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.

Municipal Net Profit & Other Tax Law Changes House Bill 49: Biennial Budget Presented by: Joe Testa Tax Commissioner Ohio Tax Conference 1

Personal Income Tax • 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). 2

Sales & Use Tax 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 . 3

Tax Amnesty Program 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.

You Can Apply for Tax Amnesty if….. • 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

@ ohiotaxamnesty.gov Tax Professional Resource Kit – outreach and informational materials re: Tax Amnesty 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 • on social media.

Other Tax Changes • Board of Tax Appeals decisions– No direct appeals to Ohio Supreme Court → local Court of Appeals. • Transfer of local taxing authority funds 7

Tax Simplification • 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. 8

Professional Employer Organizations (PEO): Wages & the Business Income Deduction • 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. 9

Prescription Eyewear: Sales Tax Free • 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 10

Municipal Net Profit Tax Reform Centralize and Standardize 11

Municipal Net Profit Tax Reform / Background • 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. 12

Municipal Net Profit Tax Reform / Background • More than 600 cities/villages levy municipal income tax. • Collected against: -- Individual income --Employer withholding --Business net profit (approx. 14% of total collections) 13

Municipal Net Profit Tax Reform / Background • Total collections: $4.99 billion (CY 15). • Administered by individual municipalities and 3 rd party administrators. • Business taxpayers required to file & pay in every municipality where income is earned. • “Worst local tax system in the country” ( Tax Foundation ). 14

Municipal Net Profit Tax Reform / The Plan • 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. 15

Municipal Net Profit Tax Reform / The Plan 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 16

Municipal Net Profit Tax Reform / The Plan • ‘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. 17

Municipal Net Profit Tax Reform / The Plan • Revenue distributions monthly, with interest • Administration fee = 0.5% • Conduct reviews/audits at request of municipality ( if supported by evidence ) • Repeal ‘throwback rule’ 18

Municipal Net Profit Tax Reform / The Plan: ODT Role One uniform tax return • Propose rules. - View at tax.ohio.gov • Prescribe forms. One consistent governing body • Issue bills, assessments, refunds. • Conduct audits, certify debts. • Handle appeals & all other administrative matters. 19

Municipal Net Profit Tax Reform / The Plan: Municipality Role • 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. 20

Municipal Net Profit Tax: Focus on Business 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. 21

Municipal Net Profit Tax: Focus on Business 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.) 22

Municipal Net Profit Tax Reform / Collaboration • 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. Businesses & Practitioners Municipalities 23

Municipal Net Profit Tax: Focus on Municipalities • Working group of 6 municipalities and RITA. • Clarifying roles & responsibilities under the law. • Developed information booklet for municipalities on MNP requirements in R.C. Chapter 718 (and a separate booklet for taxpayers) 24

Municipal Net Profit Tax: Focus on Business • 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 25

Municipal Net Profit Tax Reform: Timeline • 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. 26

Municipal Net Profit Tax Reform: Ohio Business Gateway (OBG) • Process/interface with commercial tax preparation software. • Developing with IRS the use of Modernized Electronic Filing (MeF ) for Muny NP Tax for Ohio. 27