The Ohio House Ways & Means Committee on Tuesday heard sponsor testimony on two bills impacting accounting professionals covering the business income deduction (BID) and municipal income tax.
H.B. 515 sponsors Rep. James Hoops, R-Napolean, and Rep. Craig Riedel, R-Defiance, gave sponsor testimony saying the bill will keep entrepreneurs in Ohio by clarifying the applicability of the BID to the sale of a business. OSCPA has previously supported companion legislation, S.B. 247, currently pending in the Senate Ways & Means Committee.
Hoops said the BID provides that taxpayers’ first $250,000 of business income is fully deductible, while the remaining amount is taxed at a flat rate of 3%. He said the definition of "business income" has remained unchanged since 2002, but in 2018, ODT changed its approach to what constitutes business income in certain circumstances. The change came after the Ohio Supreme Court's Corrigan v. Testa decision after ODT had applied the definition of "business income" as broadly as possible to ensure nonresidents pay Ohio personal income tax upon the sale of businesses with Ohio operations.
Hoops said the new approach disadvantages Ohio business owners because it may result in sales being excluded from the BID -- meaning that residents may be subject to a higher tax rate of almost 4% when selling a business rather than the 3% flat tax rate. Riedel said the current approach can also result in inconsistent treatment of a seller and buyer of the same business within the same transaction.
The bill clarifies that the BID applies to both: (1) a sale by a person who was actively involved in managing the business during the year of sale or previous five years; and (2) a sale that is treated as an asset sale for federal tax purposes.
Additionally, Reps. Bill Roemer, R-Richfield, and Laura Lanese, R-Grove City, gave sponsor testimony on H.B. 519 which they said puts in place protections for municipal income taxpayers against excessive late penalties and notices.
Lanese said the bill "makes two very simple changes to municipal income tax law: it bans notices from being sent after a taxpayer has received an extension (but before their new, extended deadline) and places a cap on timely filing penalties equal to 50 percent of the tax owed if that amount is less than $150. This way, penalties are proportional to the tax owed and no taxpayer can be charged more than their tax liability in fees and penalties. We believe this arrangement would be fundamentally fairer for taxpayers than the current law, and hope that the committee will view these proposed changes favorably."
Roemer said Ohio has the second highest municipal income tax rate in the nation. He said he hears a lot of complaints about municipal taxes.
Additionally, H.B. 51, which among other subjects, conforms the state tax code to recent federal changes, received a House concurrence vote (91-1; Emergency Clause 88-3) on Wednesday and will now head to Gov. DeWine for signature.