H.B. 153, Ohio’s budget bill for the 2012-2013 fiscal biennium, contains a number of revisions to various tax provisions. The bill extends some existing tax exemptions or credits, and enacts a number of new tax breaks. At the same time, the bill contains no tax rate increases.
This bulletin will summarize the many substantive changes made by the bill. The extensive changes made to the distribution of tax revenues by the state to local governments will be covered by a separate bulletin.
Tax Credits and Exemptions
A nonrefundable jobs retention tax credit was added to R.C. 122.171. Between July 1, 2011, and December 31, 2013, the Tax Credit Authority can issue credits to businesses (i) that retain at least 500 full-time employees and an annual payroll of at least $20 million, or (ii) that maintain an annual payroll of $30 million; (iii) that invest at least $5 million at a project site in the same jurisdiction where its principal place of business is located, and (iv) that meet other existing requirements. Total credits issued between July 1, 2011 and June 30, 2013, may not exceed $25 million. In addition, beginning in 2014, an additional $25 million in annual credits may be authorized.
An exclusion from “gross receipts” was added to the commercial activity tax (R.C. 5751.01) for receipts from transactions involving uranium in a designated uranium enrichment zone in Ohio. The owner or operator of the facility must apply for a certificate in order to claim the exclusion. If the application is denied, the denial may be appealed to the board of tax appeals, in which case the applicant must maintain certain tax records until the appeal is resolved.
The corporation franchise tax credit for research expenses incurred by one or more members of an affiliated group (R.C. 5733.351) was revised to permit the inclusion of an insurance company in the group, even though insurance companies are not subject to the franchise tax. Uncodified bill section 757.93 states the change is a clarification of existing law.
A nonrefundable personal income tax credit is authorized for persons investing in a small business enterprise with an operating presence in Ohio (R.C. 122.86, R.C. 5747.81). A “small business enterprise” is one having assets of less than $50 million, or annual sales less than $10 million. Eligible investments must be made on or after July 1, 2011, must be used to acquire a direct or indirect equity interest in the enterprise, and must be held for at least 2 years if made before July 1, 2013, and 5 years if made after that date. The maximum an individual may invest in any fiscal biennium is $10 million, and the credit is 10% of the amount invested. Any unused credit may be carried forward seven taxable years.
Taxpayers may contribute a portion of their income tax refund to the Ohio Historical Society (R.C. 5747.113). The Historical Society must use the money for public functions as set forth in R.C. 149.30.
The exemption for qualified alternative energy projects in R.C. 5727.75 was extended for two years. Application for exemption must be made by December 31, 2013; construction on the facility must begin before January 1, 2014, and the facility must be in operation by January 1, 2015.
A new sales tax exemption is authorized for equipment used in the operation of a computer data center business (R.C. 122.175). The business must make a capital investment of at least $100 million in Ohio and must maintain annual payroll for employees involved in the investment project of at least $5 million. Application must be made to the tax credit authority, which may authorize a partial or full exemption for the project.
An absolute seven-year time limit for the assessment of use tax that is alleged to be due is imposed when no shorter time limit applies (R.C. 5703.58, R.C. 5739.07). Tax may not be assessed for any period prior to January 1, 2008. The provision also permits the taxpayer to file for a refund of any tax erroneously paid within six months of the issuance of an assessment. The refund may not exceed the amount of the assessment due for the same period.
The definition of “livestock” for sales tax purposes was revised to include “captive deer” that are kept for agricultural purposes and not for private hunting (R.C. 5739.01, Uncodified Section 757.60). The bill also removes horses and fish from the definition of excluded livestock for purposes of the exemption for building materials used in agriculture, and replaces the requirement that agricultural land time be used “directly” in farming with the requirement that it be used “primarily” in such activity.
A new sales tax exemption is provided for the value of gift cards and certificates redeemed for goods or services as part of the vendor’s awards, loyalty, or promotional programs (R.C. 5739.01).
The credit for the rehabilitation of an historic building, set to expire July 1, 2011, was made permanent. There is an aggregate limit of $25 million for such credits during each fiscal biennium. Foreign and domestic insurance companies are added to the taxpayers eligible for the credit. The department of development may charge reasonable fees to administer the law and permits the director to rescind an application where the applicant has failed to obtain the necessary funding within 18 months of being approved for the credit. Finally, recipients are required to repay amounts received if the project is not completed.
General tax exemptions were exempted for certain public-private partnership arrangements pending in other bills. Exemptions from the personal income, sales and use, and commercial activity taxes are provided for persons entering income contracts with the state to provide highway (turnpike) services, and the transfer of liquor revenues to JobsOhio. Similar exemptions for private companies operating prisons for the state were removed from the bill.
Economic Development Matters
The bill also extends veto rights to joint vocational school districts with respect to foregone tax revenue as a result of certain tax increment financing provisions (R.C. 5709.40; 5709.73; 5709.78). Currently, only full school districts have such rights, although joint vocational school districts do receive notice of proposed TIF actions.
The enterprise zone program, which was set to expire on October 15, 2011, is extended another year, to October 15, 2012 (R.C. 5709.62, 5709.63, 5709.632).
Administrative and Procedural Matters
The bill creates the Joint Tax Expenditure Review Committee to review each tax expenditure so that each expenditure is reviewed at least once every 8 years, and to make recommendations whether the expenditure should be terminated, continued, or modified (R.C. 101.36). The provision also requires any tax expenditure bill to include a statement explaining the objectives of the expenditure or its modification and the sponsor’s intent in proposing the provision. Finally, the Committee is required to prepare an annual report of its activities and provide it to specified officials by December 31 of the year.
R.C. 5703.059 authorizes the Tax Commissioner to adopt rules requiring the electronic filing or payment of income tax withholding, motor fuel tax, cigarette and tobacco product excise tax, severance tax, and use tax. Taxpayers required to make such filings or payments may apply to be excused from the requirements.
The Tax Commissioner is authorized to issue notices and orders using delivery means other than certified mail or personal service if the alternative means records when the notice or order is placed with the service and when it is accepted by a recipient (R.C. 5703.059).
Uncodified section 757.30 required the Tax Commissioner to review the operations of the Board of Tax appeals and to submit a written report with recommendations for improvements before November 15, 2011.
As noted previously, the bill also makes several administrative changes internal to the Department of Taxation, and revises the manner and amount of various tax transfer payments to local jurisdictions.
The estate tax is repealed for estates of individuals dying on or after January 1, 2013 (R.C. 5731.02).
A general tax amnesty program is authorized for most state taxes, except the use tax which is subject to a separate provision (uncodified bill sections 757.40, 403.10, 403.20, 757.41 and 757.42). The amnesty period runs from May 1 to June 15, 2012. The Tax Commissioner may contract with a third party to administer the program. With respect to use tax, the amnesty period runs from October 1, 2011, through May 1, 2013, for taxes owed on or after January 1, 2009. The Tax Commissioner may not waive penalty and interest if the taxpayer registered for payment of use tax on or before June 1, 2011 (Note: Such individuals may have received similar benefits under the department’s Use Tax Education Program). The bill also allows use tax payment plans for up to seven years.