Ohio enacts biennial budget bill
Includes rate reduction and click-through nexus
TAX ALERT |
On June 30, 2015, Ohio Gov. John Kasich signed HB64, the state's 2016-2017 biennial budget bill, enacting numerous tax changes including an across the board personal income tax rate reduction, tax cuts for small business owners and the implementation of click-through nexus provisions. However, Gov. Kasich used his line-item veto power to eliminate a number of tax provisions in the bill, such as a proposed tax amnesty. The changes implemented by the bill are summarized below.
Personal income tax
With an effective date of Jan. 1, 2015, HB64 provides an across the board 6.4 percent decrease in personal income tax rates, reducing the top rate from 5.333 percent to 4.997 percent.
For owners of pass-through businesses, the bill increases the small business deduction from 50 to 75 percent of business income up to $250,000 for 2015, and from 75 to 100 percent of business income up to $250,000 for 2016 and after. Additionally, beginning in 2015, the rate on business income in excess of $250,000 will be a flat 3 percent.
The bill also implements means testing for individuals with Ohio gross income in excess of $100,000 in order for them to claim the $50 credit for individuals age 65 and older, the lump sum distribution credit and the retirement income credit.
Business activity taxes
HB64 makes a number of changes to Ohio's business activity taxes, including:
- Commercial activity tax (CAT): The bill creates an exclusion retroactive to July 1, 2011, for certain beauty and health care product supply chain receipts generated from operations in New Albany, Ohio, and clarifies that production credit associations and agricultural credit associations are subject to the CAT.
- Petroleum activity tax (PAT): The bill changes the base calculation for propane and liquid petroleum gas to use the average market price of propane rather than the average market price of diesel, and provides an exclusion for receipts from motor fuel blend stock and additives on which PAT has already been paid.
- Insurance premiums tax (IPT): The bill requires the Treasurer of State to issue an IPT bill for domestic insurance companies on or before May 15 of each year and requires payment of tax by June 15.
Sales and use tax
Effective July 1, 2015, HB64 implements click-through nexus by providing that remote sellers that enter into an agreement with one or more Ohio residents under which the resident, for a commission or other consideration, directly or indirectly refers potential customers to the seller, whether by a link on a web site, an in-person oral presentation, telemarketing, or otherwise, and the remote seller's cumulative Ohio gross receipts from sales to consumers referred to the seller by all such residents exceeded $10,000 during the preceding 12 months.
Additionally, the bill creates a sales and use tax exemption for the rental of a vehicle provided to a person whose motor vehicle is being repaired, and provides that sanitization services provided to a meat processing operation that are necessary to comply with U.S. Department of Agriculture rules are not taxable as building maintenance and janitorial services.
Effective July 1, 2015, HB64 increases the tobacco excise tax rate imposed on cigarettes from $1.25 to $1.60 per pack.
Municipal income on net profits tax
HB64 also made several technical corrections to the state's 2014 municipal income tax uniformity law (see Significant Ohio municipal tax reform enacted with H.B. 5 ), effective for tax years beginning on or after Jan. 1, 2016. These corrections include:
- A provision to make the tax return due dates entities with a fiscal year-end other than a calendar year-end consistent with federal and state law
- Clarification that losses that cannot be used due to the 50 percent net operating loss limitation can be carried forward to the next tax year
- A provision that allows taxpayers to request an automatic municipal tax return extension even if they do not request an automatic federal tax return extension
- A requirement for municipalities to publish online copies of municipal tax ordinances and regulations and a summary of the taxpayers' bill of rights
- A provision that allows publicly traded partnerships to elect to be taxed as C corporations for municipal income tax purposes
- Elimination of personal liability for tax administrators for violating a taxpayer's rights in relation to municipal income tax
The InvestOhio tax credit program was also extended through June 30, 2017, as part of the new budget bill. InvestOhio provides a non-refundable 10 percent personal income tax credit to investors that provide new equity (cash) into Ohio small businesses. The InvestOhio program began July 1, 2011, and no changes were made to the program under HB64 other than extending the program through June 30, 2017.
While the tax package contained within the budget bill was not as robust as some hoped, particularly after the application of line-item vetoes, HB64 does provide significant tax relief for individuals and owners of pass-through entities. Individual taxpayers and pass-through business owners should review their projected liability and estimated payments in light of the changes implemented by the budget bill and determine the impact of the bill on cash taxes.
On the sales and use tax side, remote sellers should consider the state's adoption of click-through nexus provisions and determine whether they now have a collection and remittance responsibility.