News and Analysis
Following the enactment of Ohio’s new state budget last month, the OMA published summaries of key tax-related provisions impacting manufacturers. Now, OMA Connections Partner and accounting firm Clark Schaefer Hackett has compiled a comprehensive but easy-to-digest summary of the other notable tax provisions in the budget — including an opportunity zone credit and the 4% individual income tax rate reduction. See the tax summary here. 7/31/2019
With the new state budget in place, the Ohio Legislative Service Commission has updated its infographics on budget-related topics. One particular graphic provides an overview of the General Revenue Fund (GRF), illustrating the state’s funding sources and the primary recipients of state tax dollars.
In FY 2019, Ohio’s Medicaid program consumed 45% of GRF dollars (more than $15 billion), making the health care program for low-income residents the state’s largest spending item. The next largest recipient was K-12 schools, which received about 24% of GRF dollars (more than $8.1 billion). 7/29/2019
The Ohio House and Senate this week settled their differences on tax issues in the two-year operating budget, House Bill 166. Included in the final language were two priorities of the OMA Tax Committee, as well as a provision that was a priority for Ohio’s general business community. Thank you to the members who worked on these efforts.
Key tax provisions affecting manufacturers include:
- EXEMPTION FOR FOOD MANUFACTURERS: Expands the sales-and-use tax exemption for cleaning equipment and supplies used to clean equipment that produces or processes food. The exemption, which had applied only to dairy food processors, will now be afforded to the makers of any food for human consumption.
- CREDITS FOR CAPITAL INVESTMENT: Expands eligibility for the state’s Job Retention Tax Credit. Aimed at manufacturers, the provision expands eligibility based on new capital investment, as opposed to payroll or employee count.
- BUSINESS INCOME TAX DEDUCTION: Retains the business income tax deduction at the current level of $250,000 for pass-through entities, as well as the 3% special flat tax rate for income above that threshold. Provides an across-the-board state income tax cut of 4%. The OMA worked with business allies to save the existing deduction, which at times seemed doomed during the process.
The budget does eliminate lawyers and lobbyists from taking advantage of the income tax deduction — a provision that could have unintended consequences for manufacturers, especially those who employ in-house counsel. The OMA will continue to study the issue to determine the impacts on manufacturers. 7/17/2019
Up to this point, U.S. Generally Accepted Accounting Principles (GAAP) new lease accounting rules for non-public filers were to be applied for annual periods, beginning after Dec. 15, 2019. But OMA Connections Partner Clark Schaefer Hackett reports that the Financial Accounting Standards Board (FASB) voted this week to extend the non-public company implementation date for the new lease accounting rules for one additional year. Read more about this from CSH here. 7/18/2019
OMA Connections Partner Clark Schaefer Hackett, a CPA firm with locations across Ohio, recently published insight for manufacturers being negatively affected by tariffs. According to the firm, some companies are considering Foreign Trade Zones (FTZs) to provide some relief. An FTZ is a designated, restricted-access site in the U.S. that is legally considered outside of customs territory for the purpose of duties and taxes, so goods can be imported duty-free and without formal customs entry.
While Chinese imports do not qualify for exemption under FTZ rules, companies importing from countries other than China may be able to benefit. Companies can establish a designated FTZ within their warehouse or facility, and products imported into the zone can then be mixed with U.S. sourced goods. 6/30/2019
OMA Connections Partner GBQ has published a list of key tax-related deadlines for businesses during the third quarter of 2019. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. 7/1/2019
In a post at JobsOhio.com, Matt Waldo — a research and analysis expert at the nonprofit development agency — defends Ohio’s Commercial Activity Tax (CAT). His comments come as the CAT has been criticized by the Washington, D.C.-based Tax Foundation. Waldo points out that analysis from other tax-focused organizations, as well as the results of recent business activity, indicate Ohio is one of the best states in the nation in which to do business. “Ohio’s tax policy is about results, not philosophies,” Waldo writes.
Ohio’s broad, 0.26% flat CAT on business gross receipts above $1 million was created by a 2005 law with strong support from the OMA. The same law phased out the tangible personal property tax — which taxed machinery, equipment and inventory — as well as the corporate franchise tax. It also lowered the state’s personal income tax. Prior to the enactment of this tax reform, Ohio was at a major disadvantage in attracting new manufacturing due to the machinery and inventory tax. 6/26/2019
Last November, amid the aftermath of federal tax reform, the U.S. Treasury and IRS issued new rules addressing uniform capitalization (UNICAP). This provided companies an updated method for capitalizing inventory costs — and another tool that companies can consider to ensure simplicity, compliance, and tax efficiency. OMA Connections Partner RSM says manufacturers must evaluate the impact of these new rules, and has published a short paper to explore the common myths around UNICAP. 6/27/2019
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