Source: https://www.bdblaw.com/low-tax-rates-and-incentives-give-ohio-a-business-friendly-landscape-spurring-economic-recovery-and-growth/
Timestamp: 2019-04-22 09:16:43+00:00

Document:
This article appears in and is reproduced with the permission of the Journal of Multistate Taxation and Incentives, Vol. 22, No. 3, June 2012. Published by Warren, Gorham & Lamont, an imprint of Thomson Reuters. Copyright (c) 2012 Thomson Reuters/WG&L. All rights reserved.
After years of seeing jobs and businesses leave the state for friendlier pastures, Ohio began to substantially reform its tax structure to create its own business-friendly environment.
Upon taking office in January 2011, Ohio Governor John Kasich’s primary goal has been clear. “We’re working to create an environment where we’re job-friendly” Gov. Kasich told the Cincinnati Enquirer. 1 Although undoubtedly one of the states most decimated by the recession, Ohio’s recovery looks promising thanks to a more business-friendly climate providing the incentive for businesses to stay in, or relocate to, Ohio.
The transition to a more business-friendly tax climate commenced a few years ago with the elimination of Ohio’s personal property and corporate franchise taxes, which had imposed an especially heavy burden on C corporations with significant in-state presence, and replacing these taxes with a commercial activity tax described below. In addition, JobsOhio—a private, nonprofit corporation created by the Kasich administration to attract jobs to Ohio (see http://jobs-ohio.com)—has recently struck deals with several large corporations to keep and/or bring jobs to the state, including Ford, American Greetings, Chrysler, Timken, Abercrombie & Fitch, General Motors, Lincoln Electric, and Wendy’s, with many of these companies also making significant investments in new or updated facilities.
The positive outlook for Ohio’s economic recovery is supported by various recent reports. The U.S. Department of Labor recently reported that Ohio added more than 32,000 jobs in January 2012, the third highest increase for the month, behind only Texas and New York. 2 This capped a 1.3% decrease in the state’s unemployment rate during Gov. Kasich’s first year in office. 3 Further, a recent Tax Foundation study ranked Ohio as the fifth least burdensome state with regard to local tax costs for established business and the third least burdensome for new business—the only state ranking in the top five for each category, and far better than surrounding Midwestern states with which Ohio often competes for business. 4 The Tax Foundation’s analysis recognized Ohio’s low effective tax rates for businesses with significant in-state presence, especially for C corporations that now pay no Ohio tax on their net income or tangible personal property located in Ohio. 5 Again, Ohio laid the foundation for its business-friendly landscape several years earlier, when the state’s taxing scheme was significantly overhauled.
Fully phased-in on 4/1/09, the CAT is a broad-based, low-rate tax imposed on receipts from Ohio sources. Switching from the traditional net-income based tax scheme, where income is apportioned to states based upon the typical three-factor (property, payroll, and sales) formula, the CAT situses to Ohio the taxpayer’s gross receipts from the sale of products or services if the customer receives the property or the benefit of the service in Ohio. 6 Taxpayers then pay a minimum tax of $150 on their Ohio gross receipts up to $1 million and a tax rate of 0.26% on Ohio gross receipts in excess of $1 million. 7 Accordingly, focusing solely on the taxpayer’s sales to Ohio customers, rather that its physical presence in the state, Ohio now taxes business activities based upon market participation.
Moreover, the CAT employs the Multistate Tax Commission’s (MTC’s) model factor-presence nexus standard, intending to reach a broader base of taxpayers, including companies that make substantial sales into the state, even if lacking a physical presence. 8 Under the CAT’s “bright-line presence” standard, all businesses with at least $500,000 of Ohio taxable gross receipts (or 25% of their total sales) during the calendar year are subject to the CAT even if they have no property or employees in the state. 9 The rationale is to spread the tax amongst all those benefiting from Ohio’s market—even online or remote sellers without an Ohio physical presence that traditionally did not pay Ohio state taxes—while reducing the burden on businesses with in-state facilities and workforce.
As one of only 14 states offering tax credits based upon employer income tax withholding, Ohio provides Job Creation Tax Credits (JCTCs) and Job Retention Tax Credits (JRTCs). 11 Although ultimately granted by the Ohio Department of Development, these credits are one of the arrows in JobsOhio’s quiver, offered by the organization to entice new business to Ohio and/or existing businesses to undertake new investments in Ohio. The rationale for the JCTC and JRTC is that increasing and maintaining payroll is the most effective way to bring wealth to Ohio.
JCTC. The JRTC is generally nonrefundable, unless a business meets certain statutory conditions. 16 In contrast to the JCTC, the JRTC is essentially limited to larger companies, as recipients generally are required to: (1) retain at least 500 full-time equivalent employees or maintain an annual payroll of at least $35 million at the project site, 17 and (2) invest at least $50 million in a manufacturing facility or $20 million in an administrative facility (e.g., corporate headquarters). 18 In addition, the tax credit percentage used in computing the JCTC and the JRTC may not exceed 75%. 19 JRTCs are awarded through a competitive process based upon the anticipated benefit to Ohio’s economy.
In addition to the JCTC and JRTC, other tax incentives are available to Ohio businesses, including research and development credits 22; real property tax abatements; and sales tax exemptions specifically for certain distribution centers and qualifying computer data center equipment. 23 JobsOhio has successfully used these tools, in combination with the JCTC and JRTC, to attract business to Ohio.
While the incentives discussed above primarily benefit “big” business, Ohio recently enacted tax incentives for small business owners as well. InvestOhio, a new program administered by the Ohio Department of Development in collaboration with the Ohio Department of Taxation, provides a nonrefundable personal income tax credit of 10% of the taxpayer’s equity investment, made after June 2011, in a qualifying Ohio small business enterprise. 24 It is hoped that the InvestOhio program will generate $1 billion of new investments in Ohio small businesses by mid-2013. The small business investor must be an individual, estate, or trust, or a pass-through entity in which an individual, estate, or trust holds an ownership interest. The credit is capped at $1 million per investor, per biennium.
The Ohio Department of Development may award up to a total of $100 million of credits to qualified small business investors per fiscal biennium on a first-come, first-served basis. 29 As of the writing of this article, approximately $50 million of InvestOhio credits remains available for the current biennium, which runs through June 2013.
Lower tax rates. In addition to the InvestOhio personal income tax credit, Ohio has been reducing its personal income tax rate in conjunction with reforming its tax scheme, i.e., phasing in the CAT and phasing out the corporate franchise and personal property taxes. The top personal income tax rate is currently 5.925% (tax years beginning after 2010) for income over $200,000, having been reduced by more than 20% from the top rate of 7.5% prior to 2005. 30 Moreover, the Ohio estate tax has been repealed effective 1/1/13. 31 These efforts to reduce individual tax burdens were aimed, at least in part, at influencing small business owners and other wealthy individuals to continue residing in Ohio, rather than relocating later in life to states such as Florida, which has minimal tax burdens—and better weather.
Not only has Ohio minimized prospective tax burdens for business, the state also is providing an opportunity to resolve past delinquencies on favorable terms, in order to get more taxpayers on the tax rolls and increase future collections.
Ohio’s use tax amnesty program runs from 10/1/11 through 5/1/13. Ohio Admin. Code §5703-9-60 (consumer’s use tax amnesty payment plan) was adopted effective 2/13/12 and is reproduced below.
(A) House Bill (“H.B.”) 153, 129th General Assembly, (uncodified section 757.42) authorizes the Tax Commissioner to enter into a no-interest payment plan with a qualifying taxpayer who elects to participate in the consumer’s use tax amnesty established by H.B. 153.
(1) The taxpayer cannot have previously held or currently hold a consumer’s use tax account as of June 1, 2011.
(2) The amount of consumer’s use tax due under the taxpayer’s amnesty application must exceed $500.
(3) At least one (1) corporate officer, LLC member, general partner or other person authorized to execute contracts on behalf of the taxpayer must agree to the terms of the payment plan on behalf of the taxpayer.
(4) The taxpayer must agree to extend the time limit for the Tax Commissioner to assess unpaid consumer’s use tax due under amnesty until six (6) months after the end of the payment plan.
(1) The minimum monthly payment is $500. The initial monthly payment must be submitted with the amnesty application.
(2) The maximum term of a consumer’s use tax amnesty payment plan is seven (7) years (84 months).
(3) The taxpayer must return the fully executed consumer’s use tax amnesty payment plan agreement to the Tax Commissioner within 15 days after receipt.
(4) The taxpayer must make each payment due under the consumer’s use tax amnesty payment plan on or before the first business day of each month.
(D) If the taxpayer misses a monthly payment, fails to return a fully executed copy of the consumer’s use tax payment plan agreement, or fails to remain current with all of its Ohio tax obligations, the Tax Commissioner will notify the taxpayer of such default (“Default Notice”) via U.S. Mail or a similar method of delivery. The taxpayer will have 15 days from the date of the Default Notice to provide documentation supporting that the disputed payment was made, the fully executed Agreement has been returned, or that the taxpayer is current with all of its Ohio tax obligations. If within the 15-day period the taxpayer fails to provide such documentation, the Tax Commissioner may assess the taxpayer for the entire outstanding consumer’s use tax balance, including interest. Interest will be calculated from the date the tax was required to be paid. Any assessment issued for amounts due under consumer’s use tax amnesty will be immediately certified to the Ohio Attorney General for collection and may be subject to any and all costs and additional fees assessed by the Attorney General.
Holthaus, “Omnicare Leaving Covington [Ky.], Moving to Cincinnati,” Cincinnati Enquirer, 9/20/11, available online via the paper’s website at http://news.cincinnati.com/apps/pbcs.dll/article?AID=/20110919/BIZ01/309190041/Omnicare-leaving-Covington-moving-Cincinnati.
“Regional and State Employment and Unemployment—January 2012” (U.S. Dept. of Labor, Bureau of Labor Statistics, USDL-12-0448, 3/13/12), available online via the Bureau’s website at www.bls.gov/news.release/archives/laus_03132012.htm.
Location Matters: A Comparative Analysis of State Tax Costs on Business (Tax Foundation in collaboration with KPMG LLP, 2012), available online via the Foundation’s website at http://taxfoundation.org/files/location%20matters.pdf.
As noted herein, Ohio’s tangible personal property tax has been repealed for all businesses.
See “Factor Presence Nexus Standard for Business Activity Taxes” (Multistate Tax Commission, 10/17/02), adopted as part of an amendment to MTC Policy Statement 02-02, “Ensuring the Equity, Integrity and Viability of State Income Tax Systems,” and available online via the MTC website at www.mtc.gov (click on “Uniformity” and “Adopted Uniformity Recommendations”).
For more on the CAT, see Sutton, Yesnowitz, Ford, Zins, and Conley, “Ohio’s New Commercial Activity Tax: What It Means for Business,” 15 J. Multistate Tax’n 8 (February 2006).
Location Matters, supra note 4, page 51. For more on this type of tax credit generally, see Bowman and Weiss, “Credits Based on Withholding Taxes—Useful Incentives in a Challenging Business Environment,” 20 J. Multistate Tax’n 18 (Nov/Dec 2010).
Ohio Rev. Code §§122.17(B), (C), and (D); Ohio Admin. Code §122:7-1-05(A).
Ohio Rev. Code §122.17(D)(6); Ohio Admin. Code §122:7-1-05(D).
Ohio Rev. Code §122.171(B) (flush language following (B)(3)); Ohio Admin. Code §122:7-1-06(A).
Ohio Rev. Code §§122.17(D)(2) and 122.171(B) (flush language following (B)(3)).
Ohio Rev. Code §§122.17(K) and 122.171(J).
Ohio Rev. Code §§5751.51 (research expenses credit) and 5751.52 (research loan payment credit).
Ohio Rev. Code §§5739.02(B)(42)(j) (distribution centers) and 122.175 (computer data centers).
Ohio Rev. Code §5747.81 (the “small business investment certificate tax credit”). Also see the InvestOhio website at www.development.ohio.gov/InvestOhio/InvestOhio.htm.
Ohio Rev. Code §§122.86(A)(1)(a) and (b).
Ohio Rev. Code §§122.86(B) and (C)(3).
Ohio Rev. Code §§5731.02(A) (resident estate tax) and 5731.19(A) (nonresident estate tax).
Ohio Rev. Code §5703.58(B). The bar on assessments does not apply to taxes collected by a vendor or in cases of fraud. Id., §5703.58(C).
Ohio H.B. 153, 6/30/11, Session Law No. 2011-28, §757.42 (uncodified).
More information regarding Ohio’s Consumer’s Use Tax Amnesty Program and General Tax Amnesty Program is available on the Ohio Department of Taxation website at http://tax.ohio.gov.
END OF DOCUMENT – © 2012 Thomson Reuters/RIA. All rights reserved.

References: §5703
 §122
 §122
 §122
 §122
 §122
 §5747
 §5703
 §5703
 §757