The Ohio House of Representatives Finance Committee has released its substitute version of House Bill 33, the main operating appropriations (i.e., budget) bill for the upcoming biennium. Following is a list of the major tax-related changes in Substitute House Bill 33 (“the sub bill”), as well as items from the original bill (the Governor’s proposal, also referred to below as the executive proposal) that remain intact in the sub bill. For our detailed exposition of the original bill’s tax proposals, see this March Buzz.
Train Derailment Payments
The sub bill authorizes a deduction for personal income tax for payments a taxpayer receives from either the government or a railroad company, for lost business resulting from the East Palestine train derailment. The sub bill also provides an exclusion from the Commercial Activity Tax, for such payments received, if they relate to lost business.
Personal Income Tax (“PIT”)
The sub bill makes a handful of changes to the PIT that differ from the Governor’s proposal:
- It eliminates the increased exemption of $2,500 for each under-18 dependent in a household.
- It consolidates the two lowest tax brackets and sets the rate at 2.75%, which is slightly lower than the current rate of 2.765% for the lowest bracket. The change would apply beginning in the 2023 tax year.
- The sub bill also suspends the indexing of tax brackets and exemptions for inflation for the 2023 and 2024 tax years.
- The sub bill authorizes a $1,000 nonrefundable credit for volunteer firefighters and other first responders who volunteer at least one day a month in at least six months during the year.
Sales and Use Tax
The sub bill:
- Retains the executive’s exemption for baby products such as diapers, car seats, strollers, etc.
- Retains the Tax Commissioner’s authority granted to suspend vendor’s licenses in specified circumstances.
- Retains the executive’s proposed modification of the criminal provisions in R.C. 5739.99.
- The sub bill adds a reference to construction material and services sold or rented to government agencies for traffic control and drainage improvement to the exemption for sales or rentals to government agencies. This provision is intended as a clarification of existing law.
Commercial Activity Tax (“CAT”)
The sub bill:
- Retains the executive’s proposed changes to the credit for qualified research expenditures (a.k.a. “QRE Credit” or “R&D Credit”).
- Adds a gross receipts exclusion for federal, state, or local grants received to provide or expand broadband service within the state. This also applies to forgiven debt.
- Retains the executive’s proposed delay of the refundability date of the franchise tax NOL credit from calendar year 2030 to calendar year 2040.
Cigarette Excise Tax
The sub bill allows a wholesaler or distributor of cigarette, tobacco, or vapor products to obtain a refund of tax remitted on bad debts arising from the sale of those products, beginning with charge-offs taken on or after January 1, 2024.
Municipal Income Tax
The sub bill retains all of the changes proposed by the Governor’s bill, and also adds some new proposals as follows:
- Exempts those individuals under age 18 from municipal income taxation altogether.
- Limits notices or inquiries that may be sent by a municipality to a taxpayer who has a filing extension in place.
- Limits the penalty that may be imposed for failing to timely file a municipal tax return to a one-time $25 penalty. The first failure to file is exempted even from that.
- Provides an additional one-month extension for a business entity that has received a federal six-month extension. The additional month would be automatic.
Tax Notices
Although the sub bill retains the executive’s proposed authorization for the Department of Taxation to send tax notices by ordinary mail or electronically, it restores the requirement that a taxpayer must first consent to electronic delivery of tax notices.
Lodging Tax
The sub bill contains a number of Lodging Tax provisions not contained in the Governor’s proposal:
- Authorizes the repurposing of lodging tax revenue to fund certain costs for convention, entertainment, or sports facilities.
- Cincinnati is specifically allowed to repurpose a portion of its 1% special convention center tax for the same purposes.
- Authorizes Hamilton County to levy an additional 1% lodging tax to fund construction or operation of such facilities.
- Authorizes a county to use a portion of the revenue from its 3% general lodging tax to fund public safety in a resort area. The only currently designated resort areas are certain islands in Lake Erie.
- Authorizes a county with a population over 800,000, or a municipality in such a county, to exempt from lodging taxes a hotel that has been designated a “headquarters hotel” for a convention center. A “headquarters hotel” is designated as such by the nearby convention center, which may designate only one.
- Authorizes the municipality or county that exempted taxes from a headquarters hotel to require payments in lieu of taxes by that hotel.
Sports Gaming Tax
The sub bill deletes the Governor’s proposed doubling of the sports gaming tax rate, retaining a 10% rate on gaming receipts.
Property Tax
The sub bill:
- Indexes the homestead exemption for inflation.
- Allows the second and third publication of a property tax foreclosure action to be made online, but maintaining the current requirement that the first notice be made in a newspaper of general circulation.
- Prohibits local governments from levying replacement property taxes, beginning with elections held in 2025.
- Allows the transfer of a parcel from one tax increment financing (TIF) to another, as long as the parcel owner has not yet made any payments in lieu of taxes under the existing TIF arrangement.
- Exempts from tax for up to eight years the excess of the value of subdivided unimproved land from its value prior to subdivision. The subdivision must be for residential development and ends when construction begins or the land is sold.
- Prohibits the approval of a reduction in the taxable value of an electric power plant’s tangible personal property of more than 7.5% from the preceding year’s value. This provision would take effect in tax year 2024.
- Extends the property tax exemption for qualified energy projects from 2025 to the later of 2032 or the date the U.S. Treasury Secretary determines that annual greenhouse gas emissions from electricity production have been reduced by 75% from their 2022 levels, and makes other changes to the requirements for qualified energy projects.
Credits and Incentives
In addition to retaining the QRE changes proposal (see above under CAT section), the sub bill retains the Governor’s proposed changes to the Jobs Creation and Jobs Retention Tax Credits, and the increased annual cap in the motion picture and historic rehabilitation tax credits.
The sub bill also makes the following changes to the original bill’s low income housing tax credit proposal:
- Moves the qualifying placed in service date up to January 1, 2023.
- Pushes the ending date for credit reservation from June 30, 2027 to December 31, 2028.
- Increases the limit on credits reserved in a single fiscal year from $100 million to $500 million.
- Removes the requirement that the Director of the Ohio Housing Finance Authority (“OHFA”) ensure the project creates housing units that would have otherwise not been created.
- Allows credits to be claimed after a project is available to rent, even if the Director of OHFA has not yet issued an eligibility certificate.
- Places requirements on the Tax Commissioner’s means of valuing federally subsidized rental housing.
The sub bill removes the executive’s proposed credit for affordable single-family housing development.
The list of changes above is not exhaustive but covers what most taxpayers and professionals will view as the major provisions. If you have questions or concerns about any of these or other provisions in the budget bill, please contact any ZHF professional. We are, as always, closely monitoring the state’s budget process.