Municipal Net Profit Tax Reform in Ohio - Overview and Proposal

Municipal Net Profit Tax Reform Presented By: Joe Testa Tax Commissioner

Municipal Net Profit Tax Reform / Background 2016 Listening tour with Ohio business associations and their members. --Ohio State Fair: input from fairgoers What is the biggest and most burdensome tax impediment you face? Consensus: Municipal income tax on business net profits. Compliance more costly than the amount of tax paid.

Municipal Net Profit Tax Reform / Background More than 600 cities/villages levy municipal income tax. Image result for map of ohio Collected against: --Individual income --Employer withholding --Business net profit (approx. 14% of total collections)

Municipal Net Profit Tax Reform / Background Total collections: $4.99 billion (CY 15). Administered by individual municipalities and 3rd party administrators. Business taxpayers required to file & pay in every muni where income is earned. Worst local tax system in the country (Tax Foundation).

Municipal Net Profit Tax Reform / The Plan Administer business net profit tax at state level. Image result for blank map of ohio ODT already handles some local taxes (sales, SDIT, muni. Electric light, etc.). Could save munis $800M if all businesses file centrally (i.e. economies of scale). NOTE: Sole proprietors and single member LLCs would continue to file with municipalities.

Municipal Net Profit Tax Reform / The Plan Support: more than 30 statewide business assns. (OH Chamber, CPAs, Mfg., Contractors, NFIB, Restaurants, Retail Merchants, etc.). Advantages: --Consistency / uniformity --Reduced costs for businesses and municipalities --More efficiencies / more data analysis

Municipal Net Profit Tax Reform / The Plan Opposed: Ohio Municipal League & members. Concerns Counter Loss of local control NP info made available Reduced revenue Reduced costs, interest paid & increased compliance Technology inadequate Upgrade underway Additional development

Municipal Net Profit Tax Reform / The Plan: Version 2 Image result for two ears listening We listened to concerns, compromised and revised. Now Opt-in , not mandatory. Business taxpayers choose: file and have NP tax administered by multiple individual municipalities or with ODT.

Municipal Net Profit Tax Reform / The Plan: Version 2 Revenue distributions monthly, with interest (not quarterly). State Cost 0.5% Reduce administration fee to .5% (not 1%). City Cost 3.0% Avg. municipal admin. cost (excluding largest cities) approx. 3.0% (CAFR research). Conduct reviews/audits at municipal request (if supported by evidence). Repeal throwback rule

Throwback Rule Old Law 10% to sales Related image Sales Throwback City B City A City A City B 1. All property 2. All wages 3. 90% sales + 10% (throwback) Result for tax calculation City A gets all net profits tax. City B gets none.

Throwback Rule New Law (HB 49) HB 49 Outcome Related image No sales throwback https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcS6j8K-Q6GI0Ovkd5CEhpTJzkwA0jRCXzGtEkKFHxxKobL1U_YpozOuvYI City A City B 1. All property 2. All wages 3. 90% sales Result for tax calculation The sales are not thrownback to City A, but also not benefitting City B on net profits tax. City A no longer gets NP tax from sales taking place in City B. Benefits to taxpayer who has a reduced municipal net profits tax.

Municipal Net Profit Tax Reform / The Plan: ODT Role One uniform tax return Propose rules. Prescribe forms. Issue bills, assessments, refunds. One consistent governing body Conduct audits, certify debts. Handle appeals & all other administrative matters.

Municipal Net Profit Tax Reform / The Plan: Municipality Role Retain responsibility for Emp. Withholding & Individual filings. Retain control over tax rate and tax credits. ODT will provide taxpayer information. download 2,400 1,639 pixels

Municipal Net Profit Tax Reform / Collaboration Soliciting input to maximize effectiveness of new system from: --Business advisory group: top priorities for taxpayer simplicity. --Municipalities working group: how best to coordinate data exchange. Image result for helping hands Businesses & Practitioners Municipalities

Municipal Net Profit Tax Reform: Timeline By March 1, 2018, businesses (calendar yr. filers) register through OBG. By April 15, 2018, make first quarterly estimated payment. By April 15, 2019, file Tax Year 2018 tax return.

Municipal Net Profit Tax Reform: Ohio Business Gateway (OBG) Accept bulk uploads. Image result for person using computer clipart Process/interface with commercial tax preparation software. Image result for oDT taxation logo Image result for ohio business gateway logo

Questions? Joe Testa Tax Commissioner contactthecommissioner@tax.state.oh.us

House Bill 49: Biennial Budget Tax Changes Presented by: Tim Lynch Legislative Liaison Adam Schwiebert Legislative Liaison

Personal Income Tax Eliminates the two lowest income tax brackets; now seven brackets Incomes below $10,500 making are no longer subject to tax This threshold will be annually adjusted for inflation. Business Income Deduction reporting codified ODT to compute and report business income tax liability before credits at 3% flat rate vs. graduated rate College savings plan deduction is doubled from $2,000 to $4,000

Sales & Use Tax Exempts digital music purchased and played from digital jukeboxes Effective 10/1/17 Sales & use tax nexus for out-of-state retailers Annual sales of at least $500,000 or more in sales Utilizes in-state computer software to make Ohio sales or enters into agreement with a third party to provide content distribution networks to enhance delivery of seller s website to Ohio consumers. Ability to adjust local sales and use tax rates by increments of 0.1% rather than 0.25% beginning July 1, 2018

Sales Tax Holiday Three-day Sales Tax Holiday is enacted for Friday, August 3, 2018 through Sunday, August 5, 2018 for which sales of clothing, school supplies, and instructional materials within certain price ranges will be exempt from sales and use tax. Clothing $75 or less School supplies $20 or less Instructional materials $20 or less

Tax Amnesty Program Runs January 1, 2018 through February 15, 2018 Applies to the following taxes: Financial Institutions Tax Commercial Activity Tax State Income Tax Alcohol, Tobacco, and Cigarette Excise Taxes State and Local State and Local Sales and Use Taxes School District Income Taxes Penalty and partial interest forgiveness

Real Property Tax Current Agricultural Use Valuation (CAUV) Formula Changes Prescribes additional factors that must be considered in formula Ceiling on CAUV land enrolled in conservation programs Phase in of changes over two update/revaluation cycles Shift from agricultural land to residential Property tax exemption for nonprofit retail stores

Other Tax Changes Board of Tax Appeals direct appeals Transfer of local taxing authority funds Tax limit on premium cigars - $0.50/ cigar Chlor-alkali manufacturing kilowatt hour tax exemption Apply Historic Rehabilitation Tax Credit to Commercial Activity Tax

Tax Simplification 25 Tax Simplification Items Examples: Require tax compliance with all excise taxes before transfer/renewal of liquor permit Require vendors in the Habitual Offenders Program (HOP) to remain current in both sales tax and employer withholding

Governors Vetoes Prescription eyewear sales & use tax exemption Electronic services sales tax exemption Motor vehicle dealer sales tax remittance Property tax valuation of oil and gas reserves Rural and high-growth industry jobs tax credit

Helpful Budget Related Documents Ohio Legislative Service Commission: http://www.lsc.ohio.gov/ Comparison Documents Analyses Appropriations by line item

Contact Information Tim Lynch Timothy.Lynch@tax.state.oh.us (614) 466-5461 Adam Schwiebert Adam.Schwiebert@tax.state.oh.us (614) 466-3558