By Greg Saul, Esq., CAE, OSCPA director of tax policy
The Ohio Senate on Tuesday released its substitute version of House Bill 33 (Ohio’s biennial budget legislation for fiscal years 2024-2025). An omnibus amendment will be accepted next week making further changes with a floor vote expected by June 15. The comparison document of the current tax policy provisions can be found here – references to TAXCD## are to the comparison document. A comparison document of all provisions can be found here
The Senate also made two major pending changes: (1) phasing in a two-year income tax reduction taking Ohio from four brackets to just two rates of 2.75% and 3.5% (TAXCD68); and (2) phasing in, again over two years, a 25% reduction in the Commercial Activity Tax (CAT) rates and annual minimums (TAXCD81).
The first two municipal income tax issues below are both currently amended into H.B. 33, but the Senate just removed the bonus depreciation provision.
Municipal Notices and Late Filing Fees (TAXCD61 and 62). This issue is also currently pending as House Bill 105, which limits the late fees and penalties 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; (2) requiring any late filing penalty assessed on a taxpayer’s first late filing to be refunded or abated once the taxpayer files the overdue return. H.B. 33 also extends the due date for filing municipal net profits tax returns from Oct. 15 to Nov. 15.
Municipal Net Profits Tax Safe Harbor (TAXCD84). This issue is also currently 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.
Deduction of Bonus Depreciation and Expensing Allowances (TAXCD72). This issue is also currently 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 the 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.
Two other OSCPA tax policy priorities were both introduced as stand-alone bills on June 6.
Repeal Marriage Tax Penalty. House Bill 199 was sponsored by State Rep. Tom Young (R-Washington Twp.) and State Rep. Bill Dean (R-Xenia). This proposes to modify the joint filing credit for taxable years beginning in 2024 and after, such that joint filers would not pay more income tax on their state return than they would if they filed separately.
Resident tax credit for SALT cap deduction from other states. House Bill 200 was sponsored by State Rep. Jamie Callender (R-Concord) and State Rep. Tom Young (R-Washington Twp.). It would permit Ohioans who are currently 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 take a credit for similar PTE taxes paid to another state. H.B. 200 authorizes an Ohioan to utilize 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 individual’s federal adjusted gross income. Ohio continues to be 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.