ax Ohio T Workshop Q
Ohio Tax Workshop Q Ohio Business Tax Legislative Developments … Tax Cuts in Ohio’s Budget Bill & What’s on the Horizon Tuesday, January 28, 2014 4:15 p.m. to 5:15 p.m. Biographical Information Senator Tim Schaffer, 31st Senate District, Ohio Senate The Ohio Statehouse Columbus, Ohio 43215 [email protected] (614) 466-5838 A lifelong resident of Central Ohio, State Senator Tim Schaffer has spent the last decade serving the public in the Ohio General Assembly. Senator Schaffer began his service in the Ohio House of Representatives. Following three terms as State Representative for Ohio's 5th House District, Senator Schaffer was elected to the Ohio Senate. He now represents the 31st Senate District, which includes all of Licking, Coshocton, Perry and Tuscarawas Counties, as well as portions of Holmes County. Throughout his tenure in public office, Senator Schaffer has worked tirelessly to fight government corruption, reduce taxes and protect our children from sexual predators. He sponsored legislation - now law - that requires performance audits of state agencies to evaluate their operations and ensure that tax dollars are being used wisely as well as a bill that mandates jail time for offenders who solicit children using the Internet. Additionally, Senator Schaffer has worked to bring numerous economic development projects to his district, leading to the creation of hundreds of new job opportunities. Senator Schaffer is also recognized as a leader in the Ohio Senate. As chairman of the Senate Ways & Means Committee, Senator Schaffer helps oversee legislation that affects state and local government revenues and tax policy. He also serves as Vice-Chairman of the Finance Subcommittee on General Government and as a member of the Energy & Natural Resources Committee, the Workforce & Economic Development Committee, the Public Safety, Local Government and Veterans Affairs Committee and the Criminal Justice Committee. These assignments allow him to play a key role in developing policies that help protect Ohio's air and water quality along with its abundant natural resources, keep energy prices and taxes in-check, keep our communities and families safe and ensure state polices encourage, rather than hinder job creation. Senator Schaffer holds a B.A. in Political Science and Communications from Mount Union College. In addition to his legislative duties, his private sector career is as an association executive. Schaffer has also served as chairman of the Fairfield County Republican Party. Various awards and honors include Watchdog of the Treasury Award, Ohio Development Association Distinguished Service Award, Ohio's Biotechnology Industry Representative of the Year, National Federation of the Blind Distinguished Service Award, MS Society of America Advocate of the Year, Business First 40 under 40 and the Fairfield County Republican Party Statesmanship Award. Senator Schaffer resides in Lancaster with his wife Lori. Gary Scherer, Representative, Ohio House of Representatives 77 S. High St. Columbus, OH 43215 [email protected] State Representative Gary Scherer is currently serving his first term in the Ohio House of Representatives after being appointed to the 129th General Assembly. He represents the 85th House District, which includes Fayette County, as well as portions of Pickaway and Ross counties and is seeking election to the newly drawn 92nd House District. Representative Scherer is a lifelong resident of Ohio. He attended Miami University and The Ohio State University, where he obtained a B.S. in accounting. Throughout most of his career, he has worked as a CPA. In addition to his career in public accounting, Representative Scherer has worked for a time as the president of Circleville Oil Company. He has also held majority ownership of Buckeye Tax Professionals since 1997. Representative Scherer has always strived to remain active within his community. Prior to joining the Ohio House, Representative Scherer had served as president of the Circleville Rotary Club and the CirclevillePickaway Chamber of Commerce. He also served as a trustee of the Berger Health System. Among other involvement, he continues to maintain his membership in the Ohio Farm Bureau, as well as his position as a finance committee member of his local church. Representative Scherer and his wife of 35 years reside in Circleville. They have been blessed with three children and six grandchildren. Biographical Information Marjorie Kruse, Deputy Tax Commissioner, Ohio Department of Taxation [email protected] (614) 466-2166 Marj Kruse has served as Deputy Tax Commissioner for the Ohio Department of Taxation since January 2011. In this position, she oversees all taxes administered by the Department and holds responsibility for the audit and compliance functions. Prior to joining Taxation, she worked for the Franklin County Auditor, serving thirteen years as the Director of Fiscal Services and three years as Chief Accountant. She also has worked on school district performance audits as an employee of the State Auditor’s Office. She was an Audit Manager at Coopers & Lybrand before focusing her career in the public sector. Marj graduated summa cum laude from The Ohio State University in 1988 with a Bachelor’s degree in Accounting and is a Certified Public Accountant. In the past, she has served as President of the Columbus Chapter of the American Society of Women Accountants and as Education Co-Chair for the Central Ohio Chapter of the Association of Government Accountants. David A. Froling, Partner, Vorys, Sater, Seymour and Pease LLP 52 East Gay Street, Columbus, OH 43215 [email protected] 614.464.3022 Fax 614.719.4959 Mr. Froling is a partner in the Vorys Columbus office and a member of the tax group. He has extensive experience with all types of state and local tax issues and in particular, matters involving corporation income/franchise tax, pass-through entity tax, commercial activity tax, sales and use tax, personal income tax, trust tax, dealers in intangibles tax, municipal income tax, and unclaimed funds (escheat). Mr. Froling is a member of the Ohio State Bar Association and the Columbus Bar Association. Mr. Froling has lectured on state and local tax topics for the Council on State Taxation (COST), the Tax Executives Institute (TEI), the Ohio Petroleum Marketers and Convenience Store Association, the Ohio Manufacturers Education Council, and private client seminars. Mr. Froling received his J.D. and LL.M, Taxation from Capital University Law School and his B.S. from The Ohio State University. Before joining Vorys, Mr. Froling was a senior manager for KPMG, LLP. Before joining KPMG, Mr. Froling managed the tax department for Bath & Body Works, Inc. 23rd Annual Ohio Tax Conference Ohio Business Tax Legislative Developments . . . Tax Cuts in Ohio’s Budget Bill & What’s on the Horizon Presented By: David A. Froling, Esq. Representative Cheryl Grossman Deputy Tax Commissioner Marjorie Kruse Senator Tim Schaffer Representative Gary Scherer January 28, 2014 1 OHIO HOUSE TAX REFORM STUDY COMMITTEE State Representative Gary Scherer 2 • From August 14th, 2013 to September 17th, 2013, the Tax Reform Study Committee met a total of five times throughout Ohio hearing nearly 20 hours of testimony from 66 witnesses. Witnesses included township trustees, county commissioners, interested organizations and executive offices. • Locations included: Chillicothe, Batavia, Bowling Green, North Ridgeville and Columbus 3 Five Key areas of focus • Ohio’s Commercial Activities Tax (CAT) • Tax Expenditures • Sales Taxes • Severance Tax • Income Tax 4 • Individuals spoke about the recent changes of Substitute House Bill 59, the state operating budget, and the financial impact, both positively and negatively, on their businesses and way of life. Many local government officials testified to the local government cuts that they have experienced over the last three years. 5 Issues that need attention • Access to information for Counties for auditing purposes from the Ohio Department of Taxation • Municipal Income Tax uniformity • Expanding on HB 5 • Tax expenditure review board • Sales Tax • Expanding the base • Shift from income tax to consumption based sales tax • Severance Tax • HB 375 • Competitive with other states 6 Ohio Department of Taxation: Legislative Developments Marjorie Kruse, Deputy Tax Commissioner 614-466-2166 Ohio Tax Conference January 28, 2014 7 Am. Sub HB 59 – FY 2014-15 Biennial Budget Legislation $2.7 billion net tax relief over 3 years! Largest overall tax reduction in the country 8 Am. Sub HB 59 – FY 2014-15 Biennial Budget Legislation Individual Income Tax Changes 10% rate reduction phased in over 3 years o 8.5% in 2013; 9% in 2014; and full 10% in 2015 EWH tables revised Sept. 2013; next update will be Jan. 2015 Temporary freeze on adjusting brackets and exemptions 50% small business income deduction o o o o o Up to $125,000 for each investor ($62,500 for each spouse filing separately) Schedules C, E and F used to calculate the deduction Nonresident investor can file IT 1040 to take deduction 9 Am. Sub HB 59 – FY 2014-15 Biennial Budget Legislation Individual Income Tax Changes (cont.) Means testing $20 personal exemption credit o Only available to taxpayers with OTI < $30,000 Ohio Earned Income Tax Credit o o Non-refundable Maximum for Tax Year 2013 = $302 Military retirement pay deduction expanded Wagering loss deduction repealed IRS Revenue Ruling 2013-17 10 Am. Sub HB 59 – FY 2014-15 Biennial Budget Legislation Sales Tax o Rate changed to 5.75% Equalize taxability: digital products; magazine subscriptions Other Taxes o o o o o o Minimum payment for CAT changed to a tiered structure Motor Fuel Receipts Tax (AKA Petroleum Activities Tax) Equalize tax on little cigars with cigarettes Means testing for the homestead exemption New property levies will not receive 12.5% state-subsidy 11 Am. Sub HB 59 – FY 2014-15 Biennial Budget Legislation o o o o o o o Other Items $1 minimum for tax payments and refunds Calculation of interest on refunds Calculation of post-assessment interest Change in electronic notice or order delivery Corporate dissolutions and tax clearance Changes in various tax credit programs 2014 – eliminate ability to take deduction for same dependent on two returns 12 Other Legislative Changes Effective in 2014 HB 112 – Income Tax Refund Check-Off for Breast and Cervical Cancer Research Fund Financial Institutions Tax Wireless 9-1-1 13 MBR Tax Reform Tax Simplification o Modernization o Consistency and uniformity across tax types o Electronic filing Postmark vs. received dates Filing dates Penalties Streamline government 14 Other Legislative Items Credit balances in business taxes Tax expenditure review committee Increase income tax deduction for college savings to $10,000 per beneficiary Increase income tax credit for adoption to $10,000 Non-refundable tax credit for rehab of a vacant industrial site Severance tax Federal conformity 15 Am. Sub. H.B. 5 Big Picture 1. The Bill does not effect the Ohio Constitution. 2. No centralized collection. 3. No centralized administration. 4. No centralized municipal board of tax review for multi-jurisdictional assessments issued by RITA or CCA. 5. No change to R.C. 715.013. 6. No change to employer withholding wage base (i.e., cities use Box 5; Ohio uses Box 1). 7. No change to unfavorable treatment of PTEs and their owners as compared to C corporations and their shareholders. 8. The Bill is complex. Many complexities remain in the law. © Copyright 2013, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved. 16 Am. Sub. H.B. 5 (cont’d) Big Picture (cont’d) 9. Significant lack of uniformity remains in the law. 10. Revenue impact is unknown. a. There will be winners and losers among taxpayers. b. There will be winners and losers among cities. 11. Bill does not establish a tax return filing threshold. 12. PTE offset provision as presently written likely violates the commerce clause. © Copyright 2013, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved. 17 Am. Sub. H.B. 5 (cont’d) Big Picture (cont’d) 13. Bill may violate the Ohio Constitution in some instances. a. Gesler v. City of Worthington, Slip Op. No. 2013-Ohio-4986 (Nov. 19, 2013). b. Panther II Transportation, Inc. v. Village of Seville (pending at the Ohio Supreme Court, oral arg. held Dec. 11, 2013). c. R.C. 715.013 14. Some cities will likely disregard certain provisions within the Bill. 15. Competing coalitions are seemingly at an impasse on certain provisions. Bill will be contentious in the Senate. © Copyright 2013, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved. 18 Am. Sub. H.B. 5 (cont’d) Little Picture 1. 5 year net operating loss carryforward deduction 2. Offsetting income and losses from PTE 3. a. Residents: Allowed b. Nonresidents: Not allowed Consolidated Returns a. Waters-edge b. PTE income/factors c. Elective d. Forced combination © Copyright 2013, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved. 19 Am. Sub. H.B. 5 (cont’d) Little Picture (cont’d) 4. S corporations and S corporation shareholders 5. Alternative apportionment 6. Throwback Rule 7. Employer Withholding a. 20 day rule b. No catch-up withholding c. Small employer exception c. Principal Place of Work 8. Nonqualified Deferred Compensation 9. Domicile © Copyright 2013, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved. 20 Am. Sub. H.B. 5 (cont’d) Little Picture (cont’d) 10. Interest 11. General administrative issues/procedures © Copyright 2013, Vorys, Sater, Seymour and Pease LLP. All Rights Reserved. 21 State and Local Tax Alert: Ohio Supreme Court Issues Decision Holding the Ohio Genera... Page 1 of 2 11/22/13 I State and Local Tax Alert: Ohio Supreme Court Issues Decision Holding the Ohio General Assembly’s Constitutional Powers Do Not Trump Worthington’s Constitutional Power to Levy Taxes INSIGHTS Client Alerts Al , Authored Articles Newsletters Blogs RELATED PRACTICES State and Local Taxation Taxation RELATED INSIGHTS 2/15/2013 State and Local Tax Alert: Ohio Tax Reform Bill Introduced House Bill No. 59 ATTORNEYS & PR,’FESSI’RJI1lA L.. Anthony L. Ehler David avi A. AF Fro ling I Jeffrey Allen Miller Steven L Smiseck The Vorys State and Local Tax Group scored an important municipal income tax victory for taxpayers. The decision also helps clarify a complex area of Ohio Constitutional law. Gesler et al. v. City of Worthington Income Tax Board of Appeals et al. involved competing Ohio Constitutional provisions. On one hand, the Ohio Constitution confers upon home rule municipalities all powers of local self-government which includes the power to levy taxes. On the other hand, the Ohio Constitution confers upon the Ohio General Assembly the power to limit home rule municipalities’ power to levy taxes. On November 19, the Supreme Court of Ohio released a carefully worded decision in Gesler, Slip Opinion No. 2013-Ohio-4986. The Court ruled in favor of James and Angeline Gesler and reversed the Ohio Board of Tax Appeals (Board). The Court held the Board’s decision violated the Ohio Constitution’s home rule provisions because the Board’s decision to deny a refund impermissibly conferred powers upon the Ohio General Assembly beyond those provided by the Ohio Constitution. Mr. Gesler was a professional accountant providing tax advisory services through a sole proprietorship. Prior to the tax years at issue, a client of Mr. Gesler’s granted Mr. Gesler stock options as payment for tax services. In 2005, 2006 and 2007, Mr. Gesler exercised the stock options and reported schedule C business income on his federal income tax returns. The Geslers filed Worthington tax returns for those years, reported the Schedule C income, and paid Worthington tax. Thereafter, the Geslers filed refund claims with Worthington for each year noting the pertinent Worthington tax ordinance indicated that Worthington imposed tax on "net profits," and that Worthington defined "net profits" by ordinance as "the individual’s profit other than amounts required to be reported on schedule C***. (Emphasis added.) Worthington denied the Geslers’ refund claims. The Geslers appealed to the Board. The Board held that although Worthington’s ordinance clearly and unambiguously did not impose tax on schedule C business income, Ohio statute R.C. 718.01(A)(7) required municipalities imposing income tax to define "net profits" to include schedule C business income. According to the Board the Ohio statute overrode Worthington’s ordinance so Worthington was required to impose Worthington income tax on the Geslers’ schedule C business income notwithstanding Worthington’s ordinance to the contrary. The Vorys legal team comprised of Dave Froling, Jeffrey Miller and Steven Smiseck argued to the Ohio Supreme Court that the Ohio Constitution’s Home Rule Amendment vested Worthington with all powers of local self government, and that the Ohio Constitution vested the General Assembly with only a negative power to "limit" Worthington’s exercise of its taxing powers. Dave Froling argued before the Court that Worthington’s decision not to tax schedule C business income could not be trumped by the General Assembly’s mandate that municipalities must tax Schedule C income. Under circumstances where http://www.vorys.com/publications-I 1 50.html 11/25/2013 State and Local Tax Alert: Ohio Supreme Court Issues Decision Holding the Ohio Genera... Page 2 of 2 Worthington chose not to exercise its taxing power by excluding certain subject matter from its tax, there was no exercise of Worthington’s taxing power for the General Assembly to "limit.’ In that regard, the Boards decision that Ohio statute R.C. 718.01(A)(7) trumped Worthington’s ordinance impermissibly infringed on Worthington’s powers of local self government. The Court agreed holding Worthington’s decision not to tax schedule C business income was a valid exercise of the powers granted to Worthington by the Ohio Constitution, and that the Ohio General Assembly "cannot command Worthington to impose tax on Schedule C income when Worthington has chosen not to tax that i ncome*** . Geslerat 122. As a matter of constitutional law, the Ohio statutes at issue could not be used to block a tax exemption provided by Worthington. The Court ordered Worthington to issue the Geslers’ refund with statutory interest. Gesler affirms the Court’s landmark decision in Cincinnati Bell Telephone Company v. City of Cincinnati, 81 Ohio St.3d 599 (1998). Gesler itself is a landmark case because Gesler expands on the Court’s legal analysis in Cincinnati Bell. Gesler provides tax practitioners and municipalities with further clarity regarding how to navigate competing Ohio Constitutional provisions. That said, Gesler does not answer all the questions. Indeed Gesler raises questions not apparent in Cincinnati Bell. The Court’s analysis in Gesler has ramifications beyond the facts presented therein. At minimum Gesler makes clear that when a home rule municipality exercises its taxing power under its constitutionally granted powers of local self government, its powers are broad. GesleratlJ2O. Conversely the Ohio General Assembly’s powers of limitation are not as broad. Indeed, the Ohio General Assembly’s powers to limit the home rule municipality’s exercise must be "interpreted in a manner consistent with the purpose of home rule." Id. citing Cincinnati Bell at 605. "In the absence of an express statutory limitation demonstrating the exercise, by the General Assembly, of its constitutional power, acts of municipal taxation are valid." Id. citing Cincinnati Bell at 606. The Court’s statement that the General Assembly lacks the authority to command a municipality to impose tax on certain types of income raises questions of whether, and to what extent, the General Assembly may have already overstepped its authority in portions of Ohio Revised Code Chapter 718. Similarly, given that the Court in Gesler declined to address whether Worthington ordinance actually conflicted with the applicable Ohio statutes, the holding of the Court raises a broad question as to the proper interplay between Chapter 718 and municipal income tax ordinances. Indeed, Gesler raises questions regarding the Constitutionality of certain draft provisions within Am. Sub. H.B. 5 that is currently pending in the Ohio Senate’s Finance Committee. At the present, the line between the municipal taxing power and the General Assembly’s authority to limit that power is not well defined. Thus, this area of Ohio law will undoubtedly require further illumination by the Court. From a practical perspective, practitioners should understand that Ohio is an unusual state in that certain municipalities have constitutionally granted home rule powers that may not be infringed upon by the state. Thus, in municipal tax disputes, in addition to ordinances, regulations, city charters and statutes, the Ohio Constitution may also bear on the proper legal conclusion. Under circumstances where the question involves a facial conflict between an Ohio statute and city tax ordinance, Gesler makes clear that a threshold question is which body of law is dominant. That question is answered by reference to the Ohio Constitution. Given the complexity of municipal tax law, obtaining experienced advice is prudent. The Vorys team is well versed in state and municipal tax law, and regularly defends audits and represents taxpayers in administrative and judicial forums. If you need assistance, please contact one of Vorys’ state and local tax attorneys. http://www.vorys.com/publications-I 1 50.html 11/25/2013 0hiU If N 11 Department of Taxation Joseph W. Testa, Tax Commissioner Issued: July 31, 2013 Individual Income Tax I Pass-Through Entity Tax: HB 59 Modifications Impacting Taxpayers Subject to Ohio Income Tax On June 30, 2013, Amended Substitute House Bill 59 (HB 59) of the 130th General Assembly (also known as the fiscal year 2014-2015 biennial budget bill) was signed into law. HB 59 contains the following modifications and additions to the law that impact taxpayers subject to Ohio income tax: Income Tax Rate Reductions HB 59 reduces income tax base amounts and rates by 8.5% in taxable year 2013, an additional .5% to total 9% in taxable year 2014, and an additional 1% to total 10% in taxable year 2015. See ORC 5747.02. More information regarding corresponding changes to employer income tax withholding tables will be forthcoming, as these changes will not occur until September 2013. Beginning September 2013, taxpayers will see a reduction in the Ohio income tax withholding from their paychecks. New 50% Small Business Income Deduction For taxable years beginning on or after January 1, 2013, an individual taxpayer filing the 1T1040 is allowed a deduction amounting to 50% of the taxpayer’s Ohio small business income of up to $250,000. The deduction cannot exceed $62,500 for each spouse filing separately or $125,000 for all other taxpayers. Ohio small business investor income means the portion of a taxpayer’s adjusted gross income that is business income reduced by deductions from business income and apportioned or allocated to Ohio under ORC 5347.21 and 5747.22 to the extent not otherwise deducted or excluded in computing federal or Ohio Adjusted Gross Income for the taxable year. As such, net business income as reported on the taxpayer’s federal 1040 Schedules C, E and F will be used in calculating the deduction. The deduction will be available on Schedule A of the 111040. Additional clarification regarding how this deduction is calculated will be forthcoming. Note that the deduction will not impact the calculation of a taxpayer’s school district income tax liability. Instead, it will be added back to Ohio Taxable Income for school district income tax purposes. See 0RC574 7.01 (A)(31), 5747.21, 5747.22 and 5748.01 (E)(1)(a). Means Testing of $20 Personal Exemption Credit For taxable years beginning on or after January 1, 2013, the $20 personal exemption credit is only available to taxpayers with Ohio Taxable Income of less than $30,000 on either an individual or joint return. Ohio Taxable Income is defined as Ohio Adjusted Gross Income less exemptions. The credit will continue to be available to eligible taxpayers online 9 of the 111040. See 0RC5747.022. Ability to Take Deduction for Same Dependent on Two Returns Eliminated For taxable years beginning on or after January 1, 2014, taxpayers are prohibited from claiming either a personal exemption or a $20 personal exemption credit on their returns if they are being claimed as a dependent on the federal income tax return of another taxpayer. See 0RC5747.022 and 574 7.025. New Ohio Earned Income Tax Credit For taxable years beginning on or after January 1, 2013, a non-business non-refundable earned income tax credit is available for taxpayers who were eligible for the Federal Earned Income Credit (FEIC) on their federal 1040 returns. The Ohio Earned Income Tax Credit (OEITC) is equal to 5% of the taxpayer’s FEIC. However, if the taxpayer’s Ohio Taxable Income (Ohio Adjusted Gross Income less exemptions) exceeds $20,000 on either an individual or joint return, then the credit is limited to 50% of the tax otherwise due after deducting all other credits that precede the credit except for the joint filing credit. For taxable years beginning on or after January 1, 2013, taxpayers must have earned income and Federal Adjusted Gross Income (FAGI) of less than the following amounts to be eligible for the FEIC: $46,227 ($51,567 married filing jointly) with three or more qualifying children $43,038 ($48,378 married filing jointly) with two qualifying children $37,870 ($43,210 married filing jointly) with one qualifying child $14,340 ($19,680 married filing jointly) with no qualifying children Concurrently, the maximum FEIC amounts that these taxpayers can be allowed to take on their federal returns will be the following: $6,044 with three or more qualifying children $5,372 with two qualifying children $3,250 with one qualifying child $487 with no qualifying children As such, the maximum OEITC amount allowable to taxpayers on their state returns in taxable year 2013 is $302 (5% of $6,044). The credit will be available to eligible taxpayers on the 2013 1T1040 Schedule B. More guidance on how taxpayers can calculate this credit will be forthcoming. See new ORC 574 7.71. Military Retirement Pay Deduction Expanded Beginning in taxable year 2014, taxpayers who receive retirement income related to uniformed service in the Commissioned Corps of the National Oceanic and Atmospheric Administration (NOAA) and the Commissioned Corps of the Public Health Service (PHS) are allowed a deduction for the entire amount of such pay to the extent it is included in FAGI. This deduction can be taken on Schedule A, line 37b of the 1T1040. Prior to this change, the deduction was only available to former service members of the United See ORC States Army, Navy, Air Force, Coast Guard, or Marine Corps receiving military retirement pay. 5747.01(A)(26). required or permitted to file an individual return if the entity files the composite. Note that in light of this change, the Department will be retracting the Business Tax Division Alert issued on August 10, 2011, which formerly precluded nonresident individual investors participating in a composite and having no other Ohio-sourced income from filing an lT1040 return. Modification See CRC 574 7.08. of Requests for Alternative Apportionment of Income For taxable years beginning on or after January 1, 2013, individuals and pass-through entities who intend to submit requests for alternative apportionment are now required to submit such requests with a timely filed return or amended return. Prior to this change, the request was not required to be submitted by the return’s due date. Also, HB 59 makes a technical correction to clarify that taxpayers may request the alternative to also effectuate equitable "apportionment" of business in Ohio and not only equitable "allocation". See CRC 5747.21. Modification to the Job Creation Tax Credit Continuing law authorizes the Tax Credit Authority (TCA) to grant job creation tax credits (JCTCs) against the income tax. Currently, a taxpayer that has entered into an agreement with the TCA for a JCTC on the basis of home-based employees must report to the development services agency the number of employees and home-based employees employed by the taxpayer in Ohio. Beginning in 2014, the reporting date is now modified from January 1 to March 1 of each year. The refundable JCTC is taken on forms lT1040 or 114708. See 0RC122.17 and 5747.058. Modification to the Job Retention Tax Credit Continuing law authorizes the TCA to grant job retention tax credits (JRTCs) against the income tax. Qualifying businesses having a capital investment project and retaining a specified number of full-time equivalent employees or maintaining a certain payroll threshold can be entitled to the JRTC. Effective September 29, 2013, the JRTC is now extended to eligible businesses whose principal place of business is not located in the same political subdivision as the capital investment, as long as the business maintains a unit or division with at least 4,200 employees at the project site. Generally, JRTCs are nonrefundable. However, between July 1, 2011, and December 31, 2013, the TCA may grant refundable JRTCs to eligible businesses that meet certain additional criteria. The JRTC is taken on forms 1T1040 or 114708. See ORC 122.171 and 574 7.058. Technology Investment Tax Credit Eliminated Effective September 29, 2013, the Technology Investment Tax Credit for Ohio taxpayers who invest in certain research and development or technology-oriented businesses is no longer available. However, taxpayers who are currently carrying forward an excess credit amount from prior years may continue to do so until the amount is exhausted within the 15 year carry forward period allowed by law. 122.152 and 574 7.33. See CRC Wagering Loss Deduction Repealed The wagering loss deduction that was slated to be effective for taxable year 2013 is now repealed. The item would have allowed taxpayers to deduct losses from wagering transactions included in FAGI that were allowed as an itemized deduction for federal purposes under IRC 165 and that the taxpayer deducted in computing federal taxable income. Due to HB 59’s repeal of the provision, no wagering loss deduction will be available for taxpayers in 2013 or thereafter. See ORC 574 7.O1(A)(29). Income Tax Apportionment for Non-Residents Clarified Effective for taxable year 2013, HB 59 clarifies that non-resident taxpayers are allowed a credit equal to the amount of tax otherwise due on the portion of adjusted gross income not apportionable to Ohio. Prior to this change, the term "allocable" was used, but not "apportionable". This change makes the See provision consistent with the income tax apportionment provisions in ORC 5747.20 to 5747.23. ORC 5747.05. $1 Minimum for Tax Payments and Refunds Effective September 29, 2013, the Tax Commissioner is excused from issuing any tax refund if the amount of the refund is $1 or less. Concurrently, taxpayers are excused from paying a tax if the total amount due with the taxpayer’s return is $1 or less. Currently, the $1 minimum applies only to income tax, employer withholding, and pass-through entity income tax withholding. See ORC 5703.75, 5747.08, 5747.10, and 5747.11 Calculation of Interest on Refunds Upon Filings of Returns or Reports With respect to income tax refunds upon filings of returns or reports, the law prior to HB 59 mandated the accrual of refund interest only if the Tax Commissioner does not refund the overpayment within 90 days after the due date of the taxpayer’s return or the date the return was actually filed, whichever is 90 days from the due date of the taxpayer’s return or the date the return was actually filed, whichever is later, until the refund payment date. later. If interest was allowed, it accrued from Effective September 29, 2013, RB 59 eliminates ORC 5747.11(C)(1), which is repetitive in part of (C)(2) and makes other minor technical edits to ORC 5747.11. It continues to not require interest on refund payments made by the Commissioner within the aforementioned 90 day period. However, if interest is allowed, it now requires calculation of the interest to begin from the date of the overpayment until the refund payment date. The bill does not, however, modify the calculation of interest on payments of illegal or erroneous assessments. See ORC 574 7.11. Ability of Nonresident Pass-Through Entity Investors to File lTl 040 For taxable years beginning on or after January 1, 2013, all nonresident investors in a pass-through entity on whose behalf the entity files an Ohio composite return (1T4708) and pays tax may now file an individual return (1T1040) and claim the refundable credit for taxes the entity paid on the investor’s behalf. These include nonresident investors with no other Ohio-sourced income who currently are not Calculation of Post-Assessment Interest Modified Effective September 29, 2013, interest that is charged after an assessment has been issued will be calculated based on the assessment tax liability only. The interest will no longer be calculated on the penalty and pre-assessment interest amounts. Therefore, the requirement of calculating interest on interest and penalties has now been removed until an assessment becomes certified to the Ohio Attorney General for collection. Interest after certification will continue to be calculated on the entire unpaid portion of the assessment. See ORC 574 7.13. Change in Electronic Notice or Order Delivery Requirement Under current law, the Tax Commissioner may serve a tax notice or order upon a person through secure electronic means with the recipients consent. If the recipient does not access the notice within ten business days after service, the Tax Commissioner is currently required to then serve it by certified mail, personal service, or delivery service. Effective September 29, 2013, the Commissioner may deliver the notice or order to the intended recipient by ordinary mail after a second attempt to deliver through electronic means is unsuccessful. See 0RC5703.37(B)(2). Should you have any questions concerning how HB 59 may affect your Ohio income tax liability or your business, contact your designated tax professional or visit tax.ohio.gov . You may also submit a question to the Ohio Department of Taxation using the "Contact Us" option on the website. Deduction Ins4runtinn-q fnr Apportioning Business Income Solely for Purposes of Computing the Small Business Investor Income Deduction Rev. 1/14 IT SRD Rev 1114 Each factor is weighted: The property and payroll factors are weighted at 20% each and the sales factor at 60%, for a total of 100%. If any factor has a denominator (total everywhere figure) of zero, the weight given to the other factors must be proportionately increased so that the total weight given to the combined factors is 100%. For example: If the business entity has no payroll everywhere, then the property and sales factors are weighted at 25% and 75%, respectively, to total 100%. Ohio schedule IT SBD is solely for use in determining the small business investor income deduction. See Ohio Revised Code section (R.C.) 5747.01(A)(31). Do not use this schedule to compute Ohio adjusted gross income. The form and instructions apply to resident, part-year resident and nonresident individuals who have business income from Ohio sources. If your only source of Ohio income is wages paid by an unrelated employer, you are not eligible to use this form. R.C. 5747.22(B) and (C) Apportionment and Allocation of Income and Deductions of Pass-Through Entities Important: This form assumes that the taxpayer has business income that could include (I) a distributive share of income/gain from only one pass-through entity or (ii) distributive shares of income/gain from more than one pass-through entity that are unitary with each other (under Ohio law, passthrough entities include sole proprietorships). Apportionment of Pass-Through Entity Business Income With respect to a pass-through entity where one or more of the nonresident or part-year resident investors are subject to the Ohio income tax, the business income and deductions of the pass-through entity shall be apportioned to Ohio in the hands of the pass-through entity according to the instructions for apportioning business income, Such business income and deductions thus apportioned to Ohio are then allocated to the investors in proportion to their right to share in such business income. Pass-through entities and trusts should not use this form Definitions Business Income and Nonbusiness Income "Business income" means income, including gain or loss, arising from transactions, activities and sources in the regular course of a trade or business and includes income from real, tangible and intangible property if the acquisition, rental, management and disposition of the property constitute integral parts of the regular course of a trade or business operation. Also, ’business income" consists of income, including gain or loss, from a partial or complete liquidation of a business, including, but not limited to, gain or loss from the sale or other disposition of goodwill (R.C. 574701 (B)). Business Income (Part I, Part A) Line I - Compensation Received from a Pass-Through Entity Guaranteed payment or compensation paid by a passthrough entity (S corporation, partnership, limited liability company treated as a partnership for income tax purposes, etc.) having nexus with Ohio to an investor holding at least a 20% direct or indirect interest in the entity is considered a distributive share of income of the entity and treated as business income, which is subject to apportionment for purposes of computing the individual’s small business investor income deduction (R.C. 5733.40(A)(7)). The "reciprocity agreements" between Ohio and neighboring states do not apply to full-year nonresidents directly or indirectly owning at least 20% of the stock or other equity of a pass-through entity. In general, income, deductions, gains and losses recognized by a sole proprietorship or a pass-through entity are items of business income that the individual must apportion using Part I, C of Ohio Schedule IT SBD. "Nonbusiness income" means all income other than business income and may include, but is not limited to, compensation, rents and royalties from real or tangible personal property, capital gains, interest, dividends, distributions, patent or copyright royalties, and lottery winnings, prizes and awards (R.C. 5747.01 (C)). Nonbusiness income should be excluded from the figures reported on this schedule. Line 2 - Related Member Add-back R.C. 5733.042(A)(6) and 5733.04(P) disallow expenses and losses incurred in connection with all direct and indirect transactions between each pass-through entity and its related members. As such, you must add back on Part I, line 2 your distributive/proportionate share of such expenses and losses. However, do not add (i) amounts shown on line 1 or (ii) expenses or losses incurred in connection with sales of inventory to the extent that the cost of the inventory and the loss incurred were calculated in accordance with Internal Revenue Code sections (l.R.C.) 263A and 482. R.C. 5747.21 and 5747.22 Apportionment of Business Income or Deductions The amount of business income and deductions apportioned to Ohio is determined by multiplying the net business income by an Ohio apportionment ratio, which is the sum of the property, payroll and sales factors (please refer to the Part II apportionment formula for business income on Ohio Schedule IT SBD). Please note that the net business income consists only of those items of income and deduction that would be included in Ohio adjusted gross income (Ohio form IT 1040, line 3) if not for this deduction. Line 3 Ordinary Income or Loss Include ordinary income or loss from business activities to the extent not shown on line 1. Include only income that is business income as defined by R.C. 5747.01 (B). 2- IT SBD Rev. 1/14 Affects Depreciation Deductions for Taxable Years Ending 2001 and Thereafter" by visiting tax.ohio.gov. The department posted this release on July 31, 2002, and revised the release in July 2005 and June 2009. Line 6 - Depreciation Adjustments For tax years 2012 and thereafter, add 2/3, 5/6 or 616 of the I.R.C. 168(k) bonus depreciation claimed under the I.R.C. Also add 2/3, 5/6 or 6/6 of the excess of the I.R.C. 179 depreciation expense claimed under theI.R.C. over the amount of the I.R.C. 179 depreciation expense that would have been allowed based upon I.R.C. 179 in effect on Dec. 31, 2002. See R.C. 5747.01 (A)(20) as amended by the 129th General Assembly in HB 365 and information releases 2002-02 and 2002-01 regarding Ohio bonus depreciation adjustments available on our Web site at tax.ohio.gov. These releases were originally posted on July 31, 2002 and Nov. 7, 2002. Line 7Miscellaneous Federal Income Tax Adjustments Because of a recent amendment to R.C. section 5701.11, there are no miscellaneous federal tax adjustments on this schedule. See Sub. House Bill 58, 129th General Assembly. However, you must make all other required adjustments for this line. Deductions From Business Income (Part I, Part B) Line 9b - Depreciation Adjustments UnderI.R.C. 179, as that section existed on Dec. 31, 2002, the maximum amount that could be expensed was $25,000, and the phase-out began once the cost of purchases of I.R.C. 179 property during the year exceeded $200,000. So, under the prior law the taxpayer could not claim anyI.R.C. 179 expense if the taxpayer’s purchases during the year of I.R.C. 179 property, as defined on Dec. 31, 2002, were $225,000 or more. Deduct 1/2,1/5 or 1/6th of the I.R.C. 168(k) and 179 depreciation adjustments you added back on each of your last two, five or six years’ Ohio income tax returns. You can take this deduction even if you no longer directly or indirectly own the asset. See R.C. 5747.01 (A)(21) as amended by the 129th General Assembly in HB 365 and information releases 2002-02 and 2002-01 regarding Ohio bonus depreciation adjustments available on our Web site at tax.ohio.gov . These releases were originally posted on July 31, 2002 and Nov. 7, 2002. This add-back and subsequent deduction" law also covers (i) depreciable assets acquired by the taxpayer’s disregarded entities and (ii) depreciable assets that are owned by passthrough entities in which the taxpayer directly or indirectly owns at least 5% (R.C. 5747.0 1(A)(20)(a)). Line 9d Miscellaneous Federal Income Tax Adjustments Because of a recent amendment to R.C. section 5701.11, there are no miscellaneous federal tax adjustments on this schedule. See Sub. House Bill 58, 129th General Assembly. However, you must make all other required adjustments for this line. In addition, the pass-through entity can defer making all or some of the add-back under the following circumstances: (i) the pass-through equity is an equity investor in another pass-through entity that has generated I.R.C. 168(k) bonus depreciation and/or I.R.C. 179 depreciation; and Net Business Income, Apportionment (Part I, C) Line 11 - Ohio Apportionment Ratio (Part II, Line 4) Note: When calculating the fraction used to compute the Ohio (ii) because of either the federal passive activity loss limitation rules or the federal at-risk limitation rules, this investor pass-through entity is unable to deduct fully a loss passing through from the other pass-through entity to this investor pass-through entity. small business investor income deduction, a taxpayer who has invested in a partnership, an S corporation or a limited liability company treated as a partnership for federal income tax purposes must apply the "aggregate" (conduit) theory of taxation. That is, the character of all income and deductions (and adjustments to income and deductions) realized by a pass-through entity in which the taxpayer has invested retains that character when recognized by the taxpayer. Furthermore, the taxpayer’s factors must include the proportionate share of each lower-tiered pass-through entity’s property, payroll and sales (R.C. 5733.057 and 5747.231). In such circumstances, to the extent that this investor passthrough entity does not deduct the loss passing through, this investor pass-through entity can defer making the "2/3 or 5/6 add- back" until the taxable year or years for which this investor pass-through entity does deduct the investee pass-through entity’s loss and receives a federal tax benefit from the bonus depreciation amount and/or the I.R.C. 179 amount generated by the investee pass-through entity. Of course, this investor pass-through entity cannot begin claiming the related two- or five-subsequent years deduction until the first taxable year immediately following the taxable year for which this investor pass-through entity makes the 2/3 or 5/6 add-back. Property Factor The property factor is a fraction the numerator of which is the average value of the sole proprietor’s or pass-through entity’s includable real and tangible personal property owned or rented, and used in the trade or business in this state during the taxable year, and the denominator of which is the average value of all the sole proprietor’s or pass-through entity’s includable real and tangible personal property owned or rented, and used in the trade or business everywhere during such year. For detailed information and examples regarding this adjustment, see R.C. 5747.01(A)(20) as amended by the 129th General assembly in HB 365 and the department’s information release entitled "Recently Enacted Ohio Legislation -3.. IT 350 Rev 1/14 Line 1(a), Column 2 Property Owned Total Everywhere Enter the average value of all the sole proprietor’s or passthrough entity’s real property and tangible personal property, including leasehold improvements, owned and used in the trade or business everywhere during the taxable year. Ohio law includes in the property factor real property and tangible personal property that the sole proprietor or passthrough entity rents, subrents, leases or subleases to others if the income or toss from such rentals, subrentals, leases or subleases is business income. Ohio law specifically excludes from the factor all property relating to, or used in connection with, the production of nonbusiness income allocated under R.C. 5733.051. Generally, all sole proprietorship and passthrough entity income and gain is business income. Line 1(b) - Property Rented Enter the value of the sole proprietor’s or pass-through entity’s real property and tangible personal property rented and used in the trade or business in Ohio (column 1) and everywhere (column 2) during the taxable year. Property rented by the sole proprietor or pass-through entity is valued at eight times the annual rental rate (annual rental expense less subrental receipts). Property owned by the sole proprietor or pass-through entity is valued at its original cost average value. Average value is determined by adding the cost values at the beginning and at the end of the taxable year and dividing the total by two. The tax commissioner may require the use of monthly values during the taxable year if such values more reasonably reflect the average value of the sole proprietor’s or pass-through entity’s property. Line 1(c) - Property Total Within Ohio and Everywhere Add lines 1(a) and 1(b) for column I (within Ohio) and column 2 (total everywhere). Line 1(c), Column 3 - Property Ratio Enter the ratio of property within Ohio to total everywhere by dividing column 1 by column 2. Exclusions Exclude from column I (within Ohio) and column 2 (total everywhere) the following: Construction in progress. Property relating to, or used in connection with, the production of nonbusiness income. See R.C. 5733.05(B)(2) as amended by Amended Substitute House Bill 95, 125th General Assembly. The numerator and the denominator of the property factor includes real property and tangible personal property that the sole proprietor or pass-through entity rents, subrents, leases or subleases to others if the income or loss from such rentals, subrentals, leases or subleases is business income. See R.C. 5733.05(B)(2)(a) as amended by Amended Substitute House Bill 95, 125th General Assembly. Property owned by the sole proprietor or pass-through entity and leased to others is excluded from the property factor only if the property generates nonbusiness income. The original cost of property within Ohio with respect to the air pollution, noise pollution or industrial water pollution control certificates issued by the state of Ohio (R.C. 5733.05(B)(2)(a)). The original cost of real property and tangible property (or in the case of property that the sole proprietor or passthrough entity is renting from others, eight times its net annual rental rate) within Ohio that is used exclusively during the taxable year for qualified research. Line 1(c), Column 5 - Weighted Property Ratio Multiply the property ratio on line 1(c), column 3 by the property factor weighting of 20%. Payroll Factor The payroll factor is a fraction, the numerator of which is the total compensation paid in this state during the taxable year by the sole proprietor or pass-through entity, and the denominator of which is the total compensation paid both within and without this state during the taxable year by the sole proprietor or pass-through entity. As used below, the term "compensation" means any form of remuneration paid to an employee for personal services. Exclusions Exclude from column 1 (within Ohio) and column 2 (total everywhere) the following: Guaranteed payments made to partners; Compensation that the S corporation paid to any shareholder if the shareholder directly or indirectly owned at least 20% of the S corporation at any time during the year (R.C. 5733.40(A)(7)); Compensation paid in Ohio to employees who are primarily engaged in qualified research; AND Compensation paid to employees to the extent that the compensation relates to the production of nonbusiness income allocable under R.0 5733.051 (R.C. 5733.05(B) (2)). Do not include in column 1 but do include in column 2 the original cost of qualifying improvements to land or tangible personal property in an enterprise zone for which the taxpayer holds a Tax Incentive Qualification Certificate issued by the Ohio Development Services Agency. Do not include in column 1 but do include in column 2 compensation paid in Ohio to certain specified new employees at an urban job and enterprise zone facility for which the pass-through entity has received a Tax Incentive Qualification Certificate issued by the Ohio Development Services Agency. Line 1(a), Column I - Property Owned Within Ohio Enter the average value of the sole proprietor’s or passthrough entity’s real property and tangible personal property, including leasehold improvements, owned and used in the trade or business in Ohio during the taxable year. Line 2, Column I - Payroll Within Ohio Enter the total amount of the sole proprietor’s or pass-through -4- IT SOD Rev 1/14 entity’s compensation paid in Ohio during the taxable year. Compensation is paid in Ohio if any of the following apply: The recipient’s service is performed entirely within Ohio; or The recipient’s service is performed both within and outside Ohio, but the service performed outside Ohio is incidental to the recipient’s service within Ohio; OR Some of the recipient’s service is performed within Ohio and either the recipient’s base of operations, or if there is no base of operations, the place from which the recipient’s service is directed or controlled is within Ohio, or the base of operations or the place from which the service is directed or controlled is not in any state in which some part of the service is performed, but the recipient’s residence is in Ohio. Compensation is paid in Ohio to any employee of a common or contract motor carrier corporation who performs his regularly assigned duties on a motor vehicle in more than one state in the same ratio by which the mileage traveled by such employee within Ohio bears to the total mileage traveled by such employee everywhere during the taxable year. The statutorily required mileage ratio applies only to contract or common carriers. Thus, without approval by the tax commissioner a manufacturer or merchant who operates its own fleet of delivery trucks cannot use the ratio of miles traveled in Ohio to miles traveled everywhere to situs driver payroll. See Cooper Tire and Rubber Co. v. Limbach (1994), 70 Ohio St. 3d 347. as amended by Substitute House Bill 127, 125th General Assembly): Interest or similar amounts received for the use of, or for the forbearance of the use of, money; Dividends; Receipts and any related gains or losses from the sale or other disposal of intangible property other than trademarks, trade names, patents, copyrights and similar intellectual property; Receipts and any related gains and losses from the sale or other disposal of tangible personal property or real property where that property is a capital asset or an asset described in I.R.C. 1231. For purposes of this provision the determination of whether or not an asset is a capital asset or a 1231 asset is made without regard to the holding period specified in the I.R.C.; AND Receipts from sales to (a) an at-least-80%-owned public utility other than an electric company, combined electric company, or telephone company, (b) an at-least-80%owned insurance company, or (c) an at-least-25%-owned financial institution. Note: Income and gain from receipts excluded from the sales factor is not presumed to be nonbusiness income. All income, gain, loss and expense is presumed to be apportionable business income - even if the related receipts are excluded from the sales factor. The law specifically includes in the sales factor the following amounts when arising from transactions, activities and sources in the regular course of a trade or business: (i) receipts from sales of tangible personal property, (ii) receipts from the sale of real property inventory (such as lots developed and sold by a real estate developer), (iii) rents and royalties from tangible personal property, (iv) rents and royalties from real property, (v) receipts from the sale, exchange, disposition or other grant of the right to use trademarks, trade names, patents, copyrights and similar intellectual property, (vi) receipt from the sale of services and other receipts not expressly excluded from the factor. These amounts are situsable to Ohio as set forth below. Line 2, Column 2 - Payroll Total Everywhere Enter the total amount of the sole proprietor’s or pass-through entity’s compensation paid everywhere during the taxable year. Line 2, Column 3 - Payroll Ratio Enter the ratio of payroll within Ohio to total everywhere by dividing column 1 by column 2. Line 2, Column 5 - Weighted Payroll Ratio Multiply the property ratio on line 2, column 3 by the payroll factor weighting of 20%. Line 3, Column I - Sales Within Ohio Enter the total of gross receipts from sales not excludable from the numerator and the denominator of the sales factor, to the extent the includable gross receipts reflect business done in Ohio. Sales within Ohio include the following: Receipts from sales of tangible personal property, less returns and allowances, received by the purchaser in Ohio. In the case of delivery of tangible personal property by common carrier or by other means of transportation, the place at which such property is ultimately received after all transportation has been completed is considered as the place at which such property is received by the purchaser. Direct delivery in Ohio, other than for purposes of transportation, to a person or firm designated by a purchaser constitutes delivery to the purchaser in Ohio, and direct delivery outside Ohio to a person or firm designated by a purchaser does not constitute delivery to the purchaser in Sales Factor The sales factor is a fraction whose numerator is the sole proprietor’s or pass-through entity’s includable business income receipts in Ohio during the taxable year and whose denominator is the sum of the sole proprietor’s or pass-through entity’s within Ohio and without Ohio includable business income receipts during the taxable year. The sales factor specifically excludes receipts attributable to nonbusiness income allocable under R.C. 5733.051 (see R.C. 5733.05(B) (2) and the tax commissioner’s April 2004 information release entitled "Sales Factor Situsing Revisions"). Exclusions The following receipts are not includable in either the numerator or the denominator of the sales factor even if the receipts arise from transactions, activities and sources in the regular course of a trade or business (see R.C. 5733.05(B)(2)(c) -5- IT SBD Rev 1/14 Line 3, Column 3 - Sales Ratio Enter the ratio of sales within Ohio to total everywhere by dividing column 1 by column 2. Ohio, regardless of where title passes or other conditions of sale. Customer pick-up sales are situsable to the final destination after all transportation (including customer transportation) has been completed. See Dupps Co. v. Lindley (1980), 62 Ohio St. 2d 305. Line 3, Column 5Weighted Sales Ratio Multiply the sales ratio on line 3, column 3 by the sales factor weighting of 60%. Revenue from servicing, processing or modifying tangible personal property is sitused to the destination state as a sale of tangible personal property. See Custom Deco, Inc. v. Limbach, BTA Case No. 86-C-1024, June 2, 1989. Receipts from sales of real property inventory in Ohio. Rents and royalties from tangible personal property to the extent the property was used in Ohio. Rents and royalties from real property located in Ohio. Receipts from the sale, exchange, disposition or other grant of the right to use trademarks, trade names, patents, copyrights and similar intellectual property are sitused to Ohio to the extent that the receipts are based on the amount of use of that property in Ohio. If the receipts are not based on the amount of use of that property, but rather on the right to use the property and the payor has the right to use the property in Ohio, then the receipts from the sale, exchange, disposition or other grant of the right to use such property are sitused to Ohio to the extent the receipts are based on the right to use the property in Ohio. Receipts from the performance of services and receipts from any other sales not excluded from the sales factor and not otherwise sitused within or without Ohio under the above situsing provisions are situsable to Ohio in proportion to the purchasers benefit, with respect to the sale, in Ohio to the purchaser’s benefit, with respect to the sale, everywhere. The physical location where the purchaser ultimately uses or receives the benefit of what was purchased is paramount in determining the proportion of the benefit in Ohio to the benefit everywhere. Note: For taxable years ending on or after Dec. 11, 2003, the "cost of performance" provision is no longer the law. Line 4, Column 5 - Total Weighted Apportionment Ratio Add column (5), lines 1 (c), 2 and 3). Ohio Small Business Investor Income Deduction (Part 1, D) Small Business Investor Income Line 13 Ohio Individuals shall complete one form IT SBD (lines 1-12) for each pass-through entity in which the taxpayer has an ownership interest or sole proprietorship. Enter the sum of line 12 from each separate schedule. Line 14 Maximum Ohio Small Business Investor Income If filing status is married filing jointly or single, head of household, enter $250,000 on this line. If filing status is married filing separately, enter $125,000 on this line. Line 15Ohio Small Business Investor Income Deduction Enter on this line the lesser of 50% of line 13 or 50% of line 14. R.C. 5747.01 (A)(31) states, deduct one-half of the taxpayers Ohio Small Business investor income, the deduction not to exceed $62,500 for each spouse if spouses file separate returns under R.C. 5747.08 or $125,000 for all other taxpayers. No pass-through entity may claim a deduction under this division. For purposes of this division, "Ohio small business investor income" means the portion of the taxpayer’s adjusted gross income that is business income reduced by deductions from business income and apportioned or allocated to this state under R.C. 5747.21 and 5747.22, to the extent not otherwise deducted or excluded in computing federal or Ohio adjusted gross income for the taxable year." Line 3, Column 2 - Sales Everywhere Enter the total of such includable gross receipts, less returns and allowances, from sales everywhere. Note: Generally, all sole proprietorship and pass-through entity income and gain is business income. Federal Privacy Act Notice Because we require you to provide us with a Social Security number, the Federal Privacy Act of 1974 requires us to inform you that providing us with your Social Security number is mandatory. Ohio Revised Code sections 5703.05, 5703.057 and 5747.08 authorize us to request this information. We need your Social Security number in order to administer this tax. -6- T SBD Rev 1/14 Summary of Ohio Tax Treatment of Income and Deductions for Purposes of the Small Business Investor Income Deduction Note: Except for lottery prizes and awards, all income and gain is presumed to be business income/gain. Ohio Tax Type of Income and Deductions 1. Guaranteed payments and compensation paid to an individual for services performed If the individual directly or indirectly owns at least 20% of the business, the individual must show the guaranteed payments and compensation on Part I, A, line 1. 2. Gains or losses from the sale or transfer of real property Apportion if gain constitutes business income, 3. Gains or losses from the sale or transfer of tangible personal property Apportion if gain constitutes business income. 4. Gains or losses from the sale or transfer of intangible personal property Apportion if gain or loss constitutes business income, 5. Rents or royalties from real property Apportion if gain constitutes business income. 6. Rents or royalties from tangible personal property Apportion if the rents or royalties constitute business income. 7. Patent and copyright royalties Apportion if the rents or royalties constitute business income. 8. Depreciation expense add-back/deduction If the depreciation relates to nonbusiness property, the 1/2, 5/6 or 6/6 add-back and corresponding 1/2, 1/5 or 116 deductions are not considered business income and deductions. However, if the depreciation relates to business property, these depreciation adjustments are apportioned as items of business income and deduction using the Part I business income worksheet. ’.7- Em Department of Taxation Joseph W. Testa, Tax Commissioner Issued: January 10, 2014 Individual Income Tax - Information Release IT 2014-01 Modification to Non-Resident Personal Income Tax Nexus "Safe Harbor" - Issued January 10, 2014 - The Ohio Department of Taxation has modified Information Release PIT 2001-01, Personal Income Tax Nexus Standards, September 2001. This information release describes the standards the Department of Taxation will apply to determine whether a nonresident is subject to Ohio’s personal income tax. Prior to this modification, page 6, section IV, items 0 and P of the release stated the following: 0. The nonresident has a presence in this state for no more than seven days which need not be consecutive, in a calendar year and the nonresident’s activities in Ohio generate no more than $2,500 in gross income in that some calendar year; P. The nonresident participates in one or more trade shows in this state as an exhibitor provided that the nonresident does not have employees present in this state for more than seven days in a calendar year and the nonresident’s activities in Ohio generate no more than $2,500 in gross income in that same calendar year; Page 6, section IV, items 0 and P now state the following: 0. The nonresident has a presence in this state for no more than twenty days, which need not be consecutive, in a calendar year and the nonresident’s activities in Ohio generate no more than $10,000 in gross income in that same calendar year; P. The nonresident participates in one or more trade shows in this state as an exhibitor provided that the nonresident does not have employees present in this state for more than twenty days in a calendar year and the nonresident’s activities in Ohio generate no more than $10,000 in gross income in that some calendar year; Items 0 and P are two among a list of "safe harbor" activities cited in this information release where nexus with a nonresident might exist, but where the Department of Taxation will not 1 currently require the filing of a return and the payment of the personal income tax if a nonresident’s only contacts with Ohio are limited to the contacts in the list. Except for section IV, item A, these "safe harbors" are not mandated by statutory or case law; rather, they are provided for the purposes of administrative convenience. This personal income tax modification is effective for taxable years 2014 and forward. Questions? Taxpayers may visit www.tax.ohio.gov for more information. Questions may be submitted by clicking on the "Contact" link found at the top right of the page and then choosing the "Email Us" option. Taxpayers with additional questions regarding this subject may contact Individual Income Taxpayer Services at 1-800-282-1780. 2 IT SBD Rev. 1I3 Ohio Department of Taxation IT SBD - Year 20 Small Business Investor Income Deduction Schedule Every taxpayer requesting a small business investor income deduction must complete a separate schedule for each pass-through entity in which the taxpayer has an ownership interest. Part I A. Business Income Before Deductions 1 Self-employment income (federal Schedule C, C-EZ or F), guaranteed payments and/or compensation received from each pass-through entity in which you have at least a 20% direct or indirect ownership interest Note: Reciprocity agreements do not apply (see line instructions)..... ................... ................. 1 2. Add-back for expenses paid to related members and to certain investors family members (see instructions)...... ...... .......... ........ ........... ............ ... ..... ..... ............... ..... ..... ............................ 2. . . Do 00 . 3. 3. Ordinary income (loss) from trade or business activities (to the extent not shown on line 1) ....... ......... _________ 4. __________________ 4. Net income (loss) from rental activities, net royalties, interest income and dividend income .................. ..... .... ........ .... ........... ...... ......... .... ..5. ........ 5. Net capital gain (loss) and other gain (loss) ............ .......... . 6. _____________ 6. Add adjustments from .RC. section 168(k) and qualifying 179 expenses (see line instructions).......... 7. Other items of income and gain separately stated on federal Schedule K-i and miscellaneous federal income tax adjustments, if any . ... ............ ........ .... ........... .. ............. .... ............ .... .......... .. .... .... 7. 00 8. Total of lines 1 through 7......................................................................................................... 8. B. Deductions From Business Income 9a. Keogh deduction, self-employment tax deduction and self-employed health insurance deduction.........9a. b. Deduct adjustments for the depreciation expenses added back in prior years (see line instructions)..-, 9b. c. Other items of deduction and loss separately stated on federal Schedule K-i if such deductions are allowable in computing federal adjusted gross income (individuals) or federal taxable income (estates),., 9c. 0 d. Other business income deductibles (describe) and miscellaneous federal income tax adjustments, if . 9d.._________________ _ any ........... .......... .......... ............ ......9e. _____________ e. Total of lines 9a through 9d ................. ... ....... ... ..... ....... ...... . .... .... 00 C. Net Business Income, Apportionment 10. Net business income (line 8 minus line 9e) ...............................................................................10. __________,_ ii. Ohio apportionment ratio (Part II, line 4)........................................................................................ 11 12. Total business income apportioned to Ohio (multiply line 10 by line 11) ...............................................12. _______________ D. Ohio Small Business Investor Income Deduction (Complete a separate schedule for each pass-through entity or sole proprietorship) 00 13. Ohio small business investor income (line 12 from each separate schedule; see instructions) .............13. 14. Maximum Ohio small business investor income subject to deduction (see instructions) ...... .......... .........14. 15, Ohio small business investor income deduction; 50% of line 13 or 50% of line 14, whichever is less (maximum deduction is $125,000 for married filing jointly or single/head of household/qualifying widow(er) filers and $62500 for married filing separately filers. Enter here and on Ohio form IT 1040, line 41 .........15. 00 Part II - Apportionment Formula for Business Income (1) (2) Total Within Ohio 1 Property Everywhere (3) (4) Ratio Weight (5) Weighted Ratio (carry to six decimal pieces) (carry to S!X decimal places) (a) Owned (average cost)............ (b) Rented (annual rental x 8)........ x .20 = (c) Total (lines la and 1b) , . 2. Payroll (see Exclusions on page 4 x .20 = of the instructions) ............ ....... ........__________....... 3. Sales (see Exclusions on page 5 x 60 of the instructions) ....... ----. -.-,,-- = .. 4. Ohio apportionment ratio Add lines ic, 2 and 3 (enter ratio here and on Part C, line 11)........................ 1 2. 3. 4. L.__ 01,1jo Department of Taxation Joseph W. Testa, Tax Commissioner Issued: October 11, 2013 Individual Income Tax - Information Release IT 2013-01 Filing Guidelines for Taxpayers Filing a Joint or "Married Filing Separately" Federal Income Tax Return With Someone of the Same Gender Issued Oct. 11, 2013 - Revised Dec. 19, 2013 - Introduction This information release offers guidance to a taxpayer who is filing a joint or "married filing separately" federal income tax return with someone of the same gender and who is filing an Ohio income tax return meeting the following criteria: Original Ohio return for taxable year 2012 and earlier filed on or after September 16, 2013 (the date prescribed in IRS Revenue Ruling 2013-17). Original Ohio return filed for taxable years 2013 and after. Background On June 26, 2013, the U.S. Supreme Court issued a decision on the constitutionality of section 3 of the federal Defense of Marriage Act (DOMA), which had established a federal definition of marriage. Following the Court’s decision, the Internal Revenue Service issued Revenue Ruling 2013-17. The ruling provides that a marriage between same-gender individuals performed in a jurisdiction that recognizes such a marriage will now be recognized for federal income tax purposes. As a result, same-gender married couples may file joint or "married filing separately" federal income tax returns on or after September 16, 2013 even if they are domiciled in a jurisdiction whose laws do not recognize a same-gender marriage. Ohio Guidance Under Article XV §11 of the Ohio Constitution, Ohio does not recognize marriage between persons of the same gender. Individuals who entered into such a marriage in another 1 jurisdiction shall not use the filing status of "married filing jointly" or "married filing separately" when filing Form IT 1040. Each individual must instead file an Ohio return in accordance with the following guidelines: File a separate Ohio income tax return using Form IT 1040 and check the box on the first page indicating that Schedule IT S (explained further below) will be filed. Use the filing status of "single" or, if qualified, "head of household" Complete Ohio Schedule IT S, Federal Adjusted Gross Income to be Reported by SameGender Taxpayers Filing a Joint or Married Filing Separately Federal Return, which is a supplement to Form IT 1040. This is a schedule on which such individuals shall re-determine their federal adjusted gross income ("federal AGI") as if they had filed using the "single" or "head of household" filing status. These amounts shall be reported as the individuals’ federal AGI for Ohio purposes including, but not limited to, on line 1 of the IT 1040. One Schedule IT S shall be completed and a copy submitted with each individual’s IT 1040 return. The Schedule and instructions are available online at http://www.tax.ohio.gov/Forms.aspx. Taxable year 2013 returns may be filed electronically using Ohio electronic filing services at www.tax.ohio.gov and commercial software products, or by paper. Original returns for taxable years 2012 and prior must be filed via paper. Taxpayers may not file any of these returns using Form IT 1040EZ or TeleFile. Although the IRS Revenue Ruling permits same-gender couples to file amended federal returns to change filing status to "married filing jointly" or "married filing separately", no corresponding Ohio amended returns may be filed to change filing status for prior years. Questions? Taxpayers may visit www.tax.ohio.gov for more information. Questions may be submitted by clicking on the "Contact" link found at the top right of the page and then choosing the "Email Us" option. Taxpayers with additional questions regarding this subject may contact Individual Income Taxpayer Services at 1-800-282-1780. Ohio Department of Taxation Joseph W. Testa, Tax Commissioner Issued: November 14, 2013 Employer Withholding - Information Release EW 2013-01 - Guidelines for Employers Providing Benefits to Employees Married in a Jurisdiction That Recognizes Same-Gender Marriage - Issued Nov. 14, 2013 Introduction This information release offers guidance to employers regarding the treatment of employee benefits provided to an employee who is married in a jurisdiction that recognizes a same-gender marriage. Background Under laws promulgated by the Employee Retirement Income Security Act of 1974 ("ERISA") and the Internal Revenue Code, certain employer-provided benefits’ are excluded from an employee’s gross income for federal income tax purposes. However, many of these exclusions are permitted only when such benefits are provided to the employee and the employee’s "federal tax dependents", which include the employee’s spouse and dependents as defined under IRC §152. If an employer provides benefits to an individual that is not an employee’s federal tax dependent, the employer must include in the employee’s gross income the fair market value of the benefits provided. This is known as "imputed income" and increases the employee’s federal taxable gross earnings for the taxable year as reported on the employee’s Form W-2 box 1. On June 26, 2013, the U.S. Supreme Court issued a decision on the constitutionality of section 3 of the federal Defense of Marriage Act (DOMA), which had established a federal definition of marriage. Following the Court’s decision, the Internal Revenue Service ("IRS") issued Revenue Ruling 2013-17 and Notice 2013-61. Likewise, the U.S. Department of Labor issued Technical Benefits include but are not limited to employer sponsored accident and health plans, health savings accounts (HSAs), flexible spending arrangements (FSAs), group term life insurance, qualified tuition reduction payments, meals or lodging reimbursements, dependent care assistance programs, other benefits provided through cafeteria plans and other fringe benefits. See IRC sections 79, 106, 117(d), 119, 125, 129 and 132 among others. 1 Release No. 2013-04. This guidance provided that a marriage between same-gender individuals performed in a jurisdiction that recognizes such a marriage will now be recognized for federal income tax and employee benefit purposes. As a result, employers may recognize same-gender married couples for these purposes even if the impacted employees are domiciled in a jurisdiction whose laws do not recognize a same-gender marriage. Ohio Guidance Under Article XV §11 of the Ohio Constitution, Ohio does not recognize marriage between persons of the same gender. Accordingly, Ohio employer withholding taxes shall be determined based on the taxable gross earnings amount of each employee as if it was calculated in a manner that does not recognize same-gendered marriages. Employers must therefore treat benefits provided to the same-gender spouses of employees and the dependent children of those spouses as imputed income for Ohio income and school district income tax employer withholding purposes. Employers shall determine employees’ Ohio taxable gross earnings amounts in a manner consistent with this guidance and report these amounts on box 16 of federal Form W-2. These amounts must also be used in determining the employer’s liability for withheld income and school district income tax. Questions? Taxpayers may visit www.tax.ohio.gov . Questions may be submitted by clicking on the "Contact" link found at the top right of the page and then choosing the "Email Us" option. Taxpayers with additional questions regarding this subject may contact Individual Income Taxpayer Services at 1-800-282-1780. uW8 Department of Taxation Joseph W. Testa, Tax Commissioner Date: August 22, 2013 Employer Withholding Tables Revised - Effective September 1, 2013 This is to advise employers that the Ohio Department of Taxation has issued new employer withholding tables to be used for payrolls that end on or after September 1, 2013. The new tables take into consideration the income tax rate reductions that went into effect when Amended Substitute House Bill 59 was signed into law. The tables reflect a 9% reduction in the withholding rates previously in effect for 2013, to conform with the 8.5% and 0.5% decrease in individual income tax rates in effect for taxable years 2013 and 2014, respectively. The new tables are to be used for the remainder of the 2013 calendar year and for all of 2014. The new withholding tables are posted on the Employer Withholding Tax Web page, which can be accessed by clicking here. The tables include the percentage method for calculating withholding as well as daily, weekly, biweekly, semimonthly and monthly tables. If you have any questions regarding the new withholding tables, please contact us at 1-800-304-3211 and select option number 3 (three) or e-mail your question to us via our home page at www.tax.ohio.gov . NOTICE OF INCREASE IN STATE SALES AND USE TAX RATE STATE RATE INCREASES FROM 5.5% TO 5.75% EFFECTIVE SEPT. 1, 2013 The state sales tax rate on the storage, use or other consumption of tangible personal property or services and retail sales made on or after Sept. 1, 2013 is 5.75%. Please note that all local Ohio jurisdictions impose a local sales and use tax in addition to the state rate. The Ohio Department of Taxation provides a database of sales and use tax rates called the Finder, which can be queried either by address or by ZIP code. The Finder is available at this link: Ohio Department of Taxation> commercial activities > inform... Page 1 of 1 CAT 2013-05 - Commercial Activity Tax: Annual Minimum Tax Tiered Structure- Issued October, 2013 This information release is to provide notification to commercial activity tax (CAT) taxpayers of the recent legislative change in Am. Sub. H.B. 59 of the 130th General Assembly to the structure of the annual minimum tax (AMT). It is important to note that, in general, persons with $150,000 or less in taxable gross receipts are not subject to the CAT. Also note that the CAT rate of 0.26% remains unchanged and continues to apply to those taxpayer’s with taxable gross receipts over $1 million (the first $1 million in taxable gross receipts are excluded from the calculation of a taxpayer’s CAT liability with respect to the 0.26% rate component). All CAT taxpayers pay an AMT which is due with calendar year taxpayers’ annual returns and with quarterly taxpayers’ first quarter returns, due on or before May 10th of each year. Currently, the AMT is $150. For tax periods beginning on January 1, 2014 and thereafter, the AMT will become a tiered structure, and taxpayers will pay an amount that corresponds with their overall commercial activity. The taxpayer will utilize its previous calendar year’s taxable gross receipts to determine the current year’s AMT. Those taxpayers with $1 million or less in taxable gross receipts will pay $150 AMT (no change). The AMT for taxpayers with total taxable gross receipts of more than $1 million but less than or equal to $2 million will be $800; AMT for taxpayers with taxable gross receipts more than $2 million but less than or equal to $4 million, $2,100; and AMT for taxpayers with taxable gross receipts in excess of $4 million, $2,600. Please refer to the chart below. Taxable Gross Receipts Annual Minimum Tax CAT $1 Million or less $150 No Additional Tax 0.26% x (Taxable Gross Receipts Million) More than $1 Million but less than or equal to $2 Million More than $2 Million but less than or equal to $4 Million $2,100 0.26% x (Taxable Gross Receipts Million) More than $4 Million $2,600 0.26% x (Taxable Gross Receipts Million) ’ - $1 - $1 - $1 Example: ABC, LLC (ABC) is an annual taxpayer. ABC reports taxable gross receipts of $900,000 for the reporting period ol January 1, 2013 to December 31, 2013 on its annual return in May, 2014. ABC will pay an annual minimum tax for 2014 of $150 with the 2013 annual return filed in May, 2014. Example: DEF Corp. (DEF) is a quarteily taxpayer. DEF reports cumulative taxable gross receipts of $3 million for the reporting period of January 1, 2013 to December 31, 2013 (all four quarters of 2013). When DEF files its first quarter 2014 return in May, 2014, the annual minimum tax associated with DEF for 2014 will be $2,100. Assume that on its first quarter 2014 return, DEF reports taxable gross receipts of $1,300,000 for the first quarter of 2014. DEF’s total tax due with that return is $2,880, which includes the $2,100 AMT plus $780 CAT (0.26% x ($1,300,000- $1,000,000 Exclusion)). Please contact the CAT Division at 1-888-722-8829 with questions regarding this release or any other CAT matter. http: //www. tax. ohio .gov/commercial_activities/informationrel.. . 12/31/2013 Ohio Department of Taxation> commercial activities > inform... Page 1 of 1 CAT 2013-03 - Commercial Activity Tax: All Commercial Activity Tax Taxpayers Must File and Pay Electronically - July, 2013; Updated August 2013; Updated December 2013 This is the fourth version of this information release, which contains an amendment to Ohio Adm. Code 5703-29-05, that specifies both annual and quarterly taxpayers must file and pay electronically. The amendment to this rule addresses the change in Am. Sub. H.B. 59 of the 130th General Assembly, which allows the Tax Commissioner to require an annual taxpayer to file and pay electronically. This rule is now final and effective, Rule 5703-29-05 Commercial activity tax taxpayers must file and pay electronically. (A) Except as provided in paragraph (B) of this rule, each person required to file a commercial activity tax return shalt file such return and remit payment of the tax liability as follows: (1) The returns shall be filed electronically by using the Ohio business gateway as defined in section 718.051 of the Revised Code. Alternatively, a calendar year taxpayer may utilize the Ohio telefile system; (2) The payment shall be made electronically by using the Ohio business gateway or the department’s web site, or in the manner prescribed by rules adopted by the treasurer of state under section 113.061 of the Revised Code. (13)(1) Any person may apply to the tax commissioner to be excused from the requirement to file and pay electronically under paragraph (A) of this rule. If a form is prescribed by the commissioner for such purpose, which shall be posted on the department of taxation’s web site, the person shall complete such form. (2) The commissioner will notify the person in writing of the commissioner’s decision Unless an earlier date is specified in the notice, the excuse shall continue to apply until revoked in writing by the commissioner. The denial or revocation of an excuse under this paragraph is not a final determination of the commissioner and is not subject to further appeal. (C)(1) A taxpayer may file a return electronically for the first semi-annual period from July 1, 2005 to December 31, 2005 but is not required to file in such manner. (2) A calendar year taxpayer is required to file and pay electronically for any return filed on or after January 1, 2014. (D) Nothing in this rule affects any person’s obligation to timely file all returns and timely pay all amounts required by Chapter 5751. of the Revised Code. http ://www.tax. ohio .gov/commercial_activities/informationre 1... 12/31/2013 CAT 2013-04/PAT 2013-01 - Commercial Activity Tax & Petroleum Activity Tax: New CAT Exclusion and Replacement Tax Issued October, 2013 The purpose of this information release is to provide guidance following the recent legislative change in 130th General Assembly, which impacts receipts from the sale and other Am. Sub. H.B. 59 of the disposition of motor fuel for purposes of the commercial activity tax (CAT) and the petroleum activity tax (PAT). CAT Exclusion Beginning on July 1, 2014, receipts from the sale, transfer, exchange, or other disposition of motor fuel will be excluded from the definition of gross receipts for purposes of the CAT. At that time, suppliers of motor fuel will pay the replacement PAT, which is a gross receipts tax modeled after the CAT, measured by a supplier’s gross receipts from the sale, transfer, exchange, or other disposition of motor fuel in this state. PAT - In General Beginning on July 1, 2014, the PAT is levied on the supplier of motor fuel and measured by the supplier’s gross receipts from the first sale, transfer, exchange, or other disposition of motor fuel in Ohio to a point outside of the distribution system. The PAT is levied at a rate of 0.65%. Unlike the CAT, there is no annual minimum tax (AMT), nor is there an exclusion corresponding to that AMT. Who is defined as a Supplier (i.e., taxpayer)? The PAT is imposed on the "supplier". A "supplier" of motor fuel is any person that meets one of the following requirements: (1) Sells, transfers, or otherwise distributes motor fuel from a terminal or refinery rack to a location in this state and that point is outside of a distribution system; or (2) Imports or causes the importation of motor fuel for sale, exchange, transfer, or other distribution by the person to location in this state and that point is outside of a distribution system. Example: An Ohio licensed motor fuel dealer obtains motor fuel in a bulk lot vehicle from a terminal in Indiana and transports the fuel to its customers in Northwest Ohio. The dealer is a supplier because the dealer imported motorfuel into Ohio for sale to a point outside of the distribution system. Example: A terminal operates as a corporation. Such terminal does not own title to any fuel stored at the terminal’s location. Position holders are the owners of the fuel and pay the terminal a fee for storage of the fuel. Because the terminal does not own the fuel and is not selling, exchanging, transferring, or otherwise distributing the motor fuel, the terminal is not the supplier of this fuel. However, the position holder is considered a supplier for purposes of the PAT. 1 What is Motor Fuel? Motor fuel has the same meaning as that in Chapter 5735 of the Revised Code (R.C.). ’Motor fuel" means gasoline, diesel fuel, K-i kerosene, or any other liquid motor fuel, including, but not limited to, liquid petroleum gas or liquid natural gas, but excluding substances prepackaged and sold in containers of five gallons or less. See R.C. 5736.01 referencing R.C. 5735.01. What is the Distribution System? The distribution system is the bulk transfer or terminal system for the distribution of motor fuel. The distribution system consists of refineries, pipelines, marine vessels (i.e., barges), and terminals. The distribution system does not include ground transportation, such as tank cars, rail cars, trailers, or trucks. What are Gross Receipts? Gross receipts are broadly defined in R.C. 5736.01(E), as "the total amount realized by a person, without deduction for the cost of goods sold or other expenses incurred, from the first sale of motor fuel" within Ohio. However, there are four exclusions from the definition of gross receipts. Exports. Any fuel sold by a supplier to a point outside of Ohio is not included in the supplier’s tax base for purposes of the PAT. Example: An Ohio licensed motor fuel dealer purchases motor fuel from a supplier at a terminal. The terminal dispenses the motor fuel into a bulk lot vehicle. The motor fuel dealer then takes the product to Indiana for delivery to a retail customer. The dealer can show on the bill of lading that the product was delivered to a location outside of Ohio (i.e., Indiana). As such, the supplier may exclude the receipts from that sale from the supplier’s gross receipts pursuant to R.C. 5736.01(E)(1). . Federal and State Excise Taxes. Current Excise Tax Rates for Motor Fuel (per gallon) Federal State Motor Fuel - Gasoline $0.184 $0.28 Motor Fuel - Other than Gasoline $0.244 $0.28 . Bad Debts. 2 Receipts from the Sale of an Account Receivable. Licensing All suppliers that will be subject to the PAT as of July 1, 2014 must apply for a license with the Tax Commissioner on or before March 1, 2014. A new supplier should obtain a license within thirty days of engaging in the distribution or importation of motor fuel into Ohio for consumption. All suppliers are required to renew their licenses each year on or before March 1. The following license fees apply to suppliers: Applicant that solely imports or causes the importation of motor fuel for sale, exchange, or transfer in this state $300 Applicant that sells, transfers, exchanges, or otherwise disposes of motor fuel to a point outside of the distribution system $1,000 Applicant that operates as both an importer and a distributor of fuel for purposes of the PAT $1,0001 Returns and Payment Due Dates for Quarterly Returns Tax Period Due Date May 10 1" Quarter d 2" Quarter January 1 March 31 3rd Quarter July 1 September 30 November 10 October 1 December 31 February 10 4th Quarter April 1 - June 30 August 10 Each supplier is required to file a quarterly return electronically on the tenth day of May, August, November, and February.’ A supplier will be required to identify on its return those receipts attributable to motor fuel used for propelling vehicles on public highways, railways, and waterways compared with all other receipts. The bifurcation is necessary to ensure proper distribution of revenue from the tax. Penalties 1 Only one license fee applies to each supplier, so in the event an applicant qualifies as both an importer and a distributor, the licensing fee is $1,000, total. 2 The Department will work through the Joint Committee on Agency Rule Review (JCARR) to mandate the electronic filing and payment of the PAT. 3 Civil penalties are generally imposed on the taxpayer at the point of an assessment. Failure to Timely File a Return or Pay $50 or 10% of the Tax Required to be Paid Additional Tax Found Due Up to 15% of the Additional Tax Found Due Failure to File and Pay Electronically First two calendar quarters - 5% of the Payment Amount mounk. Subsequent calendar quarters 10% of Criminal penalties may be imposed on the taxpayer for filing a fraudulent return; engaging in distributing, importing, or causing the importation of motor fuel for consumption in this state without a license; or violating any provision of Chapter 5736. Refunds A refund may only be requested by a taxpayer for the amount of PAT that was overpaid, paid illegally or erroneously, or paid on any illegal or erroneous assessment. Since the PAT is imposed on the supplier and not the supplier’s customer, unlike the motor fuel tax, there is no provision for a non-taxpayer to request a refund of the tax paid. Example: A supplier sold motor fuel to an Ohio-licensed motor fuel dealer at a terminal point in Northeast Ohio. The motor fuel dealer picked up the fuel and, pursuant to shipping documents, was going to transport the fuel to Youngstown, OH. However, once the fuel was picked up from the terminal, it was diverted to Sharon, PA. The supplier originally reported this amount as a gross receipt for purposes of the PAT. The supplier may request a refund of the amount of PAT paid on this sale. However, the supplier must be able to document the diversion in order to request a refund. Example: A supplier sold motor fuel to an Ohio-licensed motor fuel dealer for highway use. Ultimately, the retail dealer sells the fuel to a farmer for off-road usage. Since the same rate applies for both fuel used to propel vehicles on public highways, waterways, and railways as fuel that is not, there is no avenue for refund for receipts attributable to that sale of fuel. Please contact the CAT Division at 1-888-722-8829 with questions regarding this release. 4 Ohio Department of Taxation> excise> information releases >... Page 1 of I XT 2013-02- Other Tobacco Products Little Cigars: Issued July, 2013; Updated August, 2013 The purpose of this information release is to provide guidance to taxpayers following the recent enactment of Am. Sub. H.B. 59 of the 130th Ohio General Assembly. Effective for invoices dated on or after October 1 2013, little cigars will be taxed at a rate of 37% of the wholesale price of the product. The remaining other tobacco products (OTP) will continue to be taxed at a rate of 17% of the wholesale price. All distributors must indicate on the invoice: (1) that all OTP taxes are paid; and (2) their OTP account number. A little cigar" is defined as "any roll for smoking, other than cigarettes, made wholly or in part of tobacco that uses an integrated cellulose acetate filter or other filter and is wrapped in any substance containing tobacco, other than natural leaf tobacco.’ DIP Distributor Returns (DIP 2 & OTP 6) Beginning with the October, 2013 reporting period (the return for which is due by November 30, 2013), Ohio’s OTP distributor tax return will look very different, but the substance remains intact (with a few additions). The old OTP distributor tax return will no longer be available on the Department’s website. Please contact the Excise & Energy Tax Division at the number below to amend a return for any month prior to October, 2013. The most significant changes involve the reporting of little cigars (both on the face of the return and on the schedules) because little cigars must be reported separately. To view the new returns, for in-state distributors click here and for out-of-state distributors click here. OTP Manufacturer and Importer Repor ts All Ohio manufacturers and importers are required to file monthly reports detailing the brand, wholesale cost, types, and quantities of all OTP shipped into Ohio, as well as the names and addresses of the recipients, and all invoice numbers and invoice dates. In addition to these current requirements, beginning October, 2013, Ohio manufacturers and importers will be required to reflect the sale of little cigars separately on each invoice from the amount of remaining OTP shipped. To view the new report, please click here. The Department will update this information release as more information becomes available. Please contact the Excise & Energy Tax Division at (855) 466-3921, Option 3, with any questions. http ://www.tax. ohio .gov/excise/information_releases/index_exc.. . 12/31/2013 Ohio Department of Taxation > excise> information releases >... Page 1 of 1 SEV 2013-01 - Severance Tax: Severers and Owners Must File and Pay Electronically Issued July, 2013; Updated August 2013 This information release contains Ohio Adm. Code 5703-35-01 in draft form, which specifies that severers or owners, as applicable, must file and pay electronically through the Ohio Business Gateway or other electronic means. This release is being updated to include a link to the Business Impact Analysis (BIA) filed with the Common Sense Initiative (CSI) Office. The rule addresses the change in Am. Sub. H.B. 59 of the 1301h General Assembly, which allows the Tax Commissioner to require severers or owners to file and pay electronically. The Department intends to require severers or owners to file and pay electronically beginning with the severance of natural resources occurring in calendar quarters beginning on or after January 1 2014. To review the BIA filed with the CSI Office, click here. If you wish to comment on the proposed rule or the BIA, please send your comments to the Department and the Common Sense Initiative Office by September 13, 2013. DRAFT of Rule 5703-35-01: Severance Tax severers and owners must file and pay electronically (A) Except as provided in paragraph (B) of this rule, each person required to file a severance tax return shall file such return and remit payment of the tax liability as follows: (1) The returns shall be filed electronically by using the Ohio business gateway as defined in section 718.051 of the Revised Code; (2) The payment shall be made electronically by using the Ohio business gateway or made in the manner prescribed by rules adopted by the treasurer of state under section 113.061 of the Revised Code. (13)(1) Any person may apply to the tax commissioner to be excused from the requirement to file and pay electronically under paragraph (A) of this rule. If a form is prescribed by the commissioner for such purpose, which shall be posted on the department of taxation’s web site, the person shall complete such form. (2) The commissioner will notify the person in writing of the commissioner’s decision. Unless an earlier date is specified in the notice, the excuse shall continue to apply until revoked in writing by the commissioner. The denial or revocation of an excuse under this paragraph is not a final determination of the commissioner and is not subject to further appeal. (C) A taxpayer must file a return and make a payment electronically beginning with the return for the severance of natural resources occurring in calendar quarters beginning on or after January 1, 2014. (D) Nothing in this rule affects any person’s obligation to timely file all returns and timely pay all amounts required by section 1509.50 or Chapter 5749. of the Revised Code. http ://www.tax. ohio. gov/excise/information_releases/index_exc.. . 12/31/2013 Ohio Department of Taxation> excise> information releases >... Page 1 of 1 XT 2013-03 - Motor Fuel Tax: All Motor Fuel Tax Taxpayers Must File and Pay Electronically - Issued December, 2013 This information release contains Ohio Adm. Code 5703-11-04 in draft form, which specifies that all motor fuel tax returns must be filed and paid electronically through the Departments new eTRACS system which will be accessible from the Department’s website. Additionally, the rule also permits the electronic filing of all applications, reports and refund claims. The Department intends to require motor fuel taxpayers to file and pay electronically beginning with returns filed on or after July 1, 2014. Prior to adopting a rule requiring the electronic filing and payment, the Department is seeking public comment on the draft of this rule Public comment should be made before December 27, 2013 to Keven Kuhns by e-mail at Keveri.Kuhns'tax.state.oh.us or by calling him at (614) 752-8084. DRAFT of Rule 5703-11-04: Motor fuel tax taxpayers must file and pay electronically (A) Except as provided in paragraph (B) of this rule, each taxpayer required to file a motor fuel tax return shall file such return and remit payment of the tax liability electronically through the Department’s eTRACS system, which is accessible through the Department’s website. (1) As an alternative, any motor fuel tax payments required may be made in the manner prescribed by rules adopted by the treasurer of state under section 113.061 of the Revised Code. (2) All refund claims, applications and reports may be filed electronically by using the Department’s eTRACS system, but such electronic submission is not required. (B)(1) Any person may apply to the tax commissioner to be excused from the requirement to file and pay electronically under paragraph (A) of this rule. If a form is prescribed by the commissioner for such purpose, which shall be posted on the department of taxation’s web site, the person shall complete such form, (2) The commissioner will notify the person in writing of the commissioner’s decision. Unless an earlier date is specified in the notice, the excuse shall continue to apply until revoked in writing by the commissioner. The denial or revocation of an excuse under this paragraph is not a final determination of the commissioner and is not subject to further appeal. (C) A taxpayer must file returns and make payment electronically beginning with returns and payments filed and paid July 1 2014. (D) Nothing in this rule affects any person’s obligation to timely file all returns and timely pay all amounts required by section Chapter 5735. of the Revised Code. http://www. tax. ohio. gov/excise/information releases/xt 20 13 ... 12/31/2013 Oh o ,l Department of L Taxation TAX ALERT: Prepaid Wireless 9-1-1 Charge Effective January 1, 2014, all sales of prepaid wireless calling services are subject to a wireless 9-1-1 charge to be collected at the point of sale. R.C. 128.42(B) imposes a charge of five-tenths of one percent (0.005) of the sale price on the retail sale of prepaid wireless calling service. Retailers must collect the wireless 9-1-1 charge from the customer and list the wireless 9-1-1 charge separately on the customer’s receipt. Further, Retailers must first electronically register their company and then file their monthly 23rd returns electronically via the Ohio Business Gateway. The return is due on or before the of the following month (same as sales tax). The first return will be due February 23, 2014, and monthly thereafter. Retailers may retain 3% of the total wireless 9-1-1 charges as a collection fee. Retailers that do not sell prepaid wireless calling service are not affected by the wireless 91-1 charge and should disregard this notification. For more information on the wireless 9-1lcharge, visit tax.ohio.gov or call (888) 405-4039. NEW PROCEDURE: Ohio domestic for-profit corporations involved in a merger, consolidation, or conversion. Similar to the changes made to the dissolution process effective September 29, 2013, in some situations a domestic for-profit corporation that is dissolving as a result of a merger, consolidation, or conversion will need to obtain a Certificate of Tax Clearance from the Ohio Department of Taxation (Department). If a domestic for-profit corporation enters into a merger, consolidation, or conversion transaction and the new or surviving entity is not a corporation that is an Ohio chartered or foreign licensed corporation that is registered with the Ohio Secretary of State, then the domestic for-profit corporation must first obtain a Certificate of Tax Clearance from the Department prior to the merger, consolidation, or conversion. Examples of situations where a domestic for-profit corporation would be required to obtain a Certificate of Tax Clearance from the Department, include but are not limited to the following: domestic for-profit corporation merges into a domestic LLC, domestic for-profit corporation converts into a foreign LLC, and domestic for-profit corporation consolidates into a foreign corporation that is not registered to do business in Ohio with the Ohio Secretary of State. Once the domestic for-profit corporation obtains the Certificate of Tax Clearance from the Department, the Certificate of Tax Clearance must be provided to the Ohio Secretary of State when filing the documents for merger, consolidation, or conversion with the Ohio Secretary of State’s office. Alternatively, the following exceptions are examples of situations where a domestic for-profit corporation would not be required to obtain a Certificate of Tax Clearance from the Department: A domestic for-profit corporation converts into a foreign licensed corporation that is registered to do business in Ohio with the Ohio Secretary of State, and A domestic for-profit corporation that merges into another Ohio chartered domestic forprofit corporation. For those domestic for-profit corporations that are required to obtain a Certificate of Tax Clearance from the Ohio Department of Taxation that are dissolving as a result of a merger, consolidation, or conversion, the corporation must submit the Notification of Dissolution or Surrender, Form D5, to the Department after all applicable tax returns are filed and all liabilities and fees are paid. Please submit Form D5 to the Department (see the Department’s email and mailing address below) at least 30 days prior to the date the corporation intends to file the documents for merger, consolidation, or conversion with the Ohio Secretary of State’s office. Upon receipt of Form D5, the Department will review all business tax accounts associated with the corporation to verify that all tax returns have been filed and all liabilities and fees have been paid. If the Department ascertains that there are any additional outstanding tax liabilities and fees owed or any tax returns that have not been filed, a notice will be sent to the corporation detailing what is owed. All outstanding tax liabilities and fees or filings that are due and detailed in this notice must be filed and paid with certified checks or money orders before a Certificate of Tax Clearance will be issued. Mailing Address: Ohio Department of Taxation Taxpayer Services Division/Tax Release Unit P0 Box 182382 Columbus, OH 43218-2382 Street Address (for overnight delivery ONLY): Ohio Department of Taxation Taxpayer Services Division/Tax Release Unit 4485 Northland Ridge Blvd. Columbus, OH 43229-6596 Email Address: [email protected] Phone: 1-888-405-4039 Fax: 1-206-984-0378 OWo Department of Taxation OHIO ACCELERATES RETURNS OF TAX REFUNDS TO BUSINESSES Change Formally Ends Old Practice of Secrecy and Confiscation of Refunds For Immediate Release November 21, 2013 (Columbus) - Ohio Tax Commissioner Joe Testa announced today that Ohio is accelerating its outreach to businesses that inadvertently overpaid their taxes in order to make sure they are refunded every dollar owed to them. The announcement is a follow-up to efforts begun last year by the Department to refund overpayment of other businesses taxes. The change formally brings to an end the longtime practice of keeping secret from businesses their tax overpayments and then confiscating unclaimed refunds after four years. "It just made my blood boil when, not long after taking office, we learned that the tax department was keeping a secret from businesses that they had overpaid their taxes and then was then playing games about returning their money. The governor quickly charged me with putting an end to this and now we have. I’m proud that the process we put in motion last year is being followed up with this announcement today and that Ohio will now always notify businesses of accidental overpayments and return their moneyeven if they don’t know and even if they don’t know the precise amount," said Testa. "Jobs creator’s money does Ohio more good in their hands than in the hands of bureaucrats." Under previous Administrations, businesses were not made aware of tax overpayments nor the amount. Refunds were only made if businesses caught the mistake themselves and asked for their money back, and then refunds were only made for the amount the taxpayer requested. Taxpayers who requested amounts less than what they were owed only received the lesser amounts and tax agents kept the difference. After four years, if left unrequested, all overpayments were confiscated by the state. All of those polices are now over. Testa says the department has identified about $30 million that is owed to business taxpayers and will be contacting those businesses and helping them apply for their refund. This new wave of refunds mostly involves three taxes: sales and use, corporate franchise, and employer and school district withholding. Testa says the tax department has already returned more than $10 million in commercial activity tax (CAT) overpayments made since discovering last year that long-standing department (cont’d.) policy was to not notify business taxpayers that they had a credit balance. "We were shocked when we learned that the department historically made no effort to alert business taxpayers that they may be due a refund. The law may not have required them to notify taxpayers but that’s not how this administration works. We believe strongly that this money belongs to the taxpayer, not the government, and we are changing our systems and culture to make sure the taxpayer’s interests are protected now and in the future." Commissioner Testa says these overpayments can and do occur routinely for many reasons including businesses making advance payments and not accounting for them, or errors made in processing, filing or data entry. Testa says the overpayment issue came to light during an investigation of a department employee who has pleaded guilty to felony theft. He says once the overpayment issue became clear the department responded immediately to return the CAT monies and will do the same with these other accounts. Testa is encouraging business taxpayers who think they may have overpaid taxes to contact ODT at 1-800-304-3211 or E-mail the department at www.tax.ohio.gov For more information contact Gary Gudmundson, Communications Director at (614) 466-0099. Department of UW0 Taxation TAX ALERT: SALES & USE TAX REFUNDS Refund Application Requirements This is a reminder of the current requirements for sales & use tax refund applications. Questions 1 through 9 of the Application for Sales/Use Tax Refund (Form ST AR) must be answered and page 4 must be completed or an electronic spreadsheet set up like the example on page 4 must be included with the application. All applications that do not include this information will be returned and will not be accepted for filing or considered for a refund Revised Form: STAR The Ohio Department of Taxation has released a revised version of the Application for Sales/Use Tax Refund (Form STAR). Please be sure to update your records with the latest version of the form ST AR. A complete list of forms, supporting schedules, checklists, and instructions is available on the Department’s website at www.tax.ohio gov/forms. , If you have any questions regarding the topics addressed in this Tax Alert, please contact the sales and use tax refund unit at 888-405-4039. ATTENTION SMALL BUSINESSES: I II Ohio is cutting your taxes - Revising its rules - Rebating workers comp costs - All to help you grow! Cutting Taxes Virtually all small businesses in Ohio are now eligible for a 50 percent tax deduction on the first $250,000 of business income. This tax cut is the centerpiece of a major tax reform package initiated by Ohio Governor John Kasich and approved by the Ohio General Assembly that produced the largest overall tax reduction in the country -- $2.7 billion over three years. The small business tax cut enables a business owner to exclude 50 percent of Ohio net business income from the adjusted gross income they report on their Ohio personal income tax return. If the business has multiple owners, each is eligible to claim the deduction. This exclusion is available on up to $250,000, meaning the deduction is capped at $125,000 for each investor or owner. Owners of and investors in Ohio businesses structured as pass-through entities (PTEs) qualify for this new tax cut. PTEs include: sole proprietorships, partnerships, Subchapter S corporations (S-corps) and Limited Liability Companies (LLCs). Income generated by the business and passed through to the owners/investors is subject to the personal income tax. The cut is first effective for income earned in 2013 and reported on income tax returns filed in 2014. For more information on this tax cut, please contact the Ohio Department of Taxation at 1-800-282-1780 or visit their website atwwwtax.ohio.gov Revising Rules Ohio’s Common Sense Initiative is reviewing Ohio’s regulatory system to eliminate excessive and duplicative rules that stand in the way of job creation. Since started by Gov. Kasich in 2011, about 1,500 rules have been reviewed by CSI, leading to regulations that have more stakeholder input, reduced business impact, and are more focused on public protection. Please visit www.qovernor.ohio.qov/csi, and sign up for periodic updates about the progress and success of CSI Ohio. Or, simply email us at CSlOhiociovernor.ohio.ciov with your common sense solutions for cutting government red tape. Rebates to Employers The Ohio Bureau of Workers Compensation gave a billion dollars back to private and public customers as rebates on their workers’ camp payments as a result of well-managed funds. BWC is also tripling safety grants to help make workplaces safer and modernizing the payment system to lower rates and make it more flexible. All of these things help drive our goal of creating a jobs-friendly climate in Ohio.
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