News and Analysis
According to OMA Connections Partner, GPQ Partners, the current Section 179 rules can be a tax-saver for eligible small and medium-sized businesses. The American Taxpayer Relief Act of 2012 (better known as the "fiscal cliff" legislation) included several taxpayer-friendly changes to the Section 179 rules. Here's the GBQ summary.
This week the House of Representatives heard sponsor testimony on House Bill 135, which would authorize a nonrefundable tax credit against the income tax and certain business taxes, including the commercial activity tax (CAT), for the rehabilitation of a vacant industrial site.
The OMA opposes the bill.
A coalition of more than 25 business groups, including the OMA, is advocating for passage of the bill to reduce productivity-draining compliance costs.
The bill, sponsored by Representatives Cheryl Grossman (R-Grove City) and Michael Henne (R-Clayton), is bogged down by the parade of local government officials fighting to protect the status quo. Contact your legislator to urge passage of the bill.
This week the House of Representatives continued hearings on House Bill 5, the municipal income tax reform bill. Local governments spent last week testifying in opposition to the bill. The testimony apparently made an impact on Ways and Means Committee Chairman Peter Beck (R-Mason), who announced that some of the more controversial provisions will be pulled from the bill for further discussion. This is a disappointment.
The OMA submitted this letter in support of House Bill 5.
The OMA this week responded to a call for input on state tax policy from House Ways and Means Committee Chairman Ron Amstutz (R – Wooster). Amstutz is continuing to examine tax reform issues, while the Senate processes the biennial budget bill. Amstutz intends to bring tax ideas to the budget conference committee following Senate passage.
“(M)anufacturing’s highest priority is to preserve the integrity of Ohio’s 2005 tax reforms by rejecting efforts to raise the rate of, and disallowing carve-outs or exemptions to, and prohibiting credits against, the commercial activity tax (CAT). The CAT’s low rate and broad base provide Ohio with a documented competitive advantage,” the OMA wrote.
The OMA calls for the elimination of the sales tax on temporary employment services used in the manufacturing process. The OMA believes that employment services should be subject to the manufacturing use exemption, just like tangible personal property. The sales tax on temporary employment services was enacted in a money-grab amendment to the 1992 biennial budget bill.
House Finance Chairman Ron Amstutz (R-Wooster) announced that the House will work on a tax reform proposal, even after sending its budget to the Senate. The House stripped its budget bill of the governor’s tax priorities, including the severance tax increase, sales tax expansion, the 20% personal income tax cut, and tax cut for pass through entities. It did offer a 7% personal income tax cut.
The House apparently plans to introduce a new tax reform bill, hold hearings, and use the product of those hearings during the budget conference committee deliberations with the Senate.
Only the sales tax expansion and severance tax increases appear to be off the table in the House redraft at this point.
A gaggle of statehouse lobbyists are dreaming up schemes for tax reform. Manufacturers must continue to be diligent about protecting the commercial activities tax rate in this sketchy environment.
Last week the Ohio House of Representatives heard sponsor testimony on a Board of Tax Appeals reform bill that aims to reduce backlogs in the agency. House Bill 138 is sponsored by Representatives Jeff McClain (R-Upper Sandusky) and Tom Letson (D-Warren).
The new bill contains many of the provisions that were removed from the state budget bill by the House earlier this year. Notably the bill would create a new small claims division at the board. OMA submitted this letter of support.
The board testified against the bill; it is convinced sufficient progress is being made under current operations.
Reports from inside the Statehouse indicate that the Ohio Senate is seriously considering an increase to the commercial activity tax (CAT). This increase is being considered in the context of the Senate’s debate on the state operating budget, House Bill 59.
Raising the rate could have chilling effects on Ohio manufacturing productivity.
OMA board member and OMA Government Affairs Committee chairman, Jeff Fritz, of DuPont, said, “As passed in 2005 the CAT has been helpful to manufacturing in Ohio. It is broad-based, has a low rate, and its ease of compliance and administration has helped make Ohio competitive with respect to state business taxes. Any rate increase is a threat to Ohio’s economy and jobs. The General Assembly needs to hear directly from manufacturers about the consequences of a CAT rate increase to your business.”
The broad base, low rate CAT is threatened. Contact your state senator immediately to urge protection of both the low rate and the broad base of the tax.
On April 10, President Obama unveiled a $3.77 trillion spending plan which contains changes that would affect Ohio employers’ unemployment compensation taxes. According to an analysis of the measure by OMA counsel, Bricker & Eckler, although the proposal would provide some temporary relief to Ohio employers, the combination of a permanent 0.2% surcharge to take effect in 2014 and the mandatory, substantial increase in the unemployment compensation taxable wage base to take effect in 2016 would negatively impact Ohio employers for the foreseeable future.
Representatives Cheryl Grossman (R-Grove City) and Michael Henne (R-Clayton) along with Ohio business owners made the case for House Bill 5, which would reform Ohio’s municipal income tax system, this week.
The lack of uniformity in Ohio’s municipal income tax system is costly for Ohio’s businesses. For many, the cost of preparing and filing a tax return is often times more than the amount of the tax owed.
The OMA invites members to share their stories or testify at an upcoming legislative hearing; please contact Rob Brundrett, who staffs the OMA tax committee.
The House of Representatives added an omnibus amendment to its version of the state biennial budget bill and passed it on to the Senate. OMA tax counsel Mark Engel from Bricker & Eckler put together this brief memo highlighting the House tax changes in the substitute bill and omnibus amendment.
The continued assault on the commercial activity tax (CAT) took a bipartisan turn this week as Representatives Dorothy Pelanda (R-Marysville) and Jack Cera (D-Bellaire) introduced House Bill 135, which authorizes a nonrefundable credit against the income tax and certain business taxes, including the commercial activity tax, for the rehabilitation of a vacant industrial site.
With the introduction of the bill, the General Assembly continues to chip away at the integrity of the CAT in terms of broad based, low rate business taxes. The OMA will play defense on the bill once it gets referred to a House committee.
Amongst a flurry of House changes to state budget, the House Finance Committee included a provision that creates a Commercial Activity Tax (CAT) Review Committee. The purpose of the committee is to recommend changes to the CAT and make recommendations to the governor and the leaders of both houses of the General Assembly by October 31, 2013. The committee would consist of four legislators from the House and four from the Senate, including the current chairs of both chambers’ tax committees who would jointly chair the committee.
There was a lot of debate about the CAT during the House budget process. It appears the review committee is a mechanism to reconcile differing points of view on the CAT within the Republican caucus. This committee could provide an opportunity for Ohio’s manufacturers to inform the legislators about the CAT’s benefits; legislators with limited knowledge about Ohio’s pre-CAT taxation landscape would benefit from your perspectives.
While the sales and income tax changes were the big tax news this week, the House also removed Board of Tax Appeal reforms from the budget bill. Chairman Ron Amstutz (R - Wooster) announced that the provisions will be handled outside the budget process. The chairman had previously introduced House Bill 46, which contains many of the same reforms as the budget.
The House decided to further erode the commercial activity tax (CAT) base this week by inserting an amendment in the state budget bill (HB 59), that would exempt commercial grain dealers from the tax. Estimates by the Legislative Service Commission peg the loss of CAT revenue at $11 million per year. The low rate, broad base tax continues its legislative erosion. The OMA co-authored a letter requesting the House to remove the provision.
As expected, House Republicans eliminated the severance tax increase Governor Kasich had included in his biennial budget. The oil and gas industry, in its effective lobbying of House members, overcame data that shows that the tax rate the governor proposed would be the lowest among competing states, and would provide revenue to diversify the state tax structure.
The House of Representatives drastically changed the governor’s tax reform proposals this week. The House removed the Governor’s across-the-board 20% personal income tax cut and the 50% pass-through entity cut, which was to be funded by an expansion of taxable services. That sales tax expansion was eliminated.
The House inserted a 7% permanent income tax reduction for all tax brackets. House leaders indicated they would like to continue working on the bill’s tax provisions with the hopes of further cutting Ohio’s income tax.
Lawmakers this week rushed through Senate Bill 28 to make changes to Ohio’s commercial activity tax (CAT). The bill creates yet another exemption from the CAT, this time for certain drug distribution businesses.
For more than seven years, the OMA has urged policymakers to adopt a zero-tolerance response to any efforts to carve out CAT exemptions or credits. The OMA salutes Representative Mark Romanchuk (R - Mansfield) for his principled "no" vote.
The OMA Tax Reform Task Force led by Rick Jones, treasurer of the OMA board and Vice President - Finance, Worthington Steel, met again this week and sent a document to the governor and legislative leaders detailing concerns with the governor’s sales tax proposal.
Legislative leaders have urged business groups to provide specific feedback in response to the governor’s proposal. The task force did so, describing its significantly negative impact on Ohio manufacturing, specifically addressing: affiliated entities, intangible property, situs, and exemptions for resale and business inputs.
The task force will remain engaged with both the governor and the General Assembly on the issue.
According to OMA Connection Partner, Roetzel & Andress, effective March 27, 2013, Ohio became one of the most asset protection-friendly states. The Ohio Legacy Trust Act permits an individual to create and fund an asset protection trust (APT) that will protect assets from the claims of creditors. Formerly, Ohio did not protect so-called “self-settled” trusts from claims of creditors. Consequently, individuals were forced to transfer assets to states with APT legislation or move out of Ohio altogether to protect wealth.
The OMA Tax Reform Task Force, chaired by Rick Jones, Vice President - Finance, Worthington Steel, met this week to study and react to Governor Kasich’s tax reforms.
The task force will continue to meet to drive manufacturers' advocacy as the budget process moves forward.
A Quinnipiac poll released today found that Ohioans are not warmed up yet to Governor Kasich's budget proposal of lowering the personal income tax and paying for it by adding a sales tax on services not taxed today.
Overall, Ohioans approve of a Medicaid expansion, Democrats more than Republicans.
OMA Chairman Rick Schostek, Senior Vice President, Honda North America, is creating a task force to manage OMA advocacy for the governor's tax proposal. The task force will be chaired by OMA Treasurer Rick Jones, Vice President-Finance, Worthington Steel.
The task force will take OMA member input on ways to improve the governor's tax reforms. Send your recommendations to Rob Brundrett, who is staffing the task force.
Representative Ron Amstutz (R-Wooster) recently introduced House Bill 46, a bill designed to improve the speed and efficiency of the Ohio Board of Tax Appeals. The bill creates a small claims division, allows parties to file appeals via email, requires the board to establish a case management schedule for appeals, and allows the tax commissioner to expedite final determinations for property value appeals.
The OMA has long advocated for improvements at the board and finally it looks like the General Assembly might act.
OMA Connections Partner, Taft, has prepared a summary of how the proposed Ohio tax changes might affect you and your business.
Taft notes: "From the state’s standpoint, the combination of tax rate reductions and broadening of the tax base would be a net reduction in taxes paid and collected. Proposed tax increases of $5.7 billion over a three-year period (state fiscal years 2014-2016) would be more than offset by over $7 billion in tax reductions over that same period. From an individual business’ standpoint, the results could be significantly different. For example, if a service business does not currently pay state sales taxes, what amounts to a five plus percent tax on their gross receipts (or a substantial portion of them) is not likely to be offset by the income tax reductions."
This week Representatives Cheryl Grossman (R-Grove City) and Mike Henne (R-Clayton) provided sponsor testimony on House Bill 5, an updated version of the municipal tax reform bill introduced late in the last General Assembly.
The sponsors quoted Stephen Lewis of Ford Motor Company, Mark Russell of Worthington Industries, and Michelle Kuhrt of Lincoln Electric, who each urged making the municipal income taxes more consistent and uniform in testimony before the Ohio House 21st Century Manufacturing Task Force in 2012.
OMA tax counsel Mark Engel of Bricker & Ecker LLP has provided a summary of the new bill.
Manufacturers who support reforming the municipal income tax should immediately contact their state representatives and senators. Legislators are being pressured by municipalities that oppose the bill. They need to hear about the positive effect the proposal will have on your company.
Find your state legislators here.
Please copy Rob Brundrett on any correspondence. Rob manages OMA’s Tax Committee and will head up OMA tax advocacy in the General Assembly.
This week the OMA Tax Committee heard an analysis of the governor’s proposed tax reform package from three Ohio Department of Taxation officials: Deputy Commissioner, Nick Cipiti, Deputy Counsel, Charlie Rhilinger, and Assistant Administrator, Steve Russell, who attended the meeting on behalf of Commissioner Joe Testa.
The department representatives said the the budget framework is balanced but that implementation details of its provisions are still being ironed out. OMA Tax Committee chairman, Allan Thompson, Manager - Corporate Taxes, AK Steel, suggested that a working group of manufacturers be formed to advise the department about the affects of new administrative and regulatory reforms. The department officials welcomed the OMA input.
These are the meeting materials that support the February 12, 2013 OMA Tax Committee meeting.
Manufacturers who support Governor Kasich’s call for reform of the personal income tax should immediately contact their state representatives and senators. Legislators are being bombarded by special interests that oppose the reforms. They need to hear from business leaders about the positive effect the governor’s proposal will have on the Ohio economy.
Find your state legislators here.
Please copy Rob Brundrett on any correspondence. Rob manages OMA’s Tax Committee and will head up the manufacturing tax advocacy effort in the General Assembly.
On February 4, as he unveiled his biennial budget, Governor Kasich proposed a 50 percent personal income tax exclusion from the first $750,000 of income for owners of pass-through entities. The OMA called the governors’ plan “truly innovative.”
“The effect of this specific proposal would be to free up much-needed working capital for small businesses across Ohio, increasing job-creating investment in those companies. The proposed personal income tax reduction also would help entrepreneurs in early-stage businesses where the risks are high and working capital often is in short supply,” said OMA president Eric Burkland in a release to the media.
The governor’s proposal includes a 20 percent reduction in all personal income tax rates. The governor pays for the personal income tax rate reductions by broadening the sales tax base to services and increasing the state severance tax on the extraction of oil and gas using horizontal drilling. Broadening the sales tax base also allows the governor to lower the sales tax rate from 5.5 percent to 5 percent.
OMA tax counsel Mark Engle of Bricker & Eckler LLC writes in a summary of the governor’s proposal: “This proposal reflects a policy decision to shift Ohio’s revenue sources from income and investment to consumption.” This is a welcome policy decision for Ohio manufacturing.
Among the priority bills of the House of Representatives is a municipal income tax reform bill from the last General Assembly. Re-introduced by Representatives Cheryl Grossman (R-Grove City) and Michael Henne (R-Clayton), House Bill 5 seeks to make Ohio’s municipal income taxes more uniform across the more than 600 taxing municipalities.
The OMA is participating in a coalition that supports uniformity to ease the administrative burden on firms operating in multiple municipalities. The bill received heavy criticism last year from local governments and the Ohio Municipal League, which fear a loss of revenue and control.
Join the OMA Tax Committee on February 12 to learn how to help enact House Bill 5. Tax Commissioner Joe Testa will present perspectives on this bill as well as other tax policy proposals in the governor’s newly proposed budget. Register here.
It was reported this week that JobsOhio will move forward in issuing $1.5 billion in bonds to complete its leasing of Ohio’s wholesale liquor profits, which it plans to use in its economic development activity.
The private agency announced it received a favorable rating from two bond agencies.
JobsOhio continues to face a legal threat as it awaits an Ohio Supreme Court decision that will determine whether several Democratic legislators and Progress Ohio, a policy think tank, have standing to sue the organization to prevent its use of liquor profits.
OMA Connections Partner, GBQ Partners, reports that the bill that averted the “fiscal cliff” passed by the U.S. House and Senate provides greater certainty with regard to income tax rates, which “hopefully will allow business owners and individuals an opportunity to plan for the future. In many respects the deal is not a temporary fix, as many thought might happen at the last minute. Changes to tax rates on ordinary income, estate tax, dividends, capital gains, and the Alternative Minimum Tax patch, are intended to be permanent in nature.” Here's their rundown.
And another OMA Connections Partner, Plante Moran, offers this version of the tax impacts.