Ohio Income Tax Residency Law Changed for Tax Year 2018 and Following Tax Years
Introduction to Ohio Income Tax Residency Issue
As many taxpayers are preparing to file Tax Year 2017 Ohio income tax returns (on extension) in the next few days, those taxpayers and their advisors should start thinking about Tax Year 2018 issues. A very important consideration for many filers is the change to the Ohio income tax residency law that will first be effective for Tax Year 2018 (returns filed in 2019).
Recently, the previous version of Ohio’s income tax residency law was found to not actually contain what many practitioners and taxpayers had thought was a “Bright-Line” test. That prior version of law was held by the Ohio Supreme Court to retain a common law test for determining Ohio income tax residency. This Buzz discusses the changes to the Ohio income tax residency law that were made by the Ohio legislature in response to that Ohio Supreme Court decision, and that are first effective for Tax Year 2018.
While any income that is “earned in Ohio” by a non-resident of Ohio is still taxable to Ohio, that same non-resident of Ohio cannot be taxed on certain types of income that is not “earned” in Ohio. Therefore, the relevance of the residency law is significant in determining many individuals’ overall Ohio tax liabilities.
House Bill 292 “Bright-line” Domicile Changes for Tax Year 2018 Returns
The law (which is first effective for Ohio income tax returns filed for taxable years beginning on or after January 1, 2018) sets forth specific factors to determine if an individual is presumed not to be domiciled in Ohio for income tax purposes. Under the new version of the domicile test, an individual will be presumed to not be domiciled in Ohio if the individual:
Spends less than 213 contact periods in Ohio during the taxable year;
Files a statement (Form IT-DA) with the Ohio Tax Commissioner by the 15th day of the tenth month (generally, October 15 for most taxpayers) following the close of the taxable year stating that the individual had less than 213 contact periods in Ohio during the taxable year;
Has, for the entire year, at least one abode outside of Ohio for which the individual did not claim a depreciation deduction under IRC § 167 for the taxable year (e.g. investment property or home office deduction);
Did not hold a valid Ohio driver’s license or Ohio identification card at any time during the taxable year;
Did not receive an Ohio homestead benefit for real estate tax purposes for the same year; and,
If the individual attended or was enrolled in a state institution of higher education at any time during the taxable year, the amount of tuition was not based on an abode being located in Ohio.
Under the previous residency law, the following facts were not necessarily fatal to the presumption of non-Ohio domicile, but under the new residency law, these facts will be fatal to a presumption of non-Ohio domicile:
Having an Ohio driver’s license or Ohio identification card during the taxable year at issue;
Claiming a depreciation deduction (for example for a home office) for the non-Ohio abode; or,
Claiming an Ohio homestead benefit (owner-occupied 10% rollback and / or age 65 or greater / permanently disabled 2½% reduction).
Note that the existence of one or more of these facts listed above can, in some circumstances, be overcome for a taxpayer claiming a non-Ohio domicile; the challenge is that the presumption of non-Ohio domicile is lost if one or more of those facts exist.
The deadline for filing the “bright line” affidavit is no longer May 30 of the year following the taxable year. Now, the deadline is the 15th day of the 10th month following the close of the taxable year (generally October 15 for most taxpayers). This change allows those on extension to file the affidavit around the same time that the individual is filing the Ohio tax return.
Many former Ohio residents who were using the contact period test and the prior version of the law, or that planned to change domicile out of Ohio for taxable year 2018, may be caught off-guard by the new law that becomes effective this taxable year. For instance, many may still have an Ohio driver’s license, or be claiming an Ohio homestead benefit. However, merely because the presumption of non-Ohio domicile will not apply, those individuals may still be able to properly claim non-Ohio domicile. You may wish to contact one of our attorneys for more information on your residency status under Ohio law.