On June 30, 2017, Governor John Kasich signed Ohio’s 2018–2019 budget bill. The budget bill reduces Ohio personal income tax rates, adds a substantial nexus provision for sales and use tax purposes, and makes major changes to Ohio municipal income tax. An overview of these and other major tax provisions is outlined below.
Personal Income Tax
For tax years beginning in 2017, the bottom two personal income tax brackets have been eliminated. Taxpayers with income under $10,500 will no longer pay Ohio tax. The 2017 rates are as follows:
|Ohio Taxable Income||Tax Calculation|
|$10,500-$15,800||$ 77.96 + 1.980% of excess over $10,500|
|$15,800-$21,100||$ 182.90 + 2.476% of excess over $15,800|
|$21,100-$42,100||$ 314.13 + 2.969% of excess over $21,100|
|$42,100-$84,200||$ 937.62 + 3.465% of excess over $42,100|
|$84,200-$105,300||$ 2,396.39 + 3.960% of excess over $84,200|
|$105,300-$210,600||$ 3,231.95 + 4.597% of excess over $105,300|
|More than $210,600||$ 8,072.59 + 4.997% of excess over $210,600|
Estates will pay a tax rate of 0.7425% on the first $10,500 of income. Tax is calculated on any income in excess of $10,500 using the above rates.
Other personal tax changes include an increased deduction of $4,000 per beneficiary on the 2018 Ohio return for 529 plan contributions (formerly $2,000 per beneficiary). In addition, the low-income tax credit has been eliminated.
Municipal Income Tax
Beginning in 2018, the throwback rule for determining what amount of a business’s income is apportioned to a particular city will be eliminated.
The bill added an option to elect centralized filing of city tax returns for tax years beginning on or after Jan. 1, 2018.
The penalty imposed on employers that do not timely remit city income tax withholding has been changed to “less than 50% of the unpaid amount.”
Beginning in 2018, the due date for fourth quarter estimated tax payments for individuals only has been extended by one month, to Jan. 15.
Sales and Use Tax
Ohio has added a substantial nexus provision beginning Jan. 1, 2018 for remote sellers. A seller is deemed to have substantial nexus in Ohio if it uses in-state software to sell or lease tangible personal property or services and has gross receipts of more than $500,000 in the current or preceding calendar year from the sale of tangible personal property for consumption in Ohio. A seller is also deemed to have substantial nexus if it enters into an agreement with a person to provide a content distribution network in order to enhance delivery of its website to consumers and has gross receipts of more than $500,000.
The bill authorized a sales tax holiday from Aug. 3–5, 2018 for the sale of clothing priced at $75 or less and school supplies and instruction materials priced at $20 or less.
The budget bill made a few changes to taxability and definitions effective Oct. 1, 2017. Digital music purchased from and electronically delivered by a jukebox or other single-play commercial music machine is exempt from sales tax. In addition, the definition of advertising and promotional direct mail (and other mail) now conform to the Streamlined Sales and Use Tax Agreement (SSUTA).
Ohio will offer an amnesty program from Jan. 1– Feb. 15, 2018. Applicable taxes covered under the amnesty include: financial institutions, sales, cigarette and other tobacco products, school district income, income, and commercial activity. Delinquent taxes that are due and payable as of May 1, 2017, will be covered. Delinquent taxes do not include any tax for which the taxpayer has been issued a notice of assessment, for which an audit has or is being conducted, or for which a bill has been issued. Ohio will waive penalties and half of the interest due when a person participates in the amnesty and pays the applicable tax and interest.
Tobacco Products Taxes
A maximum tobacco products tax amount has been placed on the sale, storage, use, or other consumption of premium cigars for invoices dated on or after July 1, 2017. The tax is 50 cents per cigar.
Real Property Tax
The bill added an exemption for property that was conveyed to a municipality by a community improvement corporation (“CIC”) and was conveyed to the CIC by a federal agency. Other requirements of the exemption include less than 75% of the rentable square footage is currently rented to tenants and the property is subject to an agreement by which the municipality must convey the property back to the CIC before it is developed.
The homestead exemption filing for manufactured and mobile homes is now due on Dec. 31 of the year for which the exemption is requested. This is an 18-month extension from previous law.
There is a new exemption from real property tax for retail stores operated by charitable nonprofit organization. The exemption will apply if the retail store sells primarily donated items suitable for residential housing purposes and the proceeds are used exclusively for the purposes of the nonprofit.
Under the bill, taxpayers no longer have the option to bypass the court of appeals to challenge decisions by the Ohio Board of Tax Appeals (BTA). Previously, taxpayers could appeal a BTA decision to the Supreme Court or Court of Appeals. Now taxpayers must appeal BTA decisions to the local appeals court based on residence.
We will continue to monitor the provisions of this bill and provide additional guidance as it becomes available. If you would like to discuss any of the provisions from the 2018–2019 budget bill, please contact Leslie Kasten at (216) 241-3272.