Tax Committee February 12, 2013 Table of Contents Page # Agenda 2 Guest Bios 3 OMA Public Policy Report 4 OMA Tax News From The Quarter 7 OMA Tax Legislation 10 OBM Monthly Financial Report 11 House Ways and Means Committee Roster 35 Senate Ways and Means Committee Roster 37 CAT Refund Press Release 38 CAT Refund Facts and Figures 39 House Bill 472 Analysis 41 House Bill 510 Counsel Report 47 House Bill 5 Counsel Report 53 Beaver Excavating Counsel Report 57 State Operating Budget Highlights 59 State Operating Budget Tax Report 88 Sales Tax for Local Governments 90 Tax Reform Facts 94 Ohio Department of Tax Presentation 96 2013 Tax Committee Calendar Meetings will begin at 10:00 a.m. Tues., Feb. 12, 2013 Tues., June 04, 2013 Tues., Nov. 12, 2013 OMA Tax Committee Meeting Sponsor: Page 1 of 109
109
Embed
meeting materials - Ohio Manufacturers' Association
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
Tax Committee February 12, 2013
Table of Contents Page #
Agenda 2 Guest Bios 3 OMA Public Policy Report 4 OMA Tax News From The Quarter 7 OMA Tax Legislation 10 OBM Monthly Financial Report 11 House Ways and Means Committee Roster 35 Senate Ways and Means Committee Roster 37 CAT Refund Press Release 38 CAT Refund Facts and Figures 39 House Bill 472 Analysis 41 House Bill 510 Counsel Report 47 House Bill 5 Counsel Report 53 Beaver Excavating Counsel Report 57 State Operating Budget Highlights 59 State Operating Budget Tax Report 88 Sales Tax for Local Governments 90 Tax Reform Facts 94 Ohio Department of Tax Presentation 96
2013 Tax Committee Calendar Meetings will begin at 10:00 a.m. Tues., Feb. 12, 2013 Tues., June 04, 2013 Tues., Nov. 12, 2013
OMA Tax Committee Meeting Sponsor:
Page 1 of 109
OMA Tax Policy Committee February 12, 2013
AGENDA
Welcome & Self-Introductions: Allan Thompson A K Steel Corporation
Public Policy Report
Rob Brundrett OMA Staff
OMA Counsel’s Report
Mark Engel, Bricker & Eckler LLP OMA Tax Counsel
Discussion
State Operating Budget
Guest Speakers Nick Cipiti Director of Policy and Budget Ohio Department of Taxation Charlie Rhilinger Chief Counsel – Tax Appeals Ohio Department of Taxation Steve Russell Sr. Audit Manager Ohio Department of Taxation
Committee Meetings begin at 10:00 a.m. and conclude by 1:00 p.m. Lunch will be served. Register for committee meetings online at www.ohiomfg.com, click on Events. Additional committee meetings or teleconferences, if needed, will be scheduled at the call of the Chair.
Page 2 of 109
Ohio Department of Taxation Nicholas Cipiti, Deputy Tax Commissioner, Ohio Department of Taxation Nicholas (Nick) Cipiti is deputy tax commissioner for policy and budget for the Ohio Department of Taxation. A native of the Cleveland area, he received his bachelor’s degree in business from Kent State University, and went to work for Xerox. He subsequently earned an MBA from John Carroll University and was offered a position in Columbus in the accounting/finance department of the Ohio Bar Title Insurance Company where he worked his way up to executive vice president in charge of two subsidiaries and operations in four states. Nick later worked for the Ohio Bankers Association as vice president and executive vice president of its subsidiary, the Ohio Bankers Service Corporation. He then started his own business, providing accounting, tax preparation and financial advising services to individuals and small businesses. He also owned a Liberty Tax Service franchise. Nick’s community service includes charter member of Clintonville Rotary, Kiwanis, American Red Cross Columbus chapter board member, Columbus Reads mentor and adjunct instructor of business at Columbus State Community College. He has three children. Daughter Sandra is an accountant, and his two sons, Todd and Nicholas, both served in the U.S. Marine Corps in the Middle East.
Charles W. Rhilinger, Jr., Office of Chief Counsel, Ohio Dept. of Taxation Charlie Rhilinger is an executive administrator in the Office of Chief Counsel for the Ohio Department of Taxation. He is responsible for overseeing the Tax Appeals Division and the Bankruptcy Division. Prior to his transfer to the Office of Chief Counsel, Charlie was the manager of the department’s Los Angeles district office. He received an LL.M. in Taxation from the University of San Diego and is a member of the California Bar. Steven B. Russell, Assistant Administrator, Ohio Department of Taxation, Audit Division Steven (Steve) Russell began his career at the Ohio Department of Taxation almost 20 years ago. For the last 17 years, he has specialized in sales and use tax auditing which includes experience with manufacturers, construction contractors and retailers. Prior to becoming assistant administrator, Steve was a part of the Audit Division’s Review and Support Group where he helped administer the direct pay authority program. As assistant administrator, he is responsible for forming Audit Division practices and providing technical guidance. Steve is also an audit representative to the Streamlined Sales Tax Project for the state of Ohio. He received his bachelor’s degree in accounting from Otterbein College in 1991.
Page 3 of 109
TO: OMA Tax Committee FROM: Rob Brundrett DATE: February 12, 2013 SUBJECT: Tax Policy Highlights Overview The new General Assembly was sworn in the first week of January. The Ohio Senate begins the 130th General Assembly under new leadership. Keith Faber (R-Celina) was selected by his Republican colleagues to become the next Senate President. President Faber served as President Pro Tempore under President Niehaus in the 129th General Assembly. The Senate leadership team changed at the number two position as well, with Senator Chris Widener (R-Springfield) moving into the President Pro Tempore position and leaving his former post as Chairman of the powerful Finance Committee. Senators Tom Patton (R-Strongsville) and Larry Obhoff (R-Medina) round out the Republican leadership team. The Senate Democrat leadership posts remained the same with Senator Eric Kearney (D-Cincinnati) remaining as the Minority Leader. His leadership team is made up of Senators Joe Schiavoni (D-Boardman), Nina Turner (D-Cleveland) and Edna Brown (D-Toledo). On the House side Bill Batchelder (R-Medina) remains Speaker of the House. His leadership teams added a new member to replace the term limited Lou Blessing. Jim Buchy a longtime legislator (R-Greenville) moves in to the Assistant Minority Whip position. The rest of Speaker Batchelder’s team consists of Matt Huffman (R-Lima), Barbara Sears (R-Maumee), John Adams (R-Sidney) and Cheryl Grossman (R-Grove City). The House Democrat leadership teams remains the same with Representative Armond Budish (D-Beachwood) reelected as Minority Leader. His team consists of Matt Szollosi (D-Toledo), Tracy Maxwell Heard (D-Columbus) and Debbie Phillips (D-Athens). State Financial Condition Real GDP expanded at an annual rate of 3.1% in the third quarter of 2012, up from the estimate of 2.0% and growth of 1.3% in the second quarter. The quarter beat predictions. Ohio total nonfarm payroll employment increased by 1,600 jobs in November and is up by 103,200 jobs year-to-date. The Ohio unemployment rate decreased from 6.8% to 6.7% in December and stands a full percentage point below the national unemployment rate. Leading economic indicators have weakened recently, but remain consistent with uninterrupted growth at a modest pace across the country and especially in Ohio.
Page 4 of 109
State Budget Proposal The Governor released his state budget proposal on February 4. The proposal contains a new income tax cut and service tax structure. The plan moves the tax base further from income and puts more of the burden on consumption based taxes. Income tax The Governor’s income tax cut has two parts. The first part would cut the income tax for all payers by 20 percent. This would reduce the top marginal tax rate from 5.925 percent to 4.74 percent. The cut would be phased in over three years. The second part of the income tax would be targeted at small businesses. Owners of pass through entitites would be allowed a deduction of 50 percent of their annual income up to $750,000 with the deduction capped at $375,00. Sales tax The Governor’s plan would expand the sales tax base to include a wide range of services but would exempt certain services essential to all families. The overall sales tax rate for Ohio would drop from 5.5 percent to 5.0 percent. Severance Tax/Income Tax Reduction The Governor is also pushing an increase in the severance tax. Last year he attempted to raise the severance tax on horizontal wells operating in Ohio and tied that income generated to a fluctuating income tax reduction. This plan introduced in the budget would also raise the severance tax but is not tied to a fluctuating drop in income tax rates. The proposed income tax rate in this budget is permanent at 20 percent. Lame Duck Legislation House Bill 601 House Republicans introduced House Bill 601 which was billed as an attempt to create more uniformity amongst local government income taxes. The bill received only one hearing in early December. The House decided not push the issue at the end of the session and the coalition of business groups supporting the bill including the OMA agreed not to push until the next General Assembly. Representatives Grossman and Henne have reintroduced the bill in this General Assembly (HB 5). The House has designated this bill a priority issue. Local Governments have mobilized and are fighting the legislation and have made inroads with many of their local legislators. As of now the bill appears to be headed for a major fight. House Republicans are considering putting the bill on hold after it receives sponsor testimony until after the House passes the state operating budget. Senate Republicans have not indicated whether this is a priority issue or not for their caucus. There is rumored to be at least two other bills with Republican support that might be introduced with support from local governments. House Bill 510 During lame duck the General Assembly passed House Bill 510 which was originally part of the Governors’ Mid-Biennium Review bill package. The legislation reforms and updates the manner in which Ohio taxes its financial institutions. The bill creates a new financial institutions tax replacing the corporation franchise tax and tax on dealers in
Page 5 of 109
intangibles. The modernization on how these institutions are taxed lowers the rate in which they are taxed. House Bill 472 During lame duck the General Assembly passed HB 472 that included a midnight amendment providing a new carve out in the Commercial Activities Tax (CAT). The bill allowed businesses who operate precious metal smelters to be exempt from the CAT. This amendment appears to favor a single business in southeast Ohio. CAT Refunds The Governor announced in December that the Department of Taxation is changing its policies and procedures regarding CAT overpayments. Current Ohio law requires businesses to request a refund. The law does not obligate the state to notify a taxpayer if a refund is available. The Department is now researching to see if companies have made overpayments and are sending refund checks regardless if a company has requested their refund. Estate Tax Repeal The Estate Tax was repealed as a rider to the state budget last General Assembly. The repeal went into effect January 1, 2013. The OMA advocated in support of repeal. This was a significant policy gain during the last General Assembly. General Assembly Committee Assignments The Ohio House and Senate have made their committee assignments for the 130th General Assembly. Both the House and Senate have returned the previous Ways and Means Committee Chairmen. Peter Beck and Tim Schaffer will be back with gavel in hand for the 130th. Both committee chairs could play a large role in the tax reform package the Governor has proposed in his budget. We will continue monitoring the both Ways and Means Committees for any news and updates.
Page 6 of 109
Tax
Kasich Taxation Innovation
On February 4, as he unveiled his biennial budget, Governor Kasich proposed a 50 percent personal income tax exclusion from the first $750,000 of income for owners of pass-through entities. The OMA called the governors’ plan “truly innovative.”
“The effect of this specific proposal would be to free up much-needed working capital for small businesses across Ohio, increasing job-creating investment in those companies. The proposed personal income tax reduction also would help entrepreneurs in early-stage businesses where the risks are high and working capital often is in short supply,” said OMA president Eric Burkland in a release to the media.
The governor’s proposal includes a 20 percent reduction in all personal income tax rates. The governor pays for the personal income tax rate reductions by broadening the sales tax base to services and increasing the state severance tax on the extraction of oil and gas using horizontal drilling. Broadening the sales tax base also allows the governor to lower the sales tax rate from 5.5 percent to 5 percent.
OMA tax counsel Mark Engle of Bricker & Eckler LLC writes in a summary of the governor’s proposal: “This proposal reflects a policy decision to shift Ohio’s revenue sources from income and investment to consumption.” This is a welcome policy decision for Ohio manufacturing. 2/6/2013
Contact Your Legislator. Now.
Manufacturers who support Governor Kasich’s call for reform of the personal income tax should immediately contact their state representatives and senators. Legislators are being bombarded by special interests that oppose the reforms. They need to hear from business leaders about the positive effect the governor’s proposal will have on the Ohio economy. Find your state legislators here. Please copy Rob Brundrett on any correspondence. Rob manages OMA’s Tax Committee and will head up the manufacturing tax advocacy effort in the General Assembly. The Tax Committee meets on Tuesday, February 12. All OMA members can register here for phone or in-person attendance. 2/6/2013
Municipal Income Tax Reform Legislation
Reintroduced
Among the priority bills of the House of Representatives is a municipal income tax reform bill from the last General Assembly. Re-introduced by Representatives Cheryl Grossman (R-Grove City) and Michael Henne (R-Clayton), House Bill 5 seeks to make Ohio’s municipal income taxes more uniform across the more than 600 taxing municipalities. The OMA is participating in a coalition that supports uniformity to ease the administrative burden on firms operating in multiple municipalities. The bill received heavy criticism last year from local governments and the Ohio Municipal League, which fear a loss of revenue and control. Join the OMA Tax Committee on February 12 to learn how to help enact House Bill 5. Tax Commissioner Joe Testa will present perspectives on this bill as well as other tax policy proposals in the governor’s newly proposed budget. Register here. 1/31/2013
JobsOhio (Finally) to Issue Bonds It was reported this week that JobsOhio will move forward in issuing $1.5 billion in bonds to complete its leasing of Ohio’s wholesale liquor profits, which it plans to use in its economic development activity. The private agency announced it received a favorable rating from two bond agencies. JobsOhio continues to face a legal threat as it awaits an Ohio Supreme Court decision that will determine whether several Democratic legislators and Progress Ohio, a policy think tank, have standing to sue the organization to prevent its use of liquor profits. 1/10/2013
Fiscal Cliff Legislation – Experts Run Down What
Happened to Taxes
OMA Connections Partner, GBQ Partners, reports that the bill that averted the"fiscal cliff" passed by the U.S. House and Senate provides greater certainty with regard to income tax rates, which "hopefully will allow business owners and individuals an opportunity to plan for the future. In many respects the deal is not a temporary fix, as many thought might happen at the last minute. Changes to tax rates on ordinary income, estate tax, dividends, capital gains, and the Alternative Minimum Tax patch, are intended to be permanent in nature." Here's their rundown.
And another OMA Connections Partner, Plante Moran, offers this version of the tax impacts. 1/2/2013
Tangible Property Regulation Delayed - Taxpayers May Benefit from Early Adoption
OMA Connections Partner, Plante Moran, reports that the IRS has deferred the effective date of new tangible property regulations from tax years beginning on or after January 1, 2012, to tax years beginning on or after January 1, 2014. The new regulations were issued in late December 2011 to guide taxpayers on how to account for amounts paid to acquire, produce, or improve tangible property.
With the announced delay in the effective date, taxpayers may benefit from the early adoption of either the entire regulations or select provisions. Plante Moran offers a summary of the new guidance and potential planning opportunities and a comprehensive article covering the tangible property regulations. 12/18/2012
Legislature Doles Out More CAT Exemptions for Christmas
As the General Assembly was winding down late last week, the Senate slipped an amendment into House Bill 472 that exempts precious metal smelters from the commercial activity tax (CAT). The amendment apparently is targeted to benefit a smelter in southeast Ohio. This latest carve-out emphasizes the importance of defending the CAT during the budget process next year. 12/20/2012
Ohio Refunding Overpaid CAT
Earlier this week, Governor Kasich and Tax Commissioner Joe Testa held a press conference to announce a new policy whereby the Ohio Department of Taxation (ODOT) is proactively identifying business tax refunds and contacting taxpayers so that they may request those funds back from the State of Ohio. The initial focus is on overpaid commercial activity tax (CAT).
OMA Connections Partner, GBQ Partners, offers this summary of the potential opportunity. 12/20/2012
Beaver Attacks CAT Late last week the Ohio Supreme Court issued its ruling on Beaver Excavating Co. v. Testa. In a 6-1 decision the Court ruled that the state could no longer use the money generated by the commercial activity tax (CAT) on sale of motor vehicle fuel. The court found that the state was violating the constitution's
ban on using gas tax revenues for non highway purposes. Going forward the state must use this revenue for road projects. The ruling is estimated to shift $140 million a year to road projects. Here's a summary by OMA tax counsel Bricker & Eckler LLP. 12/13/12
OMA Calls on Congress to Hold the Line on Federal Payroll Taxes On December 10, the OMA and other national and state business organizations urged leaders in Congress not to increase the Federal Unemployment Tax (FUTA). The letter asked congressional leadership to maintain current FUTA rates and base, protect employer financed federal unemployment trust fund accounts, and eliminate restrictions on state solvency measures. The business coalition urged Congress to prevent any further increases to the tax burden and provide states the flexibility to address state unemployment trust fund solvency issues. 12/13/12
Uniform Municipal Income Taxes?...Not so Fast
This week the Ohio House of Representatives heard sponsor testimonies on House Bill 601, which would create more uniformity throughout Ohio’s various municipal income tax codes. While the bill has the support of a broad coalition of business groups including the OMA, cities continue to oppose the bill arguing that the bill erodes home-rule and reduces local income tax revenues.
The sponsors of the bill indicated that they are not seeking passage of the legislation in the lame duck session, but instead want to engage all stakeholders in a public forum in the hope that they can pass the bill in the next General Assembly. The House has shown interest in continuing hearings through the lame duck session to hear from the various stakeholders. 11/29/2012
Allan Thompson, Manager, Corporate Taxes, AK Steel Corporation, was installed as chairman of the OMA Tax Committee this week. Allan takes over from Anthony Long, Assistant Counsel, Honda of America Manufacturing. Before passing the gavel to Allan, Tony recounted the momentous period that saw the elimination of personal property tax, elimination of corporate franchise tax, 21% reduction of personal income tax, elimination of estate tax, and defense of the broad-base, low-rate commercial activity tax.
“OMA members owe Tony a debt of gratitude for his decade of tax policy leadership and I look forward to working with committee members to build on the strong foundation,” said Chairman Thompson.
The committee discussed: a proposal to make municipal income tax collection practices more uniform; a proposal to revise to the Board of Tax Appeals processes; and principles for potential restructuring of severance taxes on “fracked” oil and gas production.
Governor Kasich’s budget director, Timothy Keen, visited with the group about the upcoming state budget. Contact the OMA’s Rob Brundrett at any time to discuss tax matters of concern or interest. 11/16/201
A Snapshot of the New Auditing Clarity Standards
According to OMA Connections Partner, GBQ Partners LLC, the auditing world has been abuzz lately with the Clarity Standards, an initiative the American Institute of CPAs has been working on since 2004; the new standards are finally effective for December 31, 2012 year-ends. The goal is to converge the U.S. generally accepted auditing standards (GAAS) with the international standards on auditing, making GAAS easier to apply for nonpublic companies and making the standards more consistent throughout the world.
There are two significant differences under the new standards that will be clearly visible to management of an audited entity. They relate to the auditor's opinion report and the management representation letter. These differences are designed to help the auditor better communicate with management. Read more. 11/13/2012
Taxation Legislation Prepared by: The Ohio Manufacturers' Association
Report created on February 8, 2013
HB5 MUNICIPAL CORPORATIONS INCOME TAXES (GROSSMAN C, HENNE M) To revise the laws
governing income taxes imposed by municipal corporations. Current Status: 2/13/2013 - House Ways and Means, (First Hearing)
All Bill Status: 1/30/2013 - Referred to Committee House Ways and Means 1/30/2013 - Introduced
State Bill Page: http://www.legislature.state.oh.us/bills.cfm?ID=130_HB_5
HB24 TAX EXPENDITURE REVIEW COMMITTEE (BOOSE T) To create a Tax Expenditure Review
Committee for the purpose of periodically reviewing existing and proposed tax expenditures. Current Status: 2/6/2013 - Referred to Committee House Ways and Means All Bill Status: 2/5/2013 - Introduced State Bill Page: http://www.legislature.state.oh.us/bills.cfm?ID=130_HB_24
HB26 SALES-USE TAX EXEMPTION (MAAG R) To exempt from sales and use taxes the sale or use
of investment metal bullion and coins. Current Status: 2/6/2013 - Referred to Committee House Ways and Means All Bill Status: 2/5/2013 - Introduced State Bill Page: http://www.legislature.state.oh.us/bills.cfm?ID=130_HB_26
MEDIA CONTACTS Governor’s Office: Rob Nichols, (330) 760-7582, [email protected] Dept. of Taxation: Gary Gudmundson, (614) 466-0099, [email protected]
OHIO RETURNING $13 MILLION IN TAX OVERPAYMENTS TO BUSINESSES THAT
DIDN’T KNOW THEY WERE OWED MONEY
New Policy Will Automatically Tell Businesses When They Are Eligible For A Refund
COLUMBUS – Today Gov. John R. Kasich joined Ohio Department of Taxation (ODT) Commissioner Joe Testa in beginning to return more than $13 million to 3,500 Ohio businesses that unknowingly overpaid their Commercial Activity Tax (CAT). These refunds are the first resulting from a new policy that reverses previous anti-business practices and instead notifies a business taxpayer when they've made an overpayment and helps them with the process of reclaiming their money. In the past ODT didn’t notify businesses of overpayments—even if the Department was aware of it—but instead made businesses discover the error themselves and then ask for their money back. If businesses failed to discover the error within a certain amount of time then they forever lost the right to reclaim it. “If government knows a job creator paid too much in taxes then it should do the right thing and give the money back, because government works for us, not the other way around. It’s just simple fairness and I can’t believe this wasn’t being done already. It’s yet another example of a wrong-headed thing that state government was doing that we discovered and are fixing. I just can’t figure out why no one was trying to fix these kinds of problems before,” said Kasich. To help create a more jobs-friendly climate, ODT is implementing the new policy beginning with the CAT and will begin notifying about 3,500 taxpayers who may have overpaid by a total of as much as $13.7 million. Other taxes will be analyzed in the months ahead and ODT will begin reaching out to all taxpayers who unknowingly paid too much tax. The Department will work to raise the visibility and understanding of tax refund procedures and will notify taxpayers who appear to have a refund due. Refund request forms and more information about this program are available at the ODT web site – www.tax.ohio.gov. Read the fact sheet here: http://www.governor.ohio.gov/Portals/0/12.18.12%20Taxation%20CAT%20Tax%20Return%20Fact%20Sheet.pdf
Making Ohio More Taxpayer Friendly: Returning Tax Overpayments to Businesses
FACT SHEET
The Ohio Department of Taxation (ODT) is changing policy, procedures and systems to ensure that business taxpayers get refunds back when they overpay. While current Ohio law requires businesses to request a refund, it does not obligate the state to notify the taxpayer that a refund is available. In the past, if potential refunds go unclaimed the practice has been for the state to not notify the business and simply keep the money. Gov. Kasich and Commissioner Joe Testa are changing this anti-business policy so job creators are automatically notified of any business tax overpayments. Similar policies are already in place for income tax filers.
Ohio’s old policy on returning business tax overpayments is anti-business, so we’re fixing it. The mission of this administration is to make Ohio a friendlier place for job creation, and not notifying businesses that they’ve overpaid their taxes is wrong and anti-business. Under the new policy, ODT will update systems to proactively notify business taxpayers of overpayments so they can, among other things, reinvest this money back into their businesses.
ODT is making it easier for business taxpayers get their money back.
Proactive outreach is ongoing to businesses that may have overpaid CAT taxes to the state. ODT has identified two groups of CAT taxpayers that will be contacted and encouraged to file for a refund:
1. Taxpayers who are indisputably due a refund need only file a refund request form. Overpayments by this group total about $6.5M plus interest.
2. Taxpayers who may be due a refund will be asked to provide additional information and a refund request form. Overpayments by this group total about $7.2M plus interest.
ODT is currently exploring the possibility of displaying credit balances when a taxpayer files their CAT tax return through the Ohio Business Gateway.
Once ODT is finished working through the CAT accounts, credit balances in other business taxes will be similarly analyzed to identify other business taxpayers eligible for refunds.
ODT has identified about 3,500 Commercial Activity Tax (CAT) taxpayers eligible for refunds totaling $13.7M.
ODT is currently in the process of reviewing CAT tax records of more than 184,000 taxpayers. Current Ohio law allows ODT to look back four years for CAT taxpayers who may be eligible for a refund.
Through sampling, ODT believes approximately 11,000 CAT taxpayers will ultimately be found to be eligible for a tax refund.
ODT will send letters to all potentially eligible taxpayers notifying them that they have a credit balance and may be due a refund.
- OVER –
Page 39 of 109
Common examples of how business taxpayers overpay without realizing it:
File amended returns with lower tax liability than the original liability reported and paid.
File amended returns with greater tax liability than the original return, then pay the full amended amount instead of just the difference in the tax amount due.
Make duplicate (double) payments to their accounts.
Fail to use their unused exclusion from the previous period(s). ($1M per year is excluded from tax)
Commercial Activity Tax (CAT) Background:
The CAT is Ohio’s primary business tax. It is imposed on a business’ gross receipts at a rate of 0.26 percent. No tax is due if a business has gross receipts of less than $150,000 per year.
The CAT generated tax revenues of $1.65B in fiscal year 2012.
As of December 20, 2012, there were 184,622 active CAT filers in Ohio
Refund request forms and more information about this program are available at the ODT web site – www.tax.ohio.gov.
Ruling: Looking to the history behind the adoption of Art. XII, Section 5a, the Court
observed that its purpose was to prevent the diversion of revenues from taxes on motor fuel from
the construction, repair and maintenance of roads and highway safety. Looking at the history of
the provision, it noted that the phrase “related to” was intended to be interpreted broadly. It then
stated that in that context the CAT bore a “logical and close” connection to motor-vehicle fuels.
The proceeds were “(1) money (2) derived (3) from an excise (4) on motor-vehicle-fuel sales.”
Although not a tax on the individual transactions, themselves, the Court believed the CAT was
“directly based” on motor vehicle fuel sales revenue. Thus, in its view, “one is hard pressed to
deny the close connection between the tax paid (moneys derived) and the source (excise on
“fuels used”) of that tax revenue.” ¶ 33.
The Court distinguished its earlier decision in Ohio Grocers Assn. v. Levin, 123 Ohio St. 3d 303,
2009-Ohio-4872, 619 N.E.2d 446, on the basis that the key issue in that case was whether or not
the CAT was a transaction tax that fell within the proscription of such a tax on sales of food
contained in Art. XII, Sections 3(C) and 13. It also noted the phrase “relating to” was more
broad than the language used in the food provisions. Therefore, Ohio Grocers did not control the
disposition of this case.
Remedy: The Court next turned to the appropriate remedy to apply. It noted the
constitution does not prohibit the imposition of a tax on the transactions in question; rather, it
merely directed where the proceeds from that tax could be appropriated. The parties had urged
that a decision favorable to the taxpayers should be applied prospectively only. The Court
agreed that prospective application was appropriate in this case because (1) this was a case of
first impression; (2) retroactive application of the decision would neither promote, nor retard, the
purpose behind the decision; and (3) retroactive application would cause in inequitable result
with respect to revenues that had been expended in prior years. Therefore, the Court concluded
that its decision would be applied prospectively only.
The Court did not expressly state whether the tax could continue to be collected with respect to
the transactions in question. However, the language in its decision seems to invite the General
Assembly to ear-mark CAT revenues derived from these transactions for the purposes set forth in
Art. XII, Section 5a. Anecdotally, this appears to be happening.
Since the decision, it has been estimated that CAT revenues associated with this limitation
approximate $140 million annually. As the Department of Transportation budget is funded
primarily from gas tax revenues, and only minimally from GRF revenues, this results in a
windfall to that Department and creates an unexpected gap in the GRF. Discussions have been
underway regarding the situation, but at this point no resolution has been disclosed to the public.
Page 58 of 109
Page 59 of 109
Page 60 of 109
Page 61 of 109
Page 62 of 109
Page 63 of 109
Page 64 of 109
Page 65 of 109
Page 66 of 109
Page 67 of 109
Page 68 of 109
Page 69 of 109
Page 70 of 109
Page 71 of 109
Page 72 of 109
Page 73 of 109
Page 74 of 109
Page 75 of 109
Page 76 of 109
Page 77 of 109
Page 78 of 109
Page 79 of 109
Page 80 of 109
Page 81 of 109
Page 82 of 109
Page 83 of 109
Page 84 of 109
Page 85 of 109
Page 86 of 109
Page 87 of 109
6087180v2
2014-2015 Budget Proposal Cuts Income Taxes, Expands Sales Tax Base,
Increases Severance Taxes on Horizontal Well Drilling
Mark A. Engel, Bricker & Eckler LLP
On February 4, 2013, Governor Kasich revealed the broad parameters of his proposed budget for
the 2014-2015 fiscal years. On the tax front, the proposal includes a 20% reduction in all
personal income tax rates; a 50% exclusion from income for owners of pass-through entities; an
extension of the sales tax to virtually all services, with a modest reduction in the state and local
sales tax rates; and an increase in the severance tax applicable to persons extracting oil and gas
using horizontal drilling.
Personal Income Tax:
The governor proposes to cut all personal income tax rates a total of 20% over three years. For
calendar year 2013, the rates would be reduced 7.5%; for calendar year 2014, all rates would be
reduced an additional 7.5%; and in calendar year 2015, a third reduction of 5% would also be
made. The lowest marginal rate would be reduced from 0.587% to 0.470%, while the top
marginal rate would be reduced from 5.925% to 4.74%.
In addition, the owners of a small business organized as a pass-through entity (i.e., partnership,
LLC, S corporation) would receive a deduction of one-half of the net income received as a
reduction. It appears that the deduction is limited to the first $750,000 of net income received by
each owner. However, it is unclear whether this cap applies to each individual owner or whether
it applies to the entire net income from a single entity.
Sales Tax:
The budget proposes to change fundamentally the manner in which services are subject to the
sales tax. Currently, it is presumed that services are not taxable and only specifically enumerated
services are subject to the tax. Under the proposal, this structure will be reversed. All services
would be subjected to the tax unless specifically exempted.
Services considered “necessities of life” will be exempt from the tax. Such services include
health care, construction, residential rentals, education, social assistance, day care, insurance
premiums, and trash removal. Professional services such as legal, accounting, engineering,
architecture, marketing, lobbying and research; administrative and support services such as
collection or credit ratings; financial and real estate services; and arts, recreation, entertainment,
and other admissions-type transactions, will all become taxable.
The state tax rate would be reduced from 5.5% to 5.0%. Local tax rates would be reduced by
means of a complicated formula that would largely negate any windfall provided by the
expansion of the tax base. However, the rates would be adjusted to permit a roughly 10%
increase in revenue to any entity imposing a local tax. Between October 2013 and June 2016, no
new additional local taxes may be imposed, as the rate adjustment is calculated and refined.
Severance Tax:
Page 88 of 109
6087180v2 2
Reprising the proposal that was made during 2012, but which was not enacted, the budget
proposes to increase the severance tax associated with the use of horizontal wells to produce oil
and gas from shale formations in the state. The changes are summarized in the following chart:
Comparison of Existing and Proposed Severance Tax Structure
Current Severance Proposed Severance Tax
All Wells Vertical Wells Horizontal Wells
Product Tax Rate Tax Rate Tax Rate
Gas* $0.03 per MCF Lesser of 1% of value
or $0.03 per MCF; no
tax if daily production
is less than 10 MCF
1% of value produced
Oil* $0.20 per barrel $0.20 per barrel 1.5% of value during
1-year cost recovery,
4% of value thereafter
NGL No separate tax No separate tax 1.5% of value during
1-year cost recovery,
4% of value thereafter
Condensate Taxed as oil Taxed as oil 1.5% of value during
1-year cost recovery,
4% of value thereafter
*Current severance tax rates include both the severance tax and the “regulatory cost recovery
assessment” that began in 2010.
Revenue from the increased tax will be directed to the general revenue fund to offset some of the
income tax reductions.
Comments:
This proposal reflects a policy decision to shift Ohio’s revenue sources from income and
investment to consumption. Although cast as an overall tax decrease (annual income tax
revenues are expected to drop $2.73 billion once the rate reductions are fully phased in), the
expansion of the sales tax base is anticipated to result in an annual revenue increase net of the
reduction in state tax rates of roughly $1.848 billion.
This information is admittedly broad and a number of questions remain. Additional changes
may also be proposed. As details become available and specific language in the form of a bill
becomes available, additional analysis will be possible.
Page 89 of 109
1
TAX REFORM: Local Sales Tax Proposal
With Ohio broadening its sales tax base to include more services, local county governments and transit authorities will now have broader sales tax bases as well and without the same sales tax rate reduction that the state is making would end up imposing significant new tax increases on their citizens and businesses simply by keeping their local rates at current levels. Though the increases would vary by county, revenue increases would average 30 percent more at current rates. To prevent 96 individual county and transit sales tax increases across Ohio – and their inevitable commensurate negative impact on job creation -- the state will statutorily adjust local sales tax rates downward from 10-30 percent. Without the adjustment, it would result in a $700 million tax increase and diminish the job-creating value of the Governor’s tax cut and reform plan. At the same time, to protect the fiscal vitality of counties and transit authorities the state is guaranteeing fair and predictable revenue growth for all recipients of the tax. Counties and Transit Authorities: Revenue Will Grow
Beginning in July, 2013, local governments will not be able to change their sales tax rates for three years. State-managed local rate reductions and hold harmless adjustments will be in effect until July, 2016. At that point, counties and transit authorities will regain responsibility for managing sales tax rates. However, the levels to which local rates will be adjusted are intended to produce a revenue increase of 10 percent over the prior year beginning with the December, 2013 distribution allowing local governments to cope with – and actually benefit from – this policy. Initial Rate Reduction As mentioned, local rates will be reduced by statute. As counties have a different mix of businesses in their sales tax base, the rate reductions among counties will vary. Generally, larger counties with more taxable service providers will have larger rate decreases than counties with fewer providers. Rates will be set at increments of .05 percent. Currently those rates are set at .25 percent increments. Regardless of the level at which the rates are set, each local government is guaranteed 10 percent revenue growth for the period from December, 2013 through November, 2014 relative to the “base year” (i.e. Dec. 2012 - Nov. 2013). If, during the two years ending in November, 2013, a local government’s average annual sales tax growth exceeded 10 percent, then that government is guaranteed to receive growth based on that higher average annual rate. As a matter of course, if the rates as adjusted fall short of the revenues promised, the state will make up the shortage with supplemental payments to the effected counties and transit authorities. If the adjusted rates end up producing more revenue than guaranteed, the local governments will retain the overage.
Page 90 of 109
2
Second Series of Tax Rates (first ‘reset’ of tax rates) Beginning in year 2 – January, 2015 – the Department of Taxation will recalculate the local rates again. This recalibration will use data from the first year in which the expanded tax base took effect. Results from this first ‘reset’ of tax rates will go into effect April, 2015. Because there is a lag before revenue from these more accurate tax rates is realized, during the period December, 2014 – June, 2015 counties and transit authorities are guaranteed to receive at least 115 percent of what was received during the December, 2012 – June, 2013 period. Revenue from the January, 2015 rate ‘reset’ will begin to be realized in July 2015. During the remainder of calendar year 2015 and the first six months of 2016, local governments will experience revenue growth to the extent their total sales tax base grows. June, 2015 will be the last supplemental guarantee payment. Final Series Tax Rates (second ‘reset’ of rates) In January, 2016, rates will again be reset, using updated actual local sales tax data. This set of rates will go into effect in April, 2016. June, 2015 will be the last supplemental guarantee payment. Impact on Vendors
Ohio’s 330,000 vendors are authorized to retain a small, fixed percentage of the sales tax they collect on behalf of the state and local governments. This is called the vendor ‘discount’. It will remain at the existing .75% of the total sales tax collected. Businesses providing services proposed to be subject to sales tax would also be eligible for the vendor discount. (Please see Table below for Local Sales Tax Rates (current & adjusted) and revenues derived from those rates (actual and estimated.)
Page 91 of 109
3
Page 92 of 109
4
Page 93 of 109
Ohio’s Jobs Budget 2.0 | Tax Reform 1
Tax Reform
Creating Jobs by Cutting Taxes and Reforming the Tax Code
Ohio’s taxes are too high and the state relies too much on counterproductive tax methods such as the income tax. Creating a jobs friendly climate in Ohio means tearing down tax barriers that keep job creators from investing, expanding and hiring new workers. This is especially true for small businesses, which employ half of Ohio’s private-sector workforce and pay personal income tax on their business earnings.
Two years ago in his first budget, Gov. John Kasich struck his first blow against Ohio’s high taxes by cutting taxes $800 million by reducing the income tax and eliminating the Death Tax altogether. In this budget, Gov. Kasich builds on that progress with a $1.4 billion tax cut package (over three years) benefiting every Ohioan, regardless of their income. He calls for cutting taxes for small business owners in half on the first $750,000 of earnings, cutting the income tax by 20 percent, cutting the state sales tax rate from 5.5 to 5.0 percent and eliminating the severance tax altogether for small, conventional natural gas producers. At the same time, the Governor’s proposal modernizes Ohio’s tax code by broadening the sales tax base to include additional services and by raising the outmoded severance tax from 20 cents on a barrel of oil to 4.0 percent—still the lowest in the region.
$1.9 Billion Small Business Tax Cut: Income taxes on virtually all Ohio small businesses will be cut in half on the first $750,000 of earnings. The total income of approximately 98 percent of small businesses falls below this level. This dramatic tax cut frees up significant amounts of new capital ($1.9 billion over three years) for small businesses to better leverage the expanding economic recovery and make new investments and increase hiring to improve their competitiveness.
$2.1 Billion Income Tax Cut: Personal income taxes will be cut for all Ohioans by 20 percent over three years as a result of new severance tax rates for oil and gas drillers, and a broadening of the sales tax base. The tax cut will be phased in, starting with an immediate reduction of 7.5 percent in year one (equivalent to a $750 million tax cut), a 7.5 percent reduction in year two (equivalent to a cumulative $1.5 billion tax cut), and an additional five percent cut in year three (equivalent to a cumulative $2.1 billion tax cut). This change lowers Ohio’s top marginal rate from 5.925 percent to 4.74 percent.
Sales Tax Rate Cut: Ohio’s state sales tax rate will be cut from 5.5 percent to 5.0 percent. This savings estimated at $2.4 billion over three years will be especially beneficial to lower and middle income Ohioans, since sales taxes hits harder on their lower income amounts. Ohio’s strong consumer products companies and retailers will be positively impacted by this reduction as well, since Ohioans will see less of their money taken by government and more available for their purchases.
Eliminating Severance Taxes on Small Producers: Ohio’s small, conventional natural gas producers will see their severance taxes eliminated altogether. This means that 90 percent of the natural gas wells in Ohio will pay no severance tax.
Comprehensive Tax Reform—More Sustainable, More Competitive: The FY14-15 budget proposes broadening the sales tax base to include additional services and increasing Ohio’s outmoded severance tax from 20 cents on a
Page 94 of 109
Ohio’s Jobs Budget 2.0 | Tax Reform 2
barrel of oil to a low fixed rate of 4.0 percent. States and cities with high income taxes are more likely than ever before to drive revenue and investment away to lower tax jurisdictions. Shifting Ohio’s tax system away from its excessive reliance on income and toward a greater reliance on consumption of services helps combat income flight, and better aligns it with the national and Ohio trend toward a more robust service sector in our economy.
This reform tracks with findings of the Ohio Legislative Study Committee on Ohio’s Tax Structure released in April 2012 that recommended the sales tax be applied to all economic activity on an equal basis. The broadening of Ohio’s sales tax base to include additional services allows Ohio’s state sales tax rate to be reduced from 5.5 percent to 5.0 percent and an adjustment in county and transit authority sales tax rates will prevent a sudden, unintended spike in county sales tax revenue. The inclusion of new taxable services would, of course, maintain exemptions for services related education, housing construction and rent, health care, and residential utilities.
Good Management Dividend: Controlling government costs and achieving strong revenue growth will allow Ohio to maximize the Budget Stabilization Fund at its statutory target of about $1.5 billion. Any surplus above that level would result in a temporary income-tax rate reduction of approximately 4 percent for all Ohio taxpayers. This tax relief would be in addition to the governor’s proposal to cut income taxes by 20 percent over three years.
BOTTOM LINE: Reducing the tax burden on small businesses and reforming our tax structure will give Ohio a more jobs-friendly, competitive economic environment, allowing our state to continue to improve on our position as a national leader in job creation.
###
Page 95 of 109
Governor John R. Kasich Lt. Governor Mary Taylor
Page 96 of 109
Cutting Taxes Through Tax Reform
Joseph W. Testa
Department of Taxation Tax Commissioner
Ohio’s Jobs Budget 2.0 Jobs. Momentum. Transformation.
Page 97 of 109
$1.4 Billion Tax Cut
to Create Jobs and Economic Growth
Ohio’s Jobs Budget 2.0 Jobs. Momentum. Transformation.
Page 98 of 109
50% Cut – Virtually All Ohio
Small Business Income Taxes Small Businesses Employ 50% of Ohio’s Private Sector Workforce
• Job Creation Opportunity
• Reinvest in Business Expansion
Ohio’s Jobs Budget 2.0 Jobs. Momentum. Transformation.
Page 99 of 109
• Cut Income Taxes 20% over Three Years • Cut State Sales Tax Rate from 5.5% to 5% • Eliminate Severance Taxes on Small,
Conventional Producers • Shift Tax Benefits to Ohioans from Oil Companies • Broaden the Sales Tax Base—Fair and More Stable • Temporary Local Sales Tax Rate Reduction
Guaranteeing a 10% Growth
Ohio’s Jobs Budget 2.0 Jobs. Momentum. Transformation.
Page 100 of 109
Personal Income Tax Cut for All Ohioans
7.5%
15.0% 20.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%Tax Year 2013 Tax Year 2014 Tax Year 2015
Cumulative Personal Income Tax Cut
Ohio’s Jobs Budget 2.0 Jobs. Momentum. Transformation.
Page 101 of 109
Good Management Dividend
7.5%
15.0% 20.0% 4%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%Tax Year 2013 Tax Year 2014 Tax Year 2015
Cumulative Personal Income Tax Cut Estimated ITRF Tax Cut
Ohio’s Jobs Budget 2.0 Jobs. Momentum. Transformation.
Page 102 of 109
LegendE = Exempt from taxationGray = Remains exempt from sales taxBlue = Service already subject to sales tax
Before After Legislation Current law (R.C.) *Proposed law (R.C.)State Sales Tax Rate 5.50% 5.00%
Services currently subject to sales taxation
900 Number services (calls to 900 numbers) 5.50% 5.00% H.B. 298 (1991) 5739.01(B)(3)(i) 5739.01(X) Aircraft rental to individual pilots, long term (without operator) 5.50% 5.00% 1935 5739.01(B)(1) 5739.01(B)(1) Aircraft rental to individual pilots, short term (without operator) 5.50% 5.00% 1935 5739.01(B)(1) 5739.01(B)(1) Armored car services 5.50% 5.00% H.B. 298 (1991) 5739.01(B)(3)(h) 5739.01(X) Auto service 5.50% 5.00% H.B. 694 (1981) 5739.01(B)(3)(c) 5739.01(X) Automotive road service and towing services 5.50% 5.00% H.B. 95 (2003) 5739.01(B)(3)(s) 5739.01(X) Automotive storage 5.50% 5.00% H.B. 95 (2003) 5739.01(B)(9) 5739.01(X) Automotive washing and waxing 5.50% 5.00% H.B. 694 (1981) 5739.01(B)(3)(c) 5739.01(X) Bulldozers, draglines and const. mach., long term (without operator) 5.50% 5.00% 1935 5739.01(B)(1) 5739.01(B)(1) Bulldozers, draglines and const. mach., short term (without operator) 5.50% 5.00% 1935 5739.01(B)(1) 5739.01(B)(1) Carpet and upholstery cleaning 5.50% 5.00% H.B. 904 (1993) 5739.01(B)(3)(j) 5739.01(X) Cellular telephone services 5.50% 5.00% S.B. 143 (2002) 5739.01(B)(3)(f) 5739.01(X) Cold storage 5.50% 5.00% H.B. 95 (2003) 5739.01(B)(9) 5739.01(X)
Governor John R. KasichJOBS Budget 2.0Sales taxability of services
The following spreadsheet compares the taxability of services before and after Jobs Budget 2.0. The services listed here are services used in a 2007 survey on sales taxation of services among the states by the Federation of Tax Administrators (FTA) and additional services reflected in the North American Industry Classification System (NAICS) classifications. The spreadsheet is for illustrative purposes only. It does not constitute a legal opinion. Each statutory exemption has specific requirements that must be met in order to qualify for exemption. The cited statutory exemption applies only if the taxpayer meets all the requirements set forth in the referenced statute.
Page 103 of 109
Commercial linen supply (rental) 5.50% 5.00% 1935 5739.01(B)(1) 5739.01(B)(1) Custom fabrication labor 5.50% 5.00% H.B. 694 (1937) 5739.01(B)(5) 5739.01(B)(7) Data processing services (only if used in business) 5.50% 5.00% H.B. 291 (1983) 5739.01(B)(3)(e) 5739.01(X) Diaper service 5.50% 5.00% H.B. 95 (2003) 5739.01(B)(3)(d) 5739.01(X) Employment agencies 5.50% 5.00% H.B. 904 (1993) 5739.01(B)(3)(l) 5739.01(X) Exterminating (includes termite services) 5.50% 5.00% H.B. 904 (1993) 5739.01(B)(3)(m) 5739.01(X) Fur storage 5.50% 5.00% H.B. 95 (2003) 5739.01(B)(9) 5739.01(X) Garment services (altering & repairing) 5.50% 5.00% 1935 5739.01(B)(3)(a) 5739.01(X) Health, recreation, sports clubs 5.50% 5.00% H.B. 904 (1993) 5739.01(B)(3)(n)+(o) 5739.01(X) Heating oil (other than motor vehicle fuel) 5.50% 5.00% 1935 5739.01(B)(1) 5739.01(B)(1) Hotels, motels, lodging houses 5.50% 5.00% S.B. 376 (1959) 5739.01(B)(2) 5739.01(B)(2) Household goods storage 5.50% 5.00% H.B. 95 (2003) 5739.01(B)(9) 5739.01(X) Information services (only if used in business) 5.50% 5.00% H.B. 291 (1983) 5739.01(B)(3)(e) 5739.01(X) Installation charges - other than seller of goods 5.50% 5.00% H.B. 694 (1981) 5739.01(B)(3)(b) 5739.01(X) Installation charges by persons selling property 5.50% 5.00% H.B. 694 (1981) 5739.01(B)(3)(b) 5739.01(X) Internet Service Providers-Dialup (only if used in business) 5.50% 5.00% H.B. 291 (1983) 5739.01(B)(3)(e) 5739.01(X) Internet Service Providers-DSL or other broadband (only if used in busi 5.50% 5.00% H.B. 291 (1983) 5739.01(B)(3)(e) 5739.01(X) Interstate telephone & communications (subject to sourcing rules) 5.50% 5.00% H.B. 171 (1987) 5739.01(B)(3)(f) 5739.01(X) Intrastate chartered flights (with pilot) 5.50% 5.00% H.B. 95 (2003) 5739.01(B)(3)(r) 5739.01(B)(5) Intrastate telephone & communications 5.50% 5.00% H.B. 171 (1987) 5739.01(B)(3)(f) 5739.01(X) Intrastate transportation of persons 5.50% 5.00% H.B. 95 (2003) 5739.01(B)(3)(r) 5739.01(X) Labor charges - repairs other tangible property 5.50% 5.00% H.B. 694 (1981) 5739.01(B)(3)(a) 5739.01(X) Labor charges - repairs to intrastate vessels 5.50% 5.00% H.B. 694 (1981) 5739.01(B)(3)(a) 5739.01(X) Labor charges on repairs delivered under warranty 5.50% 5.00% H.B. 694 (1981) 5739.01(B)(3)(a) 5739.01(X) Labor charges on repairs to motor vehicles 5.50% 5.00% H.B. 694 (1981) 5739.01(B)(3)(a) 5739.01(X) Labor on radio/TV repairs; other electronic equip. 5.50% 5.00% H.B. 694 (1981) 5739.01(B)(3)(a) 5739.01(X) Landscaping services (including lawn care) 5.50% 5.00% H.B. 298 (1991) 5739.01(B)(3)(g) 5739.01(X) Laundry and dry cleaning services, non-coin op 5.50% 5.00% H.B. 95 (2003) 5739.01(B)(3)(d) 5739.01(X) Limousine service (with driver) 5.50% 5.00% H.B. 95 (2003) 5739.01(B)(3)(r) 5739.01(B)(5) Long term automobile lease (without operator) 5.50% 5.00% 1935 5739.01(B)(1) 5739.01(B)(1) Mainframe computer access and processing serv. (only if used in business) 5.50% 5.00% H.B. 291 (1983) 5739.01(B)(3)(e) 5739.01(X) Maintenance and janitorial services 5.50% 5.00% H.B. 904 (1993) 5739.01(B)(3)(j) 5739.01(X) Marina Service (dry docking, storage, cleaning, repair) 5.50% 5.00% H.B. 95 (2003) 5739.01(B)(9) 5739.01(X) Massage services (without medical prescription) 5.50% 5.00% H.B. 95 (2003) 5739.01(B)(3)(q) 5739.01(X)
Page 104 of 109
Membership fees in private clubs. 5.50% 5.00% H.B. 904 (1993) 5739.01(B)(3)(o) 5739.01(X) Mini -storage 5.50% 5.00% H.B. 95 (2003) 5739.01(B)(9) 5739.01(X) Online Data processing services (only if used in business) 5.50% 5.00% H.B. 291 (1983) 5739.01(B)(3)(e) 5739.01(X) Personal care services 5.50% 5.00% H.B. 95 (2003) 5739.01(B)(3)(q) 5739.01(X) Personal property, long term (generally) 5.50% 5.00% 1935 5739.01(B)(1) 5739.01(B)(1) Personal property, short term (generally) 5.50% 5.00% 1935 5739.01(B)(1) 5739.01(B)(1) Photo finishing 5.50% 5.00% S.B. 376 (1959) 5739.01(B)(4) 5739.01(X) Photocopying services 5.50% 5.00% S.B. 376 (1959) 5739.01(B)(4) 5739.01(X) Printing 5.50% 5.00% S.B. 376 (1959) 5739.01(B)(4) 5739.01(X) Private investigation (detective) services 5.50% 5.00% H.B. 298 (1991) 5739.01(B)(3)(h) 5739.01(X) Rental of hand tools to licensed contractors. 5.50% 5.00% 1935 5739.01(B)(1) 5739.01(B)(1) Rental of video tapes for home viewing 5.50% 5.00% 5739.01(B)(1) 5739.01(B)(1) Repair labor, generally 5.50% 5.00% H.B. 694 (1981) 5739.01(B)(3)(a) 5739.01(X) Repair material, generally 5.50% 5.00% 1935 5739.01(B)(1) 5739.01(B)(1) Satellite TV & radio (direct to consumers) 5.50% 5.00% H.B. 95 (2003) 5739.01(B)(3)(p) 5739.01(X) Security services 5.50% 5.00% H.B. 298 (1991) 5739.01(B)(3)(h) 5739.01(X) Service contracts sold at the time of sale of TPP. 5.50% 5.00% H.B. 298 (1991) 5739.01(B)(7) 5739.01(X) Shoe repair 5.50% 5.00% 1935 5739.01(B)(3)(a) 5739.01(X) Short term automobile rental (without operator) 5.50% 5.00% 1935 5739.01(B)(1) 5739.01(B)(1) Sign construction and installation 5.50% 5.00% 1935 5739.01(B)(3)(b) 5739.01(X) Software - pre-written 5.50% 5.00% Administrative rule 5739.01(B)(1) 5739.01(B)(1) Software - pre-written & downloaded 5.50% 5.00% Case law 5739.01(B)(3)(e) 5739.01(X) Swimming pool cleaning & maintenance **5.50% 5.00% H.B. 904 (1993) 5739.01(B)(3)(j) 5739.01(X) Tanning parlors 5.50% 5.00% H.B. 95 (2003) 5739.01(B)(3)(q) 5739.01(X) Taxi operations 5.50% 5.00% H.B. 95 (2003) 5739.01(B)(3)(r) 5739.01(B)(5) Taxidermy 5.50% 5.00% 1935 5739.01(B)(1) 5739.01(B)(1) Temporary help agencies 5.50% 5.00% H.B. 904 (1993) 5739.01(B)(3)(k) 5739.01(X) Tire recapping and repairing 5.50% 5.00% 1935 5739.01(B)(3)(a) 5739.01(X) Window cleaning 5.50% 5.00% H.B. 904 (1993) 5739.01(B)(3)(j) 5739.01(X)
Services subject to exemptions including health and well-being Adult and child day care services E E 5739.01(X)(6) Carpentry, painting, plumbing and similar trades (real property) E E 5739.01(X)(3) Consumer lease/rental of consumer's primary residence E E 5739.01(X)(4)
Page 105 of 109
Custom meat slaughtering, cutting and wrapping E E 5739.01(B)(42)(n) Dentists E E 5739.01(X)(1) Electricity E E 5739.02(B)(7) Food storage E E Ohio Const. XII § 3 Funeral services E E Interstate air courier (billed in-state) E E 5739.02(B)(10) Labor - repairs or remodeling of real property E E 5739.01(X)(3) Labor - repairs to commercial fishing vessels E E 5739.02(B)(42)(d) Labor charges - repairs to interstate vessels E E 5739.01(B)(10) Labor charges on repair of aircraft E E 5739.02(B)(49) Labor charges on repairs to railroad rolling stock E E 5739.02(B)(14) Local transit (intra-city) buses E E 5739.01(B)(3)(r) 5739.01(B)(5) Medical and health care services E E 5739.01(X)(1) Medical test laboratories E E 5739.01(X)(1) Metal, non-metal and coal mining services E E 5739.01(X)(8) Natural gas (sold by public utility) E E 5739.02(B)(7) Nursing services out-of-hospital E E 5739.01(X)(1) Oil Field Services E E 5739.01(X)(8) Personal instruction (dance, golf, tennis, etc.) E E 5739.01(X)(2) Physicians E E 5739.01(X)(1) Preschool through twelve, post-secondary, and tutoring E E 5739.01(X)(2) Radio & television, national advertising E E 5739.02(B)(10) Real property construction services E E 5739.01(X)(3) Residential trash pick-up and disposal E E 5739.01(X)(9) Seismograph & Geophysical Services E E 5739.01(X)(8) Services used directly in producing oil and gas E E 5739.01(X)(8) Social assistance services E E 5739.01(X)(7) Soil prep., custom baling, other ag. services E E 5739.02(B)(42)(n) 5739.02(B)(42)(n) Transactions by which consumer obtains insurance E E 5739.01(X)(5) Typesetting & platemaking for the print trade E E 5739.02(B)(42)(f) 5739.02(B)(42)(f) Veterinary services (livestock) E E 5739.02(B)(42)(n) 5739.02(B)(42)(n) Water (including sewer) E E 5739.02(B)(7) Water well drilling (real property) E E 5739.01(X)(3)
Page 106 of 109
Services added as taxable services
Accounting E 5.00% 5739.01(X) Accounting and bookkeeping E 5.00% 5739.01(X) Admission to cultural events E 5.00% 5739.01(X) Admission to professional sports events E 5.00% 5739.01(X) Admission to school and college sports events E ***5.00% 5739.01(X) Advertising agency fees (other than ad placement) E 5.00% 5739.01(X) Amusement park admission & rides E 5.00% 5739.01(X) Architects E 5.00% 5739.01(X) Architectural, engineering, and related services E 5.00% 5739.01(X) Attorneys E 5.00% 5739.01(X) Bail bond fees E 5.00% 5739.01(X) Billiard parlors E 5.00% 5739.01(X) Books - Downloaded E 5.00% 5739.01(B)(6) Bowling alleys E 5.00% 5739.01(X) Cable TV services E 5.00% 5739.01(X) Call center E 5.00% 5739.01(X) Check & debt collection E 5.00% 5739.01(X) Circuses and fairs -- admission and games E 5.00% 5739.01(X) Coin operated video games E 5.00% 5739.01(X) Commercial art and graphic design E 5.00% 5739.01(X) Credit information, credit bureaus E 5.00% 5739.01(X) Credit rating svc E 5.00% 5739.01(X) Cutting, coloring, styling of hair E 5.00% 5739.01(X) Data Mining Services E 5.00% 5739.01(X) Dating services E 5.00% 5739.01(X) Debt counseling E 5.00% 5739.01(X) Engineers E 5.00% 5739.01(X) Fishing and hunting guide services E 5.00% 5739.01(X) Horse boarding and training E 5.00% 5739.01(X) Insurance services (insurance policy purchases remain exempt under 5739.01(X)(5)) E 5.00% 5739.01(X) Interior design and decorating E 5.00% 5739.01(X) Intrastate courier service E 5.00% 5739.01(X)
Page 107 of 109
Investment counseling E 5.00% 5739.01(X) Land surveying E 5.00% 5739.01(X) Laundry and dry cleaning services, coin-op E 5.00% 5739.01(X) Legal services E 5.00% 5739.01(X) Loan broker fees E 5.00% 5739.01(X) Lobbying and consulting E 5.00% 5739.01(X) Magazine subscriptions E 5.00% 5739.01(X) Mailbox rentals E 5.00% 5739.01(X) Mailroom services E 5.00% 5739.01(X) Management consultant services E 5.00% 5739.01(X) Marine towing service (incl. tugboats) E 5.00% 5739.01(X) Marketing E 5.00% 5739.01(X) Movies/Digital Video - Downloaded E 5.00% 5739.01(B)(6) Music - Downloaded E 5.00% 5739.01(B)(6) Other Electronic Goods - Downloaded E 5.00% 5739.01(B)(6) Packing and crating E 5.00% 5739.01(X) Pari-mutuel racing events. E 5.00% 5739.01(X) Parking lots & garages E 5.00% 5739.01(X) Pet grooming E 5.00% 5739.01(X) Pinball and other mechanical amusements E 5.00% 5739.01(X) Process server fees E 5.00% 5739.01(X) Property sales agents (real estate or personal) E 5.00% 5739.01(X) Public Relations E 5.00% 5739.01(X) Public relations, management consulting E 5.00% 5739.01(X) Real estate management fees (rental agents) E 5.00% 5739.01(X) Real estate title abstract services E 5.00% 5739.01(X) Refuse collection (industrial) E 5.00% 5739.01(X) Rental of films and tapes by theaters E 5.00% 5739.01(X) Sales of advertising time or space: Billboards E 5.00% 5739.01(X) Magazine E 5.00% 5739.01(X) Newspaper E 5.00% 5739.01(X) Radio & television, local advertising E 5.00% 5739.01(X) Secretarial and court reporting services (excludes temporary hiring) E 5.00% 5739.01(X)
Page 108 of 109
Service charges of banking institutions E 5.00% 5739.01(X) Software - custom programs - programming E 5.00% 5739.01(X) Software - modifications to pre-written program E 5.00% 5739.01(X) Sound recording E 5.00% 5739.01(X) Stenographic services E 5.00% 5739.01(X) Tax return preparation E 5.00% 5739.01(X) Telemarketing services on contract E 5.00% 5739.01(X) Telephone answering service E 5.00% 5739.01(X) Test laboratories (excluding medical) E 5.00% 5739.01(X) Tickertape reporting (financial reporting) E 5.00% 5739.01(X) Trailer parks - overnight E 5.00% 5739.01(X) Travel agent services E 5.00% 5739.01(X)
*Sales tax is imposed on services under proposed R.C. 5739.01(B)(3) and proposed R.C. 5739.01(X) defines "service."**Indoor swimming pool cleaning and maintenance is currently taxable. ***R.C. 5739.02(B)(9)(a) + (b) concerns exemptions for sales of certain services by churches, charities, and school organizations that will continue under proposed law.