Governor Kasich has signed the 2014-2015 Ohio state fiscal budget into law, bringing changes to sales and use, personal, and commercial activity taxes. Below is a summary of the changes that may affect you or your business.
Sales and Use Tax
The Ohio state sales tax rate will increase from 5.5% to 5.75% on September 1, 2013. Effective January 1, 2014, specified digital products provided for permanent or less than permanent use will be taxable, regardless of whether continued payment is required.
Governor Kasich vetoed a section of the bill that would have added affiliate and click-through nexus provision.
Personal Income Tax – New Deduction Created for Self Employed
The legislation also created a new potentially valuable deduction for individuals receiving business income as a sole proprietor or as an owner of a pass-through entity such as a partnership or S-Corporation. The deduction is equal to 50% of business income included in the taxpayers’ federal AGI and not otherwise deducted in computing Ohio taxable income and to the extent apportioned to Ohio. The deduction is limited to $125,000 per taxpayer per year or $62,500 for spouses who file separately and each report business income.
The deduction may be applied starting with tax years beginning in 2013. It will not be available for estates, trusts, or pass-through entities. Starting with tax years beginning in or after 2013, investors in pass-through entities on whose behalf the entity has filed a composite return and paid tax may filed a personal income tax return and claim a refundable credit for taxes the entity paid on the investor’s behalf.
The legislation also clarifies that nonresident taxpayers and pass-through entities must petition the Tax Commissioner in writing with a timely filed return or amended return if they want to request alternative apportionment.
Commercial Activity Tax
The legislation created a new exclusion from the CAT for receipts of agricultural commodity handlers licensed by the Department of Agriculture from the sale of agriculture commodities.
Starting July 1, 2014, the CAT will be replaced by the motor fuel receipts tax (MFRT) as is relates to the sale or exchange of motor fuel. The MFRT is similar to the CAT, but is based solely on receipts from the sale or exchange of motor fuel and is imposed on motor fuel suppliers. MFRT will be measured by the gross receipts that a supplier receives from the first transaction in which motor fuel is sold for delivery to a location in Ohio. Gross receipts for MFRT purposes will include all amounts received from the transaction, without deduction for the cost of goods sold or other supplier expenses. The MFRT rate will be .65% of the supplier’s gross receipts, significantly higher than the CAT tax rate of .26%. Unlike CAT though, the MFRT is created with the idea of only taxing motor fuel one time, where CAT may apply to multiple transactions.
Governor Kasich vetoed a section of the 2014 ohio state budget that would have raised the maximum single year historic rehabilitation tax credit limit per taxpayer from $5 million to $ 10 million. The governor also vetoed proposed changes to the new markets tax credit that would have removed the current requirement that requires a taxpayer to receive a federal new markets tax credit to qualify for the state credit.