New Ohio Budget Bill Contains Important Tax Changes
On July 24, 2008, Governor Ted Strickland signed into law Amended House Bill 562, the Capital Appropriations and Budget Corrections Bill (the “Budget Bill”). The Budget Bill contains many important tax provisions. Certain parts of the Budget Bill are effective immediately. Some of the Budget Bill’s key tax changes are summarized below.
New Taxable Item for Sales and Use Tax
Sales of guaranteed auto protection is now taxable for sales and use tax purposes if sold as part of the motor vehicle purchase or lease agreement (i.e., separate purchase of guaranteed auto protection remains non-taxable). Guaranteed auto protection is a stop gap product that covers the difference between the amount received from motor vehicle insurance and the amount owed to a creditor holding title to or a lien on the motor vehicle in the event the motor vehicle suffers a total loss or is stolen and not recovered.
New Exemptions for Sales and Use Tax
The following items will be exempt from sales and use tax on the indicated dates:
· Effective June 24, 2008: machinery, equipment, and software to a “qualified direct selling entity” for use in a warehouse or distribution center primarily to store, transport, or handle inventory held for sale to independent salespersons who operate as “direct sellers” and that is primarily distributed outside of Ohio.
- A “qualified direct selling entity” is an entity selling to direct sellers at the time the entity enters into a jobs creation tax credit agreement on or after January 1, 2007, with the Ohio Tax Credit Authority.
- A “direct seller” is a person selling consumer products to individuals for personal or household use and not from a fixed retail location, including selling such products at in-home product demonstrations, parties, and other one-on-one selling. This exemption is set to expire on June 24, 2013.
· Effective August 1, 2008: materials, parts, equipment, or engines used to repair or maintain aircraft of more than 6,000 pounds maximum certified takeoff weight or aircraft used only in general aviation and the avionics systems of such aircraft; sales or repair, remodeling, replacement, or maintenance services at a Federal Aviation Administration certified repair station within Ohio; full-flight simulators used for pilot training; and sales of repair or replacement parts; and sales of repair or maintenance services for full flight simulators.
Electronic Filing and Payment Requirements for Sales and Use Taxes
Effective January 1, 2009, taxpayers required to have a vendor’s license shall be required to electronically file and remit payments using the Ohio business gateway, the Ohio telefile system, or any other means set forth by the Tax Commissioner. The Tax Commissioner may excuse a taxpayer from these requirements upon demonstration of good cause.
Electronic Filing Requirements for Income and Employment Withholding Tax Preparers
Effective January 10, 2010, tax return preparers that prepare more than 75 original tax returns, reports, or other tax payment documents during any calendar year that begins on or after January 1, 2008, are required to electronically file income tax returns and employer withholding returns unless the preparer filed 25 or less original tax returns in the previous year. The electronic filing requirement will only apply if the Tax Commissioner has published at least one method of acceptable electronic technology on the Department of Taxation’s website by December 31, 2009. The electronic filing rules do not apply to amended returns or declarations of estimated tax. Unless good cause is demonstrated by the tax preparer, the Tax Commissioner must impose a $50 penalty for each return in excess of 75 that is not filed electronically.
Trust Tax Credit
The tax credit formerly available to all trusts on a trust’s accumulated non-business income for taxes paid to another state is now limited to non-resident trusts only. The credit cannot exceed the amount of Ohio tax that would be imposed on the income taxed by the other state, and the credit is applied before any other credits.
The Budget Bill contains many other important tax and non-tax provisions. The full text of the Budget Bill can be obtained online at the following web address: http://www.legislature.state.oh.us/BillText127/127_HB_562_EN_N.html .
If you would like to find out more, please feel free to contact Frost Brown Todd’s State and Local Tax Practice Group .