On July 18, 2019, Ohio Governor Mike DeWine signed the fiscal year 2020-21 budget bill. The legislation incorporates multiple tax provision changes which include, among other things, amendments concerning income, sales and use, vapor products, gross receipts, and property taxes as well as revisions to provisions dealing with tax credits and incentives. (L. 2019, H166, effective on the 91st day after the bill is filed with the Secretary of State, unless otherwise stated.
Income tax. Two income tax brackets eliminated: Beginning January 1, 2019, the bottom two individual income tax rate brackets which impose tax on individuals’ nonbusiness income are repealed, thereby reducing the number of income tax brackets from seven to five. These lowest tiers concern adjusted gross income of $10,851 to $16,300 and $16,300 to $21,750 for the 2018 taxable year. Under the new law, the lowest tax bracket will start at an adjusted gross income of $21,750, i.e., individuals with an adjusted gross income (minus personal exemptions) of less than $21,750 are exempt from tax. The legislation also provides that the tax commissioner is precluded from making any adjustments for inflation in 2019 to the income tax brackets or personal exemption amounts. For the five remaining brackets, the tax rates are reduced by a total of 4%. At a 4% reduction from the current tax rates, the range will be 2.850% on $21,750 to 4.797% on $217,400 (from 2.969% to 4.997% on these same amounts in 2018).
Business income tax deduction: The maximum deduction for business income remains the same as current law at $250,000. However, the legislation excludes lawyers and lobbyists from taking the deduction. In addition, lawyers and lobbyists’ income is not eligible for the 3% flat tax on all business income above the $250,000 maximum business income deduction.
Sales and use tax. Wayfair related-substantial nexus: The legislation modifies the activities sufficient to establish a presumption of substantial nexus with Ohio consistent with the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc., which overturned the physical presence standard for substantial nexus and paved the way for Ohio establishing a significant nexus presumption. An out-of-state retailer will have substantial nexus with Ohio if in the current or previous calendar year:
(1) it has gross receipts exceeding $100,000 from sales in Ohio; or
(2) has 200 or more separate sales transactions in Ohio.
Therefore, the legislation eliminates the current threshold for substantial nexus of $500,000 from sales into Ohio and that meets specific criteria as well as the elimination of an existing presumption of significant nexus for a retailer that has a “click-through” agreement with an Ohio resident that referred more than $10,000 in sales in the prior year. Upon meeting the presumption of substantial nexus, the seller must collect and remit use tax.
Ohio also requires marketplace facilitators, which are facilitators (other than those providing only advertising services) who own, operate, or control a physical or electronic marketplace through which retail sales are facilitated (on behalf of a marketplace seller, that meet the above thresholds) to collect and remit use tax for sales to Ohio customers which were facilitated for the marketplace seller on and after the first day of the first month that begins at least 30 days after the marketplace facilitator first has substantial nexus with Ohio. The marketplace facilitator is, therefore, treated as the seller for all sales it facilitates and the marketplace seller must collect and remit use tax in Ohio for all sales other than those that the marketplace facilitator is considered the seller.
A waiver provision is established where certain marketplace sellers may request a waiver from the requirement that the marketplace facilitator collects and remits use tax on the seller’s sales under specified conditions in the new provisions. Marketplace facilitators are required to use destination-based sourcing to determine the use tax amount to collect and remit; generally, meaning that the sale will be deemed to have occurred where the customer receives the goods or services.