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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
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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).
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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
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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
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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)
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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.
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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.
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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.
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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.
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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.