ODT Guidance on new SALT & BID laws

Gov. DeWine signed in June OSCPA-supported Senate Bill 246 and House Bill 515, also known as the SALT and BID bills respectively. Both bills became law as of their effective dates: S.B. 246 (Sept. 13) and H.B. 515 (Sept. 23).   

The Ohio Department of Taxation (ODT) has released two rounds of guidance, including 20 FAQs, on the SALT deduction cap parity regarding Ohio’s PTE tax for electing entities (Form IT 4738). Also, ODT this summer presented at a conference where they provided further details on both the SALT and BID bills.

The SALT cap parity bill levies a tax on a pass-through entity's income apportioned to Ohio and authorizes a refundable income tax credit for an owner for such tax paid. 

IRS Notice 2020-75 is what allowed states to enact legislation to clarify that taxes paid by a PTE do not count towards an owner’s $10,000 state and local tax limitation deduction for federal income tax purposes.  

The BID bill clarifies that gains from the sale of an ownership interest in a business is considered “business income” for Ohio income tax purposes, and thus eligible for the BID. The sale must satisfy either of the following: (1) the sale is treated for federal income tax purposes as the sale of assets – i.e. 338(h)(10); or, (2) the seller was involved in the day-to-day management (material participation) of the business during the taxable year in which the sale occurred or during any of the five preceding years.   

H.B. 515 is a remedial measure intended to clarify existing law. It also applies to any petition for reassessment or any appeal thereof; to any application for refund or any appeal thereof pending on or after the effective date; and to any transaction that is subject to an ODT audit on or after the effective date of Sept. 23, 2022.    The Ohio Department of Taxation may issue more guidance on both H.B. 515 and S.B. 246. To date, ODT gave a conference presentation on these two topics, among other items, with valuable insight into the process. You can download a copy of the presentation slides here. 

Once OSCPA receives additional guidance on either of these bills, we will share what we know via Legislative Update. The S.B. 246 and SALT deduction cap parity current guidance can be downloaded here.