Ohio Commercial Activity Tax: NASCAR laps the field as Ohio Supreme Court rules broadcast and media revenue is not subject to Ohio tax.

2022-12-06 14:27:31

<!-- wp:paragraph --> <p><a href="https://www.supremecourt.ohio.gov/">The Ohio Supreme Court</a> has ruled that NASCAR’s broadcast, media, licensing, and sponsorship revenue is not subject to Ohio’s <a href="https://tax.ohio.gov/business/ohio-business-taxes/commercial-activities/commercial-activities">Commercial Activity Tax</a> (“CAT”). Ohio’s CAT statute situses gross receipts from intellectual property to Ohio only “to the extent” they are “<strong><em>based on</em></strong><em> the right to use the property</em>” in Ohio. <a href="https://codes.ohio.gov/ohio-revised-code/section-5751.033">R.C. 5751.033(F)</a> (emphasis added). The Court interpreted this provision as requiring the receipts to have a causal connection with the right to use the IP specifically in Ohio. Since none of the sample contracts <em>“tied payments to the right to use property in Ohio” </em>and, in fact, did not mention Ohio at all, such a relationship was lacking. Instead, the contracts <em>“granted broad rights to use NASCAR’s intellectual property over large geographic areas,” </em>typically the United States and its territories. <em>See</em> <a href="https://www.supremecourt.ohio.gov/rod/docs/pdf/0/2022/2022-Ohio-4131.pdf"><em>Nascar Holdings, Inc. v. McClain</em>, Slip Opinion No. 2022-Ohio-4131</a>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>The Court applied the plain statutory language to distinguish receipts from the right to use IP in Ohio from fixed fee payments to use IP in larger areas that included Ohio. Since the receipts at issue – broadcast, media, sponsorship, and licensing fees – were not tied to the actual use of the intellectual property in Ohio, they did not have the necessary connection to Ohio to justify taxation under the situsing statute. In other words, the right to use the IP in the United States for a fixed fee, irrespective of location, did not mean the receipts were based on the right to use IP in Ohio. Due to lack of contractual support, the Tax Commissioner would not have prevailed even if he taxed receipts rationally connected to actual Ohio use of the intellectual property.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>The case involved multiple sources of NASCAR’s IP-related revenue from: (1) granting networks the right to air NASCAR races (Broadcast Revenue); (2) media sponsors incorporating NASCAR in marketing campaigns (Media Revenue); (3) royalties for NASCAR-branded products and services (License Fees); and (4) fees from corporate sponsors (Sponsor Fees). The Ohio Board of Tax Appeals previously determined that NASCAR’s receipts from the use of its intellectual property was properly sitused to Ohio based upon either the ratio of Ohio viewership using Nielsen rating or U.S. Census data, as more fully explained in <a href="https://www.ohiostatetaxblog.com/ohio-commercial-activity-tax-nascar-hits-roadblock-as-broadcast-and-media-revenue-sitused-to-ohio-based-upon-viewership-data/">our previous post</a>. The Ohio Supreme Court disagreed, however, because NASCAR’s revenue was not based on any right to use the property specifically in Ohio.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>The NASCAR ruling significantly hinders Ohio’s ability to impose tax on revenue from granting broad intellectual property rights and provides taxpayers a planning technique to avoid CAT on their IP-related revenue. If you have questions about how this ruling’s impact on situsing gross receipts or disputing revenue apportionment or any other questions pertaining to Ohio’s commercial activity tax, do not hesitate to <a href="https://www.ohiostatetaxblog.com/contact/">contact us.</a></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><a href="https://www.bdblaw.com/attorneys/nathan-m-fulmer/">Nathan M. Fulmer</a> is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6464">330.258.6464</a>.</p> <!-- /wp:paragraph -->

Ohio Real Property Tax – Ohio severely restricts school districts’ rights to challenge property values

2022-06-21 19:36:26

<!-- wp:paragraph --> <p>Recently-enacted <a href="https://search-prod.lis.state.oh.us/solarapi/v1/general_assembly_134/bills/hb126/EN/07/hb126_07_EN?format=pdf">HB 126</a> significantly alters the rights and procedures for local school districts (among other government entities) to contest property valuations for real property taxes. The changes described below will affect current and future valuation complaints and appeals. Accordingly, this is an opportune time for property owners to review their approach to property taxes and potential savings.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>This new legislation limits the rights of local school districts to file <a href="https://tax.ohio.gov/static/forms/real_property/dte-dte1-fi.pdf">real property tax valuation complaints.</a> These local challenges to property value would only be permitted if:</p> <!-- /wp:paragraph --> <!-- wp:list {"ordered":true,"type":"1"} --> <ol type="1"><li>The property was sold in an arms-length transaction in the year before the tax lien date for the year for which the complaint was filed;</li><li>The sale price exceeds the assessed value by 10% AND $500,000 (adjusted for inflation); and</li><li>The school district’s board passes a resolution authorizing the complaint and gives at least seven days’ notice to the property owner of the meeting where the resolution will be discussed.</li></ol> <!-- /wp:list --> <!-- wp:paragraph --> <p><a href="https://codes.ohio.gov/ohio-revised-code/section-5715.19/7-21-2022">O.R.C. 5715.19(A)(8).</a> It seems this is aimed to curb the cottage industry that has developed with school districts filing numerous valuation complaints greatly increasing the aggravation and cost to property owners.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>If the property owner files an original complaint requesting a reduction in value greater than $17,500, the local school district may file a counter-complaint and participate in the proceedings. However, school boards will no longer receive mandatory notice of property owners’ complaints, presumably reducing the number of counter complaints as the effort to identify complaints increases. These changes in procedure take effect with the 2022 tax year (for complaints filed and taxes payable in 2023).</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Further, local school districts will only have a single chance to prevail on their valuation complaints. Effective July 19, 2022, school districts will no longer have the right to appeal a Board of Revision decision to the <a href="https://bta.ohio.gov/">BTA</a> unless they own the subject property. The new law will also outlaw “private pay” agreements where property owners agree to pay the school district in exchange for withdrawing a complaint or agreeing not to file one.  <a href="https://www.ohioattorneygeneral.gov/getattachment/203b4393-4927-48c2-9703-42eb247d921f/2018-011.aspx">Op. Att’y Gen. 2018-011</a>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>These procedural changes not only limit the rights of the school districts, but also create unique planning opportunities for real estate sales and valuation complaints to prevent any challenges to the property’s tax value. If you have any questions about real property taxes or how this new law may affect your rights, please <a href="https://www.ohiostatetaxblog.com/contact/">contact us.</a></p> <!-- /wp:paragraph -->

Ohio Income Tax – Ohio Jumps on Trend to Codify SALT Deduction Cap Workaround

2022-06-16 15:25:31

<!-- wp:paragraph --> <p>Last year, <a href="https://www.ohiostatetaxblog.com/salt-cap-workaround-ohio-provides-pte-investors-who-elect-workaround-with-income-tax-benefit/">this post</a> explained that investors in Ohio pass-through entities (PTEs) may be able to avoid the $10,000 state and local tax (SALT) deduction cap using <a href="https://tax.ohio.gov/static/forms/pass-through_entities/2021/it4708-instructions.pdf">Ohio’s composite return election.</a> Now a little over a year later, Ohio has ended any uncertainty and joined the growing number of states passing SALT Cap Workaround laws specifically aimed at allowing PTE owners to bypass the $10,000 SALT deduction cap. <em>See</em> <a href="https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA134-SB-246">S.B. 246.</a></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Similar to Ohio’s existing composite return election, SB 246 allows PTEs to annually elect to pay income taxes at the entity level and claim a refundable credit on their individual returns equal to their distributive share of Ohio income taxes paid by the PTE. In <a href="https://www.irs.gov/pub/irs-drop/n-20-75.pdf">Notice 2020-75</a>, the IRS states that these elective PTE-level taxes, referred to as Specified Income Tax Payments, are respected as entity-level taxes and avoid the SALT cap. The tax rate for electing PTEs will be 5% for tax year 2022 and will conform to Ohio’s rate on taxable business income for each year after (currently 3%). So, for 2022, investors of electing PTEs will benefit from claiming the Federal deduction based upon the higher taxes owed by the PTE, while also receiving a credit / refund for taxes paid by the PTE against income from other sources.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>If you have any questions about how this bill can help you avoid the SALT deduction cap, or any other questions concerning Ohio income tax planning, please <a href="https://www.ohiostatetaxblog.com/contact/">contact us.</a></p> <!-- /wp:paragraph -->

Ohio Sales and Use Tax: Sales of mixed service including custom software and automated services purchased by bank needs further examination of purchaser’s true object. 

2022-05-05 19:55:01

<!-- wp:paragraph --> <p>The <a href="https://www.supremecourt.ohio.gov/">Ohio Supreme Court</a> recently addressed whether certain “account processing services” purchased by Cincinnati Federal Savings & Loan Co. were subject to Ohio sales / use tax. The services involved the use of software to automate maintenance of the bank’s accounting and financial records on an ongoing and real-time basis. The Court found that the services included nontaxable custom software and the Board of Tax Appeals failed to examine the true object of the service. Since services often involve many aspects, especially with current technology, it is imperative that service providers analyze what the purchaser is primarily seeking – i.e., the true object. “[A] transaction is taxable only when the consumer’s true object is to obtain the work performed by computer systems—ADP or EIS—rather than to obtain personal and professional services that are coupled with the work that is performed by computer systems.” <a href="https://www.supremecourt.ohio.gov/rod/docs/pdf/0/2022/2022-Ohio-725.pdf"><em>Cincinnati Federal Savings & Loan Co. v. McClain, </em>Slip Opinion No. 2022-Ohio-725 (Ohio S. Ct. March 15, 2022)</a>, ¶24.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Therefore, the Court remanded the case to the Board of Tax Appeals to determine whether Cincinnati Federal’s true object was customized software or taxable automatic data processing (“ADP”) or electronic information services (“EIS”). <em>See </em><a href="https://www.supremecourt.ohio.gov/rod/docs/pdf/0/2022/2022-Ohio-725.pdf"><em>Cincinnati Federal Savings & Loan Co. v. McClain, </em>Slip Opinion No. 2022-Ohio-725 (Ohio S. Ct. March 15, 2022)</a>; <a href="https://codes.ohio.gov/ohio-revised-code/section-5739.01">R.C. 5739.01(B)(3)(e) and R.C. 5739.01(Y)(2).</a> When there is a “mixed transaction” that involves the purchase of taxable (ADP and EIS) and nontaxable items (custom software), the “true object test” must be applied to determine the taxability of each charge. The Tax Commissioner asserted that the charges at issue were for taxable ADP and EIS that required the <em>use</em> of the software, but were not direct purchases of the software itself. However, the record showed that the service provider made modifications to prewritten software based on Cincinnati Federal’s specific needs while also including some aspects that qualify as ADP and EIS.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>The Court rejected Cincinnati Federal’s contention that the automated services it purchased constituted accounting services. Personal and professional services, including accounting services, are nontaxable and excluded from the definitions of ADP and EIS. Accordingly, if it had been purchasing only accounting services, Cincinnati Federal’s purchases would have not been subject to Ohio sales / use tax. </p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Depending on the ultimate decision in this case, businesses may be entitled to refunds for tax paid on purchases of customized software and automated business solutions, even if only slight modifications were made to prewritten software. If you have any questions about the taxability of your custom software or automated services or other Ohio tax exemptions, please <a href="https://www.ohiostatetaxblog.com/contact/">contact us.</a></p> <!-- /wp:paragraph -->

Deadline to Save on Your Real Property Taxes Approaching – It’s time to check if your property tax valuation is inflated.

2022-03-09 17:53:39

<!-- wp:paragraph --> <p>Property owners and certain tenants may challenge the taxable value of their property for the 2021 tax year by filing a real property tax valuation complaint before <strong>March 31, 2022 </strong>to reduce their property taxes<strong>. </strong>For the first time<strong>, </strong>Ohio law allows certain commercial and industrial tenants, in addition to property owners, to file the valuation complaint if the tenant is responsible for property taxes (<em>e.g.,</em> triple-net-lease tenants) and obtains the property owner’s consent. <a href="https://ohiosenate.gov/legislation/GA134-SB-57">S.B. 57.</a> For the 2021 tax year, the property is valued as of January 1, 2021 (i.e., the tax lien date).</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>There are several reasons why one’s property value could be inflated, as property values in Ohio are reappraised or updated by the county every three years, values are automatically adjusted when property is transferred (even if the sale price includes nontaxable personal or intangible property), or the property has been historically overvalued. Although some sectors of the real estate market have been strong through the pandemic, we have noticed that these perceived market gains seem to have been applied uniformly to all types of real estate resulting in unwarranted increases to value in many circumstances.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>If you wish to contest your property’s value, taxpayers should start working with their attorney now to ensure the relevant information is available to obtain the most favorable result. This often includes retaining an appraiser to support the reduced valuation. However, there can be other methods for supporting a lower valuation even without obtaining an appraisal, especially if the property was recently transferred.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Property owners and tenants should not miss this opportunity to review their property tax valuations. Further, taxes can be challenged in situations where COVID-19 specifically affected property values, such as those industries hit hard by the pandemic, even if a valuation complaint had been filed in the previous three-year valuation period. In Northeast Ohio for 2021, Sandusky County properties were reappraised, while Cuyahoga, Lake, Lorain, Portage and Stark County values were updated. </p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>The Attorneys at Buckingham. Doolittle, and Burroughs, LLC, are eager to help taxpayers take advantage of this real property tax savings opportunity. If you want to pursue this opportunity or have questions about the process, please do not hesitate to <a href="https://ohiostatetaxblog.com/contact/">contact us.</a></p> <!-- /wp:paragraph -->

OSBA Sales & Use Tax Subcommittee Highlights Recent Cases

2022-03-02 19:52:54

<!-- wp:paragraph --> <p><a rel="noreferrer noopener" href="https://www.ohiostatetaxblog.com/wp-content/uploads/2021/09/OSBA-Taxation-Law-Sales-Use-Tax-Sept-2021.pdf" target="_blank">Click here</a> to view the Sales & Use Tax Subcommittee Report that Steve and Rich presented to the Ohio State Bar Association’s Taxation Law Committee on January 27, 2022. The OSBA Sales/Use Tax Subcommittee Report discusses recent developments concerning the scope of taxable services, as well as the federal preemption of taxation on internet services which were previously taxable in Ohio.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>If you have any questions regarding this Subcommittee Report or any Ohio sales & use tax questions, please do not hesitate to <a href="https://www.ohiostatetaxblog.com/contact/">contact us</a>. Previous Subcommittee Reports are available on our <a href="https://www.ohiostatetaxblog.com/resources/">Resources</a> tab.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><a href="https://www.bdblaw.com/attorneys/nathan-m-fulmer/">Nathan M. Fulmer</a> is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6464">330.258.6464</a>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><strong>About Buckingham, Doolittle & Burroughs:</strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit <a href="http://www.bdblaw.com/">bdblaw.com</a>.</p> <!-- /wp:paragraph -->

Ohio’s Budget Bill tax changes aim to increase Ohio investment and reduce burdens on recovering businesses

2021-07-20 14:42:00

<!-- wp:paragraph --> <p>Ohio’s Biennial Budget Bill (<a href="https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA134-HB-110">Am. Sub. H.B. 110</a>) was signed into law by <a href="https://governor.ohio.gov/wps/portal/gov/governor/">Governor DeWine</a> on June 30, 2021. The bipartisan bill boasts substantial measures to boost school and scholarship funding, create incentives for investing in Ohio, provide relief to businesses hit hard by COVID-19, and even allow college student-athletes to benefit from their own name, image, and likeness. However, this post focuses on the significant changes to Ohio’s tax laws in this taxpayer-friendly budget bill.</p> <!-- /wp:paragraph --> <!-- wp:list --> <ul><li><strong>Municipal Income Tax – </strong>The temporary COVID-19 withholding rules will be preserved for 2021 and expire beginning in 2022, while the existing 20 day safe-harbor will apply. Explained more fully in <a href="https://www.ohiostatetaxblog.com/ohio-bills-seek-to-repeal-law-giving-cities-flexibility-for-remote-worker-withholdings/">this post</a>, the law allows employers to withhold income taxes as if employees are still working in the office, even if they are working remotely from a different municipality, while employees can obtain refunds for 2021 to the extent they actually performed the services outside the municipality. This provision is being <a href="https://www.ohiostatetaxblog.com/challenge-to-ohios-covid-19-remote-worker-withholding-statute-dismissed/">continually challenged</a> as an unconstitutional violation of taxpayers’ due process rights because at least for 2020 the income is not being taxed to where the services are actually being performed.</li><li><strong>State Income Tax – </strong>In a pro-taxpayer move, Ohio reduced the number of tax brackets from 5 to 4, and cut income tax rates by 3% across the board beginning in tax year 2021. The bill also eliminates any income tax for those making less than $25,000. Looking ahead, there are two significant income tax deductions for certain capital gains  that are set to take effect beginning in 2026:<ul><li><strong>Venture Capital Gains</strong> <strong>Deduction </strong>– Taxpayers can receive a full or partial deduction for capital gains from investments in certified Ohio-based “venture capital operating companies” (VCOCs). Designed to spur investment into Ohio businesses, a VCOC will qualify for certification if it has at least $50M in active assets and 2/3 of its general / managing partners are Ohio residents. Taxpayers can receive 100% deduction for gains attributable to investments in Ohio businesses and 50% from a qualified VCOC’s other investments.</li></ul><ul><li><strong>Capital Gain from Sale of Business – </strong>Taxpayers who materially participated in an Ohio-headquartered business for the 5 preceding years or made at least $1M in venture capital investments in a qualifying business can claim a deduction  attributable to a capital gain from the sale of an ownership interest in the business equal to the lower of the capital gain or the taxpayer’s proportionate share of the business’s deductible payroll.</li></ul></li><li><strong>Sales / Use Tax – </strong>Beginning October 1, 2021, Ohio will no longer impose sales / use tax on employment services or employment placement services. The change removes the tax burden of providing staff to businesses returning to full operation post-pandemic, and may curb litigation over employment services issues that have repeatedly made their way to the Ohio Supreme Court over the years. Additionally, Ohio revived the exemption for qualifying investments in metal bullion and coins, which is also effective beginning October 1.</li><li><strong>Ohio Commercial Activity Tax – </strong>The Budget Bill creates a permanent exclusion from gross receipts for Bureau of Workers’ Compensation dividend refunds, and repeals the exclusion for receipts from beauty, health, personal care, or aromatic products between businesses with integrated supply chains. <em>See </em><a href="https://codes.ohio.gov/ohio-revised-code/section-5751.42">R.C. 5751.42</a>. Additionally, the bill mandates that taxpayers calculate their annual minimum tax on the first $1M in taxable gross receipts based on the prior year’s receipts instead of the current year.</li><li><strong>Megaproject Tax Incentives – </strong>In what was previously proposed as a standalone bill to attract large employers and investors to Ohio, the conference committee added a provision not contained in the House or Senate versions that provides “Megaproject” operators and qualifying suppliers with major tax incentives. Projects must have at least $1B in investment or $75M in Ohio payroll to qualify as a Megaproject. The provision extends the maximum limit for certain tax credits, including Job Creation Tax Credits, from 15 to 30 years and allows qualifying suppliers who sell tangible property to Megaproject operators to exclude those receipts from its Ohio CAT base.</li><li><strong>Other Tax Changes – </strong>The bill also contains several other beneficial tax provisions such as: prohibiting local governments from imposing gross receipts taxes on medical marijuana businesses, increasing the Opportunity Zone tax credit limit from $1M to $2M in any fiscal biennium, and creating other investment incentive programs for brownfield remediation and building demolition and site revitalization, among others.</li></ul> <!-- /wp:list --> <!-- wp:paragraph --> <p>As noted above, the Budget Bill includes several important tax changes that we will cover more in-depth in future posts. If you have any questions about the provisions in Ohio’s budget bill, please do not hesitate to <a href="https://www.ohiostatetaxblog.com/contact/">contact us.</a></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><a href="https://www.bdblaw.com/attorneys/nathan-m-fulmer/">Nathan M. Fulmer</a> is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6464">330.258.6464</a>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><strong>About Buckingham, Doolittle & Burroughs:</strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit <a href="http://www.bdblaw.com/">bdblaw.com</a>.</p> <!-- /wp:paragraph -->

Once-in-a-Lifetime Tax Incentive: Employee Retention Credit extended to Q3 and Q4 2021, and expanded for start-ups and struggling businesses.

2021-08-23 13:15:18

<!-- wp:paragraph --> <p>On August 4, 2021, the IRS released additional guidance concerning the <a href="https://www.irs.gov/coronavirus/employee-retention-credit">Employee Retention Credit</a> (ERC) for Q3 and Q4 2021. <em>See </em><a href="https://www.irs.gov/pub/irs-drop/n-21-49.pdf">IRS Notice 2021-49</a>. A notable expansion to eligible businesses includes any business started after February 15, 2020. Further, any employer experiencing a significant decline in quarterly gross receipts for Q1 to Q3 2021 will automatically qualify for the ERC for at least two quarters.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Most of the rules regarding the ERC, as summarized in our <a href="https://www.bdblaw.com/employee-retention-credit-expanded-under-consolidated-appropriations-act-now-available-to-ppp-loan-recipients-and-extended-to-2021/">previous post</a>, remain unchanged. Eligible employers whose operations were partially suspended by government orders or who experienced a significant decline in gross receipts are eligible for a maximum of $5,000 credit per employee for 2020, and $7,000 per quarter, per employee for 2021. Every employer should explore whether they qualify for this unprecedented incentive intended to help businesses recover from the pandemic. The most significant items addressed in the newly issued <a href="https://www.irs.gov/newsroom/covid-19-related-employee-retention-credits-general-information-faqs">IRS guidance</a> are described below:</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><strong><u>Expansions to Eligible Businesses</u></strong></p> <!-- /wp:paragraph --> <!-- wp:list --> <ul><li><strong>Recovery Startup Businesses - </strong>A recovery startup business is one that began business after February 15, 2020 whose average annual revenue is less than $1,000,000 and does not otherwise qualify for the ERC for a partial suspension or significant decline of receipts. Such businesses can claim up to $50,000 in credits in each Q3 and Q4 2021 for a potential $100,000 credit for the year.</li></ul> <!-- /wp:list --> <!-- wp:list --> <ul><li><strong>Severely Distressed Businesses – </strong>An employer whose gross receipts are less than 10% of receipts compared to the same quarter in 2019 may treat <em>all </em>wages paid to employees as qualified wages, even if it was a “large employer” for ERC purposes in 2020 or the first two quarters of 2021.</li></ul> <!-- /wp:list --> <!-- wp:paragraph --> <p><strong><u>FAQ Highlights</u></strong></p> <!-- /wp:paragraph --> <!-- wp:list --> <ul><li><strong>Alternative quarter “lookback” election – </strong>This election allows employers with a 20% decline in gross receipts for any quarter in 2021 eligible to claim the ERC in the next quarter as well. In other words, if an employer qualifies for the ERC in 2021, it will automatically qualify for the credit for at least two quarters. </li></ul> <!-- /wp:list --> <!-- wp:list --> <ul><li><strong>Deductibility of qualified wages – </strong>Employers who receive an ERC must reduce their federal income tax deduction for qualified wages by the amount of credit received. This may mean require amended returns for employers who received a credit for qualified wages in 2020, but deducted the full amount of wages paid.</li></ul> <!-- /wp:list --> <!-- wp:list --> <ul><li><strong>Inclusion of tips in qualified wages – </strong>If an employee receives at least $20 in cash tips for that month, all cash tips for that month are included in qualified wages for ERC purposes.</li></ul> <!-- /wp:list --> <!-- wp:list --> <ul><li><strong>Full-time equivalent calculation not necessary – </strong>Employers are not required to include “FTEs” when determining average number of full-time employees for purposes of ERC eligibility.</li></ul> <!-- /wp:list --> <!-- wp:list --> <ul><li><strong>Gross Receipts Safe Harbor – </strong>Employers may exclude the following gross receipts for purposes of determining whether they had a significant decline in gross receipts: PPP loan forgiveness, shuttered venue operator grants, and restaurant revitalization grants. These exclusions must apply consistently across all quarters for which the ERC is claimed in order for the safe harbor to apply. <em>See </em><a href="https://www.irs.gov/pub/irs-drop/rp-21-33.pdf">Rev. Proc. 2021-33</a>.</li></ul> <!-- /wp:list --> <!-- wp:paragraph --> <p>Buckingham’s team of Tax attorneys are standing by to assist employers in taking advantage of this unique and limited tax credit opportunity. If you need help determining whether this opportunity is available for your business or have questions about the process, please do not hesitate to <a href="https://www.ohiostatetaxblog.com/contact/">contact us.</a></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><a href="https://www.bdblaw.com/attorneys/nathan-m-fulmer/">Nathan M. Fulmer</a> is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6464">330.258.6464</a>.</p> <!-- /wp:paragraph -->

Ohio Sales / Use Tax: Who controls your trash? Critical contractual distinction determines tax exemption for waste haulers, creating potential refund opportunities.

2021-07-13 17:58:42

<!-- wp:paragraph --> <p>The <a href="https://www.supremecourt.ohio.gov/">Ohio Supreme Court</a> recently ruled that a waste-hauler was entitled to Ohio’s transportation-for-hire exemption from sales / use tax on trucks used to haul trash to customer-designated locations. In <a href="https://www.supremecourt.ohio.gov/rod/docs/pdf/0/2021/2021-Ohio-1374.pdf"><em>N.A.T. Transportation, Inc. v. McClain</em>,</a> the Court determined the waste had not been abandoned, distinguishing from a previous case, since these customers controlled the destination of the waste and continued to be responsible for disposal after the waste was picked up. The ruling highlights critical contracting and business strategies trash haulers can use to maximize tax exemption and create possible refund opportunities.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><strong>Transportation-for-hire Exemption</strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>In Ohio, a person engaged in highway <a href="https://tax.ohio.gov/wps/portal/gov/tax/business/ohio-business-taxes/sales-and-use/information-releases/st199205">transportation-for-hire</a> can purchase, sell, and repair its motor vehicles tax-free if the vehicles are primarily used to transport property belonging to others. <a href="https://codes.ohio.gov/ohio-revised-code/section-5739.02">R.C. 5739.02(B)(32)</a>. To qualify for the exemption, a licensed taxpayer must transport property belonging to others for consideration. <a href="https://codes.ohio.gov/ohio-revised-code/section-5739.01">R.C. 5739.01(Z)</a>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>In this case, the taxpayer held the proper permit. Accordingly, the issue was whether its trucks were used to haul waste <strong><em>belonging to others</em></strong>. In a prior case, the Ohio Supreme Court denied the exemption claimed by a trash collection business since its customers relinquished control over and thereby abandoned the waste when it was picked up and transported to a landfill. <em>See </em><a href="https://www.supremecourt.ohio.gov/rod/docs/pdf/0/2021/2021-Ohio-1374.pdf"><em>Rumpke Container Serv., Inc. v. Zaino, 94 Ohio St.3d 304, 762 N.E.2d 995 (2002)</em></a><em>. </em>Since the customer abandoned the waste, the trash hauler was not transporting property owned by another party. The crucial difference in <em>N.A.T. Transportation</em> was that its customers did not relinquish control or ownership of the waste since it specified the destination where the waste was to be taken and controlled its disposal. Therefore, the taxpayer was exempt from tax on vehicles primarily used in transporting waste to customer-designated locations, but not for vehicles primarily used in transactions where the customer had no knowledge or control over where the waste was disposed.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>The case highlights how subtle contractual differences can influence a business’ sales / use tax obligations and the importance of understanding these critical distinctions when agreements are formed. If you have any questions about the transportation-for-hire exemption or other Ohio tax exemptions, please <a href="https://www.ohiostatetaxblog.com/contact/">contact us.</a></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><a href="https://www.bdblaw.com/attorneys/nathan-m-fulmer/">Nathan M. Fulmer</a> is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6464">330.258.6464</a>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><strong>About Buckingham, Doolittle & Burroughs:</strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit <a href="http://www.bdblaw.com/">bdblaw.com</a>.</p> <!-- /wp:paragraph -->

Ohio commercial activity tax – NASCAR hits Roadblock as broadcast and media revenue sitused to Ohio based upon viewership data

2021-05-18 14:36:00

<!-- wp:paragraph --> <p>For Ohio commercial activity tax (CAT), gross receipts from certain intellectual property, such as trademarks, trade names, patents and copyrights, are sitused to the location where the purchaser uses or has the right to use the property. <a href="https://codes.ohio.gov/ohio-revised-code/section-5751.033">R.C. 5751.033(F)</a>. NASCAR’s revenue from the broadcast of its races <em>“encompassed territory both inside and outside of Ohio.” </em>Therefore, the Board of Tax Appeals (BTA) ruled that NASCAR’s gross receipts from the use of its intellectual property from broadcasting races was properly sitused to Ohio based upon the ratio of Ohio viewership using Nielsen ratings and U.S. Census data. <em>See </em><a href="https://ohio-bta.modria.com/casedetails/504066"><em>NASCAR Holdings, Inc. v. McClain, BTA Case No. 2015-263</em></a>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>NASCAR’s licensing agreements to broadcast its races permitted purchasers to use the IP nationwide and globally, including in Ohio. NASCAR argued that nearly all of its broadcast and media revenue should be sitused to Florida, where NASCAR is domiciled. But the BTA rejected this argument and affirmed the Tax Commissioner’s use of Neilson data to apportion the revenue to Ohio for <a href="https://tax.ohio.gov/wps/portal/gov/tax/business/ohio-business-taxes/commercial-activities/commercial-activities">Ohio CAT</a> purposes.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>The Tax Commissioner considered NASCAR’s revenue from multiple sources, including from granting networks the right to air NASCAR races (Broadcast Revenue), from media sponsors incorporating NASCAR in marketing campaigns (Media Revenue), fees for granting the use of NASCAR IP (License Fees), and fees from corporate sponsors (Sponsor Fees). Then, the Commissioner used the total number of cable televisions inside and outside Ohio to apportion the broadcast revenue and US Census population data to apportion license and sponsor fees. NASCAR objected since this data did not account for international viewership. However, because NASCAR chose not to provide further data that would have improved the accuracy of the audit or otherwise demonstrate its Ohio receipts were overstated, the BTA ruled that the Commissioner was permitted to use the best information available to capture the use of NASCAR’s intellectual property.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>This ruling raises significant issues for businesses that generate revenue from license their product throughout the U.S. or receive advertising revenue. If you have questions about situsing gross receipts or disputing revenue apportionment or any other questions pertaining to Ohio’s commercial activity tax, do not hesitate to <a href="https://www.ohiostatetaxblog.com/contact/">contact us.</a></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><a href="https://www.bdblaw.com/attorneys/nathan-m-fulmer/">Nathan M. Fulmer</a> is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6464">330.258.6464</a>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><strong>About Buckingham, Doolittle & Burroughs:</strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit <a href="http://www.bdblaw.com/">bdblaw.com</a>.</p> <!-- /wp:paragraph -->

Out-of-State Remote Workers may Create Substantial Nexus as COVID-19 Protections Expire

2021-07-08 14:54:33

<!-- wp:paragraph --> <p>In response to the COVID-19 pandemic, as work-from-home became the norm, many states provided safe harbors such that remote workers teleworking in the state would not create nexus for corporate income tax and sales / use tax purposes. Thus, businesses with teleworking employees were not burdened with additional state tax obligations during the pandemic. Now that COVID-19 restrictions are being lifted and people are returning to work, these nexus safe harbors are also expiring. However, working remotely, even if only partially, is certainly here to stay for many employees. Businesses must be aware of their state tax obligations that may be imposed as a result of allowing employees to work from home.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>For instance, Pennsylvania had a nexus safe harbor in place during the pandemic, but has stated that beginning July 1, 2021, out-of-state businesses <a href="https://www.revenue.pa.gov/COVID19/Telework/Pages/default.aspx">employing Pennsylvania residents working from home will have corporate income tax and sales tax collection obligations</a> based on the employees’ activities in Pennsylvania. According to a <a href="https://www.bloomberglaw.com/bloomberglawnews/daily-tax-report/XDI3A3K8000000?bna_news_filter=daily-tax-report#jcite">Bloomberg survey</a>, 37 states responded that teleworking employees in the state could create nexus for corporate income taxes (which would most likely require sales tax collection as well).</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>In addition to business-activity and sales / use taxes, businesses are likely required to withhold income taxes from its employees’ wages based upon where the employee is performing services. This creates compliance burdens when employees live in a different state from the business’ office or splits time between the office and home. The U.S. Supreme Court <a href="https://www.scotusblog.com/case-files/cases/new-hampshire-v-massachusetts/">recently declined to hear a case that challenged Massachusetts’ ability to impose income tax</a> on New Hampshire residents teleworking for Massachusetts employers, which could embolden states to use teleworking employees to increase tax revenue.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>The rules concerning whether remote workers creates multistate tax obligations for businesses are changing as the United States pulls out of the pandemic and more offices open. Those businesses with employees working from their home out-of-state have particular compliance burdens.  These businesses must be cognizant of expiring nexus safe harbors to ensure they are not hit with surprise tax bills as a result of their employees’ presence in other states. If you have questions on how teleworking employees could affect your multistate sales and use tax and income tax obligations, please do not hesitate to <a href="https://www.ohiostatetaxblog.com/contact/">contact us.</a></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><a href="https://www.bdblaw.com/attorneys/nathan-m-fulmer/">Nathan M. Fulmer</a> is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6464">330.258.6464</a>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><strong>About Buckingham, Doolittle & Burroughs:</strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit <a href="http://www.bdblaw.com/">bdblaw.com</a>.</p> <!-- /wp:paragraph -->

Challenge to Ohio’s COVID-19 Remote Worker Withholding Statute Dismissed

2021-06-09 15:51:12

<!-- wp:paragraph --> <p><a href="https://www.ohiostatetaxblog.com/ohio-bills-seek-to-repeal-law-giving-cities-flexibility-for-remote-worker-withholdings/">In the fall 2020</a>, Ohio passed a law giving employers flexibility to withhold income taxes as if employees were still working at the office, even if they were working remotely in a different municipality due to COVID-19. <em>See </em><a href="https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA133-HB-197"><em>H.B. 197</em></a><em>.</em> It essentially provided administrative relief to employers because they are not required to withhold tax for every jurisdiction where their employees reside while working from home during the pandemic. <a href="https://www.buckeyeinstitute.org/library/docLib/2020-07-09-The-Buckeye-Institute-Files-Lawsuit-Against-City-of-Columbus-and-State-of-Ohio-complaint-as-filed.pdf">The Buckeye Institute and others</a> challenged the law as unconstitutional (Due Process violation) because there is no connection between the city and the income being taxed. Accordingly, it alleged that Ohio had no authority to pass the law, and that employers should be required to withhold tax where the employees’ services are being performed—in their home municipality.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Recently, the Franklin County Court of Common Pleas <a href="https://www.law360.com/tax-authority/articles/1379654/attachments/0">dismissed the Buckeye Institute’s challenge</a>, finding that Ohio possessed the authority to <em>“establish municipal income allocation rules among Ohio taxing authorities in order to efficiently and uniformly coordinate intrastate taxation of Ohio residents.</em>” The Buckeye Institute and others <a href="https://www.cleveland.com/open/2021/03/4th-lawsuit-challenges-ohio-law-taxing-remote-workers-based-on-their-former-work-address-ahead-of-coronavirus.html">continue to challenge the law in various Ohio municipalities</a>, and certain legislators are pushing for repeal. The Ohio House recently posted H.B. 157 which clarifies H.B. 197 to allow refunds. The case might be headed to the Ohio Supreme Court to decide fundamental due process and constitutional questions.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>If the law is struck down, it could mean large administrative burdens and substantial revenue loss for employers and cities who would be met with a flood of refund claims for withholding taxes.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>We will continue to monitor this and update you with any new developments. If you have questions about how a repeal of HB 197 or clarification of H.B. 157 could impact your business, or any other issues concerning Ohio municipal tax, do not hesitate to <a href="https://www.ohiostatetaxblog.com/contact/">contact us</a>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><a href="https://www.bdblaw.com/attorneys/nathan-m-fulmer/">Nathan M. Fulmer</a> is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6464">330.258.6464</a>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><strong>About Buckingham, Doolittle & Burroughs:</strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit <a href="http://www.bdblaw.com/">bdblaw.com</a>.</p> <!-- /wp:paragraph -->

Significant Real Property Tax Savings Available for Property Owners Affected by COVID-19

2021-04-28 20:24:55

<!-- wp:paragraph --> <p>Yesterday, Governor DeWine signed <a href="https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA134-SB-57">S.B. 57</a> into law, which allows property owners to reduce their 2020 property tax bills by filing a special “COVID-19 Complaint” with the county due by <strong>September 2, 2021</strong>. Complaints may be filed beginning August 3, 2021. Additionally, the statutory restriction for filing only one complaint in a 3-year valuation period is suspended, so even property owners who already filed a property valuation complaint within the triennial valuation period can still file a COVID-19 Complaint for 2020. While the opportunity is available to all property owners, businesses in the food and restaurant, retail, hospitality industries and other hard-hit industries will likely be able to reap the largest benefit.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>The special COVID-19 Complaint will enable taxpayers to request an October 1, 2020 valuation date instead of the standard January 1, 2020 date, allowing county boards of revision to consider COVID-19’s negative impact on real property values after the January 1 valuation date. In other words, the complaint must reflect a reduction in true value between January 1 and October 1 due to circumstances related to the COVID-19 pandemic or a state COVID-19 order.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Special care must be taken in preparing the complaint, as the property owner must allege <strong><em>with particularity</em></strong> how COVID-related circumstances caused a decline in the property’s value. Citing solely to general decline in economic or market conditions could cause the complaint to be dismissed. While not obligated, we recommend taxpayers electing to pursue this opportunity contact an appraiser as soon as possible (or have us contact one on your behalf). Many property owners will likely take advantage of this opportunity and appraisers’ time is expected to fill up quickly.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Buckingham’s team of Tax and Real Estate attorneys are standing by to assist property owners take advantage of this limited tax savings opportunity. If you want to pursue this opportunity or have questions about the process, please do not hesitate to <a href="https://www.ohiostatetaxblog.com/contact/">contact us.</a></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><a href="https://www.bdblaw.com/attorneys/nathan-m-fulmer/">Nathan M. Fulmer</a> is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6464">330.258.6464</a>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><strong>About Buckingham, Doolittle & Burroughs:</strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit <a href="http://www.bdblaw.com/">bdblaw.com</a>.</p> <!-- /wp:paragraph -->

SALT Cap Workaround – Ohio provides PTE investors who elect workaround with income tax benefit.

2021-04-13 13:30:10

<!-- wp:paragraph --> <p>Individuals are limited to deducting $10,000 ($5,000 for married filing separate) of state and local taxes (SALT) on their Federal income tax. Generally, income earned by pass-through entities (PTE) is taxed at the investor level, meaning <a href="https://www.bloomberg.com/news/articles/2021-04-12/all-about-salt-the-tax-deduction-that-divides-u-s-quicktake">business owners lose a valuable Federal income tax deduction</a> for state taxes paid on income earned by businesses they own. However, taxes imposed at the PTE level are not subject to the SALT cap limitation since these taxes reduce the investor’s distributive share of income reflected on Schedule K-1 and are not deducted directly by the investor.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>By electing to participate in an Ohio composite return, individual taxpayers avoid the SALT cap on taxes owed on income earned by PTEs. Additionally, these taxpayers may receive a benefit from the increased rate paid by PTEs on composite returns (highest individual income tax rate – 4% currently) compared to that owed by the individual on business income (3% currently). With the income tax filing deadline approaching, PTE investors and their professionals should be aware of the risks and benefits associated with filing an <a href="https://tax.ohio.gov/static/forms/pass-through_entities/2020/pte-it4708-instructions.pdf">Ohio composite return</a>.   </p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><strong>IRS specifies that <u>elective</u> PTE-level taxes avoid SALT Cap.</strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Many states have, or are considering, income tax structures which allow PTE investors to elect to have the tax imposed at the entity level and claim a credit against their state income taxes for their pro-rata share of taxes paid by the PTE. In <a href="https://www.irs.gov/pub/irs-drop/n-20-75.pdf">Notice 2020-75</a>, the IRS states that these elective PTE-level taxes, referred to as Specified Income Tax Payments, are treated as entity-level taxes and avoid the SALT cap. Specified Income Tax Payments are taxes imposed directly on a partnership or S corporation, regardless of whether the imposition is the result of an election or investors receive a credit or other benefit for the taxes paid. </p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>The partnership or S corporation deducts the amount of Specified Income Tax Payments made during the year, which reduces the amount of income that ultimately passes through to its investors. Therefore, such payments are not subject to the SALT cap at the individual level. The IRS Notice is applicable starting with the 2018 tax year.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p><strong>Ohio taxpayers can take advantage of SALT cap workaround by electing to participate in composite return.</strong></p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Based upon IRS Notice 2020-75, PTEs filing an Ohio composite return and paying the associated tax operate precisely as Specified Income Tax Payments are described in the IRS Notice – PTE owners make an election to impose tax at the entity level and receive a credit for their distributive share of tax paid by the PTE. By electing to file a composite return, the PTE is liable for any taxes, interest, and penalties that may be imposed on the business’ income. <a href="https://codes.ohio.gov/ohio-revised-code/section-5747.08">R.C. 5747.08</a>(D)(4). The key is the tax is imposed directly on the PTE, unlike a withholding tax which is imposed on the investor but paid by the PTE on behalf of its individual owners.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>By making the election to file a composite return, Ohio income tax should be treated as imposed directly on the PTE. R.C. 5747.01(N). Even Ohio residents can avoid the SALT cap on income earned through PTEs as residents are permitted to elect to participate in a composite return, <a href="https://tax.ohio.gov/static/forms/pass-through_entities/2020/pte-it4708-instructions.pdf">Ohio Form IT 4708</a>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Moreover, PTE investors may actually receive an additional benefit by electing to file a composite return. When making such an election, the PTE pays Ohio income tax at the highest individual rate (currently 4%) without accounting for certain deductions, mainly the <a href="https://www.ohiostatetaxblog.com/ohio-board-of-tax-appeals-denies-taxpayers-business-income-deduction-due-to-improperly-introduced-evidence/">$250,000 business income deduction</a>. However, when the investor files his/her individual Ohio return, the investor would only owe tax at 3% with a $250,000 ($125,000 if single or married filing separate) <a href="https://tax.ohio.gov/wps/portal/gov/tax/individual/Business-Income-Deduction">deduction </a>to the extent the PTE income is considered business income. <a href="https://codes.ohio.gov/ohio-revised-code/section-5747.01">R.C. 5747.01</a>(B). Therefore, the investor would benefit from claiming the Federal deduction based upon the higher taxes owed by the PTE, while also claiming a credit for taxes paid by the PTE against income from other sources or a refund for Ohio individual income tax purposes. </p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Ohio’s composite return election provides Ohio individual income taxpayers owning PTEs with the ability to workaround the Federal SALT cap, although with some risk as the PTE assumes responsibility for taxes owed on the income reported. Although some may assert that Ohio’s composite return functions more as a withholding tax with tax being paid by the PTE on behalf of the individuals, such a position is inconsistent with Ohio’s statutory language of the composite election, which closely resembles that enacted by other states. Thus, since the Ohio income tax is imposed directly on the PTE as the taxpayer, investors in PTEs making the composite election may avoid the SALT cap on their federal return according to IRS Notice 2020-75.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Please <a href="https://www.ohiostatetaxblog.com/contact/">contact us</a> if you have questions regarding how you can benefit from Ohio’s SALT cap workaround.    </p> <!-- /wp:paragraph -->

Ohio Domicile: Taxpayer could have prevailed with simple affidavit

2021-03-25 15:35:49

<!-- wp:paragraph --> <p>In a recent <a href="https://bta.ohio.gov/">Board of Tax Appeals</a> Case, taxpayers contested the <a href="https://tax.ohio.gov/wps/portal/gov/tax/business/ohio-business-taxes/sales-and-use/information-releases/st-2009-03-sourcing">Department</a>’s assessment of personal income taxes for 2014-16, asserting that they were not Ohio residents. <em>See </em><a href="https://ohio-bta.modria.com/casedetails/518445"><em>Anthony R. Joy & Robin E. Miller, (et. Al.), v. Jeffrey A. Mcclain</em></a>, Ohio BTA Case No. 2020-239. However, the taxpayers made two critical mistakes that ultimately resulted in the Board affirming the assessment.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>First, the taxpayers failed to timely file an affidavit of non-Ohio residency for any tax year. Under Ohio law at the time, taxpayers were treated as nonresidents under the Ohio’s bright-line residency rule if they met three requirements: 1) maintain an “abode” or place of residence outside Ohio during the entire taxable year, 2) had no more than 212 contact periods in Ohio during the taxable year, and 3) filed a <a href="https://tax.ohio.gov/static/forms/ohio_individual/individual/2019/pit_itnrs_fi.pdf">non-Ohio residency affidavit</a>. <a href="http://codes.ohio.gov/orc/5747.24">R.C. 5747.24</a>. Here, the taxpayers had a home outside Ohio and met the contact period test, but because they failed to file the non-residency affidavit, they were presumed to be Ohio residents. Therefore, the taxpayers were required to meet the much tougher common law test and present clear and convincing evidence that they established new residency in another state and intended to abandon their Ohio domicile.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Second, the taxpayers failed to present the necessary evidence at a hearing before the Ohio Board of Tax Appeals. Although they attached factual information to the notice of appeal, the evidence <strong><u>must</u></strong> be presented at a hearing in order to be included in the record before the Board. The evidence before the Board showed the taxpayers kept an Ohio abode, were both registered voters in Ohio, maintained Ohio drivers’ licenses and renewed their vehicle license place in Ohio. Therefore, the taxpayers failed to rebut the presumption of their Ohio residency. Had they filed the affidavit entitling them to take advantage of Ohio’s bright-line residency presumption or presented more evidence at a hearing, they may have prevailed.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Beginning with the 2018 tax year, <a href="https://www.ohiostatetaxblog.com/ohio-tax-legislative-update-taxpayers-direct-right-of-appeal-reinstated-bright-line-residency-amended-and-oil-gas-exemption-clarified/">Ohio’s bright-line residency statute was amended</a> such that individuals claiming nonresidency must not:</p> <!-- /wp:paragraph --> <!-- wp:list {"ordered":true,"type":"1"} --> <ol type="1"><li>Hold an Ohio’s driver’s license;</li><li>Claim Ohio’s homestead exemption for real property taxes; or</li><li> Pay in-state tuition at an Ohio state university.</li></ol> <!-- /wp:list --> <!-- wp:paragraph --> <p>Taxpayers fulfilling these requirements must file the Affidavit of Non-Ohio Residency by October 15<sup>th</sup> of each year to be treated as nonresidents under Ohio’s bright-line residency rules.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>It is absolutely critical that taxpayers consult competent representation when changing residency for state tax purposes and pursuing appeals at the Board. If you have any questions concerning Ohio residency or any other Ohio tax matters, please <a href="https://www.ohiostatetaxblog.com/contact/">contact us</a>.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Attorney Steven A. Dimengo is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at [email protected] or 330.258.6460.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Richard B. Fry III is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at [email protected] or 330.258.6423</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Nathan M. Fulmer is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at [email protected] or 330.258.6464.</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p> About Buckingham, Doolittle & Burroughs:</p> <!-- /wp:paragraph --> <!-- wp:paragraph --> <p>Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit <a href="https://www.bdblaw.com/">bdblaw.com</a>.</p> <!-- /wp:paragraph -->

Ohio Commercial Activity Tax: Proposed Rule Allows Retroactive Consolidated Filing Election

2020-11-17 18:01:37

In our <a href="https://www.ohiostatetaxblog.com/ohio-drafts-rule-limiting-retroactive-consolidated-filing-elections/">previous post</a>, we explained the <a href="https://tax.ohio.gov/wps/portal/gov/tax/">Ohio Department of Taxation</a> proposed a regulation change to limit a taxpayer’s ability to make a retroactive consolidated filing election for<a href="https://tax.ohio.gov/wps/portal/gov/tax/business/ohio-business-taxes/commercial-activities/commercial-activities"> Ohio Commercial Activity Tax</a> purposes (CAT). The rule change is in response to a BTA decision where a taxpayer was permitted to make a retroactive consolidated filing election even after an audit had commenced. See our post about <a href="https://www.ohiostatetaxblog.com/taxpayer-permitted-to-correct-fatal-mistake-by-retroactively-making-consolidated-election-for-ohio-commercial-activity-tax-and-excluding-intercompany-receipts-from-tax/">Nissan North America, Inc. v. McClain, Ohio BTA Case No. 2016-1076 (October 9, 2019).</a> Ohio has revived the proposed rule change, but no hearing date has been set. The proposed change to <a href="https://tax.ohio.gov/static/legal/rules/5703-29-02.pdf">OAC 5739-29-02</a> would allow the taxpayer to make a retroactive consolidated filing application as long the taxpayer was previously registered for the CAT, had not been previously contacted for audit or investigation, <em>and</em> its originally filed returns reflected the intent to file on a consolidated basis (i.e., the election would not affect the original tax liability). A taxpayer would also be able to make the election through Ohio’s <a href="https://tax.ohio.gov/wps/portal/gov/tax/business/resources/voluntary-disclosure">Voluntary Disclosure Program</a>. A <a href="https://www.ohiostatetaxblog.com/ohio-cat-considerations-for-combined-and-consolidated-groups/">consolidated election</a> is essential for commonly-owned taxpayer groups with significant intercompany transactions. Such businesses should review their current CAT registration status and determine if they should elect a consolidated filing, especially if they have already been contacted for audit. Alternatively, if businesses have not been filing the CAT but have business activity in Ohio mandating a filing, voluntary disclosure is another option for pursuing consolidated filing status. If you have questions about consolidated election for commonly-owned taxpayers or Ohio’s Commercial Activity Tax, please do not hesitate to <a href="https://www.ohiostatetaxblog.com/contact/">contact us</a>. Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>. <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a> <a href="https://www.bdblaw.com/attorneys/nathan-m-fulmer/">Nathan M. Fulmer</a> is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6464">330.258.6464</a>. <strong> </strong><strong>About Buckingham, Doolittle & Burroughs:</strong> Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit <a href="http://www.bdblaw.com/">bdblaw.com</a>.

Ohio CAT – Ohio Supreme Court holds sale of intangible contract rights sitused outside Ohio

2020-09-29 19:20:56

<strong>Ohio Commercial Activity Tax - Ohio Supreme Court applies market-based sourcing and grants taxpayer refund by situsing intangible revenue to purchaser’s physical locations.</strong> <strong> </strong>Situsing gross receipts often becomes a contentious issue in <a href="https://tax.ohio.gov/wps/portal/gov/tax/business/ohio-business-taxes/commercial-activities/commercial-activities">Ohio Commercial Activity Tax</a> (CAT) audits partially due to the lack of guidance applying Ohio’s market-based sourcing statute. The <a href="http://www.supremecourt.ohio.gov/">Ohio Supreme Court</a> has now spoken providing pro-taxpayer guidance in <a href="https://supremecourt.ohio.gov/rod/docs/pdf/0/2020/2020-ohio-4594.pdf"><em>Defender Security Company v. McClain, </em>2020-Ohio-4594</a>. The Court adopted the taxpayer’s position that its gross receipts from the sales of alarm services contacts were sitused to ADT’s physical locations outside Ohio where it received customer payments and performed services for Ohio customers. The ruling provides a definitive and clear test for applying Ohio’s market-based situsing rules to gross receipts from services and intangible assets. Defender Security Co. was an independent dealer of ADT monitoring services. It installed security systems for residents in Ohio, signed customers up for ADT monitoring services, and then sold those contract rights to ADT for a fee, referred to in the opinion as ADT funding. Under the statute, the ADT funding for CAT purposes is sitused to where ADT received and used the benefit of alarm service contracts acquired from Defender Security Co. R.C. <a href="https://codes.ohio.gov/orc/5751.033">5751.033(I)</a>. But as the Court noted, it is often difficult to pinpoint the physical location where this benefit is received. <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Buckingham Attorney Rich Fry </a>successfully argued that ADT used and received the benefits of the contract rights purchased from Defender at ADT’s headquarters in Colorado and its monitoring centers, none of which were located in Ohio. This approach, focusing on ADT’s physical locations, is consistent with Ohio’s statute which instructs that <em>“[t]he physical location where the purchaser ultimately uses or receives the benefit of what was purchased shall be paramount” </em>in determining the situs of the gross receipts. The tax commissioner failed to properly distinguish between the benefit Ohio consumers received from ADT – the protection of people and property in Ohio – and the benefit ADT received by purchasing contracts from Defender – the right to receive monthly fees in exchange for providing monitoring services. The Court dismissed the tax commissioner’s application of look-through or “but for” tests which focused on the Ohio consumer’s location, rather than the purchaser’s / ADT’s location. The Court’s decision in <em>Defender Security Co. v. McClain</em> will be helpful for Ohio taxpayers, including providing refund opportunities for those with similar situsing issues. If you have questions about how this ruling affects your Ohio CAT obligations, or any other questions on Ohio tax matters, please <a href="https://www.ohiostatetaxblog.com/contact/">contact us</a>. Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>. <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a> <a href="https://www.bdblaw.com/attorneys/nathan-m-fulmer/">Nathan M. Fulmer</a> is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6464">330.258.6464</a>. <strong> </strong><strong>About Buckingham, Doolittle & Burroughs:</strong> Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit <a href="http://www.bdblaw.com/">bdblaw.com</a>.

OSBA Sales & Use Tax Subcommittee Report Highlights Recent Cases

2020-09-25 14:40:19

<a href="/wp-content/uploads/2020/09/Ohio-State-Bar-Association-Taxation-Committee-Sales-Use-Subcommittee-Report-Septebmer-2020-13301181.pdf" target="_blank">Click here</a> to view the Sales & Use Tax Subcommittee Report that Steve and Rich presented to the Ohio State Bar Association’s Taxation Law Committee on September 24, 2020. The OSBA Sales/Use Tax Subcommittee Report discusses recent developments concerning the scope of taxable services, as well as the federal preemption of taxation on internet services which were previously taxable in Ohio. If you have any questions regarding this Subcommittee Report or any Ohio sales & use tax questions, please do not hesitate to <a href="https://www.ohiostatetaxblog.com/contact/">contact us</a>. Previous Subcommittee Reports are available on our <a href="https://www.ohiostatetaxblog.com/resources/">Resources</a> tab. Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC and chair of the <a href="https://www.bdblaw.com/practices/taxation/">taxation practice group</a>. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>. Buckingham Partner <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is the Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. He also represents clients in federal income tax controversies with the Internal Revenue Service (IRS). Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a> <h3>About Buckingham, Doolittle & Burroughs:</h3> Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit <a href="http://www.bdblaw.com/">bdblaw.com</a>.

Ohio Board of Tax Appeals denies Taxpayers Business Income Deduction due to Improperly Introduced Evidence

2020-09-18 17:58:36

Retaining experienced counsel with knowledge of not only proper procedure but how to present a case is critical to prevailing at the <a href="https://bta.ohio.gov/">Board of Tax Appeals</a> (BTA). Recently, the BTA denied the taxpayer’s claim for a business income deduction in part because supporting evidence was attached to the notice of appeal, not properly presented at a hearing. Thus, the BTA did not consider the evidence attached to the notice of appeal and consequently affirmed the Tax Commissioner’s decision rejecting the taxpayers’ claim of a business income deduction (BID). <a href="https://ohio-bta.modria.com/casedetails/515976">Ritzler v. McClain, Ohio BTA Case No. 2019-1049 (2020).</a> Had the taxpayers proceeded with a hearing and properly submitted authenticated evidence at the hearing, the outcome may have been different.   The BID is available to those who directly or indirectly own a profit or capital interest in a qualifying pass-through entity. Such taxpayers may deduct the first $250,000 of business income earned from guaranteed payments or compensation, while the remaining business income is taxed at 3%. <a href="http://codes.ohio.gov/orc/5747">R.C. 5747.01(A)(28).</a> In <em>Ritzler,</em> the Tax Commissioner initially denied the BID, finding that the taxpayer-husband was not an investor nor a direct or indirect owner of the firm. <a href="http://codes.ohio.gov/orc/5733.40%28A%29%287%29">R.C. 5733.40(H).</a> On appeal, the taxpayers attached evidence that the taxpayer-husband directly owned a minority share of the company and further argued he constructively owned his mother’s shares through federal attribution rules. But because the Board could not consider the evidence of ownership because it was not validated at a hearing, it declined to address if federal attribution rules apply to the BID generally or to R.C. 5733.40(A)(7).   If you have questions on any issues pertaining to Ohio’s business income deduction or any other Ohio tax matters, do not hesitate to <a href="https://www.ohiostatetaxblog.com/contact/">contact us.</a>   Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>.   <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a>   <a href="https://www.bdblaw.com/attorneys/nathan-m-fulmer/">Nathan M. Fulmer</a> is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6464">330.258.6464</a>. <strong> </strong> <strong>About Buckingham, Doolittle & Burroughs:</strong> Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit <a href="http://www.bdblaw.com/">bdblaw.com</a>.

Ohio clarifies SBA Economic Injury Disaster Loan (EIDL) grants are taxable gross receipts for CAT Purposes

2020-09-10 15:54:36

In a <a href="https://www.ohiostatetaxblog.com/ppp-loan-forgiveness-will-not-result-in-increased-ohio-commercial-activity-taxes/">previous post</a>, we noted that forgiven Paycheck Protection Program (PPP) loan amounts are excluded from Ohio’s commercial activity tax (CAT) to provide taxpayer relief during the COVID-19 pandemic. <a href="http://search-prod.lis.state.oh.us/solarapi/v1/general_assembly_133/bills/hb481/EN/05?format=pdf">H.B. 481</a>. However, the Ohio Department of Taxation has indicated this relief does not extend to EIDL advance grants and other county-issued relief grants. Recently, the Department updated its FAQs on its <a href="https://tax.ohio.gov/wps/portal/gov/tax/help-center/resources/coronavirus/coronavirus">COVID-19 tax relief page</a> setting forth its position that EIDL advance grants of up to $10,000 authorized by the CARES Act are included in gross receipts for Ohio CAT purposes. Further, COVID-19 relief grants issued by counties are also taxable gross receipts according to the Department’s position. Yet, the Department’s position ignores the threshold question of whether such grants constitute gross receipts in the first place – <em>i.e.,</em> whether they are amounts realized that contribute to the taxpayer’s gross income.   On the other hand, PPP loans that are forgiven and employee retention tax credits authorized by the CARES Act are specifically excluded from the Ohio CAT tax base under H.B. 481. If you have questions about how SBA loans or other COVID-19 relief affects your Ohio tax obligations, do not hesitate to <a href="https://www.ohiostatetaxblog.com/contact/">contact us.</a>   Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>.   <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a>   <a href="https://www.bdblaw.com/attorneys/nathan-m-fulmer/">Nathan M. Fulmer</a> is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6464">330.258.6464</a>. <strong> </strong> <strong>About Buckingham, Doolittle & Burroughs:</strong> Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit <a href="http://www.bdblaw.com/">bdblaw.com</a>.  

Ohio bills seek to repeal law giving cities flexibility for remote worker withholdings

2020-09-04 19:03:11

In the wake of the Covid-19 pandemic, the <a href="https://www.legislature.ohio.gov/">Ohio General Assembly</a> passed <a href="https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA133-HB-197">H.B. 197</a> to provide tax relief to Ohio citizens through deadline extensions and flexible tax policy. One provision gave employers flexibility to withhold income taxes as if employees were still working at the office, even if they were working remotely in a different municipality. The law essentially provides administrative relief to employers by treating compensation while working from home due to Covid-19 as still earned at the employee’s historic principle place of work. Accordingly, the employer is not required to withhold tax for every jurisdiction where their employees reside when required to work from home due to the pandemic. It also does not make the employer liable for the municipality’s net profits tax based solely upon the employees’ services from home. Now, lawmakers are challenging this provision as unconstitutional, asserting that municipalities should not be allowed to tax income earned outside their borders. If the flexible provision is repealed, it would significantly increase the burden of complying with each municipality’s withholding and net profits tax requirements.   The new bills, <a href="https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA133-SB-352">S.B. 352</a> and <a href="https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA133-HB-754">H.B. 754</a>, seek to repeal the temporary rule for remote workers. Additionally, <a href="https://www.buckeyeinstitute.org/library/docLib/2020-07-09-The-Buckeye-Institute-Files-Lawsuit-Against-City-of-Columbus-and-State-of-Ohio-complaint-as-filed.pdf">The Buckeye Institute and others filed suit</a> alleging that HB 197 is unconstitutional because “there is neither nexus nor fiscal relation between the city and the income being taxed.”  In other words, employers should be required to withhold tax where the employees’ services are being performed (in their home municipality). However, Ohio cities assert that the law allows employers to “maintain the status quo” as if the pandemic had not occurred. Moreover, cities that rely on commuters for income tax revenue could see a significant drop in revenue should the law be repealed. Of course, mayors from Ohio’s larger cities vehemently oppose repeal, relying upon the tax revenue to maintain their cultural resources that residents from the surrounding communities utilize.   We will continue to monitor this development and update with any relevant information. If you have questions about how Ohio withholding laws or how the repeal of HB 197 could impact your business, do not hesitate to <a href="https://www.ohiostatetaxblog.com/contact/">contact us.</a>   Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>.   <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a>   <a href="https://www.bdblaw.com/attorneys/nathan-m-fulmer/">Nathan M. Fulmer</a> is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6464">330.258.6464</a>. <strong> </strong> <strong>About Buckingham, Doolittle & Burroughs:</strong> Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit <a href="http://www.bdblaw.com/">bdblaw.com</a>.

Sales Tax Collection: Broad Marketplace Facilitator Laws Could Capture Unwary Taxpayers

2020-08-31 16:10:38

Most states have recently passed laws requiring marketplace facilitator to collect tax on e-commerce sales by remote sellers made through the marketplace’s platform. Ohio, for example, broadly defines a marketplace facilitator as any entity that operates a marketplace and facilitates payment processes for goods or services. R.C. <a href="https://codes.ohio.gov/orc/5741.01">5741.01(W).</a> This definitions covers the usual suspects, such as Amazon, eBay, and Etsy, but also could capture many others that provide an online platform where third-party sellers make products or services available for purchase.   These marketplace facilitators are typically required to collect tax when they exceed the state’s economic nexus threshold. In most states, if exceeding $100,000 of annual gross sales or 200 separate transactions delivered into the state – including its own sales and those facilitated on behalf of other sellers – the marketplace facilitator <em>will be treated as the seller</em> of each facilitated sale and required to collect sales tax. Further, in Ohio, marketplace sellers (i.e., sellers who sell their goods and services through marketplace facilitators) may unintentionally create substantial nexus since its marketplace sales <a href="https://tax.ohio.gov/static/OhioTaxAlert/ArchivedAlerts/SubstantialNexusAndMarketplaceFacilitatorChanges07232019.pdf">count towards Ohio’s economic nexus requirement</a>, even if it is not required to collect tax on sales made through the marketplace. In other words, the remote seller must include its sales made through the marketplace in determining whether the nexus thresholds have been exceeded, but would only be required to collect on its direct sales to Ohio consumers.   Given modest nexus thresholds and broad, inconsistent definitions of marketplace facilitators, e-commerce platforms and businesses selling through them must take extra care to ensure it is complying with their sales tax collection obligations. If you have questions about how economic nexus or marketplace facilitator laws apply to your business, please contact a member of our experienced <a href="https://www.bdblaw.com/practices/taxation/">Taxation Practice Group</a> today.   Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>.   <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a>   <a href="https://www.bdblaw.com/attorneys/nathan-m-fulmer/">Nathan M. Fulmer</a> is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6464">330.258.6464</a>. <strong> </strong> <strong>About Buckingham, Doolittle & Burroughs:</strong> Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit <a href="http://www.bdblaw.com/">bdblaw.com</a>.

Marketplace facilitators making interstate sales collect Ohio sales tax based upon the consumer’s destination

2020-08-19 12:35:35

Sourcing sales is critical to determine the appropriate jurisdiction and tax rate for Ohio sales tax collection purposes. Recently, the <a href="https://tax.ohio.gov/wps/portal/gov/tax/">Ohio Department of Taxation</a> revised Information Release <a href="https://tax.ohio.gov/wps/portal/gov/tax/business/ohio-business-taxes/sales-and-use/information-releases/st-2009-03-sourcing">ST 2009-03</a> to reflect that sales facilitated by “marketplace facilitators” are sourced to the destination of the sale – i.e., the location where the consumer receives the tangible personal property or service, regardless of where the marketplace facilitator or seller is located. Marketplace facilitators, like Amazon, eBay, Etsy, etc., are entities that operate a marketplace to facilitate sales on behalf of third-party sellers and are obligated to collect tax on facilitated sales delivered to Ohio locations (assuming the marketplace has <a href="https://tax.ohio.gov/static/OhioTaxAlert/ArchivedAlerts/SubstantialNexusAndMarketplaceFacilitatorChanges07232019.pdf">nexus</a> by virtue of exceeding $100,000 in Ohio sales).   On the other hand, intrastate sales are sourced to the origin of the sale. This means a marketplace facilitator’s <em>direct sales</em> are sourced to the location where the <em>order</em> is received, if the order is received in Ohio. This <a href="https://tax.ohio.gov/wps/portal/gov/tax/business/ohio-business-taxes/sales-and-use/information-releases/st-2009-03-sourcing-chart">chart</a> released by the Department summarizes how sales are sourced depending on the type of transaction. Businesses making sales to Ohio customers should review how sales are sourced to ensure they are collecting the proper local sales tax rate.   If you have questions regarding how your sales are sourced for Ohio Sales / Use Tax purposes, or any other Ohio tax issues, please do not hesitate to <a href="https://www.ohiostatetaxblog.com/contact/">contact us.</a>   Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>.   <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a>   <a href="https://www.bdblaw.com/attorneys/nathan-m-fulmer/">Nathan M. Fulmer</a> is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6464">330.258.6464</a>. <strong> </strong> <strong>About Buckingham, Doolittle & Burroughs:</strong> Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit <a href="http://www.bdblaw.com/">bdblaw.com</a>.

PPP loan forgiveness will not result in increased Ohio commercial activity taxes

2020-07-30 16:06:15

<a href="/wp-content/uploads/2020/07/GettyImages-1086691530.jpg"><img class="alignright size-large wp-image-11761" src="/wp-content/uploads/2020/07/GettyImages-1086691530-700x467.jpg" alt="Photo of Male accountant calculations and analyzing data with calculator, Financing, Accounting, Doing finance, Economy, Savings Banking Concept. Close up, business man or lawyer accountant working on accounts using a calculator and writing on documents while sitting on his desk in modern office." /></a>To provide some taxpayer relief in the wake of COVID-19, Ohio is excluding forgiven PPP loan amounts from Ohio’s commercial activity tax (CAT). While generally debt forgiveness is treated as taxable gross receipts for CAT purposes under R.C. 5751.01(F), forgiven PPP loans will be specifically excluded under recently passed <a href="http://search-prod.lis.state.oh.us/solarapi/v1/general_assembly_133/bills/hb481/EN/05?format=pdf">H.B. 481</a>. The <a href="https://www.legislature.ohio.gov/">Ohio General Assembly</a> modified the definition of “gross receipts” for Ohio CAT purposes to specifically exclude from the CAT base all forgiven loans that are excluded from federal gross income under <a href="https://www.congress.gov/116/bills/hr748/BILLS-116hr748enr.pdf">§1106(i) of the CARES Act</a>. Accordingly, the forgiveness of PPP loan principal will be excluded from the tax base for federal income tax purposes and Ohio commercial activity tax.   Any amount excluded from gross income for federal income tax purposes is similarly excluded from the Ohio CAT.   If you have questions as to how your PPP loan affects commercial activity tax, or other ways to minimize your Ohio tax obligations, please do not hesitate to <a href="https://www.ohiostatetaxblog.com/contact/">contact us</a>.   Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reached at <a href="mailto:[email protected]">[email protected]</a> or 330.258.6460.   <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or 330.258.6423.   <a href="https://www.bdblaw.com/attorneys/nathan-m-fulmer/">Nathan M. Fulmer </a>is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at <a href="mailto:[email protected]">[email protected]</a> or 330.258.6464.  

Ohio sales tax no longer to be imposed on internet access services due to federal restrictions.

2020-06-24 14:08:21

<a href="/wp-content/uploads/2020/06/internet.jpg"><img class="alignright size-large wp-image-11741" src="/wp-content/uploads/2020/06/internet-700x394.jpg" alt="internet" /></a>Beginning July 1, 2020, federal law will permanently prohibit state sales tax on internet access services under the <a href="https://www.congress.gov/108/plaws/publ435/PLAW-108publ435.htm">Internet Tax Freedom Act (ITFA)</a>. Although Ohio was amongst seven states previously exempt from the federal prohibition, these states cannot tax internet access charges starting July 1, 2020. Ohio will continue to impose sales tax on automatic data processing and electronic information services provided to businesses, but only to the extent that the tax is not imposed on internet access services.   There is sure to be disputes over the scope of what constitutes internet access, which is defined generally under the ITFA (<a href="https://uscode.house.gov/view.xhtml?req=(title:47%20section:151%20edition:prelim)">47 U.S.C. 151</a> statutory note) as a service that enables users to connect to the internet to access content, information, or other services offered over the internet and incidental services. However, the definition also includes services providing homepage, electronic mail, instant messaging, video clips, and personal electronic storage, whether provided independently or packaged with Internet access. In <a href="https://www.tax.ohio.gov/Portals/0/sales_and_use/information_releases/internet-tax-freedom-act-ir-2020-01.pdf">Ohio Tax Information Release ST 2020-01</a>, the Department of Taxation stated that the federal law will have a limited impact on Ohio’s tax on automatic data processing and electronic information services. The Department notes the definition is not broad enough to encompass <em>all</em> services offered over the Internet. But exactly where that line is drawn remains to be seen, as many business services offered over the Internet arguably meet the IFTA’s definition of “Internet Access.”   The IFTA, originally enacted in 1998, temporarily banned state and local governments from taxing internet access services and prohibited discriminatory taxes on electronic commerce. However, states who were taxing internet access prior to the ITFA’s enactment were permitted to continue to do so under a grandfather clause. Ohio had been taxing internet access services provided to businesses under the State’s definition of “electronic information services” and continued to do so. However, when the ITFA was made permanent, Congress set the grandfather clause to expires on June 30, 2020, requiring all states to stop charging taxes on internet access.   Ohio businesses providing or purchasing internet-related services should review their invoices and agreements to ensure taxes are no being collected after June 30, 2020. If you have any questions as to whether your electronic services will remain subject to Ohio sales tax, please <a href="https://www.ohiostatetaxblog.com/contact/">contact us</a>.   Attorney Steven A. Dimengo is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reached at [email protected] or 330.258.6460.   Richard B. Fry III is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at [email protected] or 330.258.6423   Nathan M. Fulmer is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at [email protected] or 330.258.6464.

Namaste, Ohio sales tax is not owed on membership fees for instructor-led fitness classes

2020-06-17 16:39:15

<a href="/wp-content/uploads/2020/06/yoga.jpg"><img class="alignright size-full wp-image-11727" src="/wp-content/uploads/2020/06/yoga.jpg" alt="yoga" /></a>Ohio generally taxes gym, athletic club, and health spa memberships that allow members to use the facility for physical exercise. <a href="http://codes.ohio.gov/orc/5739.01v1">R.C. 5739.01</a>(B)(3)(n) & (r). However, with the growing popularity of group fitness classes, the issue arose whether fees for unlimited access to instructor-led classes are taxable. The <a href="https://www.tax.ohio.gov/">Ohio Department of Taxation</a> recently answered this question – these membership fees are not taxable. The Department’s new regulation clarifies that memberships entitling one to use of a facility only during organized instructor-led classes are not taxable physical fitness facility services. <a href="http://www.registerofohio.state.oh.us/pdfs/5703/0/9/5703-9-62_FF_N_RU_20200429_1410.pdf">Ohio Admin. Code 5703-9-62</a>. This means your membership to places like a yoga studio, Orangetheory, Title Boxing, Crossfit, and numerous other places that provide fitness classes are not subject to sales tax. This is because the member is not entitled to open use of the facility, but rather may only attend fitness classes. Ohio sales tax is imposed on membership dues paid for the right to use all or part of a physical fitness facility. Essentially, monthly or annual fees paid for the unlimited use of gyms and other fitness facilities are taxable. But fees paid for instructor-led classes, even if unlimited, are not taxable because the member does not have open access to the facility. Moreover, “user fees” such as charges for hourly court rentals, instructor-led classes, sessions with a personal trainer, or passes for one-time use or a limited number of classes are not taxable. To illustrate the rule, consider a gym that charges a registration fee to secure the member’s spot, a monthly membership fee for unlimited use of the facilities, an optional monthly fee to attend 10 instructor-led classes a month, and a separate fee to attend a substance abuse lecture. The registration fee and monthly membership dues are taxable, while the optional fees for the instructor-led classes and substance abuse lecture are exempt. The administrative rule also provides that fitness facilities cannot claim an exemption for purchases of equipment or supplies used or consumed to provide physical fitness services. Gyms and other fitness facilities should analyze their offerings to determine their sales tax obligations relative to the services they provide. If you have any questions about whether your membership fees or other charges are taxable, please <a href="https://www.ohiostatetaxblog.com/contact/">contact us</a>.   Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reached at [email protected] or 330.258.6460. <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III </a>is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at [email protected] or 330.258.6423 <a href="https://www.bdblaw.com/attorneys/nathan-m-fulmer/">Nathan M. Fulmer</a> is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at [email protected] or 330.258.6464.

Law360: Security Co. Disputes ADT Fee Sourcing In Ohio High Court

2020-05-01 18:29:45

<a href="https://www.law360.com/tax-authority/articles/1262153/security-co-disputes-adt-fee-sourcing-in-ohio-high-court-" target="_blank" rel="noopener">Originally published on Law360 on April 28, 2020.  | </a><a href="https://www.bdblaw.com/wp-content/uploads/2020/04/Law360-Article-re-Oral-Argument.pdf" target="_blank" rel="noopener">PDF Download available by clicking here. </a> <a href="https://ohiochannel.org/video/supreme-court-of-ohio-case-no-2019-0531-defender-sec-co-v-testa" target="_blank" rel="noopener">Watch the oral argument here.</a> A security company that sells residential alarm service contracts to ADT told the Ohio Supreme Court on Tuesday that the contract fees shouldn’t be sourced to Ohio for tax purposes because ADT receives the contract benefits at its out-of-state headquarters. A state appeals court wrongly found that fees Defender Security Co. received from ADT for contracts with Ohio residents were sourced to Ohio and subject to the state’s corporate activity tax, a Defender attorney, <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> of Buckingham Doolittle & Burroughs LLC, told the justices during oral arguments. The arguments were held via teleconference amid the COVID-19 pandemic. Ohio statute employs destination-based sourcing for certain intangibles, which meant the contract fees should be sourced to ADT’s Colorado offices, where Defender sent the contracts to ADT, Fry argued. He asked the justices to reverse the appellate court’s decision denying Defender a $77,418 corporate activity tax refund on the fees. Appeals Court Judge Arlene Singer, who was assigned to the case in lieu of Justice Judith L. French, who was recused, asked whether the location of the Ohio homeowners who paid ADT for the monitoring services were irrelevant to the tax’s situs. Fry responded that the justices should disregard the residential addresses because a homeowner’s payment to ADT for services was a separate transaction from the fees Defender received from ADT for the contracts. “In this case, the purchaser is ADT, so you can’t look through to the homeowner’s benefit,” Fry said. “The tax commissioner has focused on the protection of people and property in Ohio. However, that is not the benefit that ADT receives from Defender.” Fry added that ADT had no property in Ohio. He argued that ADT’s benefit was the intangible right to contract with Ohio residents, and that it received that benefit in Colorado. Defender markets ADT residential services and installs security equipment that ADT uses to perform its monitoring services, according to court documents. In determining that the fees were taxable, Fry said that the Ohio Department of Taxation incorrectly applied an origin-based sourcing method for the contracts. But Ohio Deputy Solicitor General Michael Hendershot, arguing for the tax commissioner, said that a state regulation allows receipts from certain services, such as legal services or concert promotion services, to be sourced to Ohio even if an entity might be headquartered elsewhere. “The intangible here … which was a right that Defender created and then sold to ADT, is something that benefits ADT in Ohio because it is a contract right that gives ADT the right to charge Ohio consumers and to monitor real property in Ohio,” Hendershot said. Additionally, Hendershot said that the corporate activity tax’s situsing statute provides that certain intellectual property is sourced to where the intangible is used. In the present case, the fees ADT paid to Defender for the contract right should be sourced in the same manner, he said. The contracts have “value to ADT in Ohio” and “should be treated in the same way as a sale of a copyright or trademark or something of that nature,” he said. Fry, however, contended that there wasn’t a true parallel between the ADT contracts and the licensed use of a trademark because ADT didn’t place the intangibles at a physical location in the state, as he said a purchaser would do with a licensed trademark for a brand-name store. “The tax commissioner attempts to use this look-through approach, basically attributing the real property that’s owned by the consumer to ADT, which is not appropriate in this case,” he said. In Defender’s opening brief to the justices in September, the company said the proper situs of intangible contract rights for Ohio corporate activity tax purposes was an issue of first impression. On Tuesday, Fry said the department applied a “but for” test, which determined the fees were taxable because Defender could not have created the contract without the Ohio residents. But if every state were to use the same “but for” approach, the fees in dispute would be subject to tax in multiple states, and a sweeping standard would be created that would tax revenue that is only tangentially associated with a state, Fry said. “We need to step back and arrive at a more definitive and clear test,” Fry said, reiterating that he believed the test should be based upon the contract purchasers’ physical locations. Defender is represented by<a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/"> Richard B. Fry III</a> and <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> of Buckingham Doolittle & Burroughs LLC. Ohio Tax Commissioner Jeffrey McClain, who succeeded Joseph Testa, is represented by Attorney General Dave Yost, Benjamin M. Flowers, Michael J. Hendershot and Christine Mesirow of the Ohio Attorney General Office. The case is Defender Security Company, dba Defender Direct v. Joseph W. Testa [Jeffrey A. McClain], Tax Commissioner of Ohio, case number 2019-0531, in the Supreme Court of Ohio.  

Ohio Commercial Activity Tax – Ohio Board of Tax Appeals relies on federal income tax treatment of vehicle financing transactions for reversal of CAT assessment.

2020-03-04 13:52:36

<a href="/wp-content/uploads/2020/03/GettyImages-936987338-resized.jpg"><img class="alignright size-full wp-image-11712" src="/wp-content/uploads/2020/03/GettyImages-936987338-resized.jpg" alt="GettyImages-936987338-resized" /></a>A common question in many Ohio commercial activity tax (CAT) audits is whether federal tax treatment may be relied upon. Although the statute says it should (R.C. 5751.01(K)), the Tax Commissioner is often reluctant to accept the federal treatment for CAT purposes – a gross receipts-based tax, not an income tax. The <a href="https://bta.ohio.gov/">Ohio Board of Tax Appeals</a> recently sided with a taxpayer and respected the federal tax and GAAP treatment of complex financing transactions. The Board ruled that Hyundai properly excluded receipts from its captive financing company from the sale of 1231 assets and loans payments (interest and principal) from the CAT base. <em><a href="https://ohio-bta.modria.com/casedetails/504725;jsessionid=98845E886529AF4A0EE997F4B8C88907">Hyundai Motor Finance Co., v. McClain, Ohio BTA Case No. 2015-785 (Feb. 6, 2020).</a></em> Although the Board refused to adopt wholesale deference to federal income tax treatment, the ruling highlights the importance of federal income tax and accounting principles in determining proper treatment under the CAT. <ol> <li>Receipts from Securitization Transactions: The Board held these receipts are excluded from the CAT as proceeds from loans. HCA purchased retail installment sale contracts from dealers (RISCs) and packaged them for use as collateral to borrow funds and create cash flow. The RISCs were transferred to a special purpose entity and then pooled into a trust that issued notes backed by the RISCs. The pool transfer transactions were “secured financings”—not sales—for federal tax purposes. Moreover, the substance of the transactions showed that HCA was not selling assets, but collateralizing assets to create cash flow, which constituted a loan excluded from the CAT under R.C. 5751.01(F)(2)(e).</li> </br> <li>Sales from Retired Leased Vehicles: The Board determined these were sales of §1231 assets excluded from the CAT under C. 5751.01(F)(2)(c). Hyundai Motors (HCA) purchased leases (and leased vehicles) from automobile dealers. If the lessee decided not to purchase the vehicle by the end of the lease, HCA sold the vehicles at auction or to a dealer. The Tax Commissioner asserted the retired leased vehicles were “dual-purpose” property held for sale and lease and thus were not §1231 assets. Recordak Corp. v. United Sates, 325 F.2d 460 (Ct. Cl. 1963). Although some of the leased vehicles were eventually sold to lessees, the vehicles were primarily held for lease, not includible in HCA’s inventory, and depreciable under I.R.C. § 167. Therefore, the vehicle sales were properly classified excluded from the CAT.</li> </br> <li>Subvention Payments: Relying on federal accounting principles, the Board found that subvention payments constituted interest and were excluded from the CAT under <a href="http://codes.ohio.gov/orc/5751.011">01(F)(2)(a)</a>. The “subvention payments” were received for participating in special financing programs that offer leases and installment contracts for below-market interest rates. The dealer essentially reimburses HCA for the difference between the market-rate interest and the below-market interest collected from customers. Since the payments are actually for “the use of money” and treated as interest for accounting and federal income tax purposes, these gross receipt were properly excluded from the CAT.</li> </ol> </br> Clearly, the Board relied heavily on federal income tax treatment to determine the proper treatment of gross receipts for the CAT. The Tax Commissioner has not been so willing do so during audits, although perhaps this case will start a new trend. We will continue to monitor this case and other significant developments in the Ohio CAT. If you have questions on how your transactions are treated under Ohio’s Commercial Activity Tax, do not hesitate to <a href="https://www.ohiostatetaxblog.com/contact/">contact us.</a> Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>. <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a> <a href="https://www.bdblaw.com/attorneys/nathan-m-fulmer/">Nathan M. Fulmer</a> is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6464">330.258.6464</a>. <strong> </strong> <strong>About Buckingham, Doolittle & Burroughs:</strong> Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit <a href="http://www.bdblaw.com/">bdblaw.com</a>.

Ohio Drafts Rule Limiting Retroactive Consolidated Filing Elections

2020-01-27 15:11:52

<a href="/wp-content/uploads/2019/07/GettyImages-1053768312.jpg"><img class="alignright size-large wp-image-11638" src="/wp-content/uploads/2019/07/GettyImages-1053768312-700x350.jpg" alt="Ohio joins the wave by enacting Wayfair economic nexus" /></a>The <a href="https://www.tax.ohio.gov/portals/0/legal/rules/5703-29-02.pdf">Ohio Department of Taxation</a> has proposed a regulation change that would prevent taxpayers from making a retroactive consolidated filing election for Ohio Commercial Activity Tax purposes (CAT). The rule change appears to be an attempt to limit the application of a recent BTA decision where a taxpayer was permitted to make a retroactive consolidated filing election even after an audit had commenced. <em>See</em> our post about <a href="https://www.ohiostatetaxblog.com/taxpayer-permitted-to-correct-fatal-mistake-by-retroactively-making-consolidated-election-for-ohio-commercial-activity-tax-and-excluding-intercompany-receipts-from-tax/"><em>Nissan North America, Inc. v. McClain</em>, Ohio BTA Case No. 2016-1076 (October 9, 2019).</a>   The<a href="https://www.tax.ohio.gov/portals/0/legal/rules/5703-29-02.pdf"> proposed change to OAC 5739-29-02</a> effectively limits the Tax Commissioner’s authority to approve a taxpayer's request for a retroactive consolidated filing election. Under the rule, a taxpayer may only be granted retroactive consolidated filing status if it has <u>not</u> been contacted for audit, criminal investigation, or by a compliance program, and either 1) made a “clerical error,” or 2) requested consolidated status as part of the voluntary disclosure program. A “clerical error” essentially means that the originally filed returns reflected the intent to file on a consolidated basis, but the taxpayer merely failed to make the election (i.e. the election would not affect the original tax liability).   A <a href="https://www.ohiostatetaxblog.com/ohio-cat-considerations-for-combined-and-consolidated-groups/">consolidated election is essential</a> for commonly-owned taxpayer groups with significant intercompany transactions. Such businesses should review their current CAT registration status and determine if they should elect a consolidated filing, especially if they have already been contacted for audit. Alternatively, if businesses have not been filing the CAT but have business activity in Ohio mandating a filing, voluntary disclosure is another option for pursuing consolidated filing status.   We will continue to monitor this development and other changes proposed by the Department. If you have questions about consolidated election for commonly-owned taxpayers or Ohio’s Commercial Activity Tax, please do not hesitate to <a href="https://www.ohiostatetaxblog.com/contact/">contact us</a>.   Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>.   <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a>.   <a href="https://www.bdblaw.com/attorneys/nathan-m-fulmer/">Nathan M. Fulmer</a> is an associate in Buckingham’s Taxation Practice Group. He represents clients on a broad range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6464">330.258.6464</a>. <strong> </strong> <strong>About Buckingham, Doolittle & Burroughs:</strong> Buckingham is a corporate law firm that counsels Middle Market executives and business leaders all over Ohio and beyond. With offices in Akron, Canton and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for over 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. Visit <a href="https://www.bdblaw.com/">bdblaw.com</a> to learn more.

Ohio sales / use tax: Statute expanding oil & gas exemption applies retroactively to purchases of hydraulic fracturing equipment

2019-12-31 14:56:04

<a href="/wp-content/uploads/2019/12/GettyImages-484334082.jpg"><img class="alignright size-large wp-image-11688" src="/wp-content/uploads/2019/12/GettyImages-484334082-700x466.jpg" alt="Fracking" /></a>The <a href="https://tenthdistrictcourt.org/">Tenth District Ohio Court of Appeals</a> recently applied a statutory amendment clarifying the oil & gas exemption for Ohio sales & use tax retroactively. Interestingly, while this appeal was pending at the <a href="https://bta.ohio.gov/">Board of Tax Appeals</a>, the legislature amended the statute to clarify the scope of the exemption for fracking equipment. Although legislation is generally applied prospectively, this amendment was considered remedial and expressly stated that it clarified existing law and applied retroactively, including to current appeals.   <a href="http://codes.ohio.gov/orc/5739.02">R.C. 5739.02(B)(42)(q).</a> <a href="https://www.supremecourt.ohio.gov/rod/docs/pdf/10/2019/2019-Ohio-5198.pdf"><em>Stingray Pressure Pumping, LLC v. Tax Commr. of Ohio, 2019-Ohio-5198.</em></a> This decision opens up refund opportunities for taxpayers in the oil & gas industry, even those currently appealing an assessment. The particular issue in this case was whether a sales tax exemption applied to certain equipment used by Stingray Pressure Pumping, LLC in the production of crude oil and natural gas by fracking. The BTA initially denied exemption for equipment used to mix liquids and materials before being pumped into wells. Under previous case law, this type of property was taxable since it was considered <em>adjunct</em> to the drilling process, rather than used <em>directly</em> in the production of oil and gas.<a href="#_ftn1" name="_ftnref1">[1]</a> However, while Stingray’s appeal of the BTA’s decision was pending, the General Assembly amended R.C. 5739.02(B)(42) to clarify the scope of the exemption for fracking equipment by identifying certain exempt property and activities that may not have been contemplated when the sales tax exemption was originally enacted decades earlier. <em>See </em><a href="https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA132-HB-430">H.B. No. 430</a>; <a href="http://codes.ohio.gov/orc/5739.02">R.C. 5739.02(B)(42)(q).</a> Although amendments are generally prospective, since the statutory amendment expressly clarified the scope of an existing exemption, the amended statute applied retroactively to cases pending on appeal. The BTA did not have the opportunity to apply the clarified statute and, therefore, the Court remanded the appeal to the BTA to determine the taxability of the equipment under the clarified scope of the sales tax exemption. If you have questions about the tax treatment of your oil and gas production equipment, or any questions concerning Ohio Sales / Use Tax and exemptions, please do not hesitate to <a href="https://www.ohiostatetaxblog.com/contact/">contact us.</a> <hr />   <a href="#_ftnref1" name="_ftn1">[1]</a> <em>See Indep. Frac Serv. v. Limbach, </em>No. 1989-J-863 (June 28, 1991); <em>Lyons v. Limbach, </em>40 Ohio St.3d (92 (1988); <em>Kilbarger Constr., Inc. v. Limbach, </em>37 Ohio St.3d 234 (1988). Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/" target="_blank">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>. <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/" target="_blank">Richard B. Fry III</a> is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a>. <a href="https://www.bdblaw.com/attorneys/nathan-m-fulmer/" target="_blank">Nathan M. Fulmer</a> is an associate in Buckingham's Taxation Practice Group. He represents clients on a board range of tax planning and controversy matters. His joint degree in taxation allows him to provide unique solutions when assisting clients on business matters. Nate can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6464">330.258.6464</a>. <strong>About Buckingham, Doolittle & Burroughs:</strong> Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit <a href="http://www.bdblaw.com/">bdblaw.com</a>.

Ohio sales / use tax: High-speed communication cable lines are now nontaxable real property improvements creating significant refund opportunity for taxpayers

2019-10-28 16:16:45

<a href="/wp-content/uploads/2019/10/GettyImages-505921926.jpg"><img class="alignright size-large wp-image-11679" src="/wp-content/uploads/2019/10/GettyImages-505921926-700x477.jpg" alt="cable lines" /></a> The <a href="https://bta.ohio.gov/">Ohio Board of Tax Appeals</a> recently overturned precedent and held that the installation of industry-standard communication lines constituted nontaxable real property improvements rather than taxable business fixtures. <a href="https://ohio-bta.modria.com/download?BID=925990"><em>Nationwide Mutual Insurance Co. v. McClain, </em>Ohio BTA Case No. 2018-313 (October 22, 2019).</a> Despite a previous ruling that the same type of cabling was a business fixture, the Board found this type of high-speed computer cabling was not a business fixture because it was no longer unique to specific businesses and is common in any commercial property. Common building elements, including electrical and communication lines, are excluded from the definition of “business fixture.” <a href="http://codes.ohio.gov/orc/5701.03">R.C. 5701.03(B).</a> The ruling supports refund opportunities for taxpayers who have paid tax on cable installation projects, which the Department of Taxation has traditionally treated as taxable.   This case illustrates that certain improvements once taxable as business fixtures may evolve into nontaxable real property improvements. In the 1990s, the Board held internet cable installations were taxable business fixtures because they were not common in every building and primarily benefited the specific business occupant instead of the realty.<em> See </em><a href="https://ohio-bta.modria.com/download?BID=200852"><em>Newcome Corp. v. Tracy </em>(Dec. 11, 1998), BTA No. 97-M-320.</a> Now, this type of high-speed computer cabling is so commonplace that any subsequent business occupying the property would use the installed cabling for their own benefit. Further, as certain technologies and installations become more common, past decisions involving business fixtures could be overturned in favor of classifying them as nontaxable real property improvements.   The issue in this case arose out of refund claims filed by Nationwide Insurance asserting that its installation of industry standard computer cabling constituted nontaxable real property improvements performed under a construction contract. The Tax Commissioner, relying upon <em>Newcome, </em>denied the refund concluding the cabling was a business fixture.   The Board noted that when <em>Newcome</em> was decided, the type of high-speed communication cable installations were tailored to the specific customers’ business, as the existing cabling was rarely used when systems were upgraded, and similar cabling was not found in every commercial building nor usable by other building occupants. However, times have changed and computer equipment has evolved significantly since <em>Newcome </em>was decided in 1998. In this case,  the parties stipulated that if Nationwide abandoned the buildings where the cabling was installed, any business could use the cabling for its voice and internet communications. Although the Board noted there might be some specialized cable installations that constitute business fixtures, that was not the case here where only industry standard cabling was installed.   This ruling creates refund opportunities for taxpayers that paid or were assessed Ohio sales/use tax on computer cable installation projects. If you have questions about the tax treatment of your installation projects, or about real property improvements and business fixtures, do not hesitate to <a href="https://www.ohiostatetaxblog.com/contact/">contact us.</a>   Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>.   <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a> <strong> </strong> <strong>About Buckingham, Doolittle & Burroughs:</strong> Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit <a href="http://www.bdblaw.com/">bdblaw.com</a>.

Taxpayer permitted to correct fatal mistake by retroactively making consolidated election for Ohio commercial activity tax and excluding intercompany receipts from tax.

2019-10-22 13:53:59

<a href="/wp-content/uploads/2019/10/GettyImages-1015363166.jpg"><img class="alignright size-large wp-image-11674" src="/wp-content/uploads/2019/10/GettyImages-1015363166-700x420.jpg" alt="Tax increase, decrease" /></a> The Ohio Board of Tax Appeals recently allowed a taxpayer to retroactively elect to be taxed as a consolidated taxpayer for Ohio commercial activity tax, even after an audit had commenced. <em>Nissan North America, Inc. v. McClain</em>, Ohio BTA Case No. 2016-1076 (October 9, 2019). Even though Nissan failed to elect consolidated status when it first filed CAT returns, the substance of Nissan’s returns established its obvious intent to file on a consolidated basis. Thus, the Board found that it was unreasonable for the Tax Commissioner to deny Nissan’s request to retroactively apply its consolidated election to the audit period under the applicable statutes and regulations. As illustrated in this case, a <a href="https://www.ohiostatetaxblog.com/ohio-cat-considerations-for-combined-and-consolidated-groups/">consolidated election is essential</a> for commonly-owned taxpayer groups with significant intercompany transactions. The issues arose out of an audit of Nissan’s CAT returns from 2009-2011 and refund request for the same period. Nissan engaged in complex leasing and securitization transactions through various affiliates, such as Nissan Infiniti Lease Trust (NILT) and Nissan Motor Acceptance Corp. (NMAC). Since a consolidated election had not been filed, the Tax Commissioner treated gross receipts from related parties as taxable during the audit. The Commissioner’s position was that a taxpayer could not make a retroactive consolidated election after commencement of an audit. However, the Tax Commissioner’s administrative rule did not prohibit a retroactive consolidated election even after the taxpayer was notified of an audit. <a href="http://codes.ohio.gov/oac/5703-29">OAC 5703-29-04</a>. Further, Nissan had filed its returns consistent with having made a consolidated election. The Board held that Nissan had the right to correct the mistake and, therefore, the Tax Commissioner abused his discretion by not allowing the retroactive election. This pro-taxpayer ruling may create refund opportunities for taxpayers assessed CAT on intercompany transactions from mistakenly failing to make a consolidated election. If you have questions about consolidated election for commonly-owned taxpayers and Ohio’s Commercial Activity Tax, do not hesitate to <a href="https://www.ohiostatetaxblog.com/contact/">contact us.</a> Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>. <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a> <strong>About Buckingham, Doolittle & Burroughs:</strong> Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit <a href="http://www.bdblaw.com/">bdblaw.com</a>.

Paving the Way to Tax Refunds | Buckingham Wins Big for Ohio Heavy Highway Contractors

2019-10-07 12:25:34

<a href="/wp-content/uploads/2019/10/GettyImages-509425262.jpg"><img class="alignright size-full wp-image-11669" src="/wp-content/uploads/2019/10/GettyImages-509425262.jpg" alt="Highway construction workers on site" /></a>Buckingham Tax Attorneys Steve Dimengo and Rich Fry recently obtained a favorable ruling from the 9<sup>th</sup> District Court of Appeals for their client in <a href="http://r20.rs6.net/tn.jsp?f=00116SDR9WzqAag3cWDwFoUQ6NAvhOJiaEuDVeF3wB8MRj8ksSAkI8dPyWA8wVmxKVQR45kxsu1bVLxX01feEes8FHeV2e96H5ZrE_5q-60NUk3krAqasprdhNQKGdCesfYax2DXJcEvzUf_5EZsuYAiSM0hiLC9s1vQJHnDJifJOpJ7x4o7VD8ItbjuVrIKrE5ljYNUKiy0K-IHIKdhUfZx2bmmlE--TfW&c=dUCwTcnoP-1RpcX_T9y_HIsABdpTN2mcycYu2GPTrUntQzyB-9aWcA==&ch=EB6HtFlbhh_w-yfqgIVUUwjInHl3SbssLLxSQULBzg8GwHKZLDMnAA=="><em>Karvo Paving Co. v. Testa, 2019-Ohio-3974.</em></a> This victory enables highway and road paving contractors to purchase traffic maintenance property, such as barrier walls, temporary traffic signs, etc., exempt from Ohio sales / use tax. The Court ruled that the traffic maintenance property was resold to the Ohio Department of Transportation during the contractor’s paving projects. “We are very proud of this result and privileged to defend our business clients from the unfair and overreaching imposition of Ohio taxes,” said Dimengo, Buckingham’s Managing Partner.     The primary issue was whether the contractor transferred possession of the traffic maintenance property to ODOT, meaning the property was resold. ODOT specified the type, quantity, and placement of the property, which it used to fulfill its public duty to safely maintain traffic on Ohio highways. Further, ODOT, through its engineers, controlled the property during the project, which remained onsite 24/7 even when the contractor was not working on that particular part of the road. The Court concluded that the contractor effectively rented the traffic maintenance property to ODOT and therefore, was entitled to the resale exemption on its purchase. Substantial refund opportunities exist for contractors that have historically paid tax on traffic maintenance property.   The Court additionally ruled that employees leased from a related party to the contractor were exempt from tax under since the companies were part of an affiliated group. <a href="http://r20.rs6.net/tn.jsp?f=00116SDR9WzqAag3cWDwFoUQ6NAvhOJiaEuDVeF3wB8MRj8ksSAkI8dPyWA8wVmxKVQFPvjxEQceOd_dWAGtXBejRYcnSeXyb2IRG0Wl-b8qixuJqmZTW4bKn2fXZQGfpiKBrPUL0-dQBOk5CqjTbOct-6g6hE8PycI&c=dUCwTcnoP-1RpcX_T9y_HIsABdpTN2mcycYu2GPTrUntQzyB-9aWcA==&ch=EB6HtFlbhh_w-yfqgIVUUwjInHl3SbssLLxSQULBzg8GwHKZLDMnAA==">R.C. 5739.01(JJ)(4),</a> Even though the companies did not have common majority ownership – one was owned entirely by the husband and the other was majority owned by his wife – the taxpayer established both companies were controlled by the husband. The Court’s decision highlights that affiliation for this exemption may be established by common ownership or control.   Finally, the Court interpreted the casual sale exemption to include leases of property that the lessor had previously used in its own business. This is the first Ohio case finding that the casual sale exemption can apply to leased property. This issue was remanded to the Board of Tax Appeals for further proceedings.   This ruling creates multiple refund opportunities for construction contractors, especially those performing road paving and other public projects. If you have questions about claiming Ohio tax refunds based upon the resale, leased employee, or casual sale exemptions, do not hesitate to <a href="http://r20.rs6.net/tn.jsp?f=00116SDR9WzqAag3cWDwFoUQ6NAvhOJiaEuDVeF3wB8MRj8ksSAkI8dPyWA8wVmxKVQ1TStOFHcPHLQT8h0LfGBtv78MIq2opuQK5Uhb6yPlX-DMtAu23JeqWpohBKljYraprsHuDOCLNnUBZxisnHKVo0z1BIKt50TA5vRLLNEolI=&c=dUCwTcnoP-1RpcX_T9y_HIsABdpTN2mcycYu2GPTrUntQzyB-9aWcA==&ch=EB6HtFlbhh_w-yfqgIVUUwjInHl3SbssLLxSQULBzg8GwHKZLDMnAA==">contact us.</a>   Following up on our <a href="http://r20.rs6.net/tn.jsp?f=00116SDR9WzqAag3cWDwFoUQ6NAvhOJiaEuDVeF3wB8MRj8ksSAkI8dPyWA8wVmxKVQ1Qzzo9pnwPwmdw3uZ7w1Q7R9P0gU2tNf-u2podFUTk_bWIyOK_Me5MFD0Zv6YyvuZOxzjnUsT4J9W6lExFoGTc5dz0oeLS7vn6BndwXvtCB_lmTbCDH_xsk5Z3Qu_aa30V5cxVnaNdH6JDRlp25pqnIjsTuDgFglkJ8DoMZwHfI=&c=dUCwTcnoP-1RpcX_T9y_HIsABdpTN2mcycYu2GPTrUntQzyB-9aWcA==&ch=EB6HtFlbhh_w-yfqgIVUUwjInHl3SbssLLxSQULBzg8GwHKZLDMnAA==">previous post</a>.   Attorney <a href="http://r20.rs6.net/tn.jsp?f=00116SDR9WzqAag3cWDwFoUQ6NAvhOJiaEuDVeF3wB8MRj8ksSAkI8dPyozLw23wZBf_xfm2RPviWRqfpeFGu3aChcsBOHwQXGGnvLFNqPFG_Iq_Z6GTRsmaqqfSgUJqFU9vAKzqCP3M15AUjiIxSneYsi5WiPvIWLQLXz9gMV2yL7wRmx_RXHawt7PjylYGEK4&c=dUCwTcnoP-1RpcX_T9y_HIsABdpTN2mcycYu2GPTrUntQzyB-9aWcA==&ch=EB6HtFlbhh_w-yfqgIVUUwjInHl3SbssLLxSQULBzg8GwHKZLDMnAA==">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reached at <a href="mailto:[email protected]">[email protected]</a> or 330.258.6460.   <a href="http://r20.rs6.net/tn.jsp?f=00116SDR9WzqAag3cWDwFoUQ6NAvhOJiaEuDVeF3wB8MRj8ksSAkI8dPyozLw23wZBfezr-CrLKVyi0cRZ4oJt3q3qsUEWteO8IoP2ootYctoeydEUr-GXqJsomGw6Lq-Ci6lmptjpzBbLaPDFVS9IM4v7PT7GYD6gkHF__-AhtJesPBFpRyStAKHkxo9mnjkus&c=dUCwTcnoP-1RpcX_T9y_HIsABdpTN2mcycYu2GPTrUntQzyB-9aWcA==&ch=EB6HtFlbhh_w-yfqgIVUUwjInHl3SbssLLxSQULBzg8GwHKZLDMnAA==">Richard B. Fry III</a> is a partner and Buckingham’s Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or 330.258.6423 <strong> </strong> <strong>About Buckingham, Doolittle & Burroughs:</strong> Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit <a href="http://r20.rs6.net/tn.jsp?f=00116SDR9WzqAag3cWDwFoUQ6NAvhOJiaEuDVeF3wB8MRj8ksSAkI8dP0k3Tnc4ffxz6UeNkWWNwOlvTNE33oRWQwsUCJIAuf9Mm13dUcfj5i62pxL-8Bp3uGR3TaJJyoCASk-FTu7LWjR4NtdUkvN8aw==&c=dUCwTcnoP-1RpcX_T9y_HIsABdpTN2mcycYu2GPTrUntQzyB-9aWcA==&ch=EB6HtFlbhh_w-yfqgIVUUwjInHl3SbssLLxSQULBzg8GwHKZLDMnAA==">bdblaw.com</a>.  

OSBA Sales & Use Tax Subcommittee Report Highlights Recent Cases

2019-09-19 18:08:01

<a href="https://www.ohiostatetaxblog.com/wp-content/uploads/2019/01/GettyImages-845769230_lowres.jpg"><img class="alignright size-large wp-image-11595" src="https://www.ohiostatetaxblog.com/wp-content/uploads/2019/01/GettyImages-845769230_lowres-700x467.jpg" alt="Business man holding pen pointing on summary report chart" /></a><a href="https://www.ohiostatetaxblog.com/wp-content/uploads/2015/09/OSBA-Sales___Use_Tax_Subcommittee_Report-Sept-2019.pdf">Click here</a> to view the Sales & Use Tax Subcommittee Report that Steve and Rich presented to the Ohio State Bar Association’s Taxation Law Committee on September 19, 2019. The report highlights the recent changes to Ohio law requiring out-of-state sellers and marketplace facilitators to collect tax on sales into the state, as well as recent cases decided by the Ohio Board of Tax Appeals. If you have any questions regarding this Subcommittee Report or any Ohio sales & use tax questions, please do not hesitate to <a href="https://www.ohiostatetaxblog.com/contact/">contact us</a>. Previous Subcommittee Reports are available on our <a href="https://www.ohiostatetaxblog.com/resources/">Resources</a> tab. Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC and chair of the <a href="https://www.bdblaw.com/practices/taxation/">taxation practice group</a>. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>. Buckingham Partner <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is the Taxation Practice Group Chair. He focuses on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. He also represents clients in federal income tax controversies with the Internal Revenue Service (IRS). Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a> <h3>About Buckingham, Doolittle & Burroughs:</h3> Buckingham, Doolittle & Burroughs, LLC is a corporate law firm that counsels middle-market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for more than 100 years, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. For more information, news and updates, visit <a href="http://www.bdblaw.com">bdblaw.com</a>.

Practical Law - Sales and Use Tax for Remote Sellers: Ohio

2019-08-28 15:50:24

A Q&A guide to remote sellers’ exposure to sales and use tax in Ohio after the US Supreme Court’s decision in South Dakota v. Wayfair, Inc. in 2018. This Q&A addresses issues including nexus for remote sellers, taxability based on economic nexus and software nexus, economic nexus thresholds (including the threshold measurement period), the Streamlined Sales and Use Tax Agreement (SSUTA), penalties for failure to comply with sales tax collection and remittance, and the taxation of marketplace sellers and hosts or facilitators. [pdf-embedder url="/wp-content/uploads/2019/08/Sales-and-Use-Tax-for-Remote-Sellers-Ohio-w-020-2104-Practical-Law-Dimengo-Fry.pdf" title="Sales and Use Tax for Remote Sellers Ohio (w-020-2104) Practical Law Dimengo Fry"] Click <a href="/wp-content/uploads/2019/08/Sales-and-Use-Tax-for-Remote-Sellers-Ohio-w-020-2104-Practical-Law-Dimengo-Fry.pdf">here</a> to download the PDF. <p class="alignnone"><a href="/wp-content/uploads/2015/10/Steve-Dimengo_sq.jpg"><img class="alignright size-medium wp-image-11010" src="/wp-content/uploads/2015/10/Steve-Dimengo_sq-250x250.jpg" alt="Steve Dimengo Photo" /></a>Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC and chair of the <a href="https://www.bdblaw.com/practices/taxation/">taxation practice group</a>. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>.</p>   <a href="https://www.ohiostatetaxblog.com/wp-content/uploads/2019/06/Fry_Rich-15_bio-250x250.jpg"><img class="alignleft size-medium wp-image-11630" src="https://www.ohiostatetaxblog.com/wp-content/uploads/2019/06/Fry_Rich-15_bio-250x250-250x250.jpg" alt="Fry_Rich-15_bio-250x250" /></a>Buckingham Partner <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a member of the taxation practice group with a focus on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. He also represents clients in federal income tax controversies with the Internal Revenue Service (IRS). Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a> <h3 class="alignleft">About Buckingham, Doolittle & Burroughs:</h3>     Buckingham is a corporate law firm that counsels Middle Market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for over 100 years with nearly 70 attorneys, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. <a href="https://www.bdblaw.com/in-the-news/">See all of our news and updates by visiting our website</a>.

Ohio Sales / Use Tax: Ohio joins the wave by enacting Wayfair economic nexus standards and expanding collection obligations to marketplace facilitators

2019-07-31 20:28:48

<a href="/wp-content/uploads/2019/07/GettyImages-1053768312.jpg"><img class="alignleft size-full wp-image-11638" src="/wp-content/uploads/2019/07/GettyImages-1053768312.jpg" alt="Ohio joins the wave by enacting Wayfair economic nexus" /></a>Nexus for Ohio sales / use tax collection expands effective August 1, 2019 to include out-of-state sellers and marketplace facilitators that deliver at least $100,000 of sales or 200 transactions to Ohio. Ohio’s General Assembly recently enacted <a href="https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA133-HB-166">Am Sub. H.B. 166</a>, the biennial budget bill, which adopted economic nexus provisions replacing the previous click-through, software, and affiliate nexus provisions. In addition to e-commerce retailers, these new provision will have a significant impact on out-of-state SaaS providers and online platforms that connect sellers of taxable services to Ohio consumers. Ohio’s economic nexus standard is the same as that at issue in <em>South Dakota v. Wayfair</em>, <em>Inc.,</em> 138 S. Ct. 2080, 2104, 201 L. Ed. 2d 403 (2018) (<a href="https://www.ohiostatetaxblog.com/taxation-without-representation-u-s-supreme-court-hears-oral-arguments-in-south-dakota-v-wayfair/">for more about <em>Wayfair</em></a>). Under the economic presence standard, an out-of-state seller is presumed to have substantial nexus with Ohio if the seller has Ohio gross receipts greater than $100,000 or at least 200 transactions delivered to Ohio. These thresholds include sales of tangible personal property and services delivered to Ohio consumers. Nexus is created if the sellers exceeds these thresholds in the current or previous calendar year. A seller meeting thresholds must obtain an <a href="https://www.tax.ohio.gov/sales_and_use/license.aspx">Ohio seller’s use tax license</a> and collect tax starting August 1, 2019, unless it can rebut the presumption that its activities are not significantly associated with the seller’s ability to establish or maintain a market – likely, a nearly impossible burden to meet. <a href="http://codes.ohio.gov/orc/5741.01v1">R.C. 5741.01</a>. <em>See also</em>, <a href="https://www.tax.ohio.gov/Portals/0/OhioTaxAlert/ArchivedAlerts/SubstantialNexusAndMarketplaceFacilitatorChanges07232019.pdf">Ohio Tax Alert</a>, Substantial Nexus and Marketplace Facilitator Changes (7/23/19). Further, marketplace facilitators will be presumed to have substantial nexus and required to collect Ohio sales / use tax based upon the same economic standards – i.e., if they make or facilitate at least $100,000 of sales or 200 transactions delivered to Ohio customers. The definitions of “marketplace facilitator” and sales that are “facilitated” are quite broad and will encompass more business models than the traditional e-commerce marketplaces like Amazon.com and eBay. For instance, any business that help connect customers to sellers and collects the price of the property or services sold, provides payment processing services, or provides virtual currency used to make the purchase could be a marketplace facilitator required to collect Ohio sales / use tax. Ohio’s economic nexus statute will present unique compliance burdens for out-of-state retailers, service providers, and software businesses selling or facilitating sales to Ohio consumers. If you have questions about Ohio sales / use tax registration or collection requirements, including which sales and services are taxable, please <a href="https://www.ohiostatetaxblog.com/contact/">contact us</a>. You may also refer to our extensive <a href="https://www.ohiostatetaxblog.com/resources/">Ohio Sales / Use Tax: Recent Trends, Developments and Planning Opportunities</a> outline for information concerning which sales of property and services are taxable. <a href="/wp-content/uploads/2015/10/Steve-Dimengo_sq.jpg"><img class="alignright size-medium wp-image-11010" src="/wp-content/uploads/2015/10/Steve-Dimengo_sq-250x250.jpg" alt="Steve Dimengo Photo" /></a>Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC and chair of the <a href="https://www.bdblaw.com/practices/taxation/">taxation practice group</a>. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>. <a href="https://www.ohiostatetaxblog.com/wp-content/uploads/2019/06/Fry_Rich-15_bio-250x250.jpg"><img class="alignleft size-medium wp-image-11630" src="https://www.ohiostatetaxblog.com/wp-content/uploads/2019/06/Fry_Rich-15_bio-250x250-250x250.jpg" alt="Fry_Rich-15_bio-250x250" /></a>Buckingham Partner <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a member of the taxation practice group with a focus on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. He also represents clients in federal income tax controversies with the Internal Revenue Service (IRS). Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a> <h3 class="alignleft">About Buckingham, Doolittle & Burroughs:</h3>     Buckingham is a corporate law firm that counsels Middle Market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for over 100 years with nearly 70 attorneys, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. <a href="https://www.bdblaw.com/in-the-news/">See all of our news and updates by visiting our website</a>.

Ohio’s Municipal Net Profits Tax Reform Constitutional – Centralized filing provides significant administrative benefits to companies doing business across multiple localities.

2019-03-26 13:52:03

<a href="/wp-content/uploads/2019/03/GettyImages-901526362_EDIT.jpg"><img class="alignright size-full wp-image-11615" src="/wp-content/uploads/2019/03/GettyImages-901526362_EDIT.jpg" alt="Centralized Municipal Tax Filing" /></a>Ohio’s efforts to substantially simplify its municipal income tax regime – a much-needed reform – is permitted to move forward. Ohio instituted municipal income tax reform, which took effect with the 2018 tax year, permitted business to elect to file a centralized return with the Ohio Department of Taxation, among other uniformity measures. Ohio municipalities mounted strenuous objections, feeling as if their right to levy taxes had been impeded, but have been unsuccessful in reversing the state’s efforts to make municipal taxation more uniform and much less burdensome.   Ohio and its taxpayers emerged victorious (for now) as the 10<sup>th</sup> District Court of Appeals upheld Ohio’s efforts to reform Ohio’s <a href="https://www.cleveland.com/metro/index.ssf/2017/06/ohios_municipal_business_taxes.html">harshly criticized</a> municipal income tax scheme. The ruling significantly advances Ohio’s municipal income tax. Instead of being subject to the procedures of each particular municipality, Ohio businesses are able to elect to file a single, centralized municipal net profits return with the Ohio Tax Commissioner through the <a href="https://gateway.ohio.gov/wps/portal/gateway/BusinessGateway/Home/!ut/p/z1/jZBBC4JAEIV_S4e9OgNmWbeNoLLIU2R7iRU2NXR32V0V_31C2CFSmts8vnmPN8AgASZ5U2TcFUryst9vbHFHejjsVyGe46MfIF3O41W0XSCGAVzfwMhQBPbX_TjApu2vwKYj5gMw7hEBy0qVvutSmfphBsyIhzDCeLXp5dw5bdcECfafES3vPJUXystUQ7DVlmDVaWUcLz8AwU1tCyms3Q3CXlXiV0KurIPk2xh0dUnwGZTNic5eVaY7iA!!/dz/d5/L2dBISEvZ0FBIS9nQSEh/">Ohio Business Gateway</a>. This is estimated to save business owners up to <a href="https://www.youtube.com/watch?v=ZXQCCmenHus&feature=youtu.be">$800 million per year</a> in compliance costs. Calendar year taxpayers wanting to take advantage of centralized filing must opt-in and register through the Ohio Business Gateway by March 1<sup>st</sup> of the taxable year.   Ohio municipalities argued that Ohio’s General Assembly exceeded its constitutional power under <a href="http://codes.ohio.gov/orc/504">Ohio’s home rule</a> by limiting municipalities’ ability to “levy” taxes. They maintained that Ohio’s centralized filing scheme unconstitutionally limited the municipalities’ power to collect taxes. In construing the term “levy,” the Court turned to 20<sup>th</sup> century dictionaries and determined that at the time the constitutional provision was drafted, the definition of levy included “the power to raise or collect by assessment.” Based upon the intended meaning of the term, the Court concluded the Ohio General Assembly did not limit ability through a mere administrative centralized filing provision and has authority to limit municipalities’ power to impose and collect taxes in this manner, ruling in the State’s favor. Ohio municipalities no longer have to administer and collect taxes themselves, and benefit substantially from low-cost administrative fee charged by the Department of Taxation for collection. Despite the municipalities’ opposition, reforming Ohio municipal income taxes was good for businesses and should ultimately benefit them.   If you have questions about Ohio’s municipal nets profits tax, <a href="https://www.tax.ohio.gov/MunicipalTax.aspx">registering</a> for Ohio’s business gateway, or any other Ohio tax matters, please <a href="https://www.ohiostatetaxblog.com/contact/">contact us</a>.   Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC and chair of the <a href="https://www.bdblaw.com/practices/taxation/">taxation practice group</a>. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>. Buckingham Partner <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a member of the taxation practice group with a focus on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. He also represents clients in federal income tax controversies with the Internal Revenue Service (IRS). Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a> <h3>About Buckingham, Doolittle & Burroughs:</h3> Buckingham is a corporate law firm that counsels Middle Market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for over 100 years with nearly 70 attorneys, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. <a href="https://www.bdblaw.com/in-the-news/">See all of our news and updates by visiting our website</a>.

Out-of-state businesses with little-to-no connection with Ohio owe commercial activity tax based upon their customers’ subsequent shipment of products to Ohio.

2019-03-20 16:12:58

<a href="/wp-content/uploads/2019/03/GettyImages-946210052.jpg"><img class="alignright size-full wp-image-11608" src="/wp-content/uploads/2019/03/GettyImages-946210052.jpg" alt="GettyImages-946210052" /></a>Ohio’s 10<sup>th</sup> District Court of Appeals affirmed the <a href="https://bta.ohio.gov/">Board of Tax Appeals’</a> decision upholding commercial activity tax (CAT) assessments issued to a Georgia business with no activities in Ohio and minimal (if any) direction towards the state’s market. The Court held that application of the Ohio CAT’s market-based situsing principals to the taxpayer’s, Greenscapes Home & Garden Products, gross receipts from sales of products delivered to the customer for subsequent shipment to Ohio was proper and did not violate the U.S. Constitution. In <a href="http://www.supremecourt.ohio.gov/rod/docs/pdf/10/2019/2019-Ohio-384.pdf"><em>Greenscapes Home and Garden Products v. Testa</em>, 2019-Ohio-384</a>, the taxpayer initially asserted that gross receipts from products delivered directly to customers in Georgia were not subject to Ohio CAT. Although the taxpayer delivered the products to the customer or its designee in Georgia, those products were shipped by the customer to distribution centers in Ohio. The taxpayer was aware the products would be shipped to Ohio since it had prepared the shipping labels and bills of lading. Under the CAT’s situsing statute – R.C. <a href="http://codes.ohio.gov/orc/5751.033">5751.033(E)</a> – gross receipts are sitused to Ohio if the purchaser ultimately receives the products in Ohio after all transportation has been completed. Based upon some old corporate franchise tax cases, similar statutory language was interpreted to encompass a customer’s shipment of products following acceptance thereof. Greenscapes did not present evidence that Ohio was not the final destination of the goods, as the customers shipped the goods again after arriving at their Ohio distribution center. Instead, Greenscapes relied on constitutional arguments to preclude the application of the CAT to its receipts. It argued that the CAT violated the Commerce Clause and the Due Process Clause since Greenscapes lacked sufficient connections to Ohio. But Greenscapes knew that its products were destined for Ohio when the orders were placed. The evidence presented established that the products were ultimately received in Ohio and, therefore, Greenscapes had substantial nexus under Ohio’s statutory definition because it had more than $500,000 of Ohio gross receipts. <a href="http://codes.ohio.gov/orc/5751.01">R.C. 5751.01(I)</a>. This is certainly not the end of Ohio’s sluggish development of laws governing the sourcing of sales of tangible personal property. This decision highlights the critical importance of documentary evidence of the ultimate destination of a seller’s products. We discussed the BTA’s decision in our <a href="https://www.ohiostatetaxblog.com/ohio-commercial-activity-tax-board-of-tax-appeals-takes-first-stab-at-situsing-receipts-from-tangible-personal-property-sales-finally/">previous post</a>, which left open the possibility of establishing a non-Ohio situs based upon further shipments outside Ohio by the customer. Please <a href="https://www.ohiostatetaxblog.com/contact/">contact us</a> if you have any questions regarding the situs of your business’ gross receipts for CAT purposes or any other Ohio tax questions. Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC and chair of the <a href="https://www.bdblaw.com/practices/taxation/">taxation practice group</a>. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>. Buckingham Partner <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a member of the taxation practice group with a focus on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. He also represents clients in federal income tax controversies with the Internal Revenue Service (IRS). Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a> <h3>About Buckingham, Doolittle & Burroughs:</h3> Buckingham is a corporate law firm that counsels Middle Market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for over 100 years with nearly 70 attorneys, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. <a href="https://www.bdblaw.com/in-the-news/">See all of our news and updates by visiting our website</a>.

Tax Talk | Top Takeaways from the 2019 Ohio Tax Conference

2019-02-26 16:00:02

Tax Talk | Top Takeaways from the 2019 Ohio Tax Conference Watch this episode of Tax Talk where <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> and <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry</a> wrap up this year’s tax conference by giving you their key takeaways and highlights from the event. At the top of the highlights was meeting the New Ohio Tax Commissioner Jeff McClain and discussing the new policy and objectives with the new administration. Watch this short video to hear the other top highlights.   <iframe src="https://www.youtube.com/embed/D4AwtsL41A0" width="560" height="315" frameborder="0" allowfullscreen="allowfullscreen"></iframe>   Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC and chair of the <a href="https://www.bdblaw.com/practices/taxation/">taxation practice group</a>. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>. Buckingham Partner <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a member of the taxation practice group with a focus on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. He also represents clients in federal income tax controversies with the Internal Revenue Service (IRS). Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a> <h3>About Buckingham, Doolittle & Burroughs:</h3> Buckingham is a corporate law firm that counsels Middle Market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for over 100 years with nearly 70 attorneys, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. <a href="https://www.bdblaw.com/in-the-news/">See all of our news and updates by visiting our website</a>.

OSBA Sales & Use Tax Subcommittee Report Highlights Recent Cases

2019-01-22 13:49:24

<a href="/wp-content/uploads/2019/01/GettyImages-845769230_lowres.jpg"><img class="alignright size-large wp-image-11595" src="/wp-content/uploads/2019/01/GettyImages-845769230_lowres-700x467.jpg" alt="Business man holding pen pointing on summary report chart" /></a><a href="https://www.ohiostatetaxblog.com/wp-content/uploads/2019/01/January_16__2019_Ohio_State_Bar_Association_Taxation_Committee_Sales_Use_Tax_Subcommittee_Report.pdf">Click here</a> to view the Sales & Use Tax Subcommittee Report that Steve and Rich presented to the Ohio State Bar Association’s Taxation Law Committee on January 15, 2019. The Report highlights recent cases interpreting the scope of the resale exemption, employment services, and building maintenance and janitorial services. In particular, the recent case concluding that employment services are nontaxable where the staffing agency provided on-site management of the workers provides Ohio business with potential <a href="https://www.ohiostatetaxblog.com/ohio-sales-use-tax-employment-services-are-not-taxable-when-outsourced-staff-is-controlled-by-the-staffing-agencys-on-site-management/">refund opportunities</a>. If you have any questions regarding this Subcommittee Report or any Ohio sales & use tax questions, please do not hesitate to <a href="https://www.ohiostatetaxblog.com/contact/">contact us</a>. Previous Subcommittee Reports are available on our Resources tab. Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC and chair of the <a href="https://www.bdblaw.com/practices/taxation/">taxation practice group</a>. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6460">330.258.6460</a>. Buckingham Partner <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a member of the taxation practice group with a focus on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. He also represents clients in federal income tax controversies with the Internal Revenue Service (IRS). Rich can be reached at <a href="mailto:[email protected]">[email protected]</a> or <a href="tel:330.258.6423">330.258.6423</a> <h3>About Buckingham, Doolittle & Burroughs:</h3> Buckingham is a corporate law firm that counsels Middle Market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for over 100 years with nearly 70 attorneys, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. <a href="https://www.bdblaw.com/in-the-news/">See all of our news and updates by visiting our website</a>.

Ohio Sales & Use Tax: Employment services are not taxable when outsourced staff is controlled by the staffing agency’s on-site management.

2019-01-18 13:51:23

<a href="/wp-content/uploads/2019/01/GettyImages-922107232.jpg"><img class="alignright size-large wp-image-11589" src="/wp-content/uploads/2019/01/GettyImages-922107232-700x467.jpg" alt="Cropped image of businessman's hands covering paper team on wooden table" /></a>The <a href="http://www.supremecourt.ohio.gov/">Ohio Supreme Court</a> has held that services provided by a staffing agency (Seaton Corp) to a manufacturer were not taxable when the staffing agency provides on-site management. The controversy centered on whether Seaton Corp was providing “employment services” under <a href="http://codes.ohio.gov/orc/5739.01">5739.01(B)(3)(k)</a>—specifically whether the personnel were performing work under the “supervision or control” of the manufacturer. <a href="http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2018/2018-Ohio-4911.pdf"><em>See</em> <em>Seaton Corp. v. Testa, </em>2018-Ohio-4812</a><em>.</em> In this context, the supervision and control must be “<em>specific to the work or labor performed by the personnel provided – not an overall production process.</em>” Seaton Corp. maintained control over training, scheduling, workplace assignments, and work tasks performed <u>at the job site</u>. Conversely, the manufacturer had no work related interaction with the Seaton Corp. workers. The Tax Commissioner asserted that the manufacturer’s control over its own production process and manufacturing lines equated to supervision or control over the Seaton-supplied personnel who worked in those areas. However, the Court rejected this position based upon Seaton Corp.’s continued control over the workers at the manufacturing facility. Further, the applicable contracts specifically granted Seaton Corp. the exclusive right to control its employees and prohibited each party from directing each other’s employees. This decision creates potential for refund claims where staffing agencies provide personnel with on-site managers who control the basic workforce functions and day-to-day tasks. These situations mostly likely occur when a company outsources an entire division or function to the third-party staffing agency, including the management of the division / function. Obviously, it is best if the contract and actual performance are consistent with this arrangement. Remember, even if the purchaser does supervise or control the workers, it may be able to claim the permanent assignment exception for leased employees, as explained <a href="https://www.ohiostatetaxblog.com/ohio-sales-use-tax-leased-employees-qualify-for-permanent-assignment-exception-despite-fluctuating-amount-spent-on-personnel-by-purchaser/">here</a>. If you have questions concerning employment services and minimizing taxation related to your staffing needs, please <a href="https://www.ohiostatetaxblog.com/contact/">contact us.</a> Attorney <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is Managing Partner of Buckingham, Doolittle & Burroughs, LLC and chair of the taxation practice group. He helps clients with complicated tax challenges including Ohio sales/use, income, commercial activity and federal taxes and has represented clients before the Ohio Supreme Court. Steve can be reach at <a href="mailto:[email protected]">[email protected]</a> or 330.258.6460. Buckingham Partner <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> is a member of the taxation practice group with a focus on state and local tax compliance and controversies, including Ohio and multistate sales/use tax, commercial activity tax, and personal income tax issues. He also represents clients in federal income tax controversies with the Internal Revenue Service (IRS). <h3>About Buckingham, Doolittle & Burroughs:</h3> Buckingham is a corporate law firm that counsels Middle Market executives and business leaders all over Ohio and beyond. With offices in Canton, Akron, and Cleveland, Buckingham offers clients Business Law Reimagined through sophisticated and practical legal services. Serving the region for over 100 years with nearly 70 attorneys, Buckingham’s mission is to deliver meaningful experiences through the practice of law, exceed expectations in terms of service, counsel and business sense, and to offer continuous value to the industries, communities and clients they serve. <a href="https://www.bdblaw.com/in-the-news/">See all of our news and updates by visiting our website</a>.

Ohio Sales & Use Tax: Resale exemption denied where lease amongst related parties lacked a substantive business purpose.

2019-01-08 17:38:12

<a href="/wp-content/uploads/2019/01/GettyImages-1006204668_blog.jpg"><img class="alignright size-large wp-image-11580" src="/wp-content/uploads/2019/01/GettyImages-1006204668_blog-700x316.jpg" alt="Corporate business jet setting on ramp with door open and sun setting in the background." /></a>Businesses commonly use what is referred to as a “dry lease” to obtain use of a corporate aircraft for several reasons. One benefit of these arrangements is the lessor’s ability to claim the resale exemption on the aircraft’s purchase, with tax only being owed on lease payments received for use in a particular state. However, the Ohio Supreme Court recently held that when such an arrangement is not for profit or gain, the aircraft purchase is not entitled to the resale exemption. <a href="https://www.supremecourt.ohio.gov/rod/docs/pdf/0/2018/2018-Ohio-4812.pdf">Pi In The Sky, LLC. V. Testa, 2018-Ohio-4812</a>. Accordingly, businesses must be prepared to establish a valid business purpose for the aircraft, and substance of the lease, to claim the resale exemption in these situations. In this case, the taxpayer, Pi In The Sky, a single-member LLC (“SMLLC”), purchased an airplane for lease to its sole corporate member, Mitchell’s Salon and Day Spa (Mitchell’s). The airplane purchase was financed by a personal loan from Mitchell’s president, Deborah Schmidt, and guaranteed by the taxpayer. Pi In the Sky then leased the aircraft to Mitchell’s. Although such a lease would normally qualify for the resale exemption, the Court upheld the BTA’s affirmance of the Tax Commissioner’s conclusion that the lease was a sham and, therefore, Pi In the Sky was not engaged in a business enterprise. Purchases made for the purpose of reselling the item in the same form are exempt from Ohio sales and use tax as long as the purchaser is “engaged in business.” That is, the taxpayer claiming the resale exemption must show that it purchased and resold the item “with the object of gain, benefit, or advantage.” <em>See</em> R.C. <a href="http://codes.ohio.gov/orc/5739.01">5739.01(E);</a> <a href="http://codes.ohio.gov/orc/5703.56">R.C. 5703.56(A).</a> In this case, the following factors supported that Pi In the Sky was not engaged in business and its lease to Mitchell’s lacked substance <ul> <li>The lease’s rental rate was far under FMV and Mitchell’s was responsible for all operating, maintenance, and storage costs related to the aircraft.</li> <li>Mitchell’s lacked a business purpose for the airplane as its hair salons and spas were located in Cincinnati.</li> <li>Deborah Schmidt executed the lease on behalf of both lessor and lessee.</li> <li>The airplane was not advertised, marketed, or leased any other lessees.</li> <li>The airplane was financed through a personal loan obtained by the owner / corporate officer.</li> <li>Flight logs indicated a lack of business-related destinations or passengers – in fact, many flights appeared to be to or from Ms. Schmidt’s lake house in northern Michigan.</li> </ul> While the Supreme Court focused on whether Pi In the Sky was “engaged in business” (i.e., operating with the purpose of earning a profit or gain), the Tax Commissioner had invoked the rarely used sham transaction doctrine to disregard the airplane lease. R.C. 5703.56(A)(1). Although this case presented particularly unfavorable facts, compounded by the taxpayer waiving its right to present evidence to refute these facts at a hearing before the BTA, it serves as a cautionary tale that the form of transactions may be disregarded when lacking a substantive business purpose. If you have any questions or concerns about the resale exemption or structuring transactions to minimize taxation, please <a href="https://www.ohiostatetaxblog.com/contact/">contact us.</a>

Dimengo and Fry to speak at Annual Ohio Tax Conference

2019-01-02 21:06:17

Buckingham attorneys Steven Dimengo and Richard Fry share details about their upcoming speaking sessions at the MEC Annual Ohio Tax Conference in Columbus, OH, on January 29 & 30, 2019. Watch this video for session details and registration information on this year's tax conference. <iframe src="https://www.youtube.com/embed/FgW6ThfY5DI" width="560" height="315" frameborder="0" allowfullscreen="allowfullscreen"></iframe>

Ohio Sales / Use Tax: Supreme Court says “keep the taps flowing sans tax,” limiting the scope of taxable building maintenance and janitorial services

2018-12-28 20:34:25

<p class="p1"><span class="s1"><b>Ohio Sales / Use Tax: Supreme Court says “keep the taps flowing sans tax,” limiting the scope of taxable building maintenance and janitorial services.</b></span></p> <p class="p1"><span class="s1"><a href="/wp-content/uploads/2018/12/ThinkstockPhotos-696341838-copy.jpg"><img class="alignright size-large wp-image-11572" src="/wp-content/uploads/2018/12/ThinkstockPhotos-696341838-copy-700x467.jpg" alt="Craft beer being poured." /></a>In <a href="http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2018/2018-Ohio-5207.pdf"><span class="s2"><i>Great Lakes Bar Control v. Testa</i>, 2018-Ohio-5207</span></a>, the <a href="http://www.supremecourt.ohio.gov/"><span class="s2">Ohio Supreme Court</span></a> ruled that maintaining and cleaning draft beer lines falls outside the scope of a taxable “building maintenance and janitorial service.” The Court interpreted the meaning of “cleaning” in the context of a “janitorial service,” rather than applying a hyperliteral meaning. <i>See</i> <a href="http://codes.ohio.gov/orc/5739.01v1"><span class="s2">R.C. 5739.01</span></a>(II) (definition of “building maintenance and janitorial services”). Cleaning draft beer lines was not a taxable service since “no one would take the ordinary meaning of janitorial cleaning to include inspecting and flushing beer-tap lines.” Justice DeWine’s opinion affirmed the <a href="https://www.ohiostatetaxblog.com/beer-drinkers-rejoice-buckingham-scores-victory-for-ohio-bars-confirming-that-preventative-maintenance-for-draft-beers-systems-is-not-subject-to-ohio-sales-tax/"><span class="s2">Board of Tax Appeals’ decision</span></a> that cleaning draft beer lines is not a taxable building maintenance and janitorial service.</span></p> <p class="p1"><span class="s1">The Court provided a non-exhaustive list of taxable janitorial services, such as washing floors, removing trash, vacuuming, and dusting. On the other hand, under an expansive interpretation of taxable janitorial services which the Court did not adopt, many non-janitorial services involving cleaning would become taxable, such as hard-drive cleaning, data cleansing, dry cleaning, and fish cleaning (e.g., scaling, gutting), as all these services involve cleaning tangible personal property located in a building. The Court stated that such an expansive interpretation ignores the janitorial context in which the term “cleaning” is used and is contrary to the law’s intent. </span></p> <p class="p1"><span class="s1">The <a href="https://www.tax.ohio.gov/portals/0/forms/ohio_individual/individual/2017/PIT_ITDA.pdf"><span class="s2">Ohio Tax Commissioner</span></a> has been broadly applying taxable “building maintenance and janitorial services” to many types of non-janitorial type services simply because they involve cleaning tangible personal property located in a building. The Ohio Supreme Court has now clarified that such application based upon the a hyperliteral meaning of the statutory definition is incorrect. The Court restricts the Tax Commissioner’s expansive application and requires undefined terms to be interpreted in the context of which they are used. This common sense approach will be extended to determining the scope of all taxable services in Ohio. </span></p> <p class="p1"><span class="s1">The taxpayer in <i>Great Lakes Bar Control, Inc. v. Testa</i> was represented by Buckingham attorneys <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/"><span class="s2">Steven A. Dimengo</span></a>, <a href="https://www.bdblaw.com/attorneys/matthew-r-duncan/"><span class="s2">Matt Duncan</span></a>, and <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/"><span class="s2">Rich Fry</span></a>. If you have questions about whether your cleaning services are subject to Ohio sales / use tax, please <a href="https://www.ohiostatetaxblog.com/contact/"><span class="s2">contact us</span></a>. </span></p>

Ohio’s burdensome municipal income tax structure hinges on the meaning of “levy.”

2018-12-12 18:51:21

<strong>Much-needed simplification of Ohio’s overly burdensome municipal income tax structure hinges on the meaning of “levy.” </strong> <a href="/wp-content/uploads/2018/12/ThinkstockPhotos-636789330.jpg"><img class="alignright size-large wp-image-11567" src="/wp-content/uploads/2018/12/ThinkstockPhotos-636789330-700x467.jpg" alt="Auction concept - judges gavel against us dollar background." /></a>The 10<sup>th</sup> District Court of Appeals has heard oral arguments to decide the fate of Ohio’s efforts to reform municipal income tax for businesses and enact a centralized filing system. Last year, Ohio enacted H.B. 49, which allows businesses to elect to file a single municipal net profits return with the Ohio Tax Commissioner through the <a href="https://gateway.ohio.gov/wps/portal/gateway/BusinessGateway/Home/!ut/p/z1/jZBBC4JAEIV_S4e9OgNmWbeNoLLIU2R7iRU2NXR32V0V_31C2CFSmts8vnmPN8AgASZ5U2TcFUryst9vbHFHejjsVyGe46MfIF3O41W0XSCGAVzfwMhQBPbX_TjApu2vwKYj5gMw7hEBy0qVvutSmfphBsyIhzDCeLXp5dw5bdcECfafES3vPJUXystUQ7DVlmDVaWUcLz8AwU1tCyms3Q3CXlXiV0KurIPk2xh0dUnwGZTNic5eVaY7iA!!/dz/d5/L2dBISEvZ0FBIS9nQSEh/">Ohio Business Gateway</a>. Over <a href="https://www.ohiostatetaxblog.com/municipal-income-tax-ohio-court-denies-challnge-to-centralized-filing-system/">130 municipalities promptly mounted a challenge</a> to centralized filing on the grounds that it unconstitutionally limited the municipalities’ power to tax under <a href="http://codes.ohio.gov/orc/504">Ohio’s home rule.</a> The trial court denied the challenge because the Ohio constitution allows the General Assembly to limit municipalities’ power to levy taxes, which the municipalities appealed to the 10<sup>th</sup> Appellate District. At oral arguments, the Court focused on the meaning of the word “levy”—specifically whether its definition includes both “impose” and “collect” with respect to taxation. The cities contend that levy only includes “impose” and therefore the restriction on its ability to <em>collect</em> taxes is unconstitutional. The state countered with examples where “levying” taxes included collection. Although the cities are committed to preserving their autonomy, the cost-savings for both cities and businesses from administering the tax at the state level are undeniable. Ohio Tax Commissioner Joe Testa estimates that a centralized filing system could save Ohio business owners <a href="https://www.youtube.com/watch?v=ZXQCCmenHus&feature=youtu.be">up to $800 million per year</a>. Further, municipalities would also benefit as the .5% administrative fee to be charged by the Department of Taxation for collecting the tax pales in comparison to the cost of municipalities administering and collecting taxes themselves. A ruling that favors the State would significantly advance Ohio’s municipal income tax which has been <a href="https://www.cleveland.com/metro/index.ssf/2017/06/ohios_municipal_business_taxes.html">harshly criticized</a>. The Court is expected to render its decision in early 2019. In the meantime, businesses may still <a href="https://www.tax.ohio.gov/MunicipalTax.aspx">register</a> for centralized collection. Please <a href="https://www.ohiostatetaxblog.com/contact/">contact us</a> if you have any questions or concerns regarding centralized filing or municipal net profit taxes.

Cincinnati Reds notch offseason victory | Ohio Supreme Court’s groundbreaking decision finds promotional items exempt from Ohio sales & use tax.

2018-11-21 17:09:43

<a href="/wp-content/uploads/2018/11/ThinkstockPhotos-917950900.jpg"><img class="alignright size-large wp-image-11558" src="/wp-content/uploads/2018/11/ThinkstockPhotos-917950900-700x467.jpg" alt="Baseball helmet, bat, glove and ball on grass in brightly lit outdoor stadium. Focus on foreground and shallow depth of field on background with copy space. Fictitious background stadium created entirely in Photoshop." /></a>The Cincinnati Reds notch an offseason victory, as the Ohio Supreme Court rules that bobbleheads and other promotional items are resold as part of ticket purchase making them exempt from Ohio sales / use tax. The Court quoting longtime Reds radio announcer, Marty Brennaman, “this one belongs to the Reds.” In a <a href="https://supremecourt.ohio.gov/rod/docs/pdf/0/2018/2018-ohio-4669.pdf">groundbreaking decision</a> reversing the Ohio Board of Tax Appeals, the Ohio Supreme Court held that the Reds are exempt from tax on its purchase of bobbleheads and other promotional items. Not only will this decision benefit all Ohio professional sports teams, but will also apply to Ohio businesses that provides giveaways as an incentive for, and conditioned upon, the purchase of its products or services. The issue was whether the promotional items were “resold,” i.e., conveyed to the attendees for consideration. The Reds CFO’s testified that the promotional items are advertised before the game and fans purchase tickets “with the expectation they will receive a promotional item.” Moreover, the Reds attempt to purchase enough items so that all attendees will get one and will try to remedy the situation for fans who do not receive the item. Therefore, the Reds received consideration since the promotional items were part of the bargain of the fans’ ticket purchase and attending the game. “[F]ans did not receive the promotional items unexpectedly or by chance. Instead, the unique promotional items were an explicit part of the bargain, along with the right to attend the game, that the fans obtained in exchange for paying the ticket fee.” The Court distinguished these promotional items, which the Reds were obligated to provide, from other items fans have no expectation of receiving, such as t-shirts tossed into the stands or a foul ball. Accordingly, the Court overruled the BTA’s decision since it was not supported by any reliable and probative evidence. The Tax Commissioner argued the Reds did not receive any consideration for the promotional items and that the items were given away gratuitously. In Ohio, sales / use tax does not apply to items that are purchased for resale. To constitute a “sale,” as defined by the <a href="http://codes.ohio.gov/orc/5739.01v1">Ohio Revised Code</a>, the item must be transferred “for consideration.” Therefore, items distributed gratuitously, such as product samples or gifts to clients, are not resold and subject to tax since there is a lack of consideration. However, as explained above, the Ohio Supreme Court distinguished the Reds situation since a portion of the ticket price was consideration for the bobbleheads or other promotional items. The Cincinnati Reds were represented in this case by Buckingham attorneys <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> and <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a>.  

Ohio Sales / Use Tax- Ohio Supreme Court Recognizes Expansive Scope of Manufacturing Exemption

2018-07-20 14:39:38

<a href="/wp-content/uploads/2018/07/ThinkstockPhotos-595329282.jpg"><img class="alignleft size-large wp-image-11528" src="/wp-content/uploads/2018/07/ThinkstockPhotos-595329282-700x467.jpg" alt="Smiling worker with radio controlling the work process" /></a>The <a href="http://www.sconet.state.oh.us/">Ohio Supreme Court</a> recently reversed an Ohio Board of Tax Appeals decision addressing when the manufacturing process begins in <a href="http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2018/2018-Ohio-2047.pdf"><em>Lafarge N. Am., Inc. v. Testa</em></a>. Lafarge used bull-dozers, loaders, and dump trucks to break up and transport slag from a slag mountain. The bull-dozers ripped slag from the slag mountain and then crushed it to form a pile. Then, the front-end loaders transferred the crushed slag to dump trucks to be transported to a screening plant, where it was sorted by size and used in manufacturing steel. Lafarge asserted this equipment was entitled to the manufacturing under <a href="http://codes.ohio.gov/orc/5739.02">R.C. 5739.02(B)(42)(g) </a>since it changed the form of the slag and transported the raw material as work-in-process.   The critical issue was when the manufacturing operation commenced – when the slag was broken up from the mountain or not until it had been transported to the screening plant? For Ohio tax purposes, a manufacturing operation begins when raw materials are committed to the manufacturing process or handling from initial storage is complete. <a href="http://codes.ohio.gov/oac/5703-9-21v1">Ohio Admin. Code 5703-09-21</a>(B)(1). Raw materials are committed when some affirmative action is taken in furtherance of the manufacturing process, such as mixing, measuring, heating, or otherwise treating or preparing the materials for manufacturing.   The Ohio Supreme Court reversed the BTA and found that the slag, a raw material in steel production, was committed to manufacturing process when it was broken up and cut from the slag mountain. At this point, the slag is being transformed into smaller, marketable pieces. Therefore, the equipment at issue, including its fuel and repair parts, was exempt from Ohio use tax.   If you have any questions about how your business can maximize the manufacturing exemption, please <a href="https://www.ohiostatetaxblog.com/contact/" target="_blank">contact a member of our team</a>. <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steve Dimengo</a> and <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Rich Fry</a> are both partners with <a href="https://www.bdblaw.com/">Buckingham</a>’s <a href="https://www.bdblaw.com/practices/taxation/">Taxation Practice Group</a> with a focus on State and Local Tax.

Ohio Tax Legislative Update - Taxpayers’ direct right of appeal reinstated, bright-line residency amended, and oil & gas exemption clarified

2018-07-17 16:00:12

<strong><em><a href="/wp-content/uploads/2018/07/ThinkstockPhotos-618856074.jpg"><img class="alignleft size-large wp-image-11523" src="/wp-content/uploads/2018/07/ThinkstockPhotos-618856074-700x467.jpg" alt="With House Model And Stack Of Coins On Desk" /></a>Direct Right of Appeal to Ohio Supreme Court reinstated</em></strong>   Governor Kasich signed <a href="https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA132-HB-292">Sub. H.B. 292</a> on June 14, 2018 reinstating the right of Ohio taxpayers to appeal many decisions of the Ohio Board of Tax Appeals (“BTA”) directly to the Ohio Supreme Court. This is a victory for Ohio taxpayers as it will reduce tax appeal costs and provide uniform tax rulings applicable throughout the state.   This right was temporarily removed in last year’s Budget Bill, but thankfully will be short-lived. Effective September 13, 2018, BTA decisions concerning appeals from Ohio Tax Commissioner final determinations and municipal income tax determinations can once again be taken directly to the Ohio Supreme Court. Unfortunately, BTA appeals concerning property valuations for real estate taxes must continue to be appealed to the appropriate Court of Appeals.   <strong><em>Bright-Line Residency for Ohio income tax</em></strong> <em> </em> <a href="https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA132-HB-292">Sub. H.B. 292</a> also modified Ohio’s bright-line residency test for tax years beginning with 2018. The amendment specifies that the common law factors for determining domicile are irrelevant for the bright-line test, effectively overruling the Ohio Supreme Court’s 2015 <a href="https://www.supremecourt.ohio.gov/ROD/docs/pdf/0/2015/2015-Ohio-2744.pdf"><em>Cunningham</em></a> decision. Under the amended bright-line residency test in <a href="http://codes.ohio.gov/orc/5747.24v1">R.C. 5757.24</a>, an individual will be a nonresident for Ohio income tax purposes if he/she: <ol> <li>Has less than 213 Ohio “contact periods” (i.e., overnight stays);</li> <li>Has an out-of-state home for which a depreciation deduction was not claimed on the individual’s federal income tax return;</li> <li>Did not hold an Ohio driver’s license or ID;</li> <li>Did not claim the homestead exemption on his/her Ohio residence; and</li> <li>Did not receive in-state tuition from an Ohio state university.</li> </ol>   The individual must still file the Affidavit of Non-Ohio Residency (<a href="https://www.tax.ohio.gov/portals/0/forms/ohio_individual/individual/2017/PIT_ITDA.pdf">Form IT DA</a>) with the Tax Commissioner to receive the irrebutable presumption of nonresidency. The deadline to file this Affidavit was extended to October 15<sup>th</sup>, consistent with the extended deadline for filing an individual’s income tax return. Many clients ask if this Affidavit needs to be filed every year – the answer is yes, for as long as the individual owns or maintains a residence in Ohio.   <strong><em>Oil & Gas Exemption from Ohio sales / use tax</em></strong>   <a href="https://www.legislature.ohio.gov/legislation/legislation-documents?id=GA132-HB-430">HB430</a> amends <a href="https://www.tax.ohio.gov/sales_and_use.aspx">Ohio’s sales / use tax</a> exemption for property used in the production of or exploration for crude oil and natural gas. Technological advancements, specifically fracking operations, created a need to clarify specific property and activities which are exempt, but may not have been contemplated when the exemption was enacted decades ago. This clarification should be welcomed as much of Ohio’s authority on this exemption was from the 1970s and 1980s, creating uncertainty for oil & gas producers as to how the exemption would be applied to current operations.   The new legislation specifies a host of exempt activities and equipment relating to oil and gas production, including:   <ul> <li>Construction of permanent access roads, well sites, and temporary impoundments;</li> <li>Equipment used to create a wellbore pathway to underground reservoirs;</li> <li>Drilling and services used within a subsurface well;</li> <li>Casing, tubes, and float and centralizing equipment;</li> <li>Well completion services and equipment used in providing such services;</li> <li>Wireline evaluation, mud logging, and perforation, and equipment used in providing such services;</li> <li>Pressure pumping and artificial lift equipment; and</li> <li>Wellhead and well site equipment used to separate, stabilize, and control hydrocarbon phases and control water.</li> </ul>   The amendment also lists several types of oil & gas property which are not exempt. The lists of exempt and nonexempt equipment will be in <a href="http://codes.ohio.gov/orc/5739.02v1">R.C. 5739.02</a>(B)(42)(q).   If you have any questions about how these Ohio tax developments may affect you or your business, do not hesitate to contact a member of our team. <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steve Dimengo</a> and <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Rich Fry</a> are both partners with <a href="https://www.bdblaw.com/">Buckingham</a>’s <a href="https://www.bdblaw.com/practices/taxation/">Taxation Practice Group</a> and focus on State and Local Tax.    

Substantial Nexus Post-Wayfair: How did we get here and where do we go?

2018-06-29 18:01:50

<a href="/wp-content/uploads/2018/06/blog-wayfair.jpg"><img class="alignleft size-full wp-image-11509" src="/wp-content/uploads/2018/06/blog-wayfair.jpg" alt="wayfair, tax, nexus, ecommerce" /></a> On June 21, 2018, the United States Supreme Court overruled the “physical presence” bright-line rule for substantial nexus in its landmark decision <em>South Dakota v. Wayfair</em>. Its decision overruled 50 year-old precedent. The Court dug into the constitutional limitations on the states’ authority to impose sales tax collection on out-of-state retailers, as well as the practical ramifications of its ruling that businesses need not have a physical presence to be subject to tax collection and remittance requirements.   <em>HOW DID WE GET HERE? THE HISTORY OF THE PHYSICAL PRESENCE REQUIREMENT</em> The physical presence requirement has its roots in the Commerce Clause, which grants Congress the affirmative power to regulate interstate commerce and also limits a State’s ability to regulate commerce. The negative limitation on states, known as the Dormant Commerce Clause, comprises two restrictions: 1) states may not discriminate against interstate commerce; and 2) states may not inflict undue burdens on interstate commerce. In <em>Complete Auto Transit, Inc. v. Brady</em>, the Court laid out a four-prong test for analyzing the validity of a State’s taxation on interstate commerce. This test provides that state taxation is permissible under the Commerce Clause so long as it 1) applies to an activity with a substantial nexus to the taxing state, 2) is fairly apportioned, 3) does not discriminate against interstate commerce, and 4) is fairly related to the services the State provides. As to the substantial nexus prong, the Court had twice held that a company whose only connection to a state was through a common carrier lacked sufficient nexus for the state to impose a sales tax collection obligation. <em>National Bellas Hess v. Dep’t of Rev.</em>, 386 U.S. 753 (1967) and <em>Quill Corp. v. North Dakota, </em>504 U.S. 298 (1992). Due to the heavy burden associated with sales tax collection, the Court found an in-state physical presence was necessary to prevent undue burdens on interstate commerce. The physical presence requirement has shaped the way that retailers do business, especially since the dramatic rise in e-commerce and advanced technology. In response to <em>Quill</em>, several states entered into the Streamlined Sales and Use Tax Agreement (SSUTA) to make sales and use tax simpler and more uniform, reducing administrative compliance costs and removing the “undue burden,” of subjecting business with no physical presence to state tax. Yet, the SSUTA had not accomplished its objective, until <em>Wayfair</em>. Especially in the last eight years, states sought to expand the scope of what constitutes substantial nexus and enacted statutes that tested the limits of the physical presence requirement. States experimented with click-through nexus, affiliate nexus, notice and reporting requirements, and “virtual presence” as a way to require retailers with pervasive online sales to collect and remit tax, even in the absence of an in-state brick-and-mortar presence. These laws were no substitute for the elimination of <em>Quill’s </em>physical presence requirement, but their consistent validity emboldened states to further challenge <em>Quill’s</em> ruling. This leads us to South Dakota’s 2016 emergency enactment of an “economic nexus” statute which required remote sellers who either made at least $100,000 of sales or engaged in 200 separate transactions for goods or services delivered to South Dakota to collect sales tax. The statute, specifically designed to challenge <em>Quill’s</em> physical presence standard, included a fast-track appeals process and prohibited enforcement until a final determination that its economic nexus standard was constitutional. South Dakota filed for declaratory judgment against three major online retailers, Wayfair, Overstock and Newegg, with no physical presence in the state, and petitioned to the U.S. Supreme Court who granted certiorari.   <em>SOUTH DAKOTA v. WAYFAIR</em> The Court began with the history and evolution of the Dormant Commerce Clause and physical presence standard. With this background, the Court found “the physical presence rule of <em>Quill</em> is unsound and incorrect” because the requirement: 1) was not a necessary interpretation of <em>Complete Auto’</em>s substantial nexus requirement; 2) effectively created a tax shelter for sellers who limited their physical presence and impeded States’ ability to collect rightfully owed taxes; and 3) imposed an arbitrary distinction giving an unfair advantage to remote sellers with pervasive internet sales, while penalizing other sellers with even a minimal physical presences. The physical presence requirement allowed remote sellers with a central physical location and expansive internet presence to avoid regulatory burdens and profit from their license not to collect tax. The rule provided such retailers with a competitive pricing advantage over local brick-and-mortar stores selling identical products. The Court denounced this distinction, stating that <em>Quill’s</em> holding served as “a judicially created tax shelter for businesses that decide to limit their physical presence and still sell their goods and services to a State’s consumers—something that has become easier and more prevalent as technology has advanced.” Moreover, technological advancements neutralize concerns as the costs of compliance have a tenuous connection to whether the retailer has a physical presence. The Court found the physical presence requirement unworkable in our modern and digitized economy. Consumers are closer than ever to most major retailers regardless of the retailers’ closest physical storefront. As e-commerce exploded, and consumer compliance for remitting use tax is notoriously law, <em>Quill</em> impeded states’ revenue collection and limited their ability to perform other “critical public functions.” Although there are concerns about the burden of compliance for start-ups and small businesses who take advantage of <em>Quill</em> to grow their businesses, the South Dakota law provided acceptable safeguards to protect those smaller businesses ($100,000 or 200 sales into the state). In finding that South Dakota did not unduly burden interstate commerce, the Court emphasized three critical aspects of its economic nexus law: (1) safeharbor for small businesses; (2) no retroactive application; and (3) South Dakota is a party to the Streamlined Sales Tax Agreement and provides software excusing vendors’ collection errors resulting from such software. The Court remanded the case to the South Dakota Supreme Court to analyze whether the law passes constitutional muster under the other three-prongs to comply with the Commerce Clause under <em>Complete Auto Transit</em>. It is important to note that the Court did not define a new test for state taxation to comply with the Commerce Clause; it only determined that a physical presence is not necessary to establish substantial nexus for sales tax collection. Nonetheless, there is still significant uncertainty as to exactly what level of economic or virtual presence is constitutional, as compliance with the Commerce Clause is determined on a case-by-case basis. Specifically, it is unclear whether SSUTA membership and a lack of retroactive application are <em>necessary </em>components of a constitutional state taxing scheme. Certainly it would be helpful for Congress to provide clear guidance on these issues, as well as make clear when states can begin enforcing economic nexus standards.   <em>What Now? Multi-State Taxation Post-Wayfair</em> The sales tax arena is sure to change rapidly. Businesses must start preparing to collect and remit sales tax in every state that has enacted a law similar to South Dakota and is an SSUTA member, if their sales volume exceeds $100,000 or 200 separate transactions delivered into the state. Additionally, businesses should analyze their sales volume in non-SSUTA states, many of which have already enacted economic nexus laws. And more states will certainly follow South Dakota’s blueprint and enact economic nexus standards identical to that which the Supreme Court upheld in <em>Wayfair</em>. States will surely be emboldened by their victory in <em>Wayfair</em> and use this opportunity to increase tax revenue. Although there are no guarantees, states should act fairly by not enforcing sales tax collection until businesses have had a reasonable opportunity to update their systems and processes to collect tax. Hopefully, state tax administrators will release statements providing a future date when enforcement will commence or U.S. Congress will limit the states in such a manner. Unfortunately, at least two states have released statements that they will not treat remote sellers fairly. Vermont released a statement that its economic nexus law is effective July 1, 2018 and Massachusetts indicated its nexus law, based upon in-state software (apps, cookies, or use of content distribution networks), was effective in October 2017 and not impacted by <em>Wayfair</em>. The bottom line is that remote sellers need to prepare to be subject to taxation in more jurisdictions in the post-<em>Wayfair</em> world. It is imperative that businesses understand their connections outside their economic and virtual presence outside their home state, through sales into the state or use of software in the state through cookies, apps, etc. If you need help determining your business’ sales tax collection obligations, please contact Steve or Rich for advice.   <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> is practice group leader and both Steve and <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry III</a> are members of the <a href="https://www.bdblaw.com/practices/taxation/">Taxation Practice Group</a> specializing in State and Local Tax.

Quill Killed!

2018-06-21 18:51:25

<a href="/wp-content/uploads/2018/06/ThinkstockPhotos-868776554-1.jpg"><img class="alignright wp-image-11503 size-full" src="/wp-content/uploads/2018/06/ThinkstockPhotos-868776554-1.jpg" alt="Tiny shopping cart filled with boxes on a laptop keyboard" width="700" height="467" /></a>U.S. Supreme Court overrules previous decisions requiring physical presence for sales tax collection. Unless Congress acts, significant changes and burdens requiring remote sellers to collect state sales taxes are here to stay. E-commerce retailers have exploited <em>Quill </em>as a competitive advantage to realize extraordinary growth over the past 25 years. In fact, the Court quoted one of the taxpayer’s websites that “one of the best things about buying through Wayfair is that we do not have to charge sales tax.” This advantage – described by the Court as “a judicially created tax shelter” – has come to an end in the Supreme Court’s decision in <a href="https://www.supremecourt.gov/opinions/17pdf/17-494_j4el.pdf"><em>South Dakota v. Wayfair</em></a>. The Court found that its bright-line physical presence rule was arbitrary, unsound and created an unfair tax loophole. In overruling its precedent, the Court found that a modest sales volume (under South Dakota’s law) and associated “substantial virtual connections” are sufficient under the Commerce Clause’s substantial nexus prong to require sales tax collection. But important questions remain as to whether Congress will step in to limit or clarify the Court’s decision, and how states will implement and enforce sales tax collection requirements on such retailers. Justice Kennedy <a href="https://www.forbes.com/sites/georgeleef/2016/09/29/thanks-to-justice-kennedy-states-now-feel-free-to-tax-internet-commerce/#70e15ecc67f5">invited states to mount a challenge</a> to the bright-line physical test articulated in <a href="https://www.law.cornell.edu/supct/html/91-0194.ZO.html"><em>Quill v. North Dakota</em></a> 26 years ago and delivered the fatal blow today. The Court analyzed the continued viability of the physical presence standard, created by its own judicial precedent, under the restrictions of the dormant Commerce Clause. The Court’s analysis began with fundamental Commerce Clause protections that prohibit states from discriminating against or imposing undue burdens on interstate commerce. In previous decisions<em>, </em>these principles led the Court to adopt a four-pronged test for whether states taxes impose an undue burden on interstate commerce. The first prong requires that the tax be applied to an activity with <strong><em>substantial nexus</em></strong> with the taxing state. The Court’s previous decisions in <em>Bellas Hess </em>and thereafter in <em>Quill</em> held that the substantial nexus prong was not satisfied for sales tax collection unless the retailer has an in-state physical presence. But in 1992 when <em>Quill </em>was decided, the Court could not have known the immense impact this rule would have on the e-commerce industry. In <em>Wayfair</em>, the Court found that the correlation between an in-state physical presence and burdens of sales tax collection was artificial. This rule created an arbitrary tax loophole for remote sellers, as opposed to retailers who have one employee or store a small inventory of goods in the state. Perceived as helping customers evade a lawful tax, the Court closed this loophole focusing on the economic realities of the 21<sup>st</sup> Century and extreme growth of Internet sales. The Court concluded that the taxpayers’ “economic and virtual contacts” with South Dakota clearly established that the e-commerce retailers availed themselves of substantial privileges of carrying on business in the state and, therefore, could be required to collect sales tax, even without a physical presence. Although it failed to reach restrictions beyond the substantial nexus prong, the Court very importantly cautioned that several protections included in the South Dakota law were weighed in finding the economic nexus standard did not violate the Commerce Clause. First, and most importantly, the South Dakota Act did not require retailers to remit sales tax retroactively. Although it remains to be seen as to how aggressively states will pursue vendors for previous periods – some states, such as Massachusetts have already begun – implicit in the Court’s opinion is that retroactive enforcement would unfairly burden remote sellers. The Court also mentioned South Dakota’s economic nexus thresholds ($100,000 of sales or 200 transactions delivered into the state) and adoption of the Streamline Sales and Use Tax Agreement as justifying the fair imposition of sales tax collection on remote vendors. Yet, questions remain as how states may impose similar economic nexus standards if these protections are not present. Justices Thomas and Gorsuch, both skeptics of the dormant Commerce Clause, issued concurring opinions. The dissenting opinion, written by Chief Justice Roberts and joined by liberal Justices Kagan, Sotomayor and Breyer, emphasized that Congress holds the ultimate authority in this area and, even if <em>Bellas Hess</em> and <em>Quill</em> were mistakes, the proper avenue for reversing those decision was through legislative act. Ultimately, the physical presence rule is no more and significant fallout for remote sellers is sure to result as e-commerce retailers scramble to determine how to comply with nationwide sales tax collection. We will be monitoring this situation for, among other things: <ul> <li>Will Congress step in to limit or clarify the Court’s decision in <em>Wayfair</em>? <a href="https://www.ohiostatetaxblog.com/another-stab-at-reversing-quill-will-congress-expand-sales-tax-collection-to-online-retailer/">Several bills had been introduced</a> but will likely need modified in light of today’s decision.</li> <li>How will states enforce economic nexus laws that have already been enacted? For instance, <a href="https://www.ohiostatetaxblog.com/ohios-budget-bill-eliminating-taxpayer-rights-expanding-nexus-and-another-amnesty-program/">Ohio’s economic nexus standard for sales tax collection became effective January 1, 2018</a> and Massachusetts’ administrative regulation was effective October 2017. Presumably, based upon the <em>Wayfair </em>decision, states may not enforce sales tax collection on retailers lacking a physical presence until remote sellers have a reasonable time to comply with the Court’s decision.</li> <li>More states who have not already done so will likely enact laws similar to South Dakota’s that require remote sellers with a certain sales volume or deliveries into the state to collect tax.</li> </ul> Please contact <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steve</a> or <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Rich</a> if you have questions about how the <em>Wayfair </em>decision affects your business.

Ohio Commercial Activity Tax Sourcing – Board of Tax Appeals upholds two CAT assessments on receipts with tenuous connections with Ohio

2018-05-31 15:33:59

The <a href="http://bta.ohio.gov/">Ohio Board of Tax Appeals</a> recently decided two cases that affect Ohio’s Commercial Activity Tax (CAT): <a href="https://ohio-bta.modria.com/download?BID=822195"><em>SMK Industries v. Testa</em></a> and <a href="https://ohio-bta.modria.com/download?BID=814570"><em>Defender Security v. Testa</em></a>. Both decisions reviewed the CAT’s rules for situsing sales. <em>SMK Industries</em> reiterated Ohio’s “ultimate destination” rule for sourcing sales of tangible personal property under <a href="http://codes.ohio.gov/orc/5751.033">R.C. 5751.033(E),</a> while <em>Defender Security</em> is the first case to address sourcing gross receipts under the residual provision in <a href="http://codes.ohio.gov/orc/5751.033">5751.033(I)</a>, which includes receipts from the sale of services and intangible assets.   <a href="/wp-content/uploads/2018/05/ThinkstockPhotos-494312894_blog.jpg"><img class="alignleft wp-image-11495 size-large" src="/wp-content/uploads/2018/05/ThinkstockPhotos-494312894_blog-700x225.jpg" alt="Gavel and US Currency" width="700" height="225" /></a>In <em>SMK Industries v. Testa, </em>the taxpayer manufactured and sold clothing in Texas. Title to the goods passed to the purchaser in Texas and the purchaser was responsible for shipping goods. Nonetheless, the BTA determined that the clothing sales with an Ohio “ship to” address on the invoice were properly sourced to Ohio. The BTA rejected the taxpayer’s argument, again focusing on the ultimate destination of the property after all transportation is complete – including transportation by the purchaser or its agent. This ruling is consistent with previous decisions in <a href="https://scholar.google.com/scholar_case?case=10793948586769934034&hl=en&as_sdt=6&as_vis=1&oi=scholarr"><em>Dupps Co. v. Lindley</em></a> (decided under former Ohio corporate franchise tax) and <a href="http://supremecourt.ohio.gov/pdf_viewer/pdf_viewer.aspx?pdf=831914.pdf"><em>Greenscapes Home & Garden v. Testa</em></a>. <em> </em> In <em>Defender Security Co. v. Testa,</em> the taxpayer sold and installed security and monitoring equipment to customers in Ohio, and then obtained contracts for security monitoring services. The customer contracts for security monitoring services were then sold to ADT. The taxpayer challenged the Tax Commissioner’s determination that its receipts from the sale of customer contracts (i.e., an intangible asset) should be sitused to Ohio when the customer was located in Ohio. Instead, the taxpayer asserted that the receipts from the sale of intangible assets must be to sitused based upon where its customer, ADT, was located. The BTA agreed with the Tax Commissioner, holding that ADT received the benefit of these intangible assets in Ohio because the acquired contracts only existed because of the security monitoring equipment located in Ohio. There would be no benefit, the BTA asserts, “without property in Ohio to be monitored and equipment located within such property in Ohio by which the monitoring is performed.” Therefore, the BTA relied upon the ultimate consumer’s location in Ohio, rather than ADT’s locations outside Ohio.   This ruling enlarges Ohio’s ability to tax gross receipts for sales of intangible assets tied to a consumer or property in Ohio, regardless of whether the direct purchaser is located in Ohio. This is inconsistent with previous rulings situsing tangible personal property sales where the Tax Commissioner has found that receipt by the direct purchaser is the relevant inquiry and ignored the subsequent resale of property to an ultimate consumer outside Ohio. Based on this ruling, if the purchaser benefits “<em>because</em> <em>of </em>property in Ohio,” receipts from sales of the underlying intangible asset or service will be deemed to be in Ohio.   The <em>SMK Industries</em> decision was not appealed. The <em>Defender Security Co. </em>decision has been appealed, which is pending in the Tenth District Court of Appeals.   If you have any questions about Ohio’s Commercial Activity Tax sourcing, do not hesitate to <a href="https://www.ohiostatetaxblog.com/contact/">contact a member of our team.</a> <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steve Dimengo</a> and <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Rich Fry</a> are both partners with <a href="https://www.bdblaw.com/">Buckingham</a>'s <a href="https://www.bdblaw.com/practices/taxation/">Taxation Practice Group</a> with a focus on State and Local Tax.

Taxation without Representation: U.S. Supreme Court Hears Oral Arguments in South Dakota v. Wayfair

2018-04-20 16:38:14

This is a follow-up to our <a href="https://www.ohiostatetaxblog.com/future-of-sales-tax-nexus-unclear-as-south-dakota-v-wayfair-awaits-supreme-court-decision/">recent post</a> regarding the pending Supreme Court case <a href="http://www.scotusblog.com/case-files/cases/south-dakota-v-wayfair-inc/"><em>South Dakota v. Wayfair</em></a> and the future of requisite sales tax “substantial” nexus for remote sellers. On Tuesday, the Supreme Court heard <a href="https://www.supremecourt.gov/oral_arguments/argument_transcripts/2017/17-494_7lho.pdf">oral arguments</a> which seemed to contradict the narrative that the Supreme Court is set to overturn the longstanding physical presence test in <a href="https://supreme.justia.com/cases/federal/us/504/298/case.pdf"><em>Quill Corp. v. North Dakota</em></a>. Overall, the Supreme Court Justices, who were well-versed on the issues of the case, expressed concern about the consequences of taking a case based on the dormant commerce clause, a constitutional concept that prohibits states from placing substantial burdens on interstate commerce. The issue is whether the Commerce Clause prohibits South Dakota from requiring remote sellers to collect and remit use tax if they lack physical presence in the state. Policy arguments drove the debate. Justice Sotmayor grilled South Dakota Attorney General regarding the adverse impact on small businesses if <em>Quill </em>is overturned, citing the high costs of collection software integration and being subject to audits by many additional states. Additional uncertainty was discussed concerning minimum threshold for collection and possible retroactive application of the new ruling. Although South Dakota contends that states would not seek to impose sales tax retroactively, nothing prevents a cash-strapped state from imposing sales tax for periods prior to the ruling in <em>Wayfair</em> – and Connecticut is already attempting to apply its law retroactively. If the Court were to overrule <em>Quill</em>, we expect the ruling to explicitly prohibit retroactive application of sales tax to remote sellers, as failing to do so would be fundamentally unfair and result in a disastrous situation for remote sellers. Chief Justice Roberts even questioned the necessity of overturning <em>Quill</em>, asserting that many large e-commerce retailers are already collecting sales taxes in most or all states, and some states have found work-arounds to collect even more (e.g., click-through nexus, sales tax notification and reporting laws, etc.). Further, the Chief Justice suggested that Congress’ failure to act on the <em>Quill </em>ruling for the last 26 years may be indicative of its decision to leave this area unchanged. The ever changing landscape of multistate sales tax collection was recently <a href="https://www.ohiostatetaxblog.com/are-you-a-multi-state-retailer/">discussed by Rich Fry in our latest TaxTalk video</a>. Although counsel for both sides seemed confident in a favorable ruling, the outcome of this case remains unclear. Our team is committed to staying on top of these developments. If you have questions or concerns regarding multistate sales tax nexus or how these developments affect your business, please <a href="https://www.ohiostatetaxblog.com/contact/">contact</a> a member of our SALT team.

Ohio Tax Legislative Update

2018-04-16 14:49:08

On March 30, 2018, Ohio passed two bills affecting Ohio Taxpayers. <a href="https://www.legislature.ohio.gov/legislation/legislation-documents?id=GA132-SB-22">SB22</a> updates Ohio’s conformity to the Internal Revenue Code and incorporates important changes from the federal <a href="https://waysandmeans.house.gov/tax-cuts-jobs-act-resources/">Tax Cuts and Jobs Act</a> (TCJA) and the <a href="https://www.accountingtoday.com/opinion/tax-aspects-of-the-bipartisan-budget-act-of-2018">Bipartisan Budget Act of 2018</a>. <a href="https://www.legislature.ohio.gov/legislation/legislation-documents?id=GA132-HB-24">HB24</a> allows taxpayers to deduct certain medical expenses, which was previously disallowed. <strong>Individual Income Tax Changes</strong> <em>PTE Losses</em>: The new law limits the amount of pass-through entity (PTE) losses taxpayers can claim in a taxable year. Now, PTE investors may only claim $250,000 of distributed losses ($500,000 if filing jointly) each year. The excess loss may be carried forward as a net operating loss (NOL) and claimed as a deduction, limited to 80% of taxable income. <em>Bonus Depreciation</em>: The TCJA enhanced bonus depreciation allowing a 100% deduction in the year certain depreciable property is placed in service. Ohio decoupled from these federal bonus depreciation provisions, requiring taxpayers to add back 5/6 of the depreciation deduction otherwise permitted. The taxpayer can then take 1/5 of the disallowed amounts in the next 5 years. <em>Claimed Dependents</em>: Ohio law previously required that taxpayers must claim dependents on their federal returns to also claim an exemption on their Ohio returns. The TCJA suspended personal exemptions until 2025, meaning that taxpayers would not be claiming federal exemptions for dependents. Ohio suspended the requirement, allowing taxpayers to claim dependent exemptions on Ohio returns even though no federal exemption is claimed. <em>529 Expansion</em>: Previously, only qualified higher education expenses were exempt from federal and state income tax. Consistent with the expansion under the TCJA, Ohio law now allows <a href="https://www.collegeadvantage.com/">529 plans</a> to be used for K-12 education expenses. These contributions are eligible for the state income tax deduction. <em>Subsidized Health Insurance Deduction: </em>Ohio taxpayers may deduct premiums for unsubsidized health insurance plans and other medical care expenses exceeding 7.5% of the individual’s adjusted gross income for 2017. Taxpayers who have already filed returns may file and amended return if they would qualify for this deduction. <strong>Permanent Back-to-School Tax Holiday</strong> For the last few years, Ohio has held a <a href="https://www.tax.ohio.gov/sales_and_use/SalesTaxHoliday.aspx">3-day sales tax holiday</a> in August where certain back-to-school purchases were exempt from tax. In H.B. 24, the General Assembly made this tax holiday permanent. Beginning on the first Friday of August through the weekend, sales of clothing of $75 or less, and school supplies or instructional material of $20 or less, are not subject to Ohio sales and use tax. If you have any questions about these Ohio tax changes, or about how Ohio taxes you or your business, please <a href="https://www.ohiostatetaxblog.com/contact/">contact a member of our team</a>.

Are you a multi-state retailer?

2018-04-08 18:10:51

Welcome to TaxTalk--a video series where Buckingham Partners Steven A. Dimengo and Richard B. Fry discuss hot topics, new developments and tax law you need to know. Discover developments in sales tax collection as states look to increase revenue by targeting online retailers. Watch this video to find out changes may be on the horizon for out-of-state retailers. Click the link to watch a short video. <iframe width="560" height="315" src="https://www.youtube.com/embed/CGCwJggP1fg" frameborder="0" allow="autoplay; encrypted-media" allowfullscreen></iframe>

Future of Sales Tax Nexus Unclear as South Dakota v. Wayfair Awaits Supreme Court Decision

2018-03-15 19:30:33

In 1992, the Supreme Court held in <a href="https://supreme.justia.com/cases/federal/us/504/298/case.pdf"><em>Quill Corp. v. North Dakota</em></a> that a state cannot require an out-of-state retailer (remote seller) to collect sales or use tax unless the retailer has an in-state physical presence. However, this decision was decided before the rapid rise in e-commerce which now accounts for hundreds of billions of dollars in annual sales. States complain <a href="https://www.ohiostatetaxblog.com/salesuse-tax-expanded-authority-to-collect-salesuse-tax-from-remote-sellers-could-give-states-a-windfall-while-increasing-compliance-costs-for-businesses/">they are losing out on tax revenue</a> because they cannot collect taxes from online retailers who lack a physical presence in the taxing state. As a result, some states, <a href="https://www.ohiostatetaxblog.com/ohios-budget-bill-eliminating-taxpayer-rights-expanding-nexus-and-another-amnesty-program/">including Ohio</a>, have enacted “economic nexus” legislation directly contradicting <em>Quill’s </em>holding. South Dakota passed a law for the sole purpose of provoking a challenge to overturn the <em>Quill </em>decision; it stated that entities with more than $100,000 annual sales or 200 separate transactions in South Dakota were deemed to have sales tax nexus. The South Dakota law included an expedited appeal mechanism, resulting in the first case challenging <em>Quill </em>to be brought before the U.S. Supreme Court in <em>South Dakota v. Wayfair</em>. In <em>Wayfair</em>, the United States were one of many parties to file an <a href="https://www.supremecourt.gov/DocketPDF/17/17-494/37747/20180305180114702_17-494tsacUnitedStates.pdf">amicus brief</a> in favor of South Dakota’s statute. The United States’ brief asserts that <em>Quill</em> should be interpreted narrowly only applying to sales by mail order retailer who only presence is through the U.S. mail or common carrier, but not online retailers, contrary to how courts have applied it nationwide. Many believe that, by accepting the case, the Court will overrule <em>Quill</em>, but the same was true back in 1992 when <em>Quill </em>upheld the bright-line physical presence standard established from an earlier case. Oral arguments in <em>Wayfair </em>are scheduled for April 17, 2018, with a decision expected this summer. Stakeholders are pressing Congress to act before the Court to mitigate chaos and confusion in the wake of an overturned or limited <em>Quill</em> ruling. A few potential options have been introduced including the <a href="https://www.ohiostatetaxblog.com/multistate-taxation-marketplace-fairness-act-gaining-momentum/">Marketplace Fairness Act</a> of 2017, Remote Transactions Parity Act of 2017, and a draft bill known as the <a href="https://www.ohiostatetaxblog.com/another-stab-at-reversing-quill-will-congress-expand-sales-tax-collection-to-online-retailer/">Online Sales Simplification Act</a>, which require retailers to collect tax based upon the origin of the sale and pay the tax into a clearinghouse. Nonetheless, it appears unlikely Congress will act, as Congress has failed to address sales tax collection in the 26 years since <em>Quill </em>despite the Court’s invitation to do so. Without Congressional action, remote sellers could become subject to thousands of separate state and local tax regimes as states expand their taxing authority and look to reclaim lost revenue.  Pre-emptive Congressional action would help create predictability and uniformity that will reduce business’ cost of compliance and allow states to effectively collect rightfully owed sales and use taxes. If you have questions about how these developments affect your business, or have questions or concerns about Ohio sales tax nexus, please <a href="https://www.ohiostatetaxblog.com/contact/">contact</a> a member of our SALT team. <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a> <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Richard B. Fry</a>

Municipal Income Tax - Ohio Court denies challenge to Centralized Filing System

2018-03-02 14:02:07

The Franklin County Court recently denied a challenge to the provision in H.B. 49 that allows taxpayers to file a single municipal net profit return with the Ohio Tax Commissioner through the <a href="https://ohiobusinessgateway.ohio.gov/OBG/Membership/Security.mvc/Login#MainContainer">Ohio Business Gateway</a>. The sole issue in <a href="https://www.ohiocpa.com/docs/default-source/advocacy/final-judgment-entry-2-21-18.pdf">the case</a> was whether Ohio’s General Assembly had the constitutional authority to enact centralized collection of municipal net-profits taxes. Approximately 130 municipalities joined in arguing that the collection provisions usurped the municipalities’ power to tax under Ohio’s <a href="https://www.ohiobar.org/ForPublic/Resources/LawYouCanUse/Pages/Ohio's-Constitution-Gives-Municipalities-Home-Rule-Self-Government-Authority.aspx">home rule</a>. While the Court acknowledged that the home rule grants municipalities all powers of local self-government, the provision is “subject to the restrictions or limitations contained in any other provision in the Constitution.” Specifically, Ohio Const. Art. XVIII §13 states that laws may be passed to limit the power of municipalities to levy taxes, therefore providing Ohio’s General Assembly the power to pass H.B. 49. Ohio cities asserted that the definition of “levy” includes the collection provisions. The decision is a victory for Ohio business owners <a href="https://www.facebook.com/OhioDepartmentOfTaxation/posts/1455875581193125">who could save up to $800 million</a> in aggregate compliance costs. The Ohio Department of Taxation estimates that the centralized filing system could save up to $1.6 billion per year. Not only would this save Ohio businesses on compliance costs, but Ohio municipalities would also benefit as the administrative fee charged by the Department (.5%) is much less than the cost of municipalities administering and collecting the tax themselves. While local governments worry about their ability to review filings and control revenue, this ruling is a significant advancement in Ohio’s municipal income tax, which has often been criticized as the <a href="http://www.cleveland.com/metro/index.ssf/2017/06/ohios_municipal_business_taxes.html">nation’s worst municipal tax system.</a> UPDATE: This decision has been appealed and is pending in the Tenth Appellate District of Franklin County, OH. Please <a href="https://www.ohiostatetaxblog.com/contact/">contact</a> a member of our team if you have questions about Ohio’s municipal taxes or net profit returns.

Sales/Use Tax: Expanded Authority to Collect Sales/Use Tax From Remote Sellers Could Give States a Windfall While Increasing Compliance Costs for Businesses

2018-01-23 14:49:47

Due to the recent passage of <a href="https://www.congress.gov/bill/115th-congress/house-bill/1">Tax Cuts and Jobs Act</a>, states are actively looking for solutions to offset losses of revenue that could result from the new legislation. One solution states have supported is an expansion of states’ authority to collect sales/use tax from remote sellers. A 1992 Supreme Court decision <a href="https://supreme.justia.com/cases/federal/us/504/298/case.pdf"><em>Quill v. North Dakota</em></a> limited states’ ability to collect sales/use tax on remote sellers. Under current law, states do not have the authority to collect sales/use tax from a foreign business unless it has a sufficient nexus, or physical presence, within the state. Because this decision pre-dates the colossal increase in e-commerce, the U.S. Supreme Court has decided to review its <em>Quill</em> ruling in <a href="https://law.justia.com/cases/south-dakota/supreme-court/2017/28160.html"><em>South Dakota v. Wayfair</em></a>. The ruling could overturn <em>Quill</em> and replace the sufficient nexus requirement with an “economic presence” requirement, allowing states to require businesses to collect and remit sales/use taxes from <em>all</em> remote sales. State governments and brick-and-mortar retailers contend that eliminating the nexus requirement will increase fairness between physical and online retailers. Congress has mixed feelings on the subject, but generally supports upholding the <em>Quill </em>ruling so that Congress can decide the issue itself and prevent state overreach. If the Supreme Court overturns <em>Quill</em>, states are expected to quickly pass laws that require foreign businesses to collect sales/use taxes regardless of their physical presence within the state. <a href="https://www.gao.gov/products/GAO-18-114">GAO estimates</a> that state and local governments could get a windfall of up to $13 Billion in 2017 if states could require the collection of sales/use taxes from all remote sellers. Ohio specifically could gain an estimated $288 to $456M. However, GAO also found that about 80% of sales/use taxes that would be collectible under expanded authority are<em> already</em> collectible under current law. Many internet retailers have a physical presence in most states, especially those states with large populations. According to the <a href="https://www.gao.gov/products/GAO-18-114">GAO report</a>, states with large populations could require sellers to collect and remit up to 90% of remote use taxes under current law, and states with smaller populations could require collection of up to 70%. If states require the collection of taxes from all remote sellers, firms will likely encounter increased compliance costs if they are inexperienced in collecting multistate taxes. Internet retailers and E-marketplaces sellers stand to be affected the most from an expansion of states’ authority to collect sales/use tax, but any firm doing business in multiple states should be aware of these changes. If you have any questions on how you may be affected by these developments in sales/use tax, please <a href="https://www.ohiostatetaxblog.com/contact/" target="_blank">contact us</a>.

Ohio State Bar Association: Sales and Use Tax Subcommittee Report

2018-01-22 20:07:09

<a href="https://www.ohiostatetaxblog.com/wp-content/uploads/2017/10/September-2017-Ohio-State-Bar-Association-Taxation-Committe-Sales_Use-Tax-Subcommittee-Reprt.pdf" target="_blank">Click here</a> to view the report Steve and Rich, Co-Chairs of the Ohio State Bar Association Sales / Use Tax Subcommittee, presented at the January 18, 2018 Taxation Committee meeting. These are the key cases decided within the last few months, and we are proud to be associated with all of them. This includes pro-taxpayer findings of the Supreme Court and BTA respecting exemption for leased employees (<a href="https://supremecourt.ohio.gov/rod/docs/pdf/0/2017/2017-ohio-8798.pdf">Accel, Inc.</a> and <a href="https://ohio-bta.modria.com/casedetails/507550">Karvo Paving</a>), as well as exemption for a road contractor’s traffic maintenance property (Karvo Paving). Additionally, the Department of Taxation issued <a href="https://www.tax.ohio.gov/Portals/0/sales_and_use/nexususetaxst2017-02-2017.pdf">Information Release ST 2017-02</a> explaining how it will enforce the economic nexus provisions effective January 1, 2018. If you have any questions regarding the subcommittee report or any sales / use tax questions, please do not hesitate to <a href="https://www.ohiostatetaxblog.com/contact/">contact us</a>.

Ohio Sales/Use Tax: Gift-Set Assembly Qualifies as Manufacturing

2018-01-11 15:11:43

Ohio’s <a href="http://codes.ohio.gov/orc/5739.011">manufacturing exemption</a> is defined broadly to exempt from sales / use tax items purchased to be used in manufacturing, <strong><em>assembling</em></strong>, processing, or refining a product. Assembly is defined as “attaching or fitting together parts to form a product, but [does] not include packaging a product.” <a href="http://codes.ohio.gov/orc/5739.01v1">R.C. 5739.01</a>(R). In <a href="http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2017/2017-Ohio-8798.pdf"><em>Accel Inc. v. Testa,</em></a> the <a href="http://www.supremecourt.ohio.gov/">Ohio Supreme Court</a> addressed the treatment of an activity that involves both assembly and packaging, the latter of which is specifically excluded from the exemption. The Court found that Accel’s activities of compiling its customers’ toiletry products into gift sets reasonably fit into the manufacturing exemption even though they involved both “assembly” and “packaging.” Accel did more than just package products, as the gift set creation involved three stages—a design phase, a planning phase, and an assembly phase. Accel highlighted the significance of, and value created by, the design and planning phases, which typically took two to six months before the gift sets were ready to be assembled. Although Accel’s operations included packaging – the activity clearly involved boxing, wrapping and bounding, which are packaging activities – that did not disqualify its activities from constituting “assembling” under the manufacturing exemption. The packaging was merely incidental to assembly of the gift set components which, when placed together, created a “new and differently marketable product.” Therefore, when packaging is an incidental part of the overall purpose to create a new and more valuable product, the activity constitutes product assembly for Ohio sales and use tax purposes and, accordingly, is entitled to the manufacturing exemption. The <em>Accel</em> decision is consistent with the Ohio Board of Tax Appeals’ decision <em>Express Packaging, Inc. v. Limbach</em>, Ohio BTA Case No. 89-K-22 (September 18, 1992), where we represented the taxpayer. If you have any questions concerning this or any other tax matters, please <a href="https://www.ohiostatetaxblog.com/contact/">contact</a> a member of our state and local tax team.

Ohio Sales / Use Tax Refund Opportunity for Paving Contractors

2018-01-05 16:43:56

Buckingham Tax Attorneys, <a href="https://www.bdblaw.com/attorneys/steven-a-dimengo/">Steve Dimengo</a> and <a href="https://www.bdblaw.com/attorneys/richard-b-fry-iii/">Rich Fry</a>, just obtained a victory from the Ohio Board of Tax Appeals (BTA) for their client in <a href="https://ohio-bta.modria.com/download?BID=805472"><em>Karvo Paving Co. v. Testa</em>, BTA Case No. 2016-782 (Jan. 4, 2018)</a>. The contractor challenged a use tax assessment on purchases of traffic maintenance property required for ODOT and other public road projects, contending such property was effectively sold via the transfer of possession to ODOT for a fee. The traffic maintenance property included barrier walls, barricades, temporary traffic lights, message boards and signs. The <a href="https://www.tax.ohio.gov/">Department of Taxation</a> asserted this property was not sold but was used by the contractor during performance of the road project. The BTA agreed that possession of such traffic maintenance property was transferred because the ODOT project engineer controls the placement and use of the property, which fulfills the state’s public obligation to control traffic. Further, the contract documents specify the size, type, amount, and price of traffic maintenance property required for the project. Therefore, the BTA correctly found that the contractor did not owe use tax on the traffic maintenance property since it was resold to ODOT as rented equipment as part of the public road contract. This provides a significant refund opportunity for paving contractors that have paid, or been assessed, tax on traffic maintenance property purchases. Of course, it also supports exemption on future purchases. Moreover, contractors need not collect tax on the rental/sales price when the customer is an exempt purchaser such as ODOT or a political subdivision. Additionally, the BTA ruled that the contractor’s purchase of employment services from an affiliated entity were exempt under <a href="http://codes.ohio.gov/orc/5739.01v1">R.C. 5739.01</a>(JJ)(4). The contractor and affiliated entity were both owned entirely by husband and wife, but had different majority owners – the husband was the majority owner of the contractor, while the wife was the majority owner of the provider. The Department of Taxation asserted that exemption was not warranted because the same individual did not control both entities. However, the BTA found that the husband had complete control over the business operations of both companies, as his wife (the majority shareholder) granted this control to him in writing. Accordingly, the taxpayer’s purchases of employment services were exempt under the affiliated group exception. The BTA’s ruling highlights the scope of this exemption, as affiliated status may be established by showing the business operations of two companies are controlled by the same individual, even if majority ownership is not the same. Please <a href="https://www.ohiostatetaxblog.com/contact/">contact us</a> to discuss any potential refund claims your business may have based upon this favorable decision.

Ohio Tax Amnesty begins January 1, 2018 for Taxpayers with Unreported Taxes

2017-12-28 21:32:51

<a href="http://www.ohiotaxamnesty.gov/">Ohio’s General Tax Amnesty</a> will be open from January 1, 2018 through February 15, 2018, allowing taxpayers to resolve any Ohio tax delinquency, including: <a href="https://www.tax.ohio.gov/ohio_individual/individual.aspx">individual income tax</a>; <a href="https://www.tax.ohio.gov/employer_withholding.aspx">employer withholding tax</a>; <a href="https://www.tax.ohio.gov/pass_through_entities.aspx">pass-through entity tax</a>; <a href="https://www.tax.ohio.gov/sales_and_use.aspx">sales tax</a>; <a href="https://www.tax.ohio.gov/sales_and_use.aspx">use tax</a>; and <a href="https://www.tax.ohio.gov/commercial_activities.aspx">commercial activity tax</a>. The Ohio Tax Amnesty program was authorized in the <a href="https://www.ohiostatetaxblog.com/ohios-budget-bill-eliminating-taxpayer-rights-expanding-nexus-and-another-amnesty-program/">most recent budget bill</a>. To be eligible, the delinquent tax must have been due and payable as of May 1, 2017. Taxpayers are able to fully resolve their liability by paying the tax plus one-half interest with NO penalties. Amnesty is typically most beneficial unless the taxes are quite old, as the <a href="https://www.tax.ohio.gov/">Department of Taxation</a> expects taxes for all open periods to be paid. However, a <a href="https://www.tax.ohio.gov/other/voluntary_disclosure.aspx">voluntary disclosure agreement</a> (VDA) may result in a lower liability because the lookback period is typically limited to three years (although full interest is required to be paid). So, if your taxes are more than three years old, you should strongly consider a VDA. To apply for amnesty, taxpayers must complete and sign an Ohio Tax Amnesty application, file the applicable tax return(s), and fully pay the tax liability. Taxpayers who have not already registered with the Department will also need to submit a completed taxpayer registration form along with the rest of the required documents. After submitting all required information, the taxpayer will be informed of their approval within 30 days. The amnesty program only applies to taxpayers who voluntary disclose and pay their delinquent taxes during the 45-day amnesty period. Further, it does not apply to any tax for which an audit is pending, or for which an assessment has been issued. Please <a href="https://www.ohiostatetaxblog.com/contact/">contact us</a> to find out if you or your business should take advantage of Ohio Tax Amnesty <a href="https://www.ohiostatetaxblog.com/voluntary-disclosure-a-procedure-to-minimize-delinquent-state-tax-obligations/">or a VDA</a>.

Ohio Sales / Use Tax: Leased employees qualify for permanent assignment exception despite fluctuating amount spent on personnel by purchaser

2017-12-19 18:16:39

<a href="http://codes.ohio.gov/orc/5739.01">R.C. 5739.01(B)(3)(k)</a> makes “employment services” taxable. Although this includes a broad range of situations where personnel are provided to the taxpayer, there are a few exceptions. The permanent assignment exception, which applies to employees provided under a one-year contract that specifies the personnel are provided on a permanent basis, has been addressed by the Ohio Supreme Court quite a few times. Recently the Court has returned to the issue and appears to have expanded the scope of the exception. In its decision in <a href="http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2017/2017-Ohio-8798.pdf"><em>Accel Inc. v. Testa</em></a>, the Ohio Supreme Court ruled that leased employees qualified for the permanent assignment exception under <a href="http://codes.ohio.gov/orc/5739.01">R.C. 5739.01(JJ)(3)</a> even though the amount spent on the workers fluctuated throughout the year. The taxpayer designed and assembled gift baskets, with assembly activities increasing in the fall ahead of the holiday season. The same personnel were retained through high and low activity periods, although their hours were reduced depending how busy the assembly business was. The reduction in the leased employees’ hours was consistent with the taxpayer’s own employees who worked more during high demand periods. The Court noted that the distinction between seasonal or short term workload and permanent employment is a matter of degree, not kind. The court stated that both the contract and facts and circumstances must be viewed to determine that the employees were: (1) assigned for an indefinite period; and (2) not provided to meet short-term-workload needs. The Court shed light on how to satisfy these two prongs when employee utilization fluctuates throughout the year. To determine whether employees were assigned for an indefinite period, the employment contracts must not specify an ending date. The Court again confirmed that no magic words needed to be in the contract to qualify for the exception. <a href="http://www.sconet.state.oh.us/rod/docs/pdf/0/2004/2004-ohio-1.pdf"><em>H.R. Options v. Zaino</em></a>, 100 Ohio St.3d 373,  2004-Ohio-1. The contract simply cannot specify an ending date. In this case, the open-ended contract language was consistent with the permanent assignment of the leased employees. Next, the Court addressed whether the leased employee fluctuations were caused by the taxpayer leasing employees to “meet short-term-workload needs” or whether the fluctuations were the result of natural “ebb and flow” of business activity. To distinguish from activity that was for short term assignment, the Court focused on the retention of the same personnel through high and low activity periods, stating that this retention <em>negated</em> their status as seasonal employees. Utilizing the same workers and adjusting their hours to meet demands supported a finding of permanent assignment, while bringing in new workers for brief workload spikes would support the opposite. Please contact us if you have any questions about leased employees or permanent assignment exception under R.C. 5739.01(JJ)(3).

Tax Talk - Are You Aware of All Available Packaging Exemptions?

2017-12-11 16:16:18

Welcome to TaxTalk--a video series where Buckingham Partners Steven A. Dimengo and Richard B. Fry discuss hot topics, new developments and tax law you need to know. Are you taking advantage of the packaging tax exemption? It may include more items than you think. Listen to this short video to see if you are utilizing all available exemptions. Click the link to watch a short video. <iframe width="560" height="315" src="https://www.youtube.com/embed/h_XCDVw18Kk" frameborder="0" gesture="media" allow="encrypted-media" allowfullscreen></iframe>

Ohio Municipalities Mount Challenge to Much-Needed Centralized Business Filing

2017-11-28 16:29:28

Hundreds of Ohio cities are jointly challenging the constitutionality of recently passed municipal tax reform allowing businesses a <a href="http://www.tax.ohio.gov/MunicipalTax.aspx">centralized net-profit tax-filing</a> option. Centralized filing is set to take effect for the 2018 filing season and will permit businesses to file a single municipal net profit return through the Ohio Department of Taxation using the <a href="https://ohiobusinessgateway.ohio.gov/OBG/Membership/Security.mvc/Login#MainContainer">Ohio Business Gateway</a> (rather than requiring a separate return for each Ohio municipality where they conduct business). It is estimated that businesses could save up to $800 million in aggregate compliance costs by utilizing this centralized filing option. <a href="https://www.facebook.com/OhioDepartmentOfTaxation/posts/1455875581193125">Ohio Department of Taxation, Cost-Savings for Business Taxpayers Now Open (Oct. 20, 2017).</a> Although welcomed by businesses and professionals alike, Ohio municipalities are asserting that these measures are usurping their rights to administer local taxes under <a href="https://www.ohiobar.org/ForPublic/Resources/LawYouCanUse/Pages/Ohio's-Constitution-Gives-Municipalities-Home-Rule-Self-Government-Authority.aspx">home rule</a>. The Ohio Society of CPAs was one of the many proponents for Ohio to implement centralized filing. <a href="http://www.ohiocpa.com/docs/default-source/advocacy/ohio-tax-task-force-report_final_8-3-2016b.pdf?sfvrsn=133d1766_0">Improving Ohio’s Tax Climate, Ohio Tax Reform Task Force, p. 14 (June 2016)</a>. Not only would this save Ohio businesses on compliance costs, but Ohio municipalities would also benefit as the administrative fee charged by the Department (0.5%) is much less than the cost municipalities pay to administer and collect the tax themselves. This challenge seems like a short-sighted response from Ohio cities to prevent much needed reform of Ohio’s municipal income tax, which is unlike other states and often cited as the <a href="http://www.cleveland.com/metro/index.ssf/2017/06/ohios_municipal_business_taxes.html">nation’s worst municipal tax system</a>. Please <a href="https://www.ohiostatetaxblog.com/contact/">contact us</a> if you have questions about centralized filing for Ohio municipal taxes or concerns about the challenge being mounted by Ohio cities.

Don’t Miss Out: MTC Extends Deadline to November 1st for Online Marketplace Voluntary Disclosure Initiative

2017-10-30 20:15:09

Updating an earlier <a href="https://www.ohiostatetaxblog.com/the-multistate-tax-commission-offers-the-unique-opportunity-for-online-sellers-to-commence-sales-tax-collection-without-fear-of-assessment-for-past-periods/">post</a>, the Multistate Tax Commission extended the deadline for the <a href="http://www.mtc.gov/Nexus-Program/Online-Marketplace-Seller-Initiative">Online Marketplace Seller Voluntary Disclosure Initiative</a> to November 1, 2017 due to great response from remote vendors applying for the program. The original deadline was October 17, 2017. Remote sellers with potential liability should seriously consider this unique opportunity to come into compliance sales tax compliance by registering and collecting tax prospectively, without any past liability for periods they may have had substantial nexus.

Legislation introduced to provided that compensation paid by Professional Employer Organizations on behalf of Ohio small businesses would qualify for deduction

2017-10-30 20:13:54

Some small business owners became entangled in Ohio income tax audits due to arrangements outsourcing their human resource functions to a professional employer organizations or PEO. The hallmark of a PEO relationship is the co-employment whereby the PEO issues payment, as well as fulfilling other HR functions, but works at the client / employer’s worksite. <a href="http://codes.ohio.gov/orc/4125">R.C. 4125.01</a>, et seq. Normally, wages and guaranteed payments paid by a small business / pass-through entity paid to a 20%-plus owner is added back to the business’ income under <a href="http://codes.ohio.gov/orc/5733.40">R.C. 5733.40(A)(7)</a>. However, since the compensation in these situations are paid by the PEO to the owner, the <a href="http://www.tax.ohio.gov/">Ohio Department of Taxation</a> denied the small business or business income deductions on such compensation since the owner did not own at least 20% of the PEO – i.e., the entity issuing payment.   Legislation has been introduced in both the Ohio House and Senate to correct this inequitable result – <a href="https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA132-HB-334">H.B. 334</a> and <a href="https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA132-SB-186">S.B. 186</a>. The Senate version has been passed and is now pending before the House. The Department also released a <a href="http://www.tax.ohio.gov/Portals/0/OhioTaxAlert/ArchivedAlerts/ProfessionalEmployerOrganizations1.pdf">statement</a> that it has suspended audit activities related to this issue.

Ohio State Bar Association: Sales and Use Tax Subcommittee Report

2017-09-29 13:57:58

As co-chairs of the <a href="https://connect.ohiobar.org/communities/community-home?CommunityKey=25fde318-f198-4499-bf27-b3198d988cf6">Ohio State Bar Association Sales / Use Tax Subcommittee</a>, <a href="/wp-content/uploads/2017/09/September-2017-Ohio-State-Bar-Association-Taxation-Committe-Sales_Use-Tax-Subcommittee-Reprt.pdf">click here</a> or see below to view the report Steve and Rich presented at the September 28, 2017 Taxation Committee meeting. As you will notice, many of the Ohio sales / use tax cases recently decided by the Board of Tax Appeals were based upon a lack of proof by the taxpayer, including a few cases where the taxpayer did not even exercise its right to present evidence at a hearing. It is critically important for taxpayers to effectively present the evidence supporting their position to the BTA, as taxpayers bear the burden of establishing the Tax Commissioner’s assessment is incorrect. If you have any questions regarding the subcommittee report or any sales / use tax questions, please contact <a href="http://www.bdblaw.com/attorneys/steven-a-dimengo/">Steve Dimengo</a>, <a href="http://www.bdblaw.com/attorneys/richard-b-fry-iii/">Rich Fry</a>, or <a href="https://www.bdblaw.com/attorneys/alexander-c-campbell/" target="_blank">Alex Campbell</a>. <a href="https://www.ohiostatetaxblog.com/contact/">Contact us</a>. [pdf-embedder url="/wp-content/uploads/2017/09/September-2017-Ohio-State-Bar-Association-Taxation-Committe-Sales_Use-Tax-Subcommittee-Reprt.pdf"]

The Multistate Tax Commission offers the unique opportunity for online sellers to commence sales tax collection without fear of assessment for past periods.

2017-08-24 16:21:06

<span style="color: #000000; font-family: Garamond;">The </span><a href="http://www.mtc.gov/Home"><span style="color: #0000ff; font-family: Garamond;">MTC</span></a><span style="color: #000000; font-family: Garamond;"> has introduced the </span><a href="http://www.mtc.gov/Nexus-Program/Online-Marketplace-Seller-Initiative"><span style="color: #0000ff; font-family: Garamond;">online marketplace voluntary disclosure initiative</span></a><span style="color: #000000; font-family: Garamond;"> beginning August 17, 2017. This program allows online sellers that use a third-party facilitator to store inventory and fulfill sales outside its home state, such as </span><a href="https://services.amazon.com/fulfillment-by-amazon/benefits.htm?ld=SEUSFBAADGog_Amazon-FBA-Brand_Brand-Terms_amazon-fulfillment_Exact&gclid=Cj0KCQjw8vnMBRDgARIsACm_BhLPtyUTaoL3UXyYbUlbmOmH46AvhyC3c3q_IYmcZA0OkiAu3bA8ri8aAhWkEALw_wcB"><span style="color: #0000ff; font-family: Garamond;">Amazon FBA</span></a><span style="color: #000000; font-family: Garamond;">. The taxpayer must apply for the program between August 17 and October 17, 2017. Twenty three states have agreed to participate, with nineteen states offering to waive all past due sales / use taxes if the seller agrees to register and begin collecting sales tax prospectively. </span> <span style="color: #000000; font-family: Garamond;">Many online sellers using out-of-state companies to fulfill orders do not realize these activities can </span><a href="https://www.ohiostatetaxblog.com/sales-and-use-tax-nexus-renting-an-out-of-state-warehouse/"><span style="color: #0000ff; font-family: Garamond;">create substantial nexus for sales tax collection</span></a><span style="color: #000000; font-family: Garamond;">. First, the seller has inventory (i.e., property) stored in the state where the warehouse is located. Additionally, the seller has a representative in the state that is acting on its behalf in fulfilling and shipping orders. Both the presence of property and a representative in the state, if significant enough, will create nexus for sales tax collection purposes. </span> <span style="color: #000000; font-family: Garamond;">The MTC’s program offers an extraordinary opportunity for these online sellers to comply prospectively without worrying that registration could trigger an audit for past sales tax periods. Another significant benefit is that the seller can submit its application for the program anonymously through its tax attorney. Please </span><a href="https://www.ohiostatetaxblog.com/contact/"><span style="color: #0000ff; font-family: Garamond;">contact us</span></a><span style="color: #000000; font-family: Garamond;"> if you need advice regarding where your business may have nexus and whether the MTC’s </span><a href="http://www.mtc.gov/Nexus-Program/Online-Marketplace-Seller-Initiative"><span style="color: #0000ff; font-family: Garamond;">online marketplace voluntary disclosure initiative</span></a><span style="color: #000000; font-family: Garamond;"> is appropriate. </span>  

Ohio Commercial Activity Tax: Board of Tax Appeals takes first stab at situsing receipts from tangible personal property sales – Finally!

2017-08-24 11:38:30

Gross receipts from sales of tangible personal property are sitused to Ohio if the goods are received by the purchaser in Ohio.<a href="http://codes.ohio.gov/orc/5751.033v1"> R.C. 5751.033</a>(E). The statute provides that the property is sitused to the place where it “is ultimately received after all transportation has been completed”. In <a href="https://ohio-bta.modria.com/download?BID=771182"><em>Greenscapes Home and Garden Products, Inc. v. Testa</em></a>, Ohio BTA Case No. 2016-350 (July 19, 2017), the taxpayer was a Georgia based wholesaler of lawn and garden products selling primarily to big box retailers. The taxpayer delivered the products to its customers at its dock in Georgia, loading it onto to the customer’s pre-arranged mode of transportation. Title to the products transferred to the customers at this juncture. The taxpayer did not track the products’ location after leaving its docks. But the taxpayer knew the products were to be shipped to Ohio based upon the “ship to” address on the customer’s orders and bills of lading. The <a href="http://bta.ohio.gov/">Board of Tax Appeals </a>held that the taxpayer’s sales were sitused to Ohio since the only evidence produced reflected delivery to Ohio addresses. The Board relied upon cases decided under Ohio’s old franchise tax statute which has almost identical language to R.C. 5751.033(E). Further, the sales were sitused to Ohio despite many of the products being ultimately shipped to the customers’ retail locations outside Ohio – although there was no evidence submitted of these subsequent shipments. While it may be true that the goods appellant sells may be removed from Ohio, after being shipped … to Ohio, for ultimate sale in of its customers’ retail locations, the lack of information about any such further transportation forecloses appellant’s argument. At the time appellant sold products to its customers, it knew their ultimate destination to be Ohio … Our inquiry ends here, as did the commissioner’s, in the absence of any evidence indicating that goods were ultimately received elsewhere. <em>Greenscapes Home and Garden Products</em>, at p. 3. Even though the Board made no mention of the Tax Commissioner’s <a href="http://www.tax.ohio.gov/portals/0/commercial_activities/information_releases/cat200517.pdf">Information Release CAT 2005-17</a>, this decision is consistent with position set forth therein that subsequent delivery by a customer is only relevant if the vendor is aware of the ultimate destination at the time of the sale. This decision is helpful since it is the first CAT sourcing case decided by the Board. Since it was decided based upon a lack of evidence, it appears to support a position that sales are not sitused in Ohio if the vendor can prove that the customer did, in fact, ship the goods outside of Ohio (i.e., ultimate non-Ohio destination after all transportation has been completed). But, if this means that tangible personal property sales are sitused based upon the information the vendor is aware of, vendors may take steps to ensure they only have helpful information. For instance, perhaps the taxpayer does not want to know where the products are being shipped to after it loads them onto the customer’s truck in Georgia. Or when products are shipped to Ohio distribution centers, maybe vendors require their customers to submit more information about where the products will ultimately be shipped. Lastly, we question the continued reliance on Ohio franchise tax cases. Is the statutory language nearly identical? Yes. But the purpose of sourcing sales for franchise taxes, as one factor used to apportion one’s income, is significantly different from situsing the entire tax base for a gross receipts based tax. This could create situations where Ohio application of the CAT violates the U.S. Constitutiony by taxing activities and value earned outside the state. Certainly there is much more to come regarding sourcing gross receipts for CAT purposes. Please <a href="https://www.ohiostatetaxblog.com/contact/">contact us</a> if you have questions regarding the situs of your business’ gross receipts.

Tax Talk - Rich Fry and Key Takeaways from the Ohio Budget Bill

2017-07-15 10:12:17

Welcome to TaxTalk--a video series where Buckingham Partners Steven A. Dimengo and Richard B. Fry discuss hot topics, new developments and tax law you need to know. Rich Fry talks about the main points ofthe Ohio Budget Bill. Click the link above to watch a short video. <iframe width="560" height="315" src="https://www.youtube.com/embed/zrn625DVnX4" frameborder="0" allowfullscreen></iframe>

Ohio’s Budget Bill: Eliminating taxpayer rights, expanding nexus and another amnesty program

2017-07-13 20:00:12

<span style="color: #000000; font-family: Garamond;">Ohio’s Biennial Budget Bill (</span><a href="https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA132-HB-49"><span style="color: #0000ff; font-family: Garamond;">Am. Sub. H.B. 49</span></a><span style="color: #000000; font-family: Garamond;">) was signed into law by </span><a href="http://www.governor.ohio.gov/Home.aspx"><span style="color: #0000ff; font-family: Garamond;">Governor Kasich</span></a><span style="color: #000000; font-family: Garamond;"> on June 30, 2017, undoubtedly with much effort and compromise from Ohio’s legislatures who bridged a massive budget deficit, estimated to be as much as $1 billion. Many of the headlines have focused on the Medicaid limitations –which remain up in the air as we wait for the Senate to vote on whether to override the Governor’s line-item vetoes, an action the House already approved – and increased funding to fight Ohio’s opioid epidemic. This post, however, focuses on the significant changes to Ohio’s tax laws. </span> <strong>Elimination of Ohio taxpayer rights</strong> In an unexpected move, the Budget Bill eliminated Ohio taxpayer’s right to appeal a decision from the Board of Tax Appeals directly to the Ohio Supreme Court. This is an unfortunate setback to taxpayers’ rights. This provision was first included in the bill only 2 weeks before the budget deadline at the behest of the Supreme Court. It is a shame that this right enjoyed by Ohio taxpayers for over 75 years was eliminated without any public hearings or meaningful discussion with practitioners and affected state agencies. Now, a taxpayer, the Tax Commissioner or a political subdivision must appeal a Board of Tax Appeals decision to the appropriate Court of Appeals. Then, the appellant may petition the Supreme Court to take the appeal directly, with the Court having discretion whether to accept this request. This will have an adverse effect on Ohio taxpayers and the Tax Commissioner, including increasing the cost of tax appeals, requiring the Attorney General’s tax division to travel throughout Ohio to defend tax determinations, delaying tax collections as appeals are prolonged, and facilitating inconsistent interpretations of tax law amongst Ohio’s Courts of Appeal. This is certainly a misfortune for Ohio taxpayers and tax collectors alike. <strong>Ohio Sales Tax Nexus Expanded for Remote Sellers</strong> Out-of-state sellers with greater than $500,000 of Ohio sales will now be required by statute to collect sales tax if the seller uses in-state software (e.g., cookies) to facilitate Ohio sales, or enters into a content distribution agreement to boost access to the seller’s website for Ohio consumers. This follows the <a href="https://www.ohiostatetaxblog.com/remote-vendor-nexus-coming-to-a-head/">trend of several other states</a>, pioneered by Alabama and South Dakota, to challenge the U.S. Supreme Court’s 1992 decision in <a href="https://www.law.cornell.edu/supct/html/91-0194.ZO.html"><em>Quill Corp. v. North Dakota</em></a> which requires an in-state physical presence to require sales tax collection. While <em>Quill Corp.</em> remains good law– and presumably the Ohio Tax Commissioner will not enforce this unconstitutional provision – there is clearly growing efforts from the states to contest the existing physical presence requirement. Additionally, the General Assembly continued Ohio’s sales tax holidays for 2018. This will allow consumers to purchase school supplies and instructional materials under $20 and clothes under $75 per item tax free for three days in August. The <a href="http://www.tax.ohio.gov/sales_and_use/SalesTaxHoliday.aspx">2017 sales tax holiday</a> will take place August 4<sup>th</sup> through the 6<sup>th</sup>. A new exemption was enacted for digital jukebox purchases. Now, purchases of digital multimedia, or songs, will be exempt from tax when played from a single-play music machine, or jukebox. <strong>Simplifying Ohio Municipal Tax</strong> <span style="color: #000000; font-family: Garamond;">Ohio has one of the most, if not the most, cumbersome and inefficient municipal income tax system in the nation. Businesses often spend more on complying with the many different local jurisdictions’ tax laws than their actual tax liability. Beginning in 2018, business taxpayers may elect centralized filing with the </span><a href="http://www.tax.ohio.gov/"><span style="color: #0000ff; font-family: Garamond;">Ohio Department of Taxation</span></a><span style="color: #000000; font-family: Garamond;">. If the taxpayer does opt for centralized filing, the Department is also responsible for auditing the combined net profit tax returns. The Department will collect tax on behalf of the municipalities and pay out the tax monthly, retaining a 0.5% fee for administering the centralized filing system – much less of a cost than municipalities incur to administer the tax themselves. The Budget Bill also eliminated the municipal tax throwback rule beginning in 2018. </span> <span style="color: #000000; font-family: Garamond;">Both of these changes, contained in </span><a href="http://codes.ohio.gov/orc/718"><span style="color: #0000ff; font-family: Garamond;">Chapter 718 of the Ohio Revised Code</span></a><span style="color: #000000; font-family: Garamond;">, were much needed and should be welcomed by Ohio businesses. </span>   <strong>Ohio Tax Amnesty</strong> <span style="color: #000000; font-family: Garamond;">For the second time under the Kasich Administration, Ohio will offer taxpayers the opportunity to resolve unpaid tax liabilities through an amnesty program. The program will run from January 1 to February 15, 2018. Taxpayers who participate can resolve delinquent state taxes (as well as certain local taxes) due as of May 1, 2017 by paying the tax plus half interest, while having all penalties and the remaining interest waived. Taxpayers considering this program should also check whether they qualify for Ohio’s voluntary disclosure programs which may offer more favorable terms due to the limited lookback period. </span> <strong>Ohio Income Tax – Small business tax breaks survive, for now. </strong> The Kasich Administration has prioritized lowering taxes on small business owners who now enjoy a $250,000 deduction and flat 3% income tax rate on business income. These benefits came under fire during this budget cycle as <a href="http://www.cleveland.com/metro/index.ssf/2017/06/ohio_democrats_state_should_en.html">Democrats pushed to eliminate these tax breaks</a>. Proposed as a way to boost Ohio’s job growth and economy, many have <a href="http://www.cleveland.com/opinion/index.ssf/2017/06/ohios_failed_billion-dollar_ta.html">questioned their effectiveness</a>. Lucky for small business owners, these tax breaks survived this Budget Bill, although the General Assembly created reporting requirements which will allow the legislature to gauge the effectiveness of the tax incentives for small businesses. Additionally, the two bottom individual income tax brackets were eliminated, meaning individuals earning less than $10,500 will not owe any Ohio tax. The low income tax credit was also eliminated since these taxpayers will no longer be paying taxes. <strong>More to come… </strong> The Budget Bill included several other important tax law changes that we will cover in subsequent posts (and some not so important changes, but who doesn’t want to try <a href="http://www.cleveland.com/metro/index.ssf/2017/07/10_strangest_things_in_ohios_s.html#incart_river_home">boozy ice cream</a><u>?</u>). In the meantime, do not hesitate to <a href="https://www.ohiostatetaxblog.com/contact/">contact us</a> if you have questions regarding the Budget Bill or any other Ohio tax issues.

Ohio Sales Tax Audits: No exemption certificates? Ohio vendors have several additional avenues for demonstrating that its sales were not subject to tax

2017-06-19 16:14:54

As part of a routine audit of a vendor’s sales, the Ohio <a href="http://www.tax.ohio.gov/">Department of Taxation</a> (“DOT”) will ask the vendor to produce <a href="http://www.tax.ohio.gov/Forms.aspx?TaxType=Sales%20And%20Use%20Tax">exemption certificates</a> to support any sales for which no tax had been collected. Generally, vendors should collect exemption certificates from their customers at the time of the sale or with 90 days thereafter. Accepting a fully completed exemption certificate alleviates the vendor’s obligation to collect sales tax, provided the certificate is not accepted fraudulently. If a valid certificate is not accepted at this time, the vendor will be given an opportunity to obtain exemption certificates during the course of the audit. <a href="http://codes.ohio.gov/orc/5739.03v1">R.C. 5739.03</a>(B). If an exemption certificate is not obtained, the Ohio vendor can obtain “letters of usage” from its customers which require even more detail as to the consumer’s exempt use of the property or service. However, oftentimes the customer may not exist or be cooperative at this time since the audit occurs years after the sale was made. Then, what do you do? In the absence of exemption certificates and letters of usage, the vendor may still establish that its sales are nontaxable for any of the following reasons: <ul> <li>The sale is never taxable, such as sales of food for off-premises consumption;</li> <li>The sale occurred outside of Ohio such that Ohio does not even have jurisdiction to tax the sale;</li> <li>The customer is clearly exempt; for example, the sale was made to a government entity or a non-profit / I.R.C. § 501(c)(3) organization;</li> <li>The customer has a <a href="http://www.tax.ohio.gov/sales_and_use/directpay.aspx" target="_blank">direct pay permit </a>which means vendors need not collect tax on any sales thereto; or</li> <li>The customer paid the tax to the Department of Taxation, either voluntarily through a use tax payment or in the course of its own audit.</li> </ul>   During the audit, it is well worth the effort to check these other avenues for establishing that your sales are not subject to Ohio sales tax. These can often substantially reduce the proposed assessment. Finally, vendors should keep in mind that they still have recourse against customers that did not pay the tax. The vendor can collect tax from the customer after it has been assessed, unless it contractually agreed to assume such liability.

Tax Talk - Steve Dimengo on Sales Tax and Manufacturing Exemption

2017-06-02 17:43:39

Welcome to TaxTalk--a video series where Buckingham Partners Steven A. Dimengo and Richard B. Fry discuss hot topics, new developments and tax law you need to know. Steve talks about Ohio sales and use tax and the manufacturing exemption that is often misunderstood. Click the link above to watch a short video. <iframe width="560" height="315" src="https://www.youtube.com/embed/Z3B4d1Ml8yI" frameborder="0" allowfullscreen></iframe>

Following Ohio’s Budget Bill – What’s included and how will the deficit be eliminated?

2017-05-17 14:50:32

Welcome to TaxTalk--a video series where Buckingham Partners Steven A. Dimengo and Richard B. Fry discuss hot topics, new developments and tax law you need to know. Buckingham Partner, Rich Fry discusses current issues concerning the proposed Ohio Budget Bill for FY2018-2019 (<a href="https://www.legislature.ohio.gov/legislation/legislation-summary?id=GA132-HB-49">H.B. 49</a>), which was recently passed by the Ohio House and is now before the Ohio Senate. Discover five aspects included in the current version that are significant for Ohio businesses and citizens, including the significant deficit that must be eliminated. Click the link to watch a short video. <iframe src="https://www.youtube.com/embed/r-biQ8jD4MA" width="560" height="315" frameborder="0" allowfullscreen="allowfullscreen"></iframe>

Tax Talk - State of Mind: State and Local Tax Conference

2017-05-09 13:41:55

Welcome to TaxTalk--a video series where Buckingham Partners Steven A. Dimengo and Richard B. Fry discuss hot topics, new developments and tax law you need to know. Steve talks about the inception and development of the annual State and Local Tax Conference hosted by the Ohio Society of CPAs and the University of Akron; sponsored by Buckingham. To receive registration information, email: <a href="mailto:[email protected]">[email protected]</a>. Click the link above to watch a short video. <iframe src="https://www.youtube.com/embed/BM6D8yCuzkY" width="560" height="315" frameborder="0" allowfullscreen="allowfullscreen"></iframe>

Ohio sales tax refund claim remanded as the Board of Tax Appeals finds that sufficient evidence was presented to the Tax Commissioner.

2017-05-03 15:56:36

The taxpayer, Pride of Cleveland Scooters, LLC, discovered that it had overpaid sales tax for three years due an error resulting in the company’s sales being inflated on its sales tax returns. It filed refund claims for three years and submitted evidence supporting the actual sales amount, including profit and loss statements, explanatory spreadsheets, and receipts from the Ohio Bureau of Motor Vehicles. The Tax Commissioner granted the refund claims for two years, but inexplicitly denied the refund for 2013 claiming the taxpayer failed to provide sufficient evidence supporting its amended sales tax return. The taxpayer and Tax Commissioner stipulated to many of the relevant facts and reports at the hearing before the Board of Tax Appeals (BTA). Further, the taxpayer’s accountant testified at the hearing as how the correct sales amounts were determined for purposes of the refund claims. The only issue was whether Pride of Cleveland Scooters submitted sufficient evidence to establish how much it owed in sales tax for 2013. According to the Tax Commissioner’s regulation, proof to support a refund shown on an amended return “may consist of sales journals, cash registered receipts, summary reports or any other document used to prepare the tax return.” <a href="http://codes.ohio.gov/oac/5703-9-07v1">O.A.C. 5703-9-07</a>(A)(3)(e). The BTA held that “sufficient evidence [was] provided [to the Tax Commissioner] to determine whether the taxpayer’s request for refund was proper.” <a href="https://ohio-bta.modria.com/download?BID=752806"><em>Pride of Cleveland Scooters, LLC v. Testa</em></a>, BTA Case No. 2016-375 (Apr. 11, 2017). Therefore, the claim was remanded to the Tax Commissioner for further consideration. “It’s unfortunate that we had to go to the Board of Tax Appeals to establish our case,” said attorney Steve Dimengo. Pride of Cleveland Scooters was represented in this matter by Buckingham attorneys <a href="http://www.bdblaw.com/attorneys/steven-a-dimengo/">Steve Dimengo</a> and <a href="http://www.bdblaw.com/attorneys/alexander-c-campbell/">Alex Campbell</a>. Please <a href="https://www.ohiostatetaxblog.com/contact/">contact us</a> if you need help assembling the information required to support an Ohio sales / use tax refund claim.

Are You Claiming an Ohio Sales/Use Tax Exemption On Your Airplane Purchase to Be Leased To a Related Party?

2017-04-06 15:00:25

A recent Ohio Board of Tax Appeals (“BTA”) decision presents warning signs when asserting the resale exemption in captive relationships. <em>See</em> <a href="https://ohio-bta.modria.com/download?BID=738750" target="_blank">Pi In The Sky, LLC vs. Testa, Ohio BTA, Case No. 2015-2005 (January 19, 2017)</a>. In this case, a single member limited liability company (“SMLLC”) purchased an airplane for lease to its sole member. The BTA disregarded the lease, denying the SMLLC’s claim to the resale exemption, finding that the lease lacked substance. Factors supporting the lack of any real substance to the leasing relationship included the following: The lessee (an operating company) was the sole member of the SMLLC lessor. <ul> <li>The same person executed the lease agreement on behalf of both lessor and lessee.</li> <li>There was no other lessee of the aircraft, and the SMLLC had no other activities.</li> <li>The loan for the purchase of the aircraft was not entered into on behalf of the SMLLC, but executed by the individual owner of the lessee.</li> <li>There was no advertising with respect to leasing the aircraft.</li> <li>The lessor had no business location; and</li> <li>The aircraft was leased for $80/hour under a “dry lease” (i.e., lessee was responsible for all operating costs, taxes, etc.). This was clearly not arms-length.</li> </ul> <strong> </strong>Sound familiar? Of course, these arrangements are quite common. The BTA found that the lease had no factual or economic substance and, therefore, the lessor was not engaged in the business of leasing and did not qualify for the resale exemption. Is this an aberration? Hopefully yes, as form usually predominates substance in the Ohio sales and use tax arena, even though there is a specific statutory provision that allows application of the sham transaction doctrine. <em>See </em>R.C. 5703.56(A). Moreover, it did not help that the taxpayer waived the BTA evidentiary hearing in this matter, making it easier to accept all of the Tax Commissioner’s assertions since no new evidence was presented to the BTA. The case is on appeal to the Ohio Supreme Court. More to come.

TAX TALK - Meet Buckingham Partner Richard B. Fry

2017-03-20 19:44:32

Welcome to TaxTalk--a video series where Buckingham Partners Steven A. Dimengo and Richard B. Fry discuss hot topics, new developments and tax law you need to know. Click the link above to watch a short video that introduces Buckingham Partner Richard B. Fry tells and briefly tells how he meets customers' objectives. <iframe width="560" height="315" src="https://www.youtube.com/embed/qAeToHDrkuI" frameborder="0" allowfullscreen></iframe>

Tax Talk

2017-02-17 17:07:08

Welcome to TaxTalk--a video series where Buckingham Partners Steven A. Dimengo and Richard B. Fry discuss hot topics, new developments and tax law you need to know. Click the link above to watch a short video as Buckingham Partner Steven A. Dimengo explains why he loves what he does. <iframe src="https://www.youtube.com/embed/M7jXghozAAc" width="560" height="315" frameborder="0" allowfullscreen="allowfullscreen"></iframe>

Ohio Sales and Use Tax: Recent Board of Tax Appeals Decisions Highlight the Importance of Fully and Effectively Challenging Tax Commissioner Determinations

2017-01-31 15:57:06

Following up on our <a href="https://www.ohiostatetaxblog.com/ohio-state-bar-association-committee-sales-and-use-tax-subcommittee-report/">Sales and Use Tax Subcommittee Report</a>, there are quite a few cases of note decided by the <a href="http://bta.ohio.gov/">Ohio Board of Tax Appeals</a>. An unfortunate overriding theme in these recent decisions is that each taxpayer lost due to one of the following: <ul> <li>insufficient evidence in support of appeal;</li> <li>the decision was consistent with essentially identical prior BTA cases;</li> <li>no authority for the relief sought (i.e., refunds filed beyond four year statute of limitations or interest abatement); or</li> <li>no Tax Commissioner abuse of discretion (i.e., penalty abatement).</li> </ul> What does this mean? Either: 1) the taxpayer did not fully and correctly present its case during their initial proceedings before the <a href="http://www.tax.ohio.gov/communications/tax_commissioner_bio.aspx">Ohio Tax Commissioner</a> or the subsequent appeal before the Board of Tax Appeals; or 2) the taxpayer’s appeal simply had no merit. We attempt to resolve controversies as soon as possible during the audit stage, as well as throughout any appeal, to minimize the expense thereof and screen inappropriate appeals so that your time and money is not wasted. Our <a href="https://www.ohiostatetaxblog.com/ohio-state-bar-association-committee-sales-and-use-tax-subcommittee-report/">Sales and Use Tax Subcommittee Report</a> also reflects legislation now requiring exemption certificates to support exemptions available for otherwise taxable employment services (i.e., essentially leased employees) when the personnel are: <ol> <li><u>not</u> under the direct control of the purchaser who is acting as a contractor / subcontractor;</li> <li>used to provide medical / health services;</li> <li>provided under a permanent assignment / one-year contract;</li> <li>provided within an affiliated group; or</li> <li>resold through another employment service agency.</li> </ol> Not providing the exemption certificate is a trap for the unwary, especially when it is clear the transaction is nontaxable, as would be the case for exemptions 1 – 4. Proposed legislation is anticipated to clarify that an exemption certificate is not required when the transaction is never taxable in such circumstances. Nonetheless, to be fully protected, providers of leased employees should always obtain an exemption certificate if they are not collecting tax. Finally, although we have a <a href="https://www.ohiostatetaxblog.com/ohio-sales-use-tax-digital-advertising-is-nontaxable-but-hb-466-falls-short-of-a-comprehensive-solution-to-ohio-sales-tax-on-services-delivered-online/">new exemption with respect to “digital advertising” services</a>, Ohio businesses must be careful if there is still a significant aspect of “electronic information services” being provided as a component of the service. This could include the ability to run reports electronically or otherwise manipulate analytics to gauge the effectiveness of the business’ online presence. The Department is taking the position that the whole transaction could still be taxable if the electronic information service portion of the service provides a significant benefit to the consumer. Appropriate planning needs to be in place to minimize such an occurrence.

Ohio State Bar Association: Sales and Use Tax Subcommittee Report

2017-01-26 15:04:23

<span style="color: #000000; font-family: Calibri;">As co-chairs of the </span><a href="https://connect.ohiobar.org/communities/community-home?CommunityKey=25fde318-f198-4499-bf27-b3198d988cf6"><span style="color: #0000ff; font-family: Calibri;">Ohio State Bar Association Sales / Use Tax Subcommittee</span></a><span style="color: #000000; font-family: Calibri;">, </span><a href="/wp-content/uploads/2017/01/AK3-1244297-v1-January_2017_Ohio_State_Bar_Association_Taxation_Committee_Sales_Use_Tax_Subcommittee_Report.pdf" target="_blank"><span style="color: #0000ff; font-family: Calibri;">click here</span></a><span style="font-family: Calibri;"> <span style="color: #000000;">to view the report Steve and Rich presented at the January 19, 2017 Taxation Committee meeting. As you will notice, many of the Ohio sales / use tax cases recently decided by the Board of Tax Appeals were based upon a lack of proof by the taxpayer. It is critically important for taxpayers to present the evidence supporting their position to the BTA, as taxpayers bear the burden of establishing the Tax Commissioner’s assessment is incorrect. If you have any questions regarding the subcommittee report or any sales / use tax questions, please contact </span></span><a href="http://www.bdblaw.com/attorneys/steven-a-dimengo/"><span style="color: #0000ff; font-family: Calibri;">Steve Dimengo</span></a><span style="color: #000000; font-family: Calibri;">, </span><a href="http://www.bdblaw.com/attorneys/richard-b-fry-iii/"><span style="color: #0000ff; font-family: Calibri;">Rich Fry</span></a><span style="color: #000000; font-family: Calibri;">, or </span><a href="http://www.bdblaw.com/attorneys/casey-j-davis/"><span style="color: #0000ff; font-family: Calibri;">Casey Davis</span></a><span style="color: #000000; font-family: Calibri;">.</span> <a href="https://www.ohiostatetaxblog.com/contact/"><span style="color: #0000ff; font-family: Calibri;">Contact us</span></a><span style="color: #000000; font-family: Calibri;">.</span>  

Is it Time for a Multistate Tax Check-Up?

2016-10-12 08:45:41

Are you correctly assessing multistate tax obligations outside of your base/home state? This is important since there is no statute of limitations for assessments for the failure to file in a foreign state. Also, taxpayers need to make sure to avoid any double tax resulting from incorrectly addressing your tax situation and failing to claim all available credits for tax paid to other states. For example, if it was subsequently determined that you owed a foreign state’s tax, but the statute of limitations to obtain a refund in your home state expired, you could be stuck paying tax on the same income to both states. It is critical to know and understand your business contacts outside your home state to determine <a href="https://www.ohiostatetaxblog.com/category/multistate-tax-nexus/">where substantial nexus exists</a> creating an out-of-state tax obligation. <a href="https://www.ohiostatetaxblog.com/contact/">Contact us</a> to assess your multistate tax obligations and ensure you are claiming all available state tax credits.

Ohio Commercial Activity Tax: The Agency Exclusion can provide significant tax reductions with proper planning.

2016-10-06 15:45:25

Ohio Commercial Activity Tax includes a significant exclusion from gross receipts for amounts received by a taxpayer acting in an agency capacity. <a href="http://codes.ohio.gov/orc/5751.01v1">R.C. 5751.01</a>(F)(2)(I) excludes “<em>property, money, and other amounts received or acquired by an agent on behalf of another in excess of the agent’s commission fee or other reimbursement....</em>” from the definition of taxable gross receipts. The agent exclusion prevents double taxation of the same gross receipts – first, when received by the agent, and again when paid by the agent to the principal. With proper planning, this exclusion can significantly reduce your commercial activity tax base.   The Ohio Department of Taxation has provided several examples as to how the agent exclusion applies. <a href="http://codes.ohio.gov/oac/5703-29-13v1">O.A.C. § 5703-29-13</a>. Some common examples include: (1) a lottery sales agent who remits the majority of the lottery ticket price to the state lottery commission; (2) a restaurant accepting gratuities that it pays through to its servers; and (3) a general contractor, when required to act in the property owner’s best interest, under a cost-plus contract. On the other hand, a landlord collecting common area maintenance fees from its tenants for expenses incurred in maintaining the property is not entitled to the exclusion.   The Ohio Board of Tax Appeals recently ruled that a Sunoco gasoline distributor did not qualify as an agent of Sunoco so as to exclude amounts it received on the resale of such gasoline. The Board held that the taxpayer/distributor was clearly acting as an independent contractor and could not make commitments or incur expenses on behalf of Sunoco. Moreover, Sunoco was not responsible to the taxpayer for any losses, damages, claims or actions of any kind. (<a href="https://ohio-bta.modria.com/casedetails/505040">Willoughby Hills Dev. and Distr., Inc. v. Testa, BTA No. 2015-1069, July 5, 2016</a>).   Two factors critical in determining whether an agency relationship is present is whether the taxpayer (agent) has authority to bind the principal and owes the principal fiduciary duties. <a href="https://www.ohiostatetaxblog.com/contact/">Contact us</a> to determine if your business may be able to take advantage of this commercial activity tax exclusion, without increasing your general business risks through such an arrangement.

Ohio State Bar Association Taxation Committee Sales and Use Tax Subcommittee Report

2016-10-06 14:15:54

As co-chairs of the <a href="https://www.ohiobar.org/Pages/Home.aspx" target="_blank">Ohio State Bar Association</a> Sales / Use Tax Subcommittee, <a href="https://www.ohiostatetaxblog.com/wp-content/uploads/2016/09/AK3-1236000-v1-September__2016_Ohio_State_Bar_Association_Taxation_Committee_Sales_Use_Tax_Subcommittee_Report_1.pdf" target="_blank">here </a>is a link to the report <a href="http://www.bdblaw.com/attorneys/steven-a-dimengo/" target="_blank">Steve</a> and <a href="http://www.bdblaw.com/attorneys/richard-b-fry-iii/" target="_blank">Rich</a> presented at the September 22, 2016 Taxation Committee meeting. If you have any question regarding the subcommittee report or any sales / use tax questions, please contact <a href="http://www.bdblaw.com/attorneys/steven-a-dimengo/" target="_blank">Steve Dimengo</a>, <a href="http://www.bdblaw.com/attorneys/richard-b-fry-iii/" target="_blank">Rich Fry</a>, or <a href="http://www.bdblaw.com/attorneys/casey-j-davis/" target="_blank">Casey Davis</a>. <a href="http://www.bdblaw.com/contact-us/" target="_blank">Contact us</a>.

Buckingham obtains full vindication for Congressman Renacci, earning six figure refund as decided by Ohio Supreme Court

2016-06-24 14:13:32

<em>Ohio Supreme Court mandates Ohio Tax Commissioner refund Congressman Jim Renacci $359,822  plus interest.</em> Represented by Buckingham Tax Attorney, <a href="http://www.bdblaw.com/attorneys/steven-a-dimengo/">Steven A. Dimengo</a>, and Litigator, <a href="http://www.bdblaw.com/attorneys/matthew-r-duncan/">Matthew R. Duncan</a>, U.S. Congressman Jim Renacci won a six figure tax appeal stemming from amounts paid in 2008. In its <a href="http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2016/2016-Ohio-3394.pdf">June 15 decision</a>, the Ohio Supreme Court unanimously found that Mr. Renacci acted in good faith and had reasonable cause in delaying the payment of tax based on a reasonable interpretation of federal tax law. The Court held that the Ohio Tax Commissioner abused his discretion in refusing to refund a double-interest penalty. The Court dealt a significant blow to the authoritative nature of the Tax Commissioner’s published information releases, which the Renaccis challenged in this case. "The tax commissioner unaccountably exalts the pronouncements of his information releases, which have no force of law, as though they impose binding obligations that no taxpayer should dare to question. * * * An information release does not create legal obligations by its own force – a fact both the commissioner and the BTA ignore when they measure the Renaccis’ good faith solely in terms of their willingness to abide by demands set forth in the tax department’s pronouncements. We have repeatedly held that when the tax commissioner seeks to exercise administrative authority in a systematic way over a broad range of taxpayer claims, he must promulgate his pronouncement as an administrative rule." <em>Renacci v. Testa, </em>2016-Ohio-3394, ¶3 and ¶37. The Tax Commissioner often uses information releases as the basis for enforcing new policy. <em>See e.g., </em><a href="https://www.ohiostatetaxblog.com/11070"><em>Ohio Department of Taxation Agressively Extends Electronic Information Service Tax Base</em></a><em>. </em>But, as the Court explains, this tactic does not obligate taxpayers to follow these informal pronouncements. “I am very happy Congressman Renacci was fully vindicated by a unanimous Ohio Supreme Court – all seven justices”, said Steven. A. Dimengo, Buckingham attorney who argued the case before the Ohio Supreme Court on behalf of the Renaccis. “The Supreme Court rightfully found the Renacci’s acted in good faith and with reasonable cause in delaying the payment of Ohio income tax until the Court rendered its decisions relevant to their tax liability,” Dimengo said. Congressman Jim Renacci and his wife were assessed a significant penalty on taxes due on their “electing small business trust” (“ESBT”) income for the 2000 tax year. Former Tax Commissioner, Thomas Zaino, and his former income-tax counsel, Jeffrey Sherman, both testified that income from an ESBT was not taxable to the grantor prior to January 2000. The Tax Commissioner prospectively changed his position and began taxing historically nontaxable income commencing with the 2000 tax year. <em>See</em> <a href="http://www.tax.ohio.gov/ohio_individual/individual/information_releases/it200001.aspx">Information Release IT 2000-01</a>. Many taxpayers, including the Renaccis, challenged the Tax Commissioner’s new policy and were not penalized if they paid the tax/interest during audit, while still preserving full refund rights. However, taxpayers who did not pay the tax/interest and exercised their appeal rights, such as the Renaccis, were assessed significant penalties – equal to more than 30% of the tax in the Renaccis’ case. Although there was a parallel case pending in the Ohio Supreme Court addressing the merits of the tax liability, the Tax Commissioner would have abated the penalty only if the Renaccis paid the tax/interest and relinquished their appeal rights. The Court found the Tax Commissioner’s actions were arbitrary and the Renaccis acted in good faith. The Ohio Supreme Court decision is available here: <a href="http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2016/2016-Ohio-3394.pdf">http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2016/2016-Ohio-3394.pdf</a>

Ohio Income Tax: An Individual May Now Spend Up to 7 Months In Ohio, But Still Be Taxed As A Nonresident Under the Bright-Line Residency Test

2015-01-12 09:29:29

Qualifying as a nonresident for Ohio income tax purposes, which can significantly reduce tax owed on investment and business income, has gotten easier. Ohio residents are taxed on all their income, subject to a resident credit for income taxed by other states. Conversely, nonresidents are only taxed on their Ohio-sourced income. For a nonresident, pension income, gains from the sale of publicly-traded stock, dividends, interest and certain other intangible / investment income are not subject to Ohio income tax. Moreover, a nonresident owning a small business is only taxed on its business income to the extent apportioned to Ohio. Even an Ohio-based business may have a relatively low apportionment ratio if it has significant sales outside Ohio due to Ohio’s market-based sourcing and triple-weighted sales factor. The common-law domicile test traditionally determined one’s residency for Ohio income tax purposes. This test focuses on the individual’s subjective intent to remain in Ohio indefinitely and return to Ohio when absent. In 1993, Ohio enacted a bright-line residency test which provided a safe-harbor for individuals who maintain an abode outside Ohio, spent less than a certain number of “contact periods” (essentially, overnight stays) in Ohio and file a particular statement with the Department of Taxation. Originally, the permissible contact periods were 120; in 2007, the bright-line test was increased to 182 contact periods. This provided predictability for individuals maintaining homes both in and outside Ohio, such as “snow-birds” splitting their time between Ohio and more-climate favorable state. However, the more burdensome common-law test still applies to individuals who do not meet the bright-line residency test. Recently enacted <a href="http://www.legislature.state.oh.us/bills.cfm?ID=123_HB_494">H.B. 494</a> now allows individuals to have up to 212 Ohio contact periods and still qualify to be taxed as a nonresident for Ohio income tax purposes. To meet the bright-line test, which is irrefutable, the individual must: (1) maintain an abode outside Ohio for the entire year; (2) have no more than 212 Ohio contact periods; and (3) file an Affidavit of Non-Ohio Residency / Domicile (<a href="http://www.tax.ohio.gov/portals/0/forms/ohio_individual/individual/2013/PIT_ITDA.pdf">Form IT DA</a>) with the Ohio Department of Taxation by April 15<sup>th </sup> although this date is typically extended. Filing the required Affidavit is a simple, yet often overlooked, requirement that is absolutely critical. If an individual otherwise meets the bright-line test, but fails to file the affidavit, he/she will be presumed to be an Ohio resident and must meet the common-law test to establish nonresidency. Our <a href="https://web2.westlaw.com/find/default.wl?cite=+orc+5747.24&rs=WLW14.10&vr=2.0&rp=%2ffind%2fdefault.wl&sv=Split&fn=_top&mt=75">previous post</a> discussing <a href="http://app.bta.ohio.gov/2011-N-4641.pdf"><em>Cunningham v. Testa</em></a>, where a husband and wife were treated as residents of different states, highlights the importance of this Affidavit. With the proper planning, Ohio’s favorable bright-line residency test allows individuals with multiple homes to spend up to 7 months in Ohio, yet still be taxed as a nonresident. This may provide a significant benefit for individuals with investment / intangible income or income from a small business. It may also provide significant benefits to individuals maintaining abodes in multiple states, including Ohio. If you have questions concerning how to take advantage of Ohio’s favorable bright-line resident test, please contact <a href="http://www.bdblaw.com/cp_people/steven-a-dimengo/">Steve Dimengo</a>, <a href="http://www.bdblaw.com/cp_people/richard-b-fry-iii/">Rich Fry</a>, or <a href="http://www.bdblaw.com/cp_people/casey-j-davis/">Casey Davis</a>. <a href="http://www.bdblaw.com/contact-us/ohio-state-tax-blog-contact-form/">Contact us</a>.

Welcomed Ohio Municipal Income Tax Reform To Be Implemented For 2016 Tax Year

2014-12-31 14:31:11

Updating our <a href="http://www.bdblaw.com/much-needed-municipal-income-tax-reform-approved-by-ohio-senate-house-set-to-vote-next/">previous post</a>, <a href="http://www.governor.ohio.gov/">Gov. Kasich</a> signed <a href="http://www.legislature.state.oh.us/bills.cfm?ID=130_HB_5">H.B. 5</a>, the Ohio Municipal Income Tax Reform Bill, into law on December 19, 2014. The Bill requires Ohio municipalities imposing an income tax to update their ordinances to comply with certain uniformity provisions contained in <a href="http://codes.ohio.gov/orc/718">Chapter 718 of the Ohio Revised Code</a> for the 2016 tax year. This Bill is a significant achievement, as it reflects years of work to streamline Ohio’s <a href="http://taxfoundation.org/article/ohios-local-income-taxes-complex-and-need-reform">complex and often inefficient municipal income tax system</a>. However, not all are pleased with the General Assembly’s efforts to create a more business-friendly municipal income tax system as <a href="http://www.cantonrep.com/article/20141231/NEWS/141239815/?Start=1">municipal leaders have voiced concerned</a> with revenue loss to Ohio cities and villages. H.B. 5’s opponents believe this reform is an <a href="http://www.cleveland.com/opinion/index.ssf/2014/12/ohio_lawmakers_unjustified_ass.html">invasion on the Ohio Constitution’s Home Rule</a>, granting municipalities certain authority to govern itself to the extent not in conflict with Ohio law. The following discusses some of the more significant changes provided for in the Bill. <strong><em>Income Tax Base</em></strong> <a href="http://www.legislature.state.oh.us/bills.cfm?ID=130_HB_5">H.B. 5</a> specifies certain types of income municipalities must tax and those which municipalities may not tax. Resident individuals will be taxed on: (1) compensation, including qualifying wages, salaries, and commissions; (2) net profits, including distributive share income from a pass-through entity (less net operating loss carryforward); and (3) lottery, gaming, prizes, and similar winnings. Nonresident individuals will be taxed on: (1) compensation for work performed in the municipality; (2) net profit apportioned or allocated to the municipality, but excluding distributive share income from a pass-through entity; and (3) lottery, gaming, prizes, and similar winnings. Notwithstanding, certain exempt income is not subject to municipal income tax, including social security benefits, retirement benefits, unemployment compensation, pensions, disability benefits, compensation for personal injury or property damage, and alimony and child support, among others. Although exempting pensions and several other retirement benefits, municipalities may tax nonqualified deferred compensation, including <a href="http://www.bdblaw.com/supplemental-executive-retirement-plan-serp-was-a-pension-exempt-from-city-income-tax/">supplement executive retirement plan income</a>, and income from stock options. Business entities, including pass-through entities but not disregarded entities, will be taxed on their net profit apportioned or allocated to the municipality. Net profits of a pass-through entity is calculated as if the entity were taxed as a C corporation for federal income tax purposes, except guaranteed payments and other similar amounts paid to a partner, shareholder, member, etc. may not be deducted. Income is apportioned based upon an equal-weighted property, payroll and sales ratio. However, pursuant to a unique throwback rule, sales are sourced to the location from where the property is shipped (<em>i.e.,</em> origin-based sourcing), unless the taxpayer is regularly engaged in business at the place where the property is delivered. <a href="http://www.legislature.state.oh.us/bills.cfm?ID=130_HB_5">H.B. 5</a> also implements a uniform provision for when taxpayers may request and use an alternative apportionment method. In essence, for small businesses, their individual owners will file and pay tax where they reside, while the entity will pay tax in municipalities where it does business on its apportioned income. <strong><em>S Corporation Exception</em></strong> Notwithstanding the above, municipalities which voted to tax S corporations at the shareholder level during certain previous local elections are permitted to continue to do so. Of the <a href="http://www.tax.ohio.gov/municipalities/municipal_income_tax_forms.aspx">approximately 600 municipalities</a> in the state, there are approximately 119 municipalities to which this exception applies. <strong><em>Mandatory Net Operating Loss Carryforward</em></strong> Municipalities must allow taxpayers an NOL carryforward for five years for NOLs incurred in 2017 or thereafter. However, for the first five years of this rule (2018 to 2022), the NOL deduction and carryforward are limited to 50% of the amount otherwise allowed. NOLs incurred before 2017 and deductible under a pre-2017 ordinance are still permitted under the terms provided for in the pre-2017 ordinance. <strong><em>Casual Entrant Rule</em></strong> Individuals working in a municipality for no more than 20 days in a year are not subject to tax, with the Bill providing a uniform definition of what constitutes a “day.” This increases the current threshold of 12 days. Employers must begin withholding municipal income tax on the 21<sup>st</sup> day the employee works in that municipality, but are not required to retroactively withhold tax on wages earned for the first 20 days. Moreover, this rule applies to compensation earned by a sole proprietor reported on Schedule C if the sole proprietor does not have a base of operation in the municipality where he/she worked temporarily. This rule does not apply to professional athletes, entertainers, or public figures. <strong><em>Administration and Appeals</em></strong> One particularly frustrating aspect of Ohio municipal income tax for accountants and tax return preparers is the wide range of different administrative procedures and policies amongst the municipalities. A significant benefit from <a href="http://www.legislature.state.oh.us/bills.cfm?ID=130_HB_5">H.B. 5</a> will be the added efficiency resulting from significant steps to simplify administration of municipal income taxes. The Bill prescribes a uniform three-year statute of limitations for assessments and refund claims, and a uniform interest rate equal to the federal short-term rate plus 5%, applicable to both underpayments and refunds. Estimated tax payments may only be required if the estimated tax is at least $200. Further, a tax administrator’s assessment must be served upon taxpayers via certified mail or personal service, and be clearly identified as an assessment. If these requirements are not met, the 60-day period to appeal the assessment to a local board of tax review will generally not begin to run. The Bill also imposes a Taxpayer Bill of Rights mirroring the rights protected under Ohio law. Additionally, innocent spouse relief and an offer in compromise program is implemented which are similar to existing Ohio and federal programs. Lastly, although centralized filing was not implemented, the <a href="http://www.tax.ohio.gov/">Ohio Department of Taxation</a> is required to develop a method allowing businesses to file annual net profit returns electronically through the <a href="https://ohiobusinessgateway.ohio.gov/OBG/Membership/Security.mvc/Login#MainContainer">Ohio Business Gateway</a> or other method, with the Department forwarding the returns to the appropriate tax administrator. <a href="http://www.legislature.state.oh.us/bills.cfm?ID=130_HB_5">H.B. 5</a> enacted many additional changes to the Ohio Revised Code that are beyond the scope of this post. If you have any questions regarding <a href="http://www.legislature.state.oh.us/bills.cfm?ID=130_HB_5">H.B. 5</a> and how it may affect you or your business Ohio municipal income tax obligations, please contact <a href="http://www.bdblaw.com/cp_people/steven-a-dimengo/">Steve Dimengo</a>, <a href="http://www.bdblaw.com/cp_people/richard-b-fry-iii/">Rich Fry</a>, or <a href="http://www.bdblaw.com/cp_people/casey-j-davis/">Casey Davis</a>. <a href="http://www.bdblaw.com/contact-us/ohio-state-tax-blog-contact-form/">Contact us</a>.

BTA Expands Its Definition of "Responsible Party" In Two Recent Cases

2014-12-18 11:08:17

On <a href="http://www.bdblaw.com/investment-partner-liable-for-unpaid-sales-tax/">September 23, 2014</a>, <a href="http://www.bdblaw.com/contact-us/ohio-state-tax-blog-contact-form/">we</a> <a href="http://www.bdblaw.com/investment-partner-liable-for-unpaid-sales-tax/">posted</a> about the expansion of who qualifies as a “responsible party.” In that case, <a href="https://ohio-bta.modria.com/casedetails/56431"><em>Wilson v. Testa</em></a>, the <a href="http://bta.ohio.gov/">Board of Tax A</a>ppeals found an “investment partner” was a responsible party. Recently, the <a href="http://bta.ohio.gov/">Board of Tax A</a>ppeals again expounded upon its definition of “responsible party” in <a href="https://ohio-bta.modria.com/casedetails/63010"><em>Gillan v. Testa</em></a><em>, Ohio BTA, Dkt. No. 2014-1340 (10/22/2014)</em> and <a href="https://ohio-bta.modria.com/casedetails/62208"><em>Qaimari v. Testa</em>, Ohio BTA, Dkt. No. 2014-538 (10/22/2014)</a>. In <a href="https://ohio-bta.modria.com/casedetails/63010"><em>Gillan v. Testa</em>,</a> the <a href="http://bta.ohio.gov/">Ohio Board of Tax A</a>ppeals denied a taxpayer’s argument that he was not the “appropriate” responsible party, finding that <a href="http://codes.ohio.gov/orc/5739.33">R.C. 5739.33</a> does not require liability to attach to only one individual. The taxpayer contended, “while he was a corporate officer, i.e., a responsible party, he was not the ‘appropriate’ responsible party.” In particular, he argued that others, including the corporate controller, were more “appropriate” responsible parties regarding fiscal matters. The <a href="http://bta.ohio.gov/">Board of Tax A</a>ppeals, however, disagreed, finding that <a href="http://codes.ohio.gov/orc/5739.33">R.C. 5739.33</a> does not require liability to attach to only one individual. Rather, <a href="http://codes.ohio.gov/orc/5739.33">R.C. 5739.33</a> may be read to include anyone who either exercised or had the power to exercise the requisite control over the financial affairs as a responsible party. In <a href="https://ohio-bta.modria.com/casedetails/62208"><em>Qaimari v. Testa</em></a>, the <a href="http://bta.ohio.gov/">Board of Tax A</a>ppeals found that a taxpayer’s delegation of day-to-day business responsibilities to a third party does not relieve him/her of “responsible party” status under <a href="http://codes.ohio.gov/orc/5739.33">R.C. 5739.33</a>. The taxpayer argued that he was not a responsible party for purposes of sales tax assessment because the business was managed by a third party pursuant to a management agreement during the period at issue. The <a href="http://bta.ohio.gov/">Board of Tax A</a>ppeals found no management agreement, however. Even if such agreement did exist, the taxpayer’s delegation of day-to-day business responsibilities to a third party did not relieve him of his responsibility. In regards to the taxpayer’s challenge to the underlying assessment against the business itself, the <a href="http://bta.ohio.gov/">Board of Tax A</a>ppeals found that liability under <a href="http://codes.ohio.gov/orc/5739.33">R.C. 5739.33</a> is concerned only with the liability of the person assessed, not the corporation. Any person asserted to be a responsible party must work on parallel fronts to protect his/her interests: (a) making sure the corporation’s liability is correct before it becomes final; (b) making sure the <a href="http://www.tax.ohio.gov/">Department of Taxation</a> pursues all responsible parties; and (c) of course, fully defending the assertion of his/her responsible party status. If you have any questions regarding whether you are a responsible party or how to protect your interest, please contact <a href="http://www.bdblaw.com/cp_people/steven-a-dimengo/">Steve Dimengo</a>, <a href="http://www.bdblaw.com/cp_people/richard-b-fry-iii/">Rich Fry</a>, or <a href="http://www.bdblaw.com/cp_people/casey-j-davis/">Casey Davis</a>. <a href="http://www.bdblaw.com/contact-us/ohio-state-tax-blog-contact-form/">Contact us</a>.

Spending Bill Extends Ban on Internet Tax, Again

2014-12-15 09:29:30

An extension until October 1, 2015 of a ban on taxing Internet access was included in the $1.1 trillion <a href="http://docs.house.gov/billsthisweek/20141208/CPRT-113-HPRT-RU00-HR83sa.pdf">government funding bill</a> passed by the <a href="http://www.house.gov/">House</a> and the <a href="http://www.senate.gov/">Senate</a>. The <a href="https://www.congress.gov/bill/113th-congress/house-joint-resolution/124/text">Internet Tax Freedom Act</a> (ITFA) is often misunderstood as prohibiting tax on sales made via the Internet, but it actually only prohibits tax being imposed on the purchase of Internet access services and similar transactions. This is now the fourth time since it was originally passed in 1998 that the <a href="https://www.congress.gov/bill/113th-congress/house-joint-resolution/124/text">ITFA</a> has been extended. (<em>See our previous post about </em><a href="https://www.congress.gov/bill/113th-congress/house-joint-resolution/124/text"><em>ITFA</em></a> <a href="http://www.bdblaw.com/internet-tax-freedom-act-extended-temporarily/"><strong><em>here</em></strong></a><em>.</em>) Proponents of the <a href="https://www.congress.gov/bill/113th-congress/senate-bill/743">Marketplace Fairness Act</a> (MFA) attempted to tie together the renewal of <a href="https://www.congress.gov/bill/113th-congress/house-joint-resolution/124/text">ITFA</a> with legislation making it easier for states to collect sales tax on remote sales made by Internet retailers. <a href="https://www.congress.gov/bill/113th-congress/senate-bill/743">MFA</a> passed the <a href="http://www.senate.gov/">Senate</a>, but was shut down in the <a href="http://www.house.gov/">House</a> by Speaker of the House <a href="http://johnboehner.house.gov/">John Boehner</a>. (<em>See our previous post about </em><a href="https://www.congress.gov/bill/113th-congress/senate-bill/743"><em>MFA</em></a> <a href="http://www.bdblaw.com/amid-soaring-cyber-monday-sales-marketplace-fairness-act-debate-heats-up/"><strong><em>here</em></strong></a><em>.</em>) Following the inclusion of <a href="https://www.congress.gov/bill/113th-congress/house-joint-resolution/124/text">ITFA’s</a> extension in the funding bill, Ron Wyden, who originally wrote the <a href="https://www.congress.gov/bill/113th-congress/house-joint-resolution/124/text">ITFA</a>, stated: “A fair open Internet is an engine of economic growth in America, a launching pad for entrepreneurs and history’s most powerful tool of communication. By extending this bill, the Congress has, for the short term, ensured that this longstanding policy keeps Internet access tax-free. I’m going to continue fighting to ensure that these protections will bolster the digital economy for the long-term.” The government funding bill is expected to be signed into law by President Obama. For any questions, please contact <a href="http://www.bdblaw.com/cp_people/steven-a-dimengo/">Steve Dimengo</a>, <a href="http://www.bdblaw.com/cp_people/richard-b-fry-iii/">Rich Fry</a>, or <a href="http://www.bdblaw.com/cp_people/casey-j-davis/">Casey Davis</a>. <a href="http://www.bdblaw.com/contact-us/">Contact us</a>.

Much-Needed Municipal Income Tax Reform Approved by Ohio Senate; House Set to Vote Next

2014-12-08 08:16:06

The <a href="http://www.ohiosenate.gov/senate/index">Ohio Senate</a> passed <a href="http://www.legislature.state.oh.us/bills.cfm?ID=130_HB_5">House Bill (“H.B.”) 5</a>, which would streamline Ohio’s municipal income tax system. H.B. 5 is <a href="http://ohiocpa.com/advocacy/muni-tax">greatly needed</a> due to the over 600 different municipalities with varying tax rules, tax rates, and over 300 different tax forms. The <a href="http://www.ohiohouse.gov/">House</a> is now set to vote on the final version of the bill. Specifically, <a href="http://www.legislature.state.oh.us/bills.cfm?ID=130_HB_5">H.B. 5</a> would provide for the following: <ul> <li>A uniform municipal income tax base defining the types of income that municipalities can and cannot tax. Deferred compensation and stock-option income would be subject to tax, while alimony and child support, compensation for personal injuries or property damage, and interest on federal obligations would be excluded.</li> <li>Mandated 5-year carry forward for net-operating losses.</li> <li>Consistent taxation of pass-through entities at the entity level.</li> <li>Increase the occasional entry rule from 12 to 20 days, which provides a safe-harbor for employers from withholding tax from employees working temporarily outside their normal work location.</li> <li>Uniform administrative procedures for filing returns, appeals, and imposing penalties and interest.</li> <li>Establishment of a municipal taxpayer bill of rights, modeled after the <a href="http://www.tax.ohio.gov/portals/0/communications/publications/taxpayer_bill_of_rights.pdf">Ohio Taxpayer Bill of Rights</a>.</li> </ul> However, <a href="http://www.legislature.state.oh.us/bills.cfm?ID=130_HB_5">H.B. 5</a> would not require centralized collection of municipal income taxes. Opponents of <a href="http://www.legislature.state.oh.us/bills.cfm?ID=130_HB_5">H.B. 5</a> argue that it will ultimately cost local governments about $82 million per year and lead to less local control and potential reductions in tax collections. Specifically, opponents point to the provision that calls for municipalities to allow a 5-year net operating loss carry forward period, which would be delayed pending the recommendation by a study committee to be created to review such a rule. Yet, these opponents ignore the inefficiencies of a municipal income tax system with hundreds of different taxing jurisdictions which causes both municipalities and Ohio taxpayers to incur significant costs to comply therewith. If <a href="http://www.legislature.state.oh.us/bills.cfm?ID=130_HB_5">H.B. 5</a> passes the <a href="http://www.ohiohouse.gov/">House</a>, municipalities must comply with the law by January 1, 2016. If you have any questions regarding how <a href="http://www.legislature.state.oh.us/bills.cfm?ID=130_HB_5">H.B. 5</a> may affect you or your business, please contact <a href="http://www.bdblaw.com/cp_people/steven-a-dimengo/">Steve Dimengo</a>, <a href="http://www.bdblaw.com/cp_people/richard-b-fry-iii/">Rich Fry</a>, or <a href="http://www.bdblaw.com/cp_people/casey-j-davis/">Casey Davis</a>. <a href="http://www.bdblaw.com/contact-us/">Contact us</a>.

Amid Soaring Cyber Monday Sales, Marketplace Fairness Act Debate Heats Up

2014-12-03 11:39:35

Following Black Friday, attention turns to the tremendous amount of online sales made during Cyber Monday / Cyber Week. With online sales continuing to increase as well as the looming deadline of the <a href="https://www.congress.gov/bill/113th-congress/house-joint-resolution/124/text">Internet Tax Freedom Act</a> on December 11th, this time of year causes the <a href="https://www.congress.gov/bill/113th-congress/senate-bill/743">Marketplace Fairness Act</a> to become a major talking point around the nation. The <a href="https://www.congress.gov/bill/113th-congress/senate-bill/743">Marketplace Fairness Act</a> (MFA) would allow states to require Internet retailers to collect sales taxes like brick-and-mortar retailers for online sales, which would significantly change the current law which only allows states to require sales tax collection by retailers with a physical presence in the state. The MFA was <a href="https://www.congress.gov/bill/113th-congress/senate-bill/743">passed</a> by the <a href="http://www.senate.gov/">Senate</a>, but has stalled before the <a href="http://www.house.gov/">House</a>. And it appears unlikely any action will be taken on the MFA in 2014 as <a href="http://www.house.gov/">House</a> leader <a href="http://johnboehner.house.gov/">John Boehner</a> has stated that he would block any efforts to move the bill forward. It is no surprise that Cyber Week, which is estimated to generate over $9 billion in total sales just this year, provides an opportunity for supporters and critics of the MFA to bring attention to their position. If you have any questions regarding the <a href="https://www.congress.gov/bill/113th-congress/senate-bill/743">Marketplace Fairness Act</a> and its potential implication on your online sales, please contact <a href="http://www.bdblaw.com/cp_people/steven-a-dimengo/">Steve Dimengo</a>, <a href="http://www.bdblaw.com/cp_people/richard-b-fry-iii/">Rich Fry</a>, or <a href="http://www.bdblaw.com/cp_people/casey-j-davis/">Casey Davis</a> with any questions you have regarding compliance or general inquiries. <a href="http://www.bdblaw.com/contact-us/ohio-state-tax-blog-contact-form/">Contact Us</a>.

Transportation for Hire: Truck Exemption Disallowed Due to Lack of Evidence

2014-11-20 14:04:52

In <a href="https://ohio-bta.modria.com/casedetails/62102"><em>Arcaro v. Testa</em>, Ohio BTA Dkt. No. 2014-432 (10/22/2014)</a>, the <a href="http://bta.ohio.gov/">Ohio BTA</a> affirmed the <a href="http://www.tax.ohio.gov/communications/tax_commissioner_bio.aspx">Tax Commissioner’s</a> determination that denied the objections to a use tax assessment based on the taxpayer’s untaxed purchase of a 2013 truck. The taxpayer argued the purchase was exempt from payment of use tax based on <a href="http://codes.ohio.gov/orc/5739.02">R.C. 5739.02(B)(32)</a>, which provides exemption from excise tax on motor vehicles primarily used for transporting personal property belonging to others by a person engaged in <a href="http://www.tax.ohio.gov/sales_and_use/information_releases/st199205.aspx">highway transportation for hire</a>. The Tax Commissioner found that at the time of the vehicle purchase, the taxpayer’s <a href="http://www.dot.gov/">U.S. D.O.T.</a> code only allowed him to haul private property. The taxpayer did change the classification, which the Tax Commissioner took note of. The main issue, however, was that there was insufficient evidence that the taxpayer used the 2013 Ford truck primarily for an exempt purpose. Taxpayer presented letters from customers describing the nature of their business with taxpayer. Some of these statements showed that the taxpayer was involved in the transportation of waste, including construction debris, which is a taxable purpose. For the exemption under <a href="http://codes.ohio.gov/orc/5739.02">R.C. 5739.02(B)(32)</a> to apply, it must be fully supported. As a result, the BTA affirmed the Tax Commissioner’s final determination, finding insufficient evidence in the record to establish that the truck was used for an exempt purpose. If you have any questions regarding the application of the transportation for hire <a href="http://codes.ohio.gov/orc/5739.02">exemption</a> to your situation, contact <a href="http://www.bdblaw.com/cp_people/steven-a-dimengo/">Steve Dimengo</a>, <a href="http://www.bdblaw.com/cp_people/richard-b-fry-iii/">Rich Fry</a>, or <a href="http://www.bdblaw.com/cp_people/casey-j-davis/">Casey Davis</a>. <a href="http://www.bdblaw.com/contact-us/ohio-state-tax-blog-contact-form/">Contact us</a>.

Quick Service Restaurants (QSR) Sales Tax Compliance Report: New Options to Consider During a Sales Tax Audit

2014-11-18 13:42:54

The <a href="http://www.tax.ohio.gov/">Ohio Department of Taxation</a> (“Department”) recently held a series of interested party meetings concerning sales tax compliance for Quick Service Restaurants (“QSRs”), which have received increased scrutiny from the Department recently, and issued a 154-page <a href="http://www.tax.ohio.gov/Portals/0/communications/QSR%20REPORT%20FINAL.pdf">report</a> intended to provide guidance by discussing the applicable sales tax statutes for predetermined and prearranged agreements for sales tax liability. The <a href="http://www.tax.ohio.gov/Portals/0/communications/QSR%20REPORT%20FINAL.pdf">QSR Sales Tax Compliance Report</a> discusses additional audit options that QSR vendors may utilize, as well as a new “restaurant compliance program,” which reduces a QSR’s likelihood of being audited and allows a waiver of the 15% penalty if an audit is performed. For audits initiated by the <a href="http://www.tax.ohio.gov/">Department</a>, a modified test check, a managed test check, or an enhanced statistical analysis agreement will be offered, in addition to the standard test check option. For restaurant-initiated audits, a QSR may enter into a prearranged agreement that establishes a set percentage for reporting taxable sales. As of November 3, 2014, the percentage is determined either by a test check or by using an alternative method agreed to by the <a href="http://www.tax.ohio.gov/">Department</a> and the QSR. QSRs must make sure that any agreement executed during the course of the audit is fair and reasonable. It is possible to even contest the results of an executed agreement if they are incorrect based upon erroneous assumptions, including incorrect statistical analysis. If you have questions regarding the recent <a href="http://www.tax.ohio.gov/Portals/0/communications/QSR%20REPORT%20FINAL.pdf">QSR Sales Tax Compliance Report</a> or need help navigating through an Ohio sales tax audit or negotiating a sample agreement with the <a href="http://www.tax.ohio.gov/">Department</a>, please contact <a href="http://www.bdblaw.com/cp_people/steven-a-dimengo/">Steve Dimengo</a>, <a href="http://www.bdblaw.com/cp_people/richard-b-fry-iii/">Rich Fry</a>, or <a href="http://www.bdblaw.com/cp_people/casey-j-davis/">Casey Davis</a>.

Lack of Evidence: Ohio BTA Affirms Mark-Up Analysis For Convenience Store

2014-11-14 16:21:23

In <a href="https://ohio-bta.modria.com/casedetails/62839"><em>Murali, Inc. v. Testa</em>, Ohio BTA, Case No. 2014-1169 (10/22/2014)</a>, the <a href="http://bta.ohio.gov/">Ohio Board of Tax Appeals</a> affirmed the <a href="http://www.tax.ohio.gov/communications/tax_commissioner_bio.aspx">Tax Commissioner’s</a> sales tax assessment imposed on a convenience store. The BTA found, “where no competent and probative evidence is developed and presented to this board by the appellant to demonstrate that the Tax Commissioner’s findings are incorrect, the [BTA] must affirm the Tax Commissioner’s findings.” The taxpayer solely contested the percentage used by the auditor to calculate an allowance for purchases of soda and energy drinks with food stamps. While the taxpayer found fault with the mark-up analysis, the BTA found that he ignored the fact that such mark-up approach was necessary due to the lack of complete and accurate records maintained by the taxpayer. This failure to maintain complete and accurate records entitled the Tax Commissioner to “gather information from other sources and estimate the amount of taxes which should have been collected and remitted.” Since the record lacked evidence to establish the specific items purchased with food stamps, the Tax Commissioner was permitted use “the standard 25% deduction.” Taxpayers should closely review the mark up percentages proposed by the Tax Commissioner to confirm they are truly reflective of historical sales as it is very difficult to challenge such percentages <a href="http://www.bdblaw.com/restaurants-under-audit-tips-for-agreeing-to-utilize-a-test-check/">if agreed to by the taxpayer during the audit</a>. In addition, the taxpayer needs to confirm any agreement provides proper credit for other variables such as waste, spillage, theft, internal consumption, etc. If you have any questions regarding your mark up audit, please contact <a href="http://www.bdblaw.com/cp_people/steven-a-dimengo/">Steve Dimengo</a>, <a href="http://www.bdblaw.com/cp_people/richard-b-fry-iii/">Rich Fry</a>, or <a href="http://www.bdblaw.com/cp_people/casey-j-davis/">Casey Davis</a>.

Upcoming Speaking Event: Ohio Manufacturing Tax Planning and Accounting Conference

2014-10-21 09:46:09

<a href="http://www.bdblaw.com/cp_people/steven-a-dimengo/">Steve Dimengo</a> and <a href="http://www.bdblaw.com/cp_people/richard-b-fry-iii/">Richard Fry</a> will be speaking at the <a href="http://www.nbi-sems.com/">National Business Institute’s</a> (“NBI”) “<a href="http://www.nbi-sems.com/Details.aspx/Ohio-Manufacturing-Tax-Planning-and-Accounting-Conference/Seminar/R-67796ER%7C?NavigationDataSource1=Rpp:20,Ro:20,Nra:pEventDate%2bpEventStartTime%2bCredit+Hours%2bpCreditRecordCreditHours%2bCredit_C2%2bpStandardPrice%2bSeminar+Location%2bScope+of+Content%2bpLocationCity%2bpDescription%2bpDivision%2bpProductId%2bpProductDescription%2bProductCode+(HIDDEN)%2bpAdditionalFormats%2bpEventId%2bpAltSpaceDesc%2bpEventIndicator,N:63943-47">Ohio Manufacturing Tax Planning and Accounting Conference</a>” on November 12, 2014 in Cleveland, Ohio. This two-day practical course offers accountants and tax professionals useful solutions and tools for the complex multistate issues, changing tax law regulations, compliance pitfalls, and unique client demands in the manufacturing industry. <a href="http://www.bdblaw.com/cp_people/richard-b-fry-iii/">Richard Fry</a> will be focusing his presentation on drop shipment compliance. During his presentation, he will discuss changes to drop shipment rules, whether a sale or use tax requirement exists, whether drop shipping is a nexus-creating activity, and what qualifies as a valid resale certificate. <a href="http://www.bdblaw.com/cp_people/steven-a-dimengo/">Steve Dimengo</a> will be presenting on sales and use tax issues. During this time, Steve will discuss exemptions (manufacturing and packaging), exclusions and certificates, and which uses are taxable and which are not. If you are interested in learning more about this conference, please visit <a href="http://www.nbi-sems.com/">NBI’s</a> <a href="http://www.nbi-sems.com/Details.aspx/Ohio-Manufacturing-Tax-Planning-and-Accounting-Conference/Seminar/R-67796ER%7C?NavigationDataSource1=Rpp:20,Ro:20,Nra:pEventDate%2bpEventStartTime%2bCredit+Hours%2bpCreditRecordCreditHours%2bCredit_C2%2bpStandardPrice%2bSeminar+Location%2bScope+of+Content%2bpLocationCity%2bpDescription%2bpDivision%2bpProductId%2bpProductDescription%2bProductCode+(HIDDEN)%2bpAdditionalFormats%2bpEventId%2bpAltSpaceDesc%2bpEventIndicator,N:63943-47">website</a>. If you have any questions regarding drop shipment compliance or sales and use tax within the manufacturing industry, please contact <a href="http://www.bdblaw.com/cp_people/steven-a-dimengo/">Steve Dimengo</a> or <a href="http://www.bdblaw.com/cp_people/richard-b-fry-iii/">Richard Fry</a>. <a href="http://www.bdblaw.com/contact-us/ohio-state-tax-blog-contact-form/">Contact us</a>.

Community Connecting Place Exempt from Real Property Tax Despite Receiving Revenue for Use of Building

2014-10-14 09:51:50

In <a href="https://ohio-bta.modria.com/casedetails/50159"><i>Heartland Education Community, Inc. v. Testa</i>, Case No. 2012-277 (Sept. 3, 2014)</a>, a case <a href="http://www.bdblaw.com/contact-us/ohio-state-tax-blog-contact-form/">we</a> recently handled, the <a href="http://bta.ohio.gov/">Ohio BTA</a> found that property serving as “a community-connecting place in downtown Orrville, where citizens can find out what is happening in the community, become more involved, and engage in lifelong learning” was exempt from real property tax under <a href="http://codes.ohio.gov/orc/5709.12">R.C. 5709.12(B)</a>. We successfully argued that although the non-profit organization owning and operating the building charges a fee for use of its meeting spaces and for educational classes, the building’s primary purpose was to benefit the community and the revenue created was merely to recoup a portion of the costs associated with making the building available. The <a href="http://bta.ohio.gov/">Ohio BTA</a>, however, found that the café in the building was not used exclusively for charitable purposes, but rather with a view to profit, even though the café did not actually earn a profit. Therefore, the property was split listed with the building being exempt from tax, with the exception of the small portion used for the café. For more information about this case or whether your property is tax exempt, contact <a href="http://www.bdblaw.com/cp_people/steven-a-dimengo/">Steve Dimengo</a> or <a href="http://www.bdblaw.com/cp_people/richard-b-fry-iii/">Richard Fry</a>. <a href="http://www.bdblaw.com/contact-us/ohio-state-tax-blog-contact-form/">Contact us</a>.

Status of Sales Tax Notification Laws for Non-Collecting Retailers

2014-10-09 08:05:01

In July 2010, <a href="http://thedma.org/">Direct Marketing Association (“DMA”)</a> challenged the constitutionality of Colorado’s sales tax notification laws that require out-of-state retailers with no physical presence and no obligation to collect sales / use tax to notify Colorado customers of their use tax liability and to report certain information concerning these sales to the Department of Revenue. Other states, including <a href="http://www.lrc.ky.gov/statutes/statute.aspx?id=42621">Kentucky</a>, <a href="http://www.oktax.state.ok.us/rules/710-65-21-8%20ADOPTED.pdf">Oklahoma</a>, and <a href="http://www.scstatehouse.gov/code/t12c036.php">South Carolina</a> have also enacted similar notification and reporting laws for out-of-state “non-collecting retailers.” These laws are specifically designed to compel online retailers, like Amazon.com, to notify their customers of the possibility they owe sales and use tax. The U.S. District Court for Colorado originally issued a permanent injunction barring Colorado from enforcing the reporting requirements under the notification law. The U.S. Court of Appeals for the Tenth Circuit, however, <a href="http://www.ca10.uscourts.gov/opinions/12/12-1175.pdf">ruled</a> that the District Court lacked jurisdiction pursuant to the <a href="http://www.law.cornell.edu/uscode/text/26/7421">Tax Injunction Act (“TIA”)</a>. On July 1, 2014, the <a href="http://www.supremecourt.gov/default.aspx">U.S. Supreme Court</a> announced that it will hear <a href="http://www.supremecourt.gov/Search.aspx?FileName=/docketfiles/13-1032.htm"><i>Direct Marketing Ass’n v. Brohl</i>, 10th Cir. Ct. of App., No. 12-1175 (Aug. 20, 2013)</a>. The issue before the U.S. Supreme Court is jurisdictional as to “whether the TIA bars federal court jurisdiction over a suit brought by non-taxpayers to enjoin the informational notice and reporting requirements of a state law.” Oral arguments are <a href="http://www.supremecourt.gov/Search.aspx?FileName=/docketfiles/13-1032.htm">scheduled</a> for December 8, 2014. In the interim, DMA filed a similar action in Colorado state court and obtained a preliminary injunction enjoining the Colorado Department of Revenue from enforcing both the notification and reporting aspect of the law. The injunction noted that the law appeared to be facially discriminatory since non-resident retailers are burdened with compliance, while resident retailers are not required to comply. <i>Direct Marketing Ass’n v. Dep’t of Revenue et al.</i>, District Court, City and County of Denver, Case No. 13CV34855 (Feb. 18, 2014). For questions regarding whether you may need to comply with “non-collecting retailer” laws, <a href="http://www.bdblaw.com/contact-us/ohio-state-tax-blog-contact-form/">Contact us</a>.

Sales Tax Refund

2014-09-29 13:40:10

In <i>Pierce Point Cinema 10, LLC v. Testa </i>(March 13, 2014), <a href="http://app.bta.ohio.gov/2012-N-3063.pdf">BTA Case No. 2012-3603</a>, the BTA granted a movie theater operator a refund of $194,265.79 in sales tax erroneously remitted to the state. The Tax Commissioner originally denied the taxpayer’s refund, stating that the taxpayer was unable to identify customers to be reimbursed for the sales taxes pursuant to <a href="http://codes.ohio.gov/orc/5739.07">R.C. 5739.07</a>(A). The taxpayer was able to prove that its customers did not separately pay the tax. There was no amount of tax stated on the tickets or receipts. Therefore, the customers had no reason to believe they paid the tax. Moreover, when the operator ceased remitting sales tax, it did not change its admission price, further confirming the customers had not paid the tax.

No Resale Exemption for Tanning Equipment

2014-09-26 08:39:59

A new taxation issue has arisen for tanning salon owners. In <i>Tan Pro, Inc. v. Levin, </i>following the <a href="https://ohio-bta.modria.com/casedetails/43601">BTA’s ruling</a> that tanning beds, ultra-violet radiation, tanning lamps, privacy partitions, sanitation chemicals, and disposable wipes did not qualify for the resale exemption, Tan Pro, Inc. appealed to the Ohio Supreme Court, <a href="http://www.sconet.state.oh.us/pdf_viewer/pdf_viewer.aspx?pdf=745779.pdf">Case No. 2014-0725</a>. The Court, however, stayed the case and referred the case to <a href="http://www.sconet.state.oh.us/pdf_viewer/pdf_viewer.aspx?pdf=198814.pdf">mediation</a>. This decision arose after the taxpayer claimed the resale exemption for tanning equipment, arguing the property was resold to the taxpayer’s customers (i.e., possession threof was conveyed). The BTA, however, found that the property was not resold to the taxpayer’s customers in the same form as purchased, nor was it permanently transferred to the customers so as to qualify for the resale exemption. In so holding, the BTA found that it was the taxpayer/salon who was the consumer of these items rendered in providing its personal care service.

Internet Tax Freedom Act Extended... Temporarily

2014-09-25 07:36:30

The Internet Tax Freedom Act (ITFA) has been extended through December 11, 2014 following President Barack Obama signing <a href="https://beta.congress.gov/bill/113th-congress/house-joint-resolution/124/text">H.J. Res. 124, the Continuing Appropriations Resolution, 2015 (Public Law 113-164)</a> on September 19, 2014. ITFA, which bans federal, state, and local governments from taxing Internet access charges, as well as from assessing multiple or discriminatory taxes on electronic commerce, was set to expire on November 1, 2014, <a href="https://beta.congress.gov/bill/113th-congress/house-joint-resolution/124/text">H.J. Res. 124, Continuing Appropriations Resolution, 2015, 09/17/2014</a>. The permanence of ITFA is uncertain. In July, the House passed the <a href="https://beta.congress.gov/bill/113th-congress/house-bill/3086">Permanent Internet Tax Freedom Act</a>. The <a href="https://beta.congress.gov/bill/113th-congress/senate-bill/31?q=%7B%22search%22%3A%5B%22Permanent+Internet+Tax+Freedom+Act%22%5D%7D">Senate</a>, however, stalled over attempts to tie the Marketplace Fairness Act (MFA) to the ITFA. Congress’ decision will be closely watched because the days of unburdened Internet access may be replaced by a complicated patchwork of federal, state, and local taxes.

"Investment Partner" Liable for Unpaid Sales Tax

2014-09-23 08:41:30

<a href="http://bta.ohio.gov/">The Ohio BTA</a> affirmed the <a href="http://www.tax.ohio.gov/communications/tax_commissioner_bio.aspx">Tax Commissioner</a>’s determination in <i>Wilson v. Testa</i>, Ohio BTA, Dkt. No. 2013-1349, 09/19/2014, that taxpayer was properly assessed for unpaid sales and use tax as a responsible party for M&S Auto Group, LLC. Taxpayer argued that his role in M&S was limited to that of an investment partner and arm’s-length participant, and, therefore, he was not a responsible party under <a href="http://codes.ohio.gov/orc/5739.33">R.C. 5739.33</a>. The Commissioner disagreed, finding that taxpayer was “involved in the formation of M&S, held an overall 50% interest in the business, signed two loan agreements at the time of M&S’s formation and personally guaranteed both loans, had check signing authority, found new investors when capital was needed for the business, and paid outstanding sales taxes upon discovering they had not been paid by M&S.” The Ohio BTA affirmed the Commissioner’s holding. Considering all these facts, the Ohio BTA found it was clear that the taxpayer had responsibility for financial matters and that while he did not run day-to-day operations, his responsibilities were strictly financial in nature.

MTC Adopts Market-Based Sourcing

2014-09-15 11:17:26

The <a href="http://www.mtc.gov/">Multistate Tax Commission</a> (MTC) recently amended <a href="http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Committees/Executive_Committee/Scheduled_Events/47th_Annual_Meetings/Proposed%20Model%20Compact%20Article%20IV%20Amendments%20(FINAL).pdf">Article VI (UDIPTA)</a> of the Multistate Tax Compact as follows: <ol> <li>Adopt market-based sourcing for service and intangible revenue, moving away from traditional cost-of-performance;</li> <li>Expand the definition of “business income” to encompass all income that is apportionable under the U.S. Constitution;</li> <li>Narrow the definition of “sales” to exclude hedging transactions and treasury receipts;</li> <li>Allow states the option to choose their weighting for apportionment purposes, but recommending a double-weighted sales factor; and</li> <li>Alternative apportionment.</li> </ol> The most significant amendment was the adoption of market-based sourcing for services and intangibles. Market-based sourcing is intended to measure a taxpayer’s access to the particular state’s market. Ohio has already <a href="http://www.bdblaw.com/ohio-commercial-activity-tax-sourcing-rules-provide-planning-opportunities/">adopted market-based sourcing</a> in 2005 through the enactment of the Commercial Activity Tax (CAT) and for Ohio personal income tax purposes, which applies to business income generated by pass-through entities. <i>See </i><a href="http://codes.ohio.gov/orc/5751.033">R.C. 5751.033</a> and <a href="http://codes.ohio.gov/orc/5733.05">R.C. 5733.05</a>(B)(2)(c)(ii).

Ohio Provides Guidance to Restaurants on Sales Tax Collection

2014-08-19 14:15:14

After increasing audits of restaurants, and <a href="http://www.bdblaw.com/ohio-department-of-taxation-targeting-quick-service-restaurants/">especially quick-service restaurants</a> (QSRs), the Department of Taxation has provided guidance concerning sales tax collection for food consumed on premises. <a href="http://www.tax.ohio.gov/Portals/0/communications/information_releases/RestInfoRelease8-14.pdf">Info. Release ST 2012-01 (Revised Aug. 2014).</a> Significantly, the Department has now clarified that restaurants are not responsible to collect tax where the customer states the order is "to-go" but eats in. Based on our experience, the Department had threatened during audits to assess sales tax on such transactions if the restaurant did not enter into a <a href="http://www.bdblaw.com/restaurants-under-audit-tips-for-agreeing-to-utilize-a-test-check/">sample / test check agreement</a> - an obviously unfair position. The taxpayer may have the ability to challenge the validly of a previously agreed to test check if such a threat was made to induce the taxpayer into entering the agreement (in addition to other arguments t void the agreement). Additionally, the Information Release states that QSRs cannot simply collect tax on all sales due to the Ohio Constitution prohibition on taxing sales of food for on premises consumption, as well as discussing when sales are consider for on premises consumption in difficult situations, such as for food courts and food trucks. Please <a href="http://www.bdblaw.com/contact-us/ohio-state-tax-blog-contact-form/">contact us</a> if you need help determining when your restaurant must collect sales tax or if you are under audit.

ABA Blawg 100 Nominations!

2014-07-24 09:00:56

Do you like our blog? The American Bar Association’s <i><a href="http://www.abajournal.com/news/article/help_us_select_the_best_legal_blogs_for_the_8th_annual_blawg_100/">ABA Journal</a></i> is now accepting nominations for the 8<sup>th</sup> Annual Blawg 100 to identify the best 100 legal blogs, or “Blawgs”. We at the <a href="http://www.bdblaw.com/publications-events/ohio-state-tax-law/">Ohio State Tax Blog</a> 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, <a href="http://www.abajournal.com/blawgs/blawg100_submit/">available here</a>. 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. ABA editors make the final decisions as to who is included in the Blawg 100, but we are confident they will be impressed with what our readers have to say. Thank you! Steve and Rich

Ohio Tax Commissioner To Begin Notifying Taxpayers Of Credit Account Balance

2014-06-23 09:19:49

Thanks to recently passed <a href="http://www.legislature.state.oh.us/bills.cfm?ID=130_SB_263">Am. Sub. S.B. 263</a>, 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 <a href="https://www.ohiostatetaxblog.com/index.php?option=com_content&view=article&id=157:expecting-an-ohio-commercial-activity-tax-cat-refund&catid=45:ohio-cat&Itemid=59">policy change implemented by Gov. Kasich and Tax Commissioner Testa</a> 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.

Ohio Mid-Biennium Budget Bill Passed

2014-06-19 11:06:24

Gov. Kasich signed legislation (<a href="http://www.legislature.state.oh.us/bills.cfm?ID=130_HB_483">H.B. 483</a>) 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: <ul> <li>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. <a href="http://www.toledoblade.com/Politics/2014/03/10/Gov-John-Kasich-wants-top-income-tax-to-be-under-5.html">Gov. Kasich has publically stated that he wishes to reduce the highest tax rate to less than 5%</a>. After this reduction, only the top bracket, applying to adjusted gross income over $200,000, will be taxed at greater than 5%.</li> <li>The small business income tax deduction was included <a href="https://www.ohiostatetaxblog.com/index.php?option=com_content&view=article&id=175:republican-leaders-agree-on-ohio-tax-plan&catid=54:ohio-state-tax-news&Itemid=59">as part of the Budget Bill passed last June</a> 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.</li> <li>Beginning with the 2014 tax year, the Ohio earned income tax credit is increased to 10% of the federal credit (previously 5%).</li> <li>Increased the personal exemptions for low-income taxpayers.</li> </ul> The Governor <a href="http://www.legislature.state.oh.us/BillText130/130_HB_483_VM.pdf">used his line-item veto power</a> to strike provisions providing a tax break to private water companies and requiring the state to provide counties with businesses’ sales tax information.

Ohio Personal Income Tax Bright-Line Residency Test Satisfied for Husband But Not Wife (Even Though She Met the Ohio Contact Period Test)

2014-06-06 14:33:07

The <a href="http://www.bta.ohio.gov/Home.aspx">Ohio Board of Tax Appeals</a> (“BTA”) has provided quite an informative decision addressing residency stressing the importance of filing the required affidavit (<a href="http://www.tax.ohio.gov/portals/0/forms/ohio_individual/individual/2013/PIT_ITDA.pdf">Form IT DA</a>) if claiming to be a non-resident under the bright-line test set forth in <a href="http://codes.ohio.gov/orc/5747.24">R.C. 5747.24</a>. <i>See </i><a href="http://app.bta.ohio.gov/2011-N-4641.pdf"><i>Cunningham v. Testa</i></a>, 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: <ol> <li>The individual was not domiciled in Ohio; and</li> <li>Maintained an abode outside Ohio (including the location of the abode).</li> </ol> The presumption is irrebuttable unless the affidavit is false. In this case, both the husband and wife met the contact period requirement (<i>i.e.,</i> 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: <ul> <li><b><i>In determining whether the affidavit is false, can the Tax Commissioner look to evidence to support lack of domicile under the common law test?</i></b> 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.</li> </ul> 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. <ul> <li><b><i>Must the husband and wife file separate affidavits? </i></b>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 “<i>fixed permanent home to which one intends to return and from which one has no present purpose to depart.</i>” 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.</li> </ul> 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.

Real Property Tax: Ohio Supreme Court Rejects Recency Presumption For Sale Occurring 29 Months Prior To The Tax Lien Date

2014-05-28 15:07:20

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.” <a href="http://www.leagle.com/decision/197717950OhioSt2d129_1150.xml/CONALCO%20v.%20BD.%20OF%20REVISION"><i>Conalco v. Monroe Cty. Bd. of Revision</i></a>, 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. <a href="http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2014/2014-ohio-1588.pdf"><i>Akron City School Dist. Bd. of Educ. v. Summit Cty. Bd. of Revision</i></a>, 2014-Ohio-1588. Note the current version of <a href="http://codes.ohio.gov/orc/5713.03">R.C. 5713.03</a> provides that a county auditor <b><i>may</i></b> consider a recent arm’s-length sale, meaning the consideration of such a sale is no longer mandatory.  <a href="http://www.legislature.state.oh.us/bills.cfm?ID=129_HB_487">2012 Am.Sub.H.B. No. 487</a>.

Supplemental Executive Retirement Plan ("SERP") Was A Pension Exempt From City Income Tax

2014-03-31 13:59:48

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. <i>See </i><a href="http://www.sconet.state.oh.us/rod/docs/pdf/10/2014/2014-ohio-708.pdf"><i>McDonald v. City of Shaker Heights Income Tax Board of Review</i></a>, 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 – <i>“any plan sponsored by an employer that provides for post-retirement income that’ s designed to support their income for life.”  </i>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

2014-03-04 08:08:33

The <a href="http://www.tax.ohio.gov/">Ohio Department of Taxation</a> recently expanded the personal income tax safe harbor for nonresidents temporarily working in Ohio. <a href="http://www.tax.ohio.gov/Portals/0/ohio_individual/individual/information_releases/PIT%202001-01%20Modified%20Safe%20Harbor.pdf">Information Release PIT 2001-01, Personal Income Tax Nexus Standards</a>, 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. <i>See </i><a href="http://www.tax.ohio.gov/Portals/0/ohio_individual/individual/information_releases/PIT%202014-01%20Safe%20Harbor.pdf">Individual Income Tax – Information Release IT 2014-01</a> (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 <a href="https://www.ohiostatetaxblog.com/index.php?option=com_content&view=article&id=127:employer-state-income-tax-withholding-with-todays-mobile-workforce&catid=51:multistate-taxation&Itemid=59">nationwide efforts to ease employer withholding tax compliance burdens</a>, including the <a href="http://www.mtc.gov/uploadedFiles/Multistate_Tax_Commission/Uniformity/Income_Franchise/MWF%20Ex%20Com%20Memo%202-28-11.pdf">Multistate Tax Commission’s Model Mobile Workforce Statute</a>. 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. <i>See </i><a href="http://himes.house.gov/press-release/himes-sponsors-legislation-bring-tax-fairness-people-who-work-two-states">Himes Sponsors Legislation to Bring Tax Fairness to People Who Work in Two States</a> (Feb. 13, 2014).

Ohio Sales Tax Applies to Full Value of “Deal of the Day” Vouchers

2014-02-25 10:57:44

The popularity of “Deal of the Day” websites, such as Groupon and LivingSocial, has created an interesting issue as to the correct sales tax base when redeeming vouchers purchased from such websites, as illustrated in a <a href="https://www.ohiostatetaxblog.com/index.php?option=com_content&view=article&id=133:gift-cards-distributed-as-part-of-an-award-loyalty-or-promotional-program-are-not-subject-to-ohio-sales-and-use-tax&catid=47:ohio-sales-and-use-tax&Itemid=59">previous post</a>. When someone buys a $100 “gift card” for $50, is the sales tax base upon redemption $50 (what the customer actually paid) or $100 (the voucher’s value)? Unfortunately, the states do not treat such “Deal of the Day” vouchers uniformly. The Streamline Sales and Use Tax Agreement’s “best practice” is to apply the difference between the value of the voucher and amount actually paid for the voucher as a discount, thereby reducing the sales price upon which tax must be charged. <i>See </i><a href="http://www.streamlinedsalestax.org/uploads/downloads/Archive/SSUTA/SSUTA_As_Amended_10-30-13.pdf">Streamline Sales and Use Tax Agreement</a> (amended through Oct. 30, 2013), at Appendix E. So, in the above example, the customer would pay sales tax on $50 when redeeming the voucher / gift card. However, the <a href="http://www.tax.ohio.gov/Home.aspx">Ohio Department of Taxation</a> has not accepted this position and will continue to apply sales tax to the full amount of the voucher, regardless of the amount actually paid by the customer. <i>See </i><a href="http://www.streamlinedsalestax.org/uploads/downloads/State%20Compliance/BP%20-%20Best%20Practices/2014/Ohio/Ohio%20Best%20Practices%20Matrix%202014.pdf">Ohio Streamline Sales Tax Best Practices Matrix</a> (submitted Dec. 30, 2013). The better approach, in our opinion, is that adopted by Streamline Sales and Use Tax Agreement, which only taxes the amounts actually paid for the voucher. Ohio’s position ignores the substance of the transaction by inflating the sales tax base to include amounts never paid by the consumer, or anyone for that matter. <i>See also</i>, R.C. 5739.01(H) (“price” defined as the “total amount of  consideration” for  the property or services provided, and does not include discounts for which the vendor is not reimbursed). Businesses selling “Deal of the Day” vouchers can reduce the Ohio sales tax base for such vouchers by structuring them as a coupon rather than a gift card. This could be particularly important for restaurants selling such vouchers, who <a href="https://www.ohiostatetaxblog.com/index.php?option=com_content&view=article&id=179:restaurants-under-audit-tips-for-agreeing-to-utilize-a-test-check-&catid=47:ohio-sales-and-use-tax&Itemid=59">continue to receive increased scrutiny for Ohio sales tax</a>.

Small Business Owners Receive 50% Deduction for Ohio Personal Income Tax

2014-02-18 09:43:12

Last year’s budget bill added a 50% deduction for Ohio personal income tax for small business owners up to $125,000. <a href="http://codes.ohio.gov/orc/5747.01">R.C. 5747.01</a>(A)(31). This broad deduction applies to business income created by nearly all Ohio small businesses, regardless of form, including S corporations, limited liability companies, partnerships, and sole proprietorships. All small business owners (Ohio residents, part-time residents, and non-residents) are entitled to the deduction, as long as they have business income sourced to Ohio. Further, the full deduction may be claimed by multiple owners of the same qualifying business, although limited to $125,000 per taxpayer even if he/she owns multiple small businesses. The Tax Commissioner’s recent <a href="http://www.tax.ohio.gov/Portals/0/communications/news_releases/Ohio_Tax_Commissioner_Issues_Alert_to_All_Ohio_Small_Businesses_1-21-2014.pdf">Alert to All Ohio Small Businesses</a> provides further details on this deduction, which is claimed on <a href="http://www.tax.ohio.gov/portals/0/forms/ohio_individual/individual/2013/PIT_SmallBusinessDeduction_Schedule.pdf">Part I.D. of Form IT SBD</a>.