26th Annual Tuesday & Wednesday, January 24‐25, 2017 Hya� Regency Columbus, Columbus, Ohio Workshop LL Ohio Tax Ohio Pass-Through Entities and Municipal Income Tax Reform Wednesday, January 25, 2017 2:00 p.m. to 3:00 p.m.
Biographical Information Julie Corrigan, Associate, Plante & Moran 1111 Superior Ave., Suite 1250, Cleveland, Ohio 44114 Julie.Corrigan@plantemoran.com 216.274.6509 Fax 248.233.8853 Julie is an Associate with Plante & Moran PLLC and serves as the State and Local Tax Ohio Practice Leader. She has more than thirty years of experience and specializes in multistate tax consulting services related to sales and use tax, income and franchise taxes, property taxes, gross receipts taxes, and business credit and incentives. She has served clients in the manufacturing, consumer products, and service industries with a focus on solutions to minimize overall state taxes and to provide audit assistance & defense. Julie is a member of the Ohio Chamber of Commerce Tax Committee, American Institute of CPAs, Ohio Society of CPAs, and the Tax Club of Cleveland. Julie has written articles on state and local taxation topics and served on the Ohio CPA Voice Advisory Board for over 10 years. Julie has presented pertinent tax topics at the Ohio Tax Conference for several years as well as presented other topics for outside organizations. Julie received her BBA in Accounting from the University of Cincinnati. Jeffrey P. Sherman, Assistant Legal Counsel, Regional Income Tax Agency (R.I.T.A.) 760 Lakeview Drive, Suite 400, Worthington, OH 43085 866-721-7482, Ext. 3586 jsherman@ritatohio.com R.I.T.A. Assistant Legal Counsel Jeffrey Sherman is a certified public accountant (inactive status) and admitted to the practice of law in New York and in Ohio. Previously legal counsel for the Ohio Dept. of Taxation’s Income Tax Division and before that a senior tax manager with one of the Big Four accounting firms, he is also currently is an instructor for the Becker CPA Review Course. A frequent presenter at the yearly Ohio Tax Conference, at various state bar association conferences, and at Ohio Society of Certified Public Accountants presentations, he has also taught undergraduate and graduate business courses at The Ohio State University. Earning his undergraduate degree from Miami University in Oxford, Ohio, he received his law degree with honors from The Ohio State University. He has published in national tax journals articles regarding constitutional nexus, Ohio’s “bright line” domicile law, and Ohio’s anti-passive investment company (“anti -PIC”) tax law. Stephen K. Hall, JD, LLM, Member, Zaino Hall & Farrin, LLC 41 South High Street, Suite 3600, Columbus, OH 43215 shall@zhftaxlaw.com 614-349-4812 Fax: 614-754-6368 Steve provides state and local tax services, legal business counsel, and lobbying services to clients in multiple states and local jurisdictions. He leads the Firm's Real Estate Tax Practice Group, representing real property owners in valuation matters and exemption matters. He has represented clients in all types of state and local income tax, sales and use tax, excise tax, public utility tax, personal and real property tax, and gross receipts tax matters. Steve’s practice focuses on tax controversy and tax policy at the state and local level, including representation of clients before County Boards of Revision, Local Income Tax Boards of Review, the Ohio Board of Tax Appeals, Ohio state courts, and state and local tax agencies across the country. He also frequently represents clients before Ohio’s General Assembly, the Ohio Department of Taxation, and other state and local government agencies, both in tax controversy and lobbying matters. Earlier in his career, he served as Assistant Counsel to the Ohio Tax Commissioner, where he was a policy and technical advisor to the Tax Commissioner, the Ohio Governor’s Office, and the Ohio Department of Development, while representing the Ohio Department of Taxation before the Ohio General Assembly. He has spent significant time drafting tax legislation and lobbying for the implementation of tax law changes both while in the Tax Commissioner’s office and on behalf of clients while in private law practice Steve is a frequent speaker on technical state and local tax matters, state and local tax policy, and national tax policy matters addressing multistate taxation. He is actively involved in lobbying Ohio's General Assembly and participates in various Ohio Bar Association committees addressing Ohio tax policy and procedure. He is the chair of the Ohio State Bar Association subcommittee on municipal income tax matters.
Ohio Tax Conference Workshop LL January 25, 2017 2 P.M. – 3 P. M. Pass-Through Entities and The New Municipal Income Tax Law Including the Effects of IRC – Muni. Income Tax Law Differences Julie Corrigan – Plante Moran Steve Hall – Zaino Hall & Farrin LLC Jeffrey P. Sherman – R.I.T.A.
DISCLAIMER! • These slides were prepared by RITA. • The slides and the examples contained in the slides are the position of RITA and are not necessarily the position of the other presenters and/or other municipalities. • We recommend that you do NOT take action based on these slides without consulting your tax advisor and the law. 2
TODAY’S AGENDA Definitions Summary of the provisions affecting PTE owners Summary of the provisions affecting PTE’s, themselves Resident credit on account of PTE tax paid to other municipalities Examples Your questions 3
PASS-THROUGH ENTITY "Pass-through entity" means a partnership not treated as an association taxable as a C corporation for federal income tax purposes, a limited liability company not treated as an association taxable as a C corporation for federal income tax purposes, an S corporation, or any other class of entity from which the income or profits of the entity are given pass-through treatment for federal income tax purposes. "Pass- through entity" does not include a trust, estate, grantor of a grantor trust, or disregarded entity. Division (N) of Ohio Revised Code section 718.01 4
DISREGARDED ENTITY "Disregarded entity" means a single member limited liability company, a qualifying subchapter S subsidiary, or another entity if the company, subsidiary, or entity is a disregarded entity for federal income tax purposes. Division (BB) of Ohio Revised Code section 718.01 5
Summary of the Provisions Affecting PTE Owners 6
Owners of PTE’s • PTE income and losses never “flow through” either to nonresidents or to other PTE’s. • PTE income and losses generally do “flow through” to residents. See subsequent slides for exceptions. 7
Owners of PTE’s • PTE income and losses some times “flow through” to C corporation owners of the PTE. See subsequent slides for discussion. 8
Owners of PTE’s • Each owner of a publicly traded partnership (“PTP”) shall exclude from the owner’s income the profit or loss of that PTP if . . . . . . The PTP is subject to tax in at least one Ohio municipality and . . . The PTP makes an election to be treated as a C corp. for municipal income tax purposes (yearly election). 9
Owners of PTE’s • A “publicly traded partnership” means any partnership, an interest in which is regularly traded on an established securities market. See divisions (D)(4) and (VV) of Ohio Revised Code section 718.01 as amended by the recently enacted budget bill, Amended Substitute House Bill 64, 131 st General Assembly. 10
Owners of S Corporations • Limitations for owners of S corporations still apply. • Income and losses of S corporations do not “flow through” to an owner unless the owner lives in a municipality that voted in 2003 or 2004 to permit taxation of S corporation owners. • Two methods of taxing the S corp. owners: - “Ohio-apportioned” (not “city-apportioned”) income, or - 100% of the income. 11
IMPORTANT: PTE Losses and the PTE Owner’s Qualifying Wages • PTE losses (and all other “Schedule E” losses and all “Schedules C & F” losses) never reduce qualifying wages. • No change from previous law. 12
C Corporations Owning an Interest in a PTE • Except as set forth in division (E)(3)(b) of section 718.06 of the Revised Code (discussed below), the C corporation must deduct any net profit, and add any net loss, of each PTE owned “directly or indirectly” by the C corporation. • Source: 718.01(A)(1)(a); 718.01(B)(3); 718.01(D)(1); 718.01(E), first paragraph; and 718.01(E)(9) & (E)(10). 13
C Corporations Owning an Interest in a PTE • Except as set forth in division (E)(3)(b) of section 718.06 of the Revised Code (discussed below), the C corporation must deduct any net profit, and add any net loss, of each PTE owned “directly or indirectly” by the C corporation. • “Directly or indirectly” is not defined in chapter 718 (or in chapter 1 of Title 1,”Definitions”). 14
PTE’s Owning an Interest in another PTE • Each PTE must deduct any net profit, and add any net loss, of every other PTE owned “directly or indirectly” by the PTE (same rule as for C corporations owning an interest in a PTE). • Source: 718.01(A)(1)(a); 718.01(B)(3); 718.01(D)(1); 718.01(E), first paragraph; 718.01(E)(9) & (E)(10); and the first paragraph following (E)(10) of 718.01. 15
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