Ohio House Bill 49 Offers Tax Amnesty, Eliminates Throwback Rule
Governor John Kasich signed Ohio House Bill 49 into law, giving clarity to Ohio’s budget expectations through 2019. The new law sets in motion a number of actions that will affect state and local tax laws for businesses and individuals across Ohio. The updates include the following:
- Requires vendors with suspended licenses to remit tax
- Extends the fourth quarter city estimates for individuals (but not businesses)
- Eliminates the municipal throwback rule
- Removes the bottom two income tax brackets
- Offers a wide-ranging tax amnesty window in exchange for future collections
Ohio vendor’s license suspensions
Beginning January 1, 2018, a suspended vendor’s license may not be reinstated until the vendor remits any outstanding employee withholding tax and any delinquent sales and use taxes. The Ohio Department of Revenue commissioner may suspend a license if the vendor fails to:
- File employee withholding returns on two consecutive occasions or three times in a 12-month period, or
- Pay employee withholding taxes on two consecutive occasions or three times in a 12-month period
Fourth quarter city tax estimates for individuals and businesses
For taxable years beginning in 2018, individuals are allowed to pay fourth quarter city tax estimates until the 15th day of the first month following the close of the tax year (e.g., January 15 for calendar taxpayers). Businesses keep the current fourth quarter estimate deadline of December 15th for calendar year taxpayers.
The “throwback rule” eliminated for Ohio municipalities
Beginning in tax year 2018, the sales factor “throwback rule” is eliminated. Under Ohio House Bill 49, sales of tangible personal property are only sourced to a municipality if the goods are either:
- Shipped from and delivered within the municipal corporation, or
- Delivered within the municipal corporation, but shipped from elsewhere, if the employees of the business regularly solicit sales within the municipal corporation
Elimination of the throwback rule means sales of property shipped outside to a municipality where the business has no employees or property will not be included in the sales apportionment factor where the business is located. This law eliminated the outdated municipal net profit throwback rule for situsing (sourcing) sales of tangible personal property for the apportionment ratio used to situs income within and without each municipality.
Ohio personal income tax changes
The budget bill eliminates the bottom two personal income tax brackets, which means income up to $10,500 will not be taxed. The other income brackets will be adjusted for inflation in the future.
Increases in the allowable deduction for contributions to a qualified college savings plan or disability expense savings account doubled. The maximum deduction increased to $4,000 per beneficiary annually; previously the deduction was capped at $2,000.
Ohio tax amnesty program
The Ohio Department of Taxation will administer a wide-ranging tax amnesty program from January 1, 2018, to February 15, 2018, for all sales/use taxes, commercial activity tax, tangible personal property taxes, county and transit authority taxes, and school district income taxes that were due and payable as of May 1, 2017.
This program allows the state tax commissioner to waive all penalties and half of any interest accrued. Ohio’s amnesty program reaches far beyond the MTC voluntary disclosure program or a traditional voluntary disclosure programs, which only provides on-line seller sales tax amnesty or removal of half interest versus full interest abatement.
How we can help
The Ohio tax amnesty laws only give taxpayers 45 days to complete the documentation. CLA’s state and local tax professionals can help prepare the amnesty paperwork and file the application with the tax authorities.