News and Analysis
The Senate retained the House language providing a sales-and-use tax credit for equipment and supplies used to clean equipment that produces or processes food for human consumption. The Senate also expanded the eligibility for manufacturers wanting to take advantage of the Job Retention Tax Credit (JRTC) by removing certain thresholds and requiring a new capital investment.
The Senate version of the budget bill also moves Ohio’s business income tax exemption back to the first $250,000 of income for pass-through entities. However, the Senate did not reinsert language to allow a 3% flat tax rate for pass-through income exceeding $250,000, as is the case under current law.
The bill now moves to a conference committee between the House and Senate to reconcile differences. 6/20/2019
The Senate Finance Committee this week accepted a substitute version of House Bill 166, the state’s two-year main operating budget. The substitute bill made a variety of tax changes to the House-passed version — including restoring the business income tax deduction. (As previously reported, the House-passed budget bill would reduce the business income tax deduction from the current $250,000 to $100,000.)
Under the current version of the Senate’s budget bill, pass-through entities — including partnerships, LLCs, and sole proprietors — would continue to be exempt for the first $250,000 of business income. However, the current 3% flat tax rate that is imposed on business income in excess of $250,000 would go away beginning next year — and every dollar beyond the first $250,000 would be taxed at a new top rate of 4.6%.
In other actions, the Senate removed the House’s provision to exempt all manufacturers from sales-and-use tax on any supplies or janitorial services purchased to clean machinery in a manufacturing facility.
The Senate did, however, preserve the House-approved sales-and-use tax exemption for equipment and supplies used to clean equipment that produces or processes food for human consumption. The Senate also expanded the eligibility for manufacturers wanting to take advantage of the Job Retention Tax Credit (JRTC) by removing certain thresholds and requiring a new capital investment.
Please contact your state senator and thank him/her for restoring the $250,000 business income tax deduction; including eligibility expansion of the JRTC; and keeping the cleaning equipment-and-supplies tax exemption for food manufacturers in the budget bill. At the same time, urge senators to include the House-passed sales tax exemption for any supplies or janitorial services to clean manufacturing machinery — and to restore the 3% flat tax rate on business income over $250,000.
The Senate will be making more changes to the budget bill early next week. The bill must be signed no later than June 30 for the appropriations to take effect on July 1, the first day of the new state fiscal year. 6/13/2019
This week, the OMA Tax Committee held its second meeting of 2019. Guest speaker was Paul Nadin, a senior manager with Connections Partner RSM and its real estate group. Nadin briefed members on the federal Opportunity Zone program, enacted as part of the 2017 tax overhaul to encourage new investment in lower-income census tracts.
To take advantage of the incentives in the Opportunity Zone program, investors must invest through a qualified Opportunity Fund. Ohio has 320 opportunity zones statewide. (So far, the incentives have been easier to apply to investments in real estate than in businesses, according to The Pew Charitable Trusts.)
Other highlights from the meeting included an update on federal and state tax-related policy issues, as well as a report from OMA Tax Counsel Justin Cook of Bricker & Eckler LLP.
Chaired by Shay Music of The J.M. Smucker Co., the OMA Tax Committee will meet again November 6. 6/11/2019
Paul Nadin with RSM briefs the OMA’s Tax Committee on the financial benefits of investing in designated Opportunity Zones.
This week, Senate Finance Committee Chairman Matt Dolan (R-Chagrin Falls) provided sponsor testimony on Senate Bill 153 — an OMA-backed bill to expand eligibility for Ohio’s Job Retention Tax Credit (JRTC).
This legislation was developed with considerable input from the OMA Tax and Finance Committee with the aim of encouraging more manufacturing capital investment. The bill would expand manufacturing eligibility for the JRTC by eliminating current thresholds for payroll size and number of employees. Under SB 153, a new minimum capital investment would be established and adjusted to the lesser of $50 million or an amount equal to 5% of the tangible property at the facility site.
Members should reach out to their state senators to voice their support of the bill. 6/6/2019
The OMA Tax Committee will meet this Tuesday, June 11, at the OMA. Make sure you register today.
Participants will hear from Connections Partner RSM on the new “opportunity zones.” Also, the group will take a deep dive on the state budget and its tax implications for manufacturers. The meeting will also feature an analysis of Senate Bill 153, OMA-supported legislation to expand manufacturer eligibility under Ohio’s Job Retention Tax Credit program.
You can take action right now by contacting your state senator and conveying your thoughts about the many changes that could impact manufacturers — both good and bad. Click here to read more about these issues and to send a message to your senator. Time is of the essence as the Senate will be unveiling new tax changes to the state budget next week. 6/6/2019
The federal Tax Cuts and Jobs Act (TCJA) amended IRC Section 168(k) to extend and modify bonus depreciation for business vehicles. Although the new tax rules for business vehicles are generally favorable, they can be challenging to implement. A new article from OMA Connections Partner Clark Schaefer Hackett will help steer you in the right direction. 6/4/2019
OMA Connections Partner RSM has compiled a list of the 10 key mistakes that business owners make when contemplating whether to exit. Accord to the firm’s experts, “Exiting your business, whether through sale or succession, can be fraught with stress. However, some of that anxiety can be alleviated by addressing 10 missteps business owners often make.” See RSM’s white paper by clicking here. 6/5/2019
The Ohio Senate continues to debate the state budget bill (HB 166), which includes several tax changes — both good and bad for manufacturers. The OMA encourages you to let your state senator know that Ohio’s number one industry is watching and will hold lawmakers accountable. We’ve made it easy to contact your senator.
First, the good news on tax-related legislation.
- Language in the budget bill would exempt all manufacturers from sales and use tax on any supplies or janitorial services purchased to clean machinery in a manufacturing facility. This has long been an OMA Tax Committee priority. This provision would bring certainty to the current exemption law.
- Senate Finance Chairman Matt Dolan (R-Chagrin Falls) introduced a bill (SB 153) that would expand eligibility for the Job Retention Tax Credit. His proposal would be aimed at manufacturers, and would expand eligibility based on new capital investment — versus being tied to payroll or employee count.
- Another provision in the budget bill would create parity among all food manufacturers by allowing a sales-and-use tax exemption for equipment and supplies used to clean equipment that produces or processes food for human consumption. Currently the exemption is only for dairy food manufacturing.
Now the bad news.
- The House-passed budget bill would reduce the business income tax deduction for pass-through entities from the current $250,000 to $100,000, and remove the 3% flat tax rate for income over that threshold. The tax savings generated by the deduction have allowed Ohio manufacturers to reinvest in their operations by purchasing new equipment, expanding production lines, hiring new employees, and boosting wages.
Please contact Rob Brundrett with the OMA if you have questions or concerns about these or other tax issues. 5/30/2019
This week, the OMA sent a letter to the chairman of the Senate Finance Committee stressing the importance of two House changes to the budget bill.
The current version of House Bill 166 includes two provisions that add much needed clarity to the state’s manufacturing sales-and-use tax exemption. The bill’s current language would provide parity by exempting from sales tax the equipment and supplies used to clean equipment that produces or processes food for human consumption. Current law allows the exemption only if the food produced or processed is a dairy product.
A second provision in HB 166 provides much needed clarity for the entire manufacturing sector. The House-passed version exempts from the sales-and-use tax any supplies or janitorial services purchased to clean machinery in a manufacturing facility. Some manufacturers have been audited or faced legal action brought by the Ohio Department of Taxation over this issue as various administrations have had different interpretations of current law. Codifying this exemption into law will eliminate the costly guessing game that has taken place over the years.
By clicking here, you can take action on these two issues — in addition to advocating for the eligibility expansion of the Job Retention Tax Credit, and the restoration of the business income tax deduction. 5/23/2019
The purpose of the JRTC is to foster job retention through increased capital investment in Ohio. But over the years, too few Ohio job creators have taken advantage of the credit. The qualifying criteria — with respect to applicants’ minimum workforce size and capital investment threshold — are too high and have been a barrier for most companies.
To ensure that Ohio companies can compete globally, SB 153 is designed to increase the number of manufacturers and eligible Foreign Trade Zone companies that can apply for the JRTC, thereby creating an incentive for Ohio employers to make capital investments that preserve existing jobs.
The bill would:
- Allow companies headquartered in Foreign Trade Zones to be eligible to apply without meeting current payroll and employee count minimums.
- Eliminate the minimum payroll size and number of employees required for manufacturers to apply for the JRTC.
- Require a minimum capital investment for manufacturers of the lesser of $50 million or an amount equal to 5% of the tangible personal property at the project site.
- Require manufacturers to maintain their FTE count during the term of the credit.
While SB 153 would expand the number of companies and projects eligible to apply for a JRTC, it would not alter the existing cap on the amount of credits that could be awarded annually by the tax credit authority. In 2019, the JRTC would be capped at $130 million. Each year, the cap would increase by $13 million until 2024. For 2024 and each year thereafter, the maximum credits that could be awarded annually would be capped at $195 million. 5/23/2019