Derek K. Heyman, PhD, JD, CPA - Attorney
In with the Newly Signed Legislation: Ohio Tax Changes for the New Year
On January 2nd and 3rd, 2023, Governor DeWine signed a number of bills passed during last year’s lame duck session of the General Assembly. Three of these bills impact Ohio’s tax laws: Am. Sub. H.B. 45 (West, Roemer), Am. Sub. H.B. 66 (Hoops), and Sub. S.B. 33 (Hottinger, Brenner).
Am. Sub. H.B. 45 (“HB45”)
HB45 contained a number of tax-related provisions:
The bill authorized a two-month tax amnesty during 2023 to cover those taxes administered by the Ohio Department of Taxation (“ODT”), only if the Director of Budget and Management (“OBM”) “finds that the General Revenue Fund will require additional proceeds from the amnesty program in order to meet obligations required to be paid from that fund in calendar year 2023.” HB45 Sec. 757.01(B). In other words, OBM must first determine that the revenue expected to be raised by the amnesty is needed to fund state programs during the year. If the state does not need the cash, there will not be an amnesty. In the event that an amnesty is declared, taxpayers coming forward will be required to pay all taxes due, but will receive an abatement of all applicable interest and penalties, and will not be subject to either criminal or civil actions with respect to those taxes or fees. Before entering the amnesty, taxpayers should consider all available options (settlement, voluntary disclosure, offer in compromise, etc.) for remitting unpaid taxes to make sure amnesty is the best alternative in the taxpayer’s particular circumstances.
Ohio’s child adoption credit has been repealed for legal adoptions that were not completed by December 31, 2022. The credit, which paid the greater of $1,500 or the taxpayer’s actual adoption expenses up to $10,000, has been replaced by the Adoption Grant Program. Under the new program, applicable to adoptions finalized on or after January 1, 2023, an adoptive parent will receive one of the following: $15,000 for the adoption of that parent’s foster child; $20,000 for the adoption of a special needs child; $10,000 in other cases. Children adopted in 2023 and thereafter will also be eligible for a one-time grant of $2,500 to attend a qualifying higher education institution in Ohio. Ineligible for both adoption and education grants are step-parent adoptions and those where the adoptee is 18 years or older at the time of adoption.
Sub. S.B. 33 (“SB33”)
Community Reinvestment Area (“CRA”)
SB33 makes numerous changes to Ohio’s CRA law. Most of these remove administrative requirements, making it easier to designate a new CRA and to use the CRA for the development of commercial or industrial projects. Some of those changes include:
Townships that have adopted limited home rule governments now have the authority to designate a CRA. To remove overlap, counties may not include any territory that is already part of a CRA designated by a limited home rule township, and vice versa.
A local authority (i.e., a political subdivision eligible to create a CRA) is no longer required to receive approval from the Director of Development for a new CRA.
The Director of Development is required to create, by rule, a model agreement for commercial/industrial property owners and local authorities, and it provides a list of contract terms that must be included in this model. Local authorities need not use the model agreement, but they must include those terms that the law requires to be included in the model agreement.
The exemption percentage threshold after which an impacted school board must approve the CRA exemption for a commercial or industrial project increases from 50% to 75%.
The threshold payroll amount of new employees within a CRA commercial or industrial project is increased from $1 million to $2 million before a municipality is required to pay the school board half of the difference between the municipal income tax collected from the new employees and the infrastructure costs incurred by the municipality.
The amount of time between when a discontinued project may qualify for a new CRA or enterprise zone exemption is reduced from five years to three years.
The requirements for CRAs reporting to school districts and to the Department of Development are also less onerous under SB33 than they were previously.
SB33 also contains a provision that expands Ohio’s $4,000 annual personal income tax deduction for contributions to 529 plans (used for college savings) to include those plans set up by other states or by an educational institution. It previously applied only for contributions to Ohio’s own plan.
Am. Sub. H.B. 66 (“HB66”)
HB66 contains a number of tax-related changes, many of which are tweaks to the law that will not impact most taxpayers. We will focus on a few of the more significant changes.
Sales & Use Tax
HB 66 contains a couple of new sales and use tax exemptions, including one for e-filing and payment services used by a business to report or pay income taxes on behalf of an individual. This service is added via an additional example in the list of services qualifying as “personal and professional services” under Ohio Revised Code (R.C.) 5739.01(Y)(2). Another new exemption is for the documentary service charges imposed by automobile and manufactured or mobile home dealers, and the third is a use tax exemption for watercraft that are in Ohio only for maintenance or off-season storage.
HB66 narrows one exemption as well. The new law amends the definition of “video service” in the Video Service Authorization law, excluding direct-to-home satellite services and video streaming content from this definition. This change ensures that these two services and content are not covered by the sales and use tax exemption for cable, video service, and radio or television broadcasting under R.C. 5739.02(B)(53), which makes use of the newly amended “video service” definition.
Exempt Facilities (pollution control)
The property tax and sales/use tax exemptions for pollution control, energy conversion, and thermal efficiency improvement facilities are expanded to explicitly include leased property. Additionally, the definition of an exempt “water pollution control facility” has been expanded to include property used primarily for (i) hauling of industrial waste to a point of disposal or treatment, and (ii) “storing, filtering, processing, or disposing of industrial waste.”
HB 66 authorizes a new, nonrefundable income tax credit for the expenses to train employees to operate a commercial vehicle. The credit has a maximum of $25,000 per year with a 5-year carryforward and the total credits that may be awarded in a year is limited to $1,500,000.
HB66 clarifies the application to joint filers of the recently enacted credit for donations to organizations that grant scholarships to primary and secondary school students. The credit is limited to $750 per individual donor, but each spouse may contribute, for a maximum joint return credit of $1,500.
A taxpayer has long been able to receive a refund of overpaid tax and interest, but the refund of a penalty, even if wrongfully imposed, was up to the Tax Commissioner’s discretion. HB66 changes this so that an improperly paid penalty would be automatically refundable to the taxpayer, along with interest on that penalty.
If you'd like to discuss these or any other legislative developments, please contact any of our ZHF professionals.