Tax and Finance Management

More Good News for the R&D Tax Credit

OMA Connections Partner, Tax Credits Group, posted that: “The recent wave of favorable developments for the R&D tax credit continued earlier this month as a new bill, H.R. 5187, was introduced and referred to the Committee on Ways and Means to increase the Alternative Simplified Credit (ASC) rate from 14% to 20%.

“This bill follows on the heels of the PATH Act of 2015 which granted the R&D tax credit permanent status, after thirty-plus years as a temporary incentive, and introduced several other changes allowing small to mid-size businesses to utilize the credit against Alternative Minimum Tax (AMT) or payroll taxes.”

Read more from Tax Credits Group about the ASC method.

Legislature Expands CAT Credit

Among a flurry of legislative activity last week before summer recess, the General Assembly okayed an amendment to House Bill 390 which expanded Ohio’s current motion picture tax credit.  The action, originally included in House Bill 475, would have increased the total amount of credits that may be awarded from $20 million per fiscal year to $75 million per fiscal year.  The vast majority of the claimed credits are taken against the commercial activity tax (CAT).

The legislature scaled back the proposal, opposed by the OMA, by almost half by reducing the amount of allowable credits to $40 million per fiscal year and disallowing any carryover of credits if less than $40 million is awarded in any year.

OMA opposes carve outs and credits to the CAT as they threaten its broad-base and low rate.

House Hears Testimony on (Another) CAT Carve Out

This week the House Ways and Means Committee heard proponent testimony on House Bill 491.  The bill establishes a five-year pilot program whereby taxpayers with Ohio facilities in an active foreign trade zone (FTZ) may claim a nonrefundable commercial activity tax (CAT) credit equal to the amount invested by the taxpayer in job creation and a number of other specified activities.  Two consultants providing proponent testimony for the bill were questioned heavily by skeptical lawmakers.

The Legislative Service Commission fiscal analysis which is used to determine the cost impact of such legislation wrote, “Though the revenue reduction is undetermined, it could be sizable depending on the level of qualifying expenditures incurred by firms in the FTZs and their current CAT payments, none of which can be ascertained by LSC.”

Legislators questioned whether it was a good idea to pass legislation when the cost impact is not able to be estimated.

Can Tool and Die Makers Qualify for the R&D Tax Credit?

OMA Connections Partner, Tax Credits Group, says it is often asked if tool and die shops can qualify for the R&D tax credit.

The short answer—absolutely.

The longer answer to whether your work is eligible for the R&D tax credit requires a deep dive into IRC § 41, which outlines a “4-Part Test” which all jobs or projects must meet to qualify for the credit.

Here’s a look at each of these four parts as they relate to the tool and die Industry.

OMA Warns Against CAT Credit Expansions

This week the House Finance Committee had its third hearing on House Bill 475.  The bill expands Ohio’s current motion picture tax credit by increasing the total amount of credits that may be awarded from $20 million per fiscal year to $75 million per fiscal year.  Currently the vast majority of the claimed credits are taken against the commercial activity tax (CAT).

The OMA sent a letter to House Finance Committee Chairman Ryan Smith (R-Bidwell) that said: “Manufacturers are concerned that any new carve-outs, exemptions, or credits could provide strain on the CAT forcing an increase in its rate.”

Supreme Court Takes Up CAT Case in which OMA Filed Amicus

This week the Ohio Supreme Court heard the oral argument for three combined commercial activity tax (CAT) cases (Crutchfield, Inc., Mason Companies, Inc., and Newegg, Inc.).  Last year the OMA, among others, filed amicus briefs at the high court in support of the Department of Taxation relative to these cases.

The three companies have challenged the state’s authority to collect CAT because they do not have a physical presence in Ohio; the three companies in question do sell their products in Ohio.

The OMA et al. amicus brief argued that companies with no physical presence in the state that enjoy the benefits of doing business in Ohio (through various physical connections, such as computers and intermediaries) should pay the tax, as do their competitors that physically operate in Ohio.

You can watch the oral argument here.

Bill Would Simplify Pass Through Filings

A bill affecting all “pass through entities,” Senate Bill 288, sponsored by Senator John Eklund (R-Munson Township), received proponent testimony this week.

OMA tax counsel Mark Engel OMA writes in an analysis prepared for OMA members: “Senate Bill 288 proposes to require all pass through entities to file either a composite return or an informational return, and to make tax payments with respect to certain owners included in the composite return. The bill also changes the rate at which tax is computed.”  The bill, he says, “attempts to simplify the filing process and reduce the cash implications to the individual owners.”

The Ohio Society of CPAs provided testimony in support of the changes.

OMA Tax Committee Next Week!

Our first Tax Committee meeting of the year will be on Wednesday, April 20 from 10:00 a.m. until 1:00 p.m. at the OMA offices (with a nice lunch provided by OMA).

Christina Crooks from the National Association of Manufacturers will be providing an update on last year’s federal tax extender bill.  We will also be covering all of the state tax updates since last fall.

Please register here for in-person or call-in attendance. (Or email Denise Locke or call us at (800) 662-4463.)  We are excited to see you next week!

New CAT Credit Bill Introduced

Last month, Rep. Marlene Anielski (R-Walton Hills) introduced House Bill 491 to establish a five-year pilot program whereby taxpayers with Ohio facilities in an active foreign trade zone may claim a nonrefundable commercial activity tax (CAT) credit equal to the amount invested by the taxpayer in job creation and a number of other specified activities.

OMA tax counsel Mark Engel of Bricker & Eckler wrote this summary of the bill and concluded: “All in all, this seems to be a very generous credit.”

What is TaxBrain?

It is an interface for open source economic modeling of tax policy analysis.  It has been developed by the Open Source Policy Center of the American Enterprise Institute.

You can use TaxBrain to model any number of tax policy parameters and their budgetary and economic effects.

The aim of the Open Source Policy Center is to break open the black box of policy modeling that takes place in our nation’s capital, where data and analytics are often obscure and hidden.

The center’s aim is “making policy analysis more transparent, accessible, and innovative by harnessing open source methods to build cutting edge economic models and a webapp for accessing those models.”