Recently passed Ohio budget bill provides additional tax relief and adopts Wayfair economic sales tax nexus
On July 18, 2019, the Ohio 2020-21 budget bill was signed into law, enacting numerous tax law changes from individual income tax rate cuts and preservation of the $250,000 business income deduction to the adoption of the Wayfair economic sales tax nexus provisions. The following sections summarize those major tax changes and how they affect you:
Ohio Individual Tax Changes
Ohio eliminated the two lowest individual tax brackets, effective January 1, 2019. This results in individuals with taxable income below $21,750 to be entirely exempt from Ohio individual income tax beginning this year. The remaining income tax brackets have also been slightly reduced (four percent of the prior tax rates), which results in the brackets ranging from 2.85 percent to 4.797 percent.
Other individual income tax changes include:
- Ohio taxpayers have 90 days (previously 60) to file an amended return for any IRS audit adjustments with a final determination date of October 1 ,2019, or after
- A new 10 percent credit was established for investment in an Economic Opportunity Zone Investment Fund located within the state
- A tax exemption from Ohio municipal income tax purposes for retirement benefit plans has been expanded to include supplemental executive retirement programs (effective for tax years beginning on or after January 1, 2020)
- The tax credit for Ohio political campaigns was repealed, effective January 1, 2019
Ohio Sales Tax Changes
Effective August 1, 2019, Ohio adopted economic nexus requirements similar to those addressed in last year’s U.S. Supreme Court decision in South Dakota v. Wayfair Inc. These newly adopted provisions require out-of-state companies with $100,000 in gross sales or 200 transactions within the state of Ohio to register, collect and file Ohio sales tax. As part of passing this new economic sales tax law, the previous “click-through nexus” provision was eliminated.
The new economic nexus provisions also apply to marketplace facilitators, making them responsible for the collection of Ohio sales taxes due from sales of other parties’ goods that are sold over their marketplace.
The budget bill also expands the exemption for equipment and supplies used to clean dairy production equipment, effective October 1, 2019, to equipment or supplies used to clean any type of food production equipment as long as the food is produced for human consumption. Lastly, the exemption for sales of items to professional racing teams was repealed, effective October 1, 2019.
Business Income Deduction Impact
The Ohio business deduction, which exempts the first $250,000 of business income from Ohio tax and applies a three percent tax rate above $250,000, remains largely unchanged. Unfortunately for attorneys and lobbyists, the budget explicitly excludes these occupations from this tax benefit; though that exclusion is expected to be subject to legal challenges.
Pass Through Entity Registration
On August 5, 2019, Ohio announced a registration procedure for new pass through entity (PTE) filers in Ohio. If a PTE has yet to file an Ohio return, the state is requiring the PTE to file a registration form. This registration will allow Ohio to create a taxpayer account, so future payments and filings can be easily tracked. PTEs that have previously filed a return with Ohio do not need to complete this registration. Further details and copies of the registration can be found at:
https://www.tax.ohio.gov/portals/0/forms/pass-through_entities/generic/PTE_REG.pdf
These new tax provisions in the recently passed Ohio budget are expected to result in significant tax changes for many taxpayers; however, everyone’s situation is different. For more information on how the Ohio budget bill and economic nexus requirements impact you, please contact us.
