Another step in the budget process was completed on June 12 with the introduction of Sub. HB 49. There will be a week of testimony on this version with passage by the full Senate expected on June 21.
Fiscal conditions have continued to trend downward and have been addressed further in the substitute bill. Though the House made across-the-board 1.5 percent budget cuts, state revenue collections continue to lag projections, making it clear that this wasn’t enough. The Senate further cut spending, making across-the-board 3-4 percent reductions, with even larger reductions in some state agency budgets. The result being that the Senate reduced the total proposed budget spending by $650 million compared to the House version.
Sub. HB 49 still includes the governor’s original proposal to collapse the personal income brackets from nine to seven by eliminating the bottom two individual brackets. The new lowest bracket would begin at $10,000. The low-income credit of $10,000 would be repealed as unnecessary.
The entire administration tax reform plan, which proposed increasing the following taxes: personal income, sales, severance, tobacco, vapor and alcohol remains deleted. This package was opposed by the Ohio Chamber.
Important positive Senate changes include allowing businesses the option to file a single annual municipal net profit tax return with the state of Ohio through the Ohio Business Gateway, with the Ohio Department of Taxation (ODT) administering those municipal business taxes and returns. This would renew every year until termination by the taxpayer. An administrative fee of 1 percent of collected tax would be assessed on the municipalities to cover ODT’s administrative expenses.
The removal of the “throwback” provision that was part of the governor’s original budget proposal was kept by the Senate and will move the effective date forward one year to 2018. Throwback is the name for the practice by which cities unfairly tax businesses on sales made to customers not located in that or any other Ohio city. These two changes will improve Ohio’s convoluted municipal income tax system, and lessen compliance costs to business.
A provision, supported by the Ohio Chamber, that would have required political subdivisions to pay a property owner’s attorney’s fees and court costs when the subdivision appeals a property tax assessment case and loses was removed. However, it was replaced by a proposal that prohibits political subdivisions from filing a complaint unless they first adopt a resolution describing the circumstances under which they will file such complaints. It also prohibits an attorney from appearing before a county board of revision or Board of Tax Appeals unless the attorney is not being paid on a contingency fee basis for the appeal. Finally, it prohibits a property owner from filing a complaint challenging the value of property the person does not own. These changes will minimize opportunities to abuse the system at the expense of property owners.
The proposed changes to the Current Agricultural Use Values (CAUV) real estate tax program, whereby farmland is taxed according to its value in agriculture, were kept intact by the Senate, with only a few minor changes. These changes include implementing it over three years instead of six, beginning with the reassessment/update cycle of 2017.
The Senate also retained language that specifies that sales of automatic data processing, computer services, electronic information services and electronic publishing are not taxable under the sales tax when they are being provided primarily to deliver, receive, or use another, nontaxable service. ODT had recently determined that these services were taxable and were auditing and going back years for collection.
Language that the House had added that would have blocked ODT from asserting something is taxable when it has not previously issued any formal guidance indicating its taxability was removed by the Senate, as was a provision that would have required an out-of-state seller that met certain standards to collect sales tax. As discussed in our last blog, this issue is still being fought in the courts.
Another addition to HB 49 is a tax amnesty program, to be effective from January 1, 2018 to February 15, 2018. It would apply only to taxes that were due on May 1, 2017, and does not apply to any tax which notice of assessment or for which an audit is pending. Lastly, the Senate renewed for another year the sales tax holiday that allows school supplies costing less than $20 and clothing items less than $75 to be exempt from sales tax for a brief period in early August. The first of these holidays occurred in 2015, and previous legislation had extended them through 2017.