus.

Sales Tax Food Cleaning Equipment Exemption and Sales Tax on New Items

HB 166 expanded the sales tax exemption for food manufacturing equipment. The exemption is expanded to include equipment and supplies used to clean equipment used to produce or process all food for human consumption.

HB 166 repealed the Ohio sales tax exemption on bullion and coins as well qualified property sold to qualified motor racing teams effective October 2019.

Ohio Limits the Financial Institutions Tax Base

HB 166 limits the Financial Institutions Tax base for equity capital to the product of a) the lesser of the financial institution’s end-of-year equity capital or 14% of the financial institution’s total assets multiplied by b) the Ohio apportionment ratio under O.R.C. 5726.05. This change is effective for tax years beginning on or after January 1, 2020.

The new tax law defines a financial institution’s “total assets” to mean:

a. For a financial institution described in O.R.C. 5726.01(H)(1) the total consolidated assets as shown on the FR Y-9 at the end of the tax year OR

b. For financial institutions described in O.R.C. 5726(H)(2) total consolidated assets as shown on the Call Report as of the end of the taxable year OR

c. For all other Financial Institutions, the total consolidated assets at the end of the taxable year in accordance with GAAP.

HB 166 also eliminated the refundable credit for financial institution taxes paid by a passthrough entity.  This change is effective beginning tax year 2019.

Real Estate Tax Updates

HB 166 added a partial real property tax exemption (50% to 75%) for certain ODJFS-licensed child care centers attended by children, at least 50% of whom are from households that receive public assistance.  The center may not be the primary residence of the administrator nor used for any other commercial purposes.

Other Tax Provisions

HB 166 imposes a new $0.10 tax per milliliter liquid (or each gram of nonliquid) on retail vapor dealers beginning October 1, 2019. A license is required for a vapor distributor of vapor products along with an application fee of $125.

HB 166 extended the Historic Rehabilitation credit and the InvestOhio tax credit to July 1, 2021. The new law also allows the Historic Rehabilitation credit to be claimed against the Commercial Activity Tax (CAT) in addition to taking the credit against income tax, financial institutions tax, or the insurance company franchise.

HB 166 enacted a nonrefundable income tax credit for costs incurred to abate lead hazards in a dwelling built before 1978. The credit is limited to the lesser of actual lead abatement costs incurred, the amount of such costs listed on an application for the credit, or $10,000. The credit is effective for years beginning on or after January 1, 2020 and any unused portion may be carried forward up to 7 years.

Contacts

If you have questions regarding HB 166 please contact one of the following:

Diane Merk

Keri Boergert

Cody Cain

Steve Estelle

Authors

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