Ohio passes year-end tax legislation
TAX ALERT |
Ohio Governor Kasich closed 2014 by signing into law S.B. 243 and H.B 494, which make changes to the state's personal income, sales and use, financial institutions and property taxes.
Personal income tax
H.B. 494 modifies the test for determining if a taxpayer has established income tax residency with Ohio. Previously, an individual with greater than 182 contact periods (i.e., days) in the state became subject to the filing requirement and needed to submit an Ohio income tax return. Under H.B. 494, the individual may spend up to 212 days in Ohio before the presumption of residency exists.
The bill also authorizes entities receiving funding via the Ohio Research and Development Investment Loan Fund (R&D Loan Fund) to begin claiming the credit against personal income tax. Currently, all such credits must be claimed against the commercial activity tax (CAT). With this change, the R&D Loan Fund becomes more beneficial to businesses growing research and development facilities in Ohio.
Changes to the credit apply retroactively to all tax periods beginning in or after 2008 (when the credit became available only against the CAT). Taxpayers are authorized to claim refunds that would be payable on the basis of the credit for tax periods starting in or after 2008, notwithstanding a limit in the current law that disallows tax refund claims filed more than four years after tax was overpaid. However, the four-year period will still apply if the refund claim is not filed within one year of the effective date of the bill.
This change in the R&D Loan Fund now allows more taxpayers that previously could not benefit from this incentive to take advantage of this valuable Ohio incentive program.
Sales and use tax holiday
Looking ahead in 2015, S.B. 243 enacts a sales tax holiday from Aug. 7, 2015, to Aug. 9, 2015. The legislation provides for the sales tax holiday in 2015 only. Specific items are listed as exempt from sales taxation during this holiday. The list includes:
- School supplies with a price under $20
- Clothing with a price under $75
- School instruction materials with a price under $20
Additionally, S.B. 243 modifies the investment requirements for obtaining the computer data center sales and use tax exemption as codified under O.R.C. 122.175. The minimum $100 million investment must occur over a number of consecutive years, starting with the year after the project commences.
- Projects commencing in 2013: Full investment over five consecutive years, starting in 2014
- Projects commencing in 2014: Full investment over four consecutive years, starting in 2015
- Projects commencing in 2015: Full investment over three consecutive years, starting in 2016
Considering the investment guidelines imposed by S.B. 243, Ohio clearly seeks to accelerate investment in computer data centers operating within the state.
Financial institutions tax
S.B. 243 calls for adjustments to the rate brackets of the Financial Institutions Tax (FIT), a structure taking the place of the former corporate income tax. Where total Ohio equity exceeds $200 million but falls shy of $1.3 billion, each dollar will be taxed at a rate of 0.4 percent. Beyond $1.3 billion, each additional dollar will be taxed at 0.25 percent; however, the first $200 million remains taxable at a rate of 0.8 percent.
Furthermore, the bill provides an FIT exemption for entities classified prior to Jan. 1, 2012, as unitary savings and loan holding companies and nonbank subsidiaries of such holding companies. Those companies are instead subject to the CAT.
Property tax exemption–cultural center
A cultural center undergoing renovation, if owned by any of the following entities, must adhere to new guidelines when seeking property tax exemption:
- Charitable or educational institution
- Political subdivision
- The state of Ohio
Under certain conditions (not specified in S.B. 243), property retains exempt status regardless of conveyance through one or more holders to a non-exempt entity. Obtaining the initial exemption requires the property to be deemed tax-exempt and the lessee or owner to either own or occupy the property for the year immediately preceding the exemption request. Prior to this legislation, the state imposed a 10-year holding period.
The passage of H.B. 494 and S.B. 243—combined with municipal income tax reform (H.B. 5) signed by Governor Kasich on Dec. 19 and discussed in our prior alert—represent substantial legislative action in favor of taxpayer investment and economic growth. Legislation becomes effective 91 days after fling with the Secretary of State, meaning taxpayers may plan for 2015 while satisfying their 2014 filing obligations. Ohio seeks to accelerate capital investment within its economy, leading to increases in workforce and utilization of the state's valuable resources.