Ohio State Tax Blog

Current developments, commentary and helpful resources regarding Ohio state and multistate taxes from attorneys Steven A. Dimengo and Richard Fry. We concentrate on all aspects of Ohio state taxation, including sales/use tax, income tax and commercial activity tax, from audits to appeals before the Ohio Board of Tax Appeals and Ohio Supreme Court, and have significant experience in multistate tax planning. Contact us.

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ABA Blawg 100 Nominations! PDF Print E-mail
Thursday, 24 July 2014 13:04

Do you like our blog? The American Bar Association’s ABA Journal is now accepting nominations for the 8th Annual Blawg 100 to identify the best 100 legal blogs, or “Blawgs”. We at the Ohio State Tax Blog are asking for help from our loyal readers to be recognized amongst the leading Blawgs. You can nominate the Ohio State Tax Blog by using the ABA’s Blawg 100 Amici Form, available here. This will take a few minutes, as your comments are limited to 500 characters. Friend-of-the-blawg briefs are due no later than 5 p.m. EST on August 8, 2014.

Last Updated on Thursday, 24 July 2014 13:05
 
Ohio Tax Commissioner To Begin Notifying Taxpayers Of Credit Account Balance PDF Print E-mail
Monday, 23 June 2014 13:15

Thanks to recently passed Am. Sub. S.B. 263, the Ohio Tax Commissioner has one more duty – to notify taxpayers who have overpaid a tax or fee. Pursuant to R.C. 5703.77, taxpayers with a “credit account balance” will now receive notice at least 60 days prior to end of the period of time for which they may file a refund application. Additionally, the new legislation authorizes the Tax Commissioner to apply the “credit account balance” to the taxpayer’s next reporting period or refund the tax, even if no refund application is filed. This codifies the policy change implemented by Gov. Kasich and Tax Commissioner Testa who began refunding certain taxpayers who made an overpayment after discovering that the Department of Taxation’s long-standing policy was not to issue refunds without such an application, even if it was aware of the overpayment.

Last Updated on Monday, 23 June 2014 13:17
 
Ohio Mid-Biennium Budget Bill Passed PDF Print E-mail
Thursday, 19 June 2014 14:59

Gov. Kasich signed legislation (H.B. 483) this week which made several changes to Ohio taxes. While not as ambitious as initially proposed, this legislation continues to reduce the tax burden on Ohio residents and business owners. The most noteworthy portions of the legislation relate to Ohio personal income tax and include:

  • Acceleration of Ohio personal income tax reduction. The 10% reduction in Ohio’s personal income tax rates, which was to be completely phased in next year (2015), was accelerated such that the full reduction is effective for the 2014 tax year. Gov. Kasich has publically stated that he wishes to reduce the highest tax rate to less than 5%. After this reduction, only the top bracket, applying to adjusted gross income over $200,000, will be taxed at greater than 5%.
  • The small business income tax deduction was included as part of the Budget Bill passed last June providing for a 50% deduction of the first $250,000 of business income from certain small businesses. The deduction was increased to 75%, increasing the maximum deduction to $187,500.
  • Beginning with the 2014 tax year, the Ohio earned income tax credit is increased to 10% of the federal credit (previously 5%).
  • Increased the personal exemptions for low-income taxpayers.

The Governor used his line-item veto power to strike provisions providing a tax break to private water companies and requiring the state to provide counties with businesses’ sales tax information.

Last Updated on Thursday, 19 June 2014 15:00
 
Ohio Personal Income Tax - Bright-Line Residency Test Satisfied for Husband But Not Wife (Even Though She Met the Ohio Contact Period Test) PDF Print E-mail
Friday, 06 June 2014 18:23

The Ohio Board of Tax Appeals ("BTA") has provided quite an informative decision addressing residency stressing the importance of filing the required affidavit (Form IT DA) if claiming to be a non-resident under the bright-line test set forth in R.C. 5747.24. See Cunningham v. Testa, Ohio BTA Case No. 2011-4641 (March 6, 2014). As a foundation, the bright-line test provides that an individual having less than 183 "contact periods" is presumed to not be domiciled in Ohio, if the individual timely files an affidavit for the year stating that for the entire year:

1. The individual was not domiciled in Ohio; and

2. Maintained an abode outside Ohio (including the location of the abode).

The presumption is irrebuttable unless the affidavit is false. In this case, both the husband and wife met the contact period requirement (i.e., both had less than 183 contact periods) and maintained a Tennessee home the entire year. However, only the husband filed the affidavit.

The BTA addressed two core issues:

• In determining whether the affidavit is false, can the Tax Commissioner look to evidence to support lack of domicile under the common law test? The statement can only be false if the taxpayer, in fact, had at least 183 Ohio contact periods or did not have an abode outside Ohio for the entire year. In other words, the reference to being domiciled outside Ohio for the entire year in the affidavit is in the context of meeting the bright-line test. As the Board noted, an additional requirement that the taxpayer, in fact, was not domiciled in Ohio, is an over-reading of the statute and would render the "bright-line" residency rules moot, as the Tax Commissioner could always challenge the statement.

As a side note, the BTA stated that the taxpayers' Homestead Exemption Application which stated that they occupied an abode in Cincinnati as their principal place of residence was neither relevant nor inconsistent with their non-Ohio domicile status since it was clear they spent more time at their Ohio residence than in the Tennessee residence.

• Must the husband and wife file separate affidavits? Yes, the statute requires a separate affidavit for each taxpayer. Therefore, the wife had to satisfy the common law test for domicile, even though she otherwise met the bright-line test. Accordingly, the BTA applied the common law test of domicile which focuses on maintaining a residence with the intent to stay at such residence for an indefinite period of time. The Board noted that residence constitutes having a "fixed permanent home to which one intends to return and from which one has no present purpose to depart." A critical component is that a new domicile is not established until the old one is abandoned. Since the wife never abandoned her Ohio domicile, she remained a resident for Ohio personal income tax purposes.

This case highlights two important aspects of Ohio's bright-line residency test – first, each taxpayer must file the affidavit to rely upon the irrebutable presumption that they were a non-Ohio resident; and, second, a husband and wife are not necessarily residents of the same state for tax purposes.

Last Updated on Friday, 06 June 2014 18:27
 
Real Property Tax: Ohio Supreme Court Rejects Recency Presumption For Sale Occurring 29 Months Prior To The Tax Lien Date PDF Print E-mail
Wednesday, 28 May 2014 19:01

Former R.C. 5713.03 required a county auditor to consider a recent arm’s-length sale in determining a property’s true value for real property tax purposes. “The best evidence of the true value in money of real property is an actual, recent sale of property in an arm’s -length transaction.” Conalco v. Monroe Cty. Bd. of Revision, 50 Ohio St.2d 129 (1977). In such cases, the party objecting to the value based on such a sale was limited to challenging the recency or arm’s-length nature of the sale. Generally, it has been presumed that a sale within 24 months of the tax lien date was recent. However, the Ohio Supreme Court recently declined to extend this presumption to a sale occurring 29 months prior to the tax lien date when a different value was determined as part of the county auditor’s six-year reappraisal. Akron City School Dist. Bd. of Educ. v. Summit Cty. Bd. of Revision, 2014-Ohio-1588.

Note the current version of R.C. 5713.03 provides that a county auditor may consider a recent arm’s-length sale, meaning the consideration of such a sale is no longer mandatory. 2012 Am.Sub.H.B. No. 487.

Last Updated on Wednesday, 04 June 2014 17:18
 
Steve Dimengo Interviewed on WAKR Radio PDF Print E-mail
Written by Terry Lehner   
Tuesday, 22 April 2014 00:00

Steve Dimengo appeared on WAKR on April 15, 2014 to talk about Tax Day and issues with taxes.

Click here to hear the full interview.

 

Last Updated on Wednesday, 04 June 2014 17:16
 
Ohio CAT: BTA Predictably Upholds Ohio's Bright-Line Nexus Standard Despite Lack of Physical Presence PDF Print E-mail
Tuesday, 08 April 2014 00:00

The Ohio Board of Tax Appeals (BTA) found L.L. Bean, Inc. to be subject to Ohio commercial activity tax (CAT) because it had greater than $500,000 of Ohio gross receipts from catalog and Internet sales, even though it lacked an Ohio physical presence. L.L. Bean, Inc. v. Levin, BTA Case No. 2010-2853 (March 6, 2014). This was a simple application of Ohio’s statutory “bright-line presence” standard which deems nexus to exist if a taxpayer has at least $500,000 in calendar year gross receipts from Ohio sources. R.C. 5751.01(I).

Although this provision may be unconstitutional on its face or as applied to L.L. Bean, Inc., there was no doubt the BTA would find that substantial nexus existed since it is without jurisdiction to address Constitutional issues. Such determinations are left for the Ohio Supreme Court, where L.L. Bean recently filed its appeal. See L.L. Bean, Inc. v. Testa, Case No. 2014-0456 (Notice of Appeal, March 24, 2014). The BTA’s purpose was simply to create the factual record to be considered by the Supreme Court.

The Supreme Court will now address whether a mere economic presence is sufficient for Ohio to impose the CAT on foreign businesses without a physical presence under the U.S. Constitution’s Commerce Clause substantial nexus requirement enumerated in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 287 (1977). Other states in similar cases have found that the physical presence requirement in Quill Corp. v. North Dakota, 504 U.S. 298, 313 (1992) is limited to sales / use taxes. See e.g., Tax Comm’r v. MBNA America Bank, N.A., 640 S.E.2d 226 (2006) cert. denied FIA Card Services, N.A. v. Tax Comm’r of W. Virginia, 551 U.S. 1141 (2007); and Geoffrey, Inc. v. South Carolina, 437 S.E.2d 13 (1992) cert. denied Geoffrey, Inc. v. South Carolina Dep’t of Rev. and Tax., 510 U.S. 992 (1993).

Even if the CAT can be imposed on businesses without an Ohio physical presence, questions will remain, such as how is the economic presence to be determined / measured and must the business take affirmative acts to develop the Ohio market or is merely making sales into the state sufficient. Stay tuned as the Ohio Supreme Court’s ruling on this issue will be much more important.

 
Supplemental Executive Retirement Plan ("SERP") Was A Pension Exempt from City Income Tax PDF Print E-mail
Monday, 31 March 2014 00:00

The Tenth District Court of Appeals affirmed the Ohio Board of Tax Appeals (“BTA”) determination that a SERP provided a pension benefit even though it was part of a nonqualified deferred compensation plan. See McDonald v. City of Shaker Heights Income Tax Board of Review, Court of Appeals of Ohio, Tenth District, No. 13 AP-71, February 27, 2014.

The SERP benefit at issue was not a salary deferral and was unfunded before the taxpayer’s retirement. The benefit was intended to replace a portion of the taxpayer’s pre-retirement income after taking into consideration other benefits to be received through a qualified plan and Social Security. It was received in the form of joint and survivorship annuity measured by the joint lives of the taxpayer and his wife.

The City of Shaker Heights (“City”) sought to tax the present value of the SERP benefit, even though “pension” income was specifically exempted from taxation under the City’s Codified Ordinances. However, the Ordinances failed to define what constituted a pension. So, the BTA used the common meaning of pension – “any plan sponsored by an employer that provides for post-retirement income that’ s designed to support their income for life.”  The SERP benefit at issue met this definition and was, therefore, not subject to city income tax. Particularly important appears to be the fact that no portion of the taxpayer’s salary had been deferred and the SERP had not been funded prior to retirement. The Court of Appeals concluded that the BTA’s decision was sufficiently supported and was not unreasonable or unlawful.

Many municipalities have similar taxing statutes, but have also taxed these types of SERP benefits. Refund claims may be available if the tax was paid within the recent past. This decision can also be relied upon in addressing the taxability of other post-employment benefits paid by an employer, especially where the taxing authority does not explicitly define the nature of its nontaxable income, such as pension income.

 
Ohio Personal Income Tax: Nonresident Nexus Safe Harbor for Mobile Workforce Updated PDF Print E-mail
Tuesday, 04 March 2014 00:00

The Ohio Department of Taxation recently expanded the personal income tax safe harbor for nonresidents temporarily working in Ohio. Information Release PIT 2001-01, Personal Income Tax Nexus Standards, at Sections IV.O and IV.P (Rev. Jan. 10, 2014). Now, a nonresident will not owe Ohio personal income tax if he or she works 20 days or less in Ohio and earns less than $10,000 of gross income while in Ohio in a calendar year. The previous thresholds were seven days and $2,500 of gross income. See Individual Income Tax – Information Release IT 2014-01 (Jan. 10, 2014). This also benefits employers who temporarily send employees into Ohio, as the employer is not required to withhold Ohio income tax from its employees’ wages who meet the safe harbor. 

The expanded safe harbor is consistent with nationwide efforts to ease employer withholding tax compliance burdens, including the Multistate Tax Commission’s Model Mobile Workforce Statute. Federal legislation has been introduced which would provide uniform guidance as to when a nonresident employee temporarily present in the state may be subject to the state’s income tax, although similar legislation has been introduced previously without passage. See Himes Sponsors Legislation to Bring Tax Fairness to People Who Work in Two States (Feb. 13, 2014).

Last Updated on Wednesday, 04 June 2014 17:12
 
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Ohio State Tax Attorney, Steven A. Dimengo

Steve Dimengo is recognized as one of the leading tax attorneys in Ohio, where he has been serving clients for over twenty-five years. Full Profile. Cases. Email.

 

Ohio State Tax Attorney, Richard B. Fry III

Richard Fry is an Associate focusing on business law, specifically taxation. He holds a J.D. and Masters of Taxation from the University of Akron. Full Profile. Email.

News

Steve will be speaking at the Lorman Sales and Use Tax in Ohio Seminar to be held in Akron on January 21, 2014.  He will be discussing Manufacturing Exemptions, Transfer of Business and Personal Liability for Sales tax.  Click here to see more (and register).

 

BEST LAWYERS' 2012 LAWYERS OF THE YEAR:

Steven Dimengo has been named the Best Lawyers' 2012 Akron Tax Law Lawyer of the Year