Ohio House Bill 59 Enacts Significant Tax Changes Ohio House Bill 59 Enacts Significant Tax Changes

Ohio House Bill 59 Enacts Significant Tax Changes

On June 30, 2013, Ohio Governor John Kasich signed into law House Bill 59. The bill includes numerous provisions which will significantly impact taxpayers in the state of Ohio. Particularly, the bill will decrease the personal income tax rate, increase the sales and use tax rate and create a tiered minimum tax structure for the Commercial Activity Tax. This Client Alert attempts to briefly summarize the more significant tax changes contained in the bill.

Personal Income Tax

The bill enacts an overall rate reduction of 10 percent for personal income tax over the next three years. The current top marginal tax rate will be reduced from 5.925 percent to 5.333 percent gradually beginning with the 2013 tax year.

In addition to the general rate reduction, effective Jan. 1, 2013, owners of pass-through entities (including S corporations, partnerships and limited liability companies) may deduct 50 percent of the business income attributable to Ohio activities up to $250,000. The deduction will be capped at $125,000 per taxpayer, which equates to a maximum savings of $6,666. The deduction, however, may not be claimed by pass-through entities that file composite returns on behalf of nonresident owners or estates and trusts.

Sales and Use Tax

Effective Sept. 1, 2013, the state sales and use tax rate will be increased from 5.5 percent to 5.75 percent. In addition to the rate increase, beginning on Jan. 1, 2014, specified digital products, including digital books, movies and audio recordings that are transferred electronically, will be subject to sales and use tax. Beginning on Oct. 1, 2013, sales to or by a cable service provider, video service provider or radio or television broadcast station will become exempt from sales and use tax.

The bill also provides that Ohio will enact conforming legislation to allow Ohio to impose sales and use tax on remote sellers if Congress enacts the Marketplace Fairness Act of 2013.

The sales tax changes that were removed from the bill are worth noting. First, provisions to expand sales tax to many services, including legal services and accounting services were removed. Second, Gov. Kasich vetoed language expanding the examples of activities that would create substantial nexus allowing Ohio to impose sales tax on out of state businesses.

Commercial Activity Tax

The bill also enacts a tiered minimum tax structure for the Commercial Activity Tax. The current tax structure imposes a minimum tax of $150 on taxpayers with annual taxable gross receipts of less than $1,000,000. Those taxpayers with annual gross receipts in excess of $1,000,000 are assessed a minimum tax of $150 plus 0.26 percent on those receipts above $1,000,000.

Beginning on Jan. 1, 2013, the minimum tax structure will be amended for taxpayers with annual taxable gross receipts exceeding $1,000,000. The tax on gross receipts is graduated as follows:

Total Gross Receipts
Tax on Gross Receipts
0.0026 Percent of Receipts Over $1,000,000
$1,000,000 or less
Not Applicable
$1,000,001 - $2,000,000
$2,000,001 - $4,000,000
Greater than $4,000,000
Motor Fuel Excise Tax

Effective on or after July 1, 2014, the sale of motor fuel will be subject to a newly created motor fuel receipts tax (MFRT). The MFRT will be assessed at a rate of 0.65 percent on the gross receipts of the sales by a supplier. The tax is applicable to the first sale in which motor fuel is sold for delivery in the state of Ohio. The supplier will be responsible for filing returns and submitting payments quarterly under the MFRT. A supplier includes any person selling motor fuel from a bulk transfer or terminal system or an importer of motor fuel for sale in Ohio.

Property Tax
Beginning with the 2014 property tax levies, the state of Ohio will no longer subsidize non-business real property through the 2.5 percent owner-occupied residential property exemption and the 10 percent rollback for residential and agricultural property. Existing property tax levies and renewals of existing levies will remain subject to the 2.5 percent and 10 percent property tax rollbacks.
The application of the Ohio Homestead Exemption will also be curtailed beginning with the 2014 property tax levies. The new Homestead Exemption will only apply to taxpayers with total income of less than $30,000. Taxpayers that previously qualified for the Homestead Exemption will remain eligible despite exceeding the income ceiling.
For more information regarding recent tax changes in the State of Ohio, please contact Miranda Morgan, partner in the Tax Group, at (614) 462-1064 or miranda.morgan@icemiller.com or Richard W. Holz, partner in the Tax Group at (614) 462-2296 or richard.holz@icemiller.com.
This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.
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