26th Annual Tuesday & Wednesday, January 24‐25, 2017 Hya� Regency Columbus, Columbus, Ohio Workshop U Ohio Tax Healthcare & Non-Profit Industries … Unique Tax Issues Tuesday, January 24, 2017 4:15 p.m. to 5:15 p.m.
Biographical Information Jeffrey L. Stansberry, CPA, MT - Tax Manager, OhioHealth 80 E. Broad St, Columbus, OH 43215 jeffrey.stansberry@ohiohealth.com (614) 544-4336 Fax (614) 544-4470 Jeff started his career in public accounting and was at GBQ Partners for over four years. He then transitioned into industry and was at BISYS/Citi for over six years. After being in public and industry for nearly two decades, he decided to shift his focus into the tax exempt sector. For over three years, Jeff has lead up the tax department at OhioHealth, central Ohio’s largest healthcare system. Jeff is responsible for leading OhioHealth’s annual federal, state, and local tax compliance process while providing oversight and communication to the entire system of over 20,000 employees. Jeff is a graduate of The Ohio State University with a BS in Business Administration (Honor Classes) and received a Masters in Taxation from Capital University Law School. Christopher J. Swift, Partner, Baker Hostetler LLP 1900 East 9th Street, Suite 3200 Cleveland, OH 44114-3482 cswift@bakerlaw.com 216.861.7461 Chris Swift is a healthcare and tax lawyer who counsels the healthcare industry and other businesses by guiding them through governmental, tax and regulatory issues. He keeps non-profit organizations tax-exempt, assists all taxpayers in reducing state and local taxes and finds tax and regulatory incentives to grow companies. He currently serves both as a National Co-Leader of the firm’s Healthcare Industry Team and as Coordinator of the Cleveland office’s Tax, Personal Planning and Employee Benefits Group. He served as a member of the firm’s Policy Committee from 2004 through 2009. Chris has lectured on state and local taxes to several organizations, including the Cleveland Metropolitan Bar Association, the Columbus Bar Association and the Committee on State Taxation. In 1988, he was the Chair of the Cleveland Bar Association’s State and Local Tax Institute. In 1990- 91, he served as Chair of the Cleveland Bar Association’s General Tax Committee. Chris has also served as Chair of the 2008 Cleveland Tax Institute and the CMBA’s 1998 Health Law Institute. Chris is a member of the American, Ohio and Cleveland Metropolitan Bar Associations, as well as the American Health Lawyers Association. Since 1997, Chris has been listed annually in the Best Lawyers in America. He was named by Best Lawyers as “2010 Cleveland Tax Lawyer of the Year” and “2011 Cleveland Health Care Lawyer of the Year.” Both honors are bestowed upon only one lawyer per specialty in each community. Chris has been named an “Ohio Super Lawyer” for the past ten years. Stephen M. Palmer, CPA, State and Local Tax Manager Plante Moran, 65 E. State St., Ste. 600, Columbus, OH 43215 614-222-9137 Fax: 248.327.8537 Stephen.Palmer@plantemoran.com Stephen spent more than 6 years at the Ohio Department of Taxation primarily involved in auditing various Ohio taxes. The Ohio tax auditing experience crossed multiple industries and included pass- through entity tax, sales and use tax, the former Ohio franchise and personal property taxes, income tax, and withholding tax. For more than five years, Stephen has provided value added service to clients in the private sector. His experience includes multi-state taxation in the manufacturing, distribution, healthcare, and service industries. Stephen has also been involved in writing state and local tax alerts for internal and external use. Stephen is a graduate of Cedarville University, is a member of the Ohio Society of CPAs, and is a member of the tax committee for the Ohio Chamber of Commerce.
Healthcare Industry & Nonprofit Entities Unique Tax Issues Jeffrey Stansberry ‐ OhioHealth Christopher Swift ‐ Baker Hostetler Stephen Palmer ‐ Plante Moran
Impact of External Change • Federal and State Health Care Policy ‒ EMTALA and other Safety Net Acts applicable to for‐profit providers ‒ Affordable Care Act ‒ Expansion of Medicaid ‒ Schedule H of Form 990 • Correlation of Value of Tax Benefits to Level of Charitable Care ‒ Percentage of Charitable Care is decreasing • How Much is Enough? 2
Basis for Federal Income Tax Exemption • Section 510(c)(3) requires that the corporation be “organized and operated exclusively for religious, charitable, scientific . . . Or educational purposes” and that “no part of the net earnings of which inures to the benefit of any private shareholder or individual.” 3
Choice of Entity • Chapter 1702 of the Ohio Revised Code (Ohio Nonprofit Corporation Law) • Some nonprofits are unincorporated associations, trusts, limited liability companies, partnerships, or disregarded entities • Section 501 of the Internal Revenue Code ‒ While many nonprofits are tax‐exempt for federal income tax purposes under Section 501(c)(3), there are many subsections like Section 501(c)(4) ‒ Some nonprofits are taxable ‒ Some for‐profit corporations are tax‐exempt 4
Choice of Entity • Different Rules for Different Taxes ‒ Federal Income Tax ‒ FUTA/SUTA • Reimbursing Employer Status ‒ Ohio Franchise Tax ‒ Ohio Sales & Use Tax ‒ Ohio Real Property Tax ‒ Ohio Commercial Activity Tax 5
Ohio Nonprofit Corporation Definition • Ohio Rev. Code 1702.01(C) defines “Nonprofit Corporation” as a “corporation that is formed otherwise than for the pecuniary gain or profit of, and whose net earnings or any part of them is not distributable to, its members . . . .” 6
Ohio Public Benefit Corporation Definition • “Public benefit corporation” is defined as a “corporation that is recognized as exempt from federal income taxation under section 501(c)(3) . . . . Or is organized for a public or charitable purpose . . . .” Ohio Rev. Code (“ORC”) 1702.01(P). • Sometimes the ORC piggybacks on Section 501(c)(3), but not always. 7
Healthcare Exemptions‐Status ‒ Disregarded entities of a Section 501(c)(3) entity ( i.e. single member LLCs) may qualify for the status exemption of its tax‐exempt member. ‒ A single member LLC that operates with a nonprofit purpose shall be treated as part of the same legal entity as its member, and all assets and liabilities of that single member shall be considered to be that of the member. Filings or applications for exemptions or other tax purposes may be made either by the single member LLC or its member. ‒ Verify that LLC is organized as a nonprofit. 8
Basis for Ohio Franchise Tax Exemption ‒ Other than nonprofit corporation organized under Ohio Rev. Code Chapter 1729 (Agricultural Cooperatives), nonprofit corporations are not subject to the Ohio franchise tax. Ohio Rev. Code 5733.01. ‒ Federal Tax‐Exempt Status was not required. ‒ Many hospital systems used taxable nonprofit corporations for certain activities. ‒ Because the Ohio Franchise Tax has been repealed, this is historical. 9
Basis for Ohio Commercial Activity Tax Exemption ‒ Defined by rule to be very broad. ‒ Two criteria • Organized other than for pecuniary gain or profit • Operates consistent with its organization ‒ Includes entities organized under ORC 1702, 1707, 1711, 1713, 1715, 1716, 1717, 1719, 1721, 1724, 1725, 1727, or 1733 ‒ Includes organizations formed for funding political campaigns ‒ Charitable lead trust is a nonprofit during the lifetime of the grantor. The trust loses its nonprofit status when the grantor passes away ‒ If all owners are nonprofit organizations, distributions to these owners does not deprive the nonprofit status 10
Basis for Ohio Sales Tax Exemption • Purchases by organizations exempt from taxation under Section 501(c)(3) are generally exempt from Ohio sales and use tax. Ohio rev. Code 5739.02(B)(9) and 5741.02(C)(2). ‒ Some states like Florida and Kentucky require tax‐ exempt hospitals to include current federal determination letter in application. 11
Healthcare Exemptions‐Status • Purchases by Section 501(c)(3) Entities ‒ Sales of tangible personal property or services to organizations exempt from taxation under section 501(c)(3) of the Internal Revenue code of 1986, and to any other nonprofit organizations operated exclusively for charitable purposes in this state, no part of the net income of which inures to the benefit of any private shareholder or individual, and no substantial part of the activities of which consists of carrying on propaganda or otherwise attempting to influence legislation; sales to offices administering one or more homes for the aged or one or more hospital facilities exempt under section 140.08 of the Revised Code; and sales to organizations described in division (D) of section 5709.12 of the Revised Code. 12
Healthcare Exemptions‐Status • Definition of “Charitable Purposes” for Ohio Sales & Use Tax ‒ “ Charitable purposes ” includes the relief of poverty; the improvement of health through the alleviation of illness, disease, or injury; the operation of an organization exclusively for the provision of professional, laundry, printing, and purchasing services to hospitals or charitable institutions and the operation of a home for the aged, as defined in section 5701.13 of the Revised Code. 13
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