News and Analysis
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
This week, the OMA led a coalition of business organizations in defense of the Ohio Commercial Activity Tax (CAT). Since 2005, the OMA and like-minded associations have continually reminded lawmakers the importance of keeping the CAT broad-based and set at a low rate.
On Tuesday, May 21, the Senate Ways and Means Committee reported out Senate Bill 95, which authorizes tax incentives for the operators and certain suppliers of a “mega-project” — such as a development project with at least $1 billion in investment or that creates at least $75 million in Ohio payroll. One of the tax incentives is a CAT exclusion for gross receipts of a mega-project supplier from sales to a mega-project operator.
The OMA and others provided testimony to point out that “the CAT was created to fix an archaic business taxing system in Ohio that was riddled with exemptions and credits. The old system failed to promote sound tax policy by eroding the tax base and piling disproportionate payments on certain industries.”
The OMA remains the state’s only major business organization to fight back and not support an expansion of CAT credits and carveouts. 5/23/2019
The OMA this week submitted testimony on House Bill 166 — the bill to fund the state’s two-year operating budget — as the Senate Finance Committee received testimony on the legislation. The OMA made its suggestions based on changes made to the budget by the House of Representatives.
The OMA requested the following:
- Remove the detrimental House changes to the business income tax deduction.
- Support exempting from sale tax any supplies or janitorial services purchased to clean machinery in a manufacturing facility.
- Support exempting from sales tax any equipment and supplies used to clean equipment that produces or processes food for human consumption.
- Support the eligibility expansion for the Job Retention Tax Credit.
The Senate is expected to make a variety of changes to the bill in the first week of June. The budget must be signed by June 30 for the appropriations to take effect on July 1, the first day of the new state fiscal year. 5/23/2019
OMA Connections Partner Calfee this week provided an update on the federal Opportunity Zone Program, created as part of the 2017 Tax Cuts and Jobs Act. The program is back in the headlines because the long-awaited second round of proposed regulations was recently published by the Treasury Department, Calfee reports. This guidance helps clarify how investments in these zones would work.
The goal of Opportunity Zones is to provide tax incentives for investors who make long term capital investment in designated low-income areas. Investors must invest through a qualified Opportunity Fund. Ohio has opportunity zones in 73 of Ohio’s 88 counties. 5/23/2019
This week, Ohio House Speaker Larry Householder (R-Glenford) announced a plan to include a personal income tax cut in Ohio’s two-year budget. The tax cut would be funded by reducing or eliminating selected incentives.
Specifically, the House’s income tax cut would be paid for by reducing the amount that pass-through businesses — such as partnerships, sole proprietorships or LLCs — could earn before paying the state income tax. The exemption threshold, passed in 2015, would go from the current $250,000 to $100,000. The House may also consider eliminating a 40% break for income over $250,000, the speaker noted.
Other provisions that could be used to pay for the income tax cut include Ohio’s motion picture tax credit and an exception for fractional ownership of airplanes. 5/2/2019
Thursday afternoon, the House Finance Committee unveiled the updated House version of the state budget bill (HB 166). Included were two amendments that the OMA urged lawmakers to include.
The first accepted amendment would expand the existing sales tax exemption for equipment and supplies used to clean equipment used in the production or processing of dairy products. This would include equipment used to produce or process any sort of food for human consumption.
The other accepted amendment would exempt from sales-and-use tax any supplies or janitorial services purchased to clean machinery in a manufacturing facility.
Both amendments have been OMA Tax Committee priorities over the years. It is imperative that manufacturers contact their state representative to keep both provisions in the budget. 5/2/2019
This week, the OMA Tax Committee held its first meeting of 2019. Guest speakers were Ohio Tax Commissioner Jeff McClain and Rep. Gary Scherer (R-Circleville), vice chair of the House Finance Committee and a member of the House Ways & Means Committee.
Appointed by Gov. Mike DeWine last January to head the Department of Taxation, Commissioner McClain briefed committee members on his agency’s priorities, including implementation of the lead-abatement credit, opportunity zones, and adjustments to the state’s employment services tax.
Rep. Scherer discussed key aspects of Ohio’s new transportation funding plan, signed last week by Gov. DeWine to provide an additional $865 million a year for roads funding. Rep. Scherer also spoke about efforts to craft legislation that would establish guidelines for internet retail sales tax collections. Last summer’s U.S. Supreme Court ruling (South Dakota v. Wayfair) allows states to collect sales taxes from out-of-state online retailers that have sales of more than $100,000, or more than 200 annual transactions.
Follow tax issues affecting Ohio manufacturers here. 4/10/2019
Today is the deadline for Ohio House members to submit their amendment priorities to leadership for the state budget. One of the amendments the OMA was able to secure for submission is the elimination of sales tax on temporary manufacturing employees.
This has been a long-time pain for Ohio’s manufacturers. Effective January 1993, in order to fill a hole in the state budget, employment services were added as a taxable service by a legislative conference committee facing a midnight deadline to reach agreement on a new budget. Since then Ohio has been one of the minority of states to burden employers with this additional tax.
OMA continues to seek a solution for manufacturers through the manufacturing sales and use tax exemption, which should include temporary labor. To learn more about this issue and how you can be involved, contact OMA’s Rob Brundrett. 4/11/2018