News and Analysis
CAT Attack by Online Retailer
Online retailer overstock.com recently filed suit against the state’s Commercial Activity Tax (CAT) in a Franklin County trial court. In its complaint the retailer challenged the legality of the CAT on companies without a physical presence within Ohio.
While this attack on nexus represents a new front, it has the same consequences as pending challenges brought by grocers and motor-fuel retailers: it could jeopardize the viability of the CAT by eroding the base and putting upward pressure on rates. The OMA will continue to fight to protect the tax reforms in the courts and in the legislature.
State’s Finances Sour
The state’s October financial report was released by the Office of Budget and Management (OBM) on Monday. Like most states in the region Ohio has experienced deteriorating economic activity, dragging down general revenue fund receipts by $96 million (6.0%).
State Budget Director Pari Sabety stated that “State tax revenues are now $135.8 million (2.3%) below where they were at the same point a year ago, with $110.5 of that variance attributable to October’s performance alone.” This sets the stage for a tight biennial budget process and legislative debate to begin early in 2009.
In a previous OBM monthly report, the department speculated that only “systematic policy changes” can bring spending and revenue back into alignment. The economic challenges are further exacerbated by an imminent shortfall in the unemployment compensation trust fund (assessed on employers), as well as the prospect for school-funding reform that could be considered in tandem with the budget next year.
The OMA Tax Policy Committee met this week and will help drive OMA advocacy positions during the budget process.
18 Years later, Powerful Controlling Board in Democratic Hands
When George Voinovich took office in 1991, Republicans gained control of the state Controlling Board. They’ve held it ever since, until next year.
The Controlling Board is the place that approves fund transfers and spending increases for state agencies; it also oversees agency contracting. It is a powerful body. It consists of seven members: three from the House, three from the Senate and one appointed by the Office of Budget and Management (the governor, that is).
Joe Secrest is the governor’s appointment and serves as board president. Secrest is a former government affairs manager for OMA member company Ashland. Joe is a one-time recipient of the OMA Babbington Award for outstanding volunteer service to Ohio manufacturing.
Federal Tax Incentive for Energy-Saving Upgrades Extended
The Emergency Economic Stabilization Act of 2008, signed into law by President Bush on Oct. 3 included a beneficial tax incentive extension of the Energy Policy Act of 2005. The “Commercial Building Tax Deduction” establishes a tax deduction for expenses incurred for energy efficient building expenditures made by a building owner. The deduction is up to $1.80 per square foot of the property, with allowances for partial deductions for improvements in interior lighting, HVAC, hot water systems and more.
The Emergency Economic Stabilization Act of 2008 (HR-1424) extends the benefits of the Energy Policy Act of 2005 through December 31, 2013. To find out more about making energy saving improvements in plant lighting and HVAC as well as taking advantage of the tax incentive, contact OMA’s Connection Partner, Energy Management Systems.
Issue 6 Casino Tax Carve Out?
We’ve all seen the television commercials arguing the casino if approved will not pay Ohio taxes and counterclaims that they will pay tens of millions of dollars. So what do leaders on the OMA Tax Policy Committee think? Recently committee leaders reviewed the constitutional initiative that would permit casino gambling near Wilmington. While the proposal permits the Ohio General Assembly to impose a tax up to 30% on “gross casino receipts” and seems to permit the application of the Commercial Activity Tax (CAT) to “gross casino receipts,” our manufacturing industry tax experts point out that “gross casino receipts” is defined as total receipts, less cash or the value of all property paid or transferred to patrons of the casino (i.e. room, food, drink coupons, etc.) and the amounts paid to fund periodic payments won by the patrons. Therefore the casino will have a preferred CAT status, a privilege that no other business enjoys. The OMA has a long standing position of opposing carve-outs that jeopardize the broad-base, low-rate characteristics of the CAT.
Black CAT on Halloween
The U.S. Sixth Circuit Court of Appeals issued a ruling that could have a negative implication on the pending legal challenges to Ohio’s Commercial Activity Tax (CAT). At issue is a dispute between Kentucky which instituted a gross receipts-based tax and a business (BellSouth) over whether the state can prohibit a business from recovering the cost of the tax by means of a specific line-item as “tax recovery fee” on the invoices the business sends to its customers. The Court of Appeals held that the blanket prohibition impinged upon the free speech rights of the business. The case could provide additional support to groups that allege gross receipts-based taxes are “transactional” taxes, like a sales tax. Ohio’s new general business activity tax, the CAT, was carefully structured to be a tax on the entity doing business in Ohio with tax liability based on revenue above the line not below the line like a sales tax. This and other issues will be discussed by members of the OMA Tax Policy Committee during their upcoming conference call.
The OMA maintains the CAT is not a transactional tax and for that reason the OMA filed an amicus brief in support of the state’s brief defending the tax from a challenge by the grocery store and motor fuel sales industries.
Safeguarding Your Deposits and Other Financial Assets
. . . . how safe are their cash and other financial assets held in FDIC-insured depository institutions? From OMA Connections Partner, Taft Stettinius & Hollister LLP
Safeguarding Your Deposits and Other Financial Assets – 10/21/2008 update
Substantial earnings hits to various financial institutions resulting from nonperforming subprime and other loans, the insolvencies of IndyMac Federal Bank and Lehman Brothers, system-wide banking liquidity problems, the freeze up of global credit markets and subsequent intervention by multiple governments, and the volatility of bank and other stocks have together caused individuals and businesses recently to focus on something that they typically take for granted—how safe are their cash and other financial assets held in FDIC-insured depository institutions? From OMA Connections Partner, Taft Stettinius & Hollister LLP
OMA Urges Supreme Court to Overturn Grocers’ Tax Case
Warning that Ohio’s widely acclaimed tax reform package would be undermined and Ohio’s competitiveness compromised, the OMA and other business groups urged the Ohio Supreme Court this week to hear a case that will determine whether Ohio’s grocery stores must pay their fair share of state taxes.
The amicus filing responds to a September ruling by the Tenth District Court of Appeals that determined Ohio’s Commercial Activity Tax (CAT) is unconstitutional when applied to food wholesalers and food sold in grocery stores.
In a companion filing, state officials asked the high court to overturn the appeals’ court, arguing the CAT is not an unconstitutional excise tax when applied to grocers but is a permitted franchise tax. A franchise tax is levied in exchange for the privilege of doing business in the state, while an excise tax is a tax on individual transactions, such as the sale or purchase of food to be consumed off the premises.
Crucial Year-End Deadline Approaching for Deferred Compensation Arrangements Under I.R.C. Section 409AOctober 8, 2008
Crucial Year-End Deadline Approaching for Deferred Compensation Arrangements Under I.R.C. Section 409A
Noncompliance Potentially Devastating In what some have described as the most significant federal tax legislation in over 20 years, Congress, by way of the enactment of Internal Revenue Code section 409A, has overhauled dramatically the taxation of so-called nonqualified deferred compensation arrangements. From OMA Connections Partner, Schottenstein, Zox & Dunn