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Ohio House passes measure limiting notices & late filing penalties

Written on May 26, 2023

A number of OSCPA legislative priorities continue to move through the Ohio legislature, including House Bill 105—a measure that would limit notices and late filing penalties under R.C. 718.27. The Ohio House unanimously passed the bill by a vote of 88-0. OSCPA previously offered proponent testimony on the bill before the Ohio House Ways and Means committee.

Sponsored by State Rep. Jim Thomas (R-Jackson Twp.), H.B. 105 first would limit the circumstances under which municipal income tax inquiries or notices may be sent to a taxpayer who has received a filing extension by prohibiting tax administrators from sending them prior to the taxpayer filing the return or prior to the extended due date, whichever comes first. Further, if this prohibition is violated, tax administrators would be required to reimburse the taxpayer for any costs incurred (up to $150) to respond to that inquiry.

Second, H.B. 105 would limit late fees that may be imposed on a taxpayer for failing to timely file municipal income tax returns by (1) limiting the late filing penalty to $25, rather than the $150 cap in current law; and (2) requiring any late filing penalty aassessed on a taxpayer's first late filing to be refunded or abated once the taxpayer files the overdue return.

The Ohio House already amended two OSCPA tax policy priorities, H.B. 105 (TAXCD61) and H.B. 116 (see below), into House Bill 33 (Ohio's biennial budget legislation for fiscal years 2024-2025). References to TAXCD## are to the H.B. 33 comparison document. H.B. 33 also extends the due date for filing municipal net profits tax returns from Oct. 15 to Nov. 15 (TAXCD62).

Deduction of Bonus Depreciation and Expensing Allowances (TAXCD72). This issue is also pending as House Bill 116, which allows taxpayers to deduct in a single year the full bonus depreciation and enhanced expensing allowances the taxpayer deducts for federal income tax purposes. The bill creates an election allowing  taxpayers to eliminate the addback and phase out subtraction. This "re-coupling"  to federal income tax law allows Ohio businesses to retain funds sooner—creating essential cash flow now when they need it most. Further, the State of Ohio will eventually be made whole revenue-wise— this is a timing difference, the short-term decrease in state tax revenues would be offset in the long-term by taxes recouped later, resulting in higher state tax revenues in future years.

The remaining two priorities are currently amendment drafts and OSCPA is advocating for the Ohio Senate to include them in H.B. 33.

Municipal Net Profits Tax Safe Harbor. This issue is also pending as House Bill 121, which allows businesses with remote/hybrid employees or owners to elect to use a modified apportionment formula. It would provide the following: when an employee or owner works at a remote work location, the business may elect to apportion any property, payroll, or sales (gross receipts) attributable to that employee or owner to a designated location owned or controlled either by the business or one of its customers. This relieves many businesses of substantial compliance costs by situsing the municipal net profits tax to the remote/hybrid worker's reporting location at the employer's place of business. This only applies to the net profits tax and does not impact the withholding tax.

Resident tax credit for SALT cap deduction from other states. This amendment would permit Ohioans who are subject to double taxation to get back to a status quo position. Senate Bill 246 (134th GA) authorized pass-through entity (PTE) owners to "elect" to file a new form IT 4738 and be subject to a new entity-level tax in response to the federal $10,000 SALT deduction cap limit placed on individuals, but it did not allow Ohio residents to tax a credit for similar PTE taxes paid to another state. SC0626-2 authorizes an Ohioan to use our resident credit (in existence since at least 1991) for PTE taxes paid to other states while requiring an add-back of taxes deducted from that individuals's federal adjusted gross income. Ohio authorizes the resident credit for composite filings filed on behalf of residents in other states. Ohio is one of the only states that authorizes a PTE tax (see the map of states), but does not allow a credit for taxes paid to another state.

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