Ohio Tax. What s on the Horizon Amnesty, Net Profit Tax and Other Ohio Tax Department Initiatives. Tuesday, January 23, :45 p.m. to 1:20 p.m.

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1 27th Annual Tuesday & Wednesday, January 23 24, 2018 Hya Regency Columbus, Columbus, Ohio Ohio Tax What s on the Horizon Amnesty, Net Profit Tax and Other Ohio Tax Department Initiatives Joseph W. Testa Ohio Tax Commissioner, Ohio Department of Taxation Columbus Tuesday, January 23, :45 p.m. to 1:20 p.m.

2 Municipal Net Profit & Other Tax Law Changes House Bill 49: Biennial Budget Presented by: Joe Testa Tax Commissioner Ohio Tax Conference 1

3 Personal Income Tax Eliminates the two lowest income tax brackets; now seven brackets. Incomes below $10,650 are no longer subject to tax. This threshold will be annually adjusted for inflation. College Savings Plan and STABLE Account deductions doubled from $2,000 to $4,000 in 2018 (filed 2019). 2

4 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. Utilizes in-state computer software to make Ohio sales or a third party to enhance delivery of seller s website to Ohio consumers. Court challenge pending; American Catalog Mailers Association questioning constitutionality. Adjust local sales tax rates by increments of 0.1% (not 0.25%) effective July 1, Sales tax holiday: Aug. 3 5, Clothing/school supplies. 3

5 Tax Amnesty Program Runs January 1 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 Tax Impose no penalty and forgive 50% interest. Marketing and advertising campaign began late November; radio & TV ads runs throughout; heavy emphasis last 2 weeks.

6 You Can Apply for Tax Amnesty if.. Owe unreported or underreported tax due prior to May 1, 2017 (no contact from ODT). Download and complete application (paper only); include all appropriate tax returns. - New business must include a completed registration form. Pay in full / principle & interest amount due. For Information: ohiotaxamnesty.gov or

7 @ ohiotaxamnesty.gov Tax Professional Resource Kit outreach and informational materials re: Tax Amnesty Fact Sheet -- summary of amnesty benefits/features. Talking Points use on your website, in s, hosting meetings. Newsletter content / Written outreach. Social Media posts share tax amnesty messages with your followers on social media.

8 Other Tax Changes Board of Tax Appeals decisions No direct appeals to Ohio Supreme Court local Court of Appeals. Transfer of local taxing authority funds 7

9 Tax Simplification 25 Tax Simplification Items submitted 25 accepted, including: 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. No ODT fee (2.5%) for IT1040 donations (military, sick children, wildlife, etc.). No ODT fee for Exempt Facility Applications; entire fee (O.5% of total project cost) to OH EPA. 8

10 Professional Employer Organizations (PEO): Wages & the Business Income Deduction Sen. Bill 8: wages and guaranteed payments paid by a PEO to an owner of a pass-through entity may be considered business income. Subject to the 20% direct/indirect ownership (R.C (a)(7) ) Professional Employer Organizations defined in RC Retroactive to Tax Year Taxpayers must file amended return, petition for reassessment or application for refund. State Revenue impact: $5 - $10M (2018, includes retroactive); $1 - $2M in subsequent years. 9

11 Prescription Eyewear: Sales Tax Free Sen. Bill 8: Effective July 1, 2019, corrective lenses eyeglasses, contact lens will be exempt from Ohio sales tax. Revenue impact: Nearly $60 million annually, state & local taxes (CY 2021). State (all funds): $48.8M Local: $11.0M 10

12 Municipal Net Profit Tax Reform Centralize and Standardize 11

13 Municipal Net Profit Tax Reform / Background 2016 Listening tour with Ohio business associations and their members. --Ohio State Fair: input from fairgoers Q: What is the biggest and most burdensome tax impediment you face? A: Consensus: Municipal income tax on business net profits. Compliance can be more costly than the amount of tax paid. 12

14 Municipal Net Profit Tax Reform / Background More than 600 cities/villages levy municipal income tax. Collected against: --Individual income --Employer withholding --Business net profit (approx. 14% of total collections) 13

15 Municipal Net Profit Tax Reform / Background Total collections: $4.99 billion (CY 15). Administered by individual municipalities and 3 rd party administrators. Business taxpayers required to file & pay in every municipality where income is earned. Worst local tax system in the country (Tax Foundation). 14

16 Municipal Net Profit Tax Reform / The Plan Administer business net profit tax at state level. ODT already handles some local taxes (sales, SDIT, muni. Electric light, etc.). Could save businesses $800M if all businesses file centrally. NOTE: Sole proprietors and single member LLCs will continue to file with municipalities. 15

17 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 16

18 Municipal Net Profit Tax Reform / The Plan Opt-in. Business taxpayers choose: file and have NP tax administered by multiple individual municipalities or file a single return with ODT. Electronic filing through OBG. No federal returns needed. Data sharing: ODT municipalities. 17

19 Municipal Net Profit Tax Reform / The Plan Revenue distributions monthly, with interest Administration fee = 0.5% Conduct reviews/audits at request of municipality (if supported by evidence) Repeal throwback rule 18

20 Municipal Net Profit Tax Reform / The Plan: ODT Role Propose rules. - View at tax.ohio.gov One uniform tax return Prescribe forms. Issue bills, assessments, refunds. One consistent governing body Conduct audits, certify debts. Handle appeals & all other administrative matters. 19

21 Municipal Net Profit Tax Reform / The Plan: Municipality Role Retain responsibility for Emp. Withholding & Individual filings (approx. 86% of total tax revenue). Retain control over tax rate and tax credits. Retain access to taxpayer information. 20

22 Municipal Net Profit Tax: Focus on Business Sign up for new MNP Tax Alert for news & info. Adopted 3 New Rules: posted at tax.ohio.gov (1) Filing of returns and payments by electronic means. (2) Joint economic develop zones and districts (JEDZ & JEDD). Info. Release issued 11/27; can submit information now. (3) Change in taxable year and declaration of estimated taxes for short taxable years. 21

23 Municipal Net Profit Tax: Focus on Business Forms (draft) MNP Tax Registration (Registration tax.ohio.gov / after February OBG) * Schedule: (municipalities / filed in previous year) * Schedule: (members of Consolidated Group) Note: Businesses can choose to file consolidated or separate returns for different municipalities. MNP Tax Return * Schedule A: Adjustments to federal income * Schedule B: Apportionments MNP Declaration of Estimated Taxes (w/payment Sched.) 22

24 Municipal Net Profit Tax Reform / Collaboration Soliciting input to maximize utility of new system from: --Business advisory group: top priorities for taxpayer simplicity. --Municipalities working group: how best to coordinate data sharing. Businesses & Practitioners Municipalities 23

25 Municipal Net Profit Tax: Focus on Municipalities Working group of 6 municipalities and RITA. Clarifying roles & responsibilities under the law. Developed information booklet for municipalities on MNP requirements in R.C. Chapter 718 (and a separate booklet for taxpayers) 24

26 Municipal Net Profit Tax: Focus on Business Business Advisory Group working to help test and refine the system --6 Members: 3 CPA firms, 2 Contractor groups, 1 Large industry Reviewing and providing feedback on forms & processes Helping with user testing of registration and filing systems 25

27 Municipal Net Profit Tax Reform: Timeline By March 1, 2018, businesses (calendar yr. filers). By April 15, 2018, make first quarterly estimated payment. By April 15, 2019, file Tax Year 2018 tax return. Several municipalities have filed a lawsuit in Franklin Co. Common Pleas Court to challenge state s authority. 26

28 Municipal Net Profit Tax Reform: Ohio Business Gateway (OBG) Process/interface with commercial tax preparation software. Developing with IRS the use of Modernized Electronic Filing (MeF) for Muny NP Tax for Ohio. 27

29 Questions? Joe Testa Tax Commissioner 28