OH School District Income Tax: Failure to File Notices

The Ohio Department of Taxation began sending Failure to File notices by regular mail on June 5, 2017 to taxpayers who:

  • Have not filed an Ohio School District Income Tax Return Form SD 100 for 2013, 2014 and/or 2015; and
  • Appear to have lived in a taxing school district based on the school district number and/or mailing address reported on the taxpayer’s Ohio Individual Income Tax Return (Ohio Form IT-1040) filed for 2013, 2014, and/or 2015.

To learn more about the Ohio School District Income Tax, read their Guide.

If you receive(d) a notice and need assistance, please contact a member of our State and Local Tax Team.

 

Significant Changes in Louisiana for Income/Franchise & Sales/Use Tax

As a result of a $900 million budget shortfall, Louisiana lawmakers have passed the following tax measures aimed at bridging the revenue gap.  Some of the more important changes are as follows:

Income/Franchise Tax Changes (effective 1/1/2017):

  1. Expansion of franchise tax:
    1. “Domestic Corporation” now includes partnerships, joint ventures, and LLCs electing to be taxed as C Corporations for federal income tax purposes.
    2. Expansion of franchise tax nexus for out of state taxpayers – nexus for corporations that own interest in partnerships with Louisiana operations.
  2. Net Operating Loss (NOL) Reduction – NOL deduction cannot exceed 72% of Louisiana taxable income.
  3. NOL Carryover ordering – must use loss carryovers starting with the loss for the most recent taxable year. Older NOLs may expire since taxpayers would have to first use newer NOLs.
  4. Modification of corporation income tax rate to flat rate of 6.5% (contingent).
  5. Addback of intercompany interest, intangible expenses and management fees unless certain exceptions are met.
  6. Modification of federal income tax deduction (contingent).

Sale/Use Tax Changes:

  1. Effective 4/1/16 through 6/30/2018, the legislation increases the sales tax rate by 1% (bringing the rate to 5%).  Referred to as the “Clean Penny” Legislation, the legislation includes its own set of exclusions and exemptions apart from the exclusions and exemptions that apply to the original 4% sales tax rate (referred to as “Old Penny”).
  2. Old Pennies (the original 4% sales tax) – law modifies the list of exclusions and exemptions, specifically as they relate to the 2% basic rate (sub component of the 4% tax).  It is important to note the inconsistencies between the exclusions and exemptions offered under the Clean Penny and Old Penny laws.
  3. Affiliate Nexus provisions – the legislations drastically expands the definition of a “dealer.”

For additional background regarding the legislation, please visit the tax foundation website.

US Supreme Court – Absence of credit against Maryland’s local portion of personal income tax for out-of-state income taxes paid is unconstitutional

In a 5-4 decision, the United States Supreme Court found that the absence of a credit against the local portion of the state’s personal income tax, with respect to tax paid to another state on pass-through income from an S corporation, was unconstitutional. Maryland’s tax scheme failed the dormant Commerce Clause’s internal consistency test because if every state adopted the scheme, interstate commerce would be taxed at a higher rate than intrastate commerce.

The Court further held that the tax is inherently discriminatory and operates as a tariff.

The Court rejected assertions that it reach a different result because applicable Supreme Court dormant Commerce Clause authority involves corporate gross receipts taxes. The Court provided that its conclusion was not affected by the fact that the instant case involved a state’s personal income tax.

The Court also recognized that although Maryland may have the power to impose the tax under the Due Process Clause, the tax may still violate the Commerce Clause if it impermissibly burdens interstate commerce.

Accordingly, the Court affirmed the Maryland Court of Appeals decision in favor of the taxpayers. Read more

US Supreme Court – Failure to provide credit to Maryland’s local portion of personal income tax for out-of-state income tax paid is unconstitutional

In a 5-4 decision, the United States Supreme Court found that the absence of a credit against the local portion of Maryland’s personal income tax, with respect to tax paid to another state on pass-through income from an S corporation, was unconstitutional. The tax failed the dormant Commerce Clause’s internal consistency test because if every state adopted Maryland’s tax scheme, interstate commerce would be taxed at a higher rate than intrastate commerce.  The Court noted that a Maryland resident earning income outside the state would experience double taxation due to paying tax in his state of residence and in the state where income is earned.

The Court further held that the tax is inherently discriminatory and operates as a tariff.

The Court rejected assertions that it reach a different result because applicable Supreme Court dormant Commerce Clause authority involves corporate gross receipts taxes.  The Court provided that its conclusion was not affected by the fact that the instant case involved a state’s personal income tax.

Accordingly, the Court affirmed the Maryland Court of Appeals decision in favor of the taxpayers.

A more detailed analysis will be forthcoming. Read more

Question for the Court: Can States Tax Income Twice?

This article was updated to include arguments from Wednesday’s Supreme Court session and to clarify that the 1978 case involving Iowa had to do with taxing business income from certain sales.

The U.S. Supreme Court today heard arguments in a long-standing interstate tax dispute, the outcome of which could cost one state tens of millions of dollars and potentially shake up a fragile balance among states over how they tax their residents’ income when they earn it elsewhere.

The case comes out of Maryland, brought by a couple who sued over how the state taxed income they earned out of state. Maryland — like every other state with an income tax — offers a credit to taxpayers on their income tax bills for what they pay in taxes where the income is earned.

But unlike the others, Maryland’s credit is only partial. It offers no credit on a small part of its income tax that is distributed to counties, meaning that its residents pay taxes on the same income twice.

The plaintiffs in the case say the practice is unconstitutional, citing a string of cases that have generally blocked so-called double taxation, often in the name of protecting interstate commerce. The argument is that through its double taxation, Maryland creates an incentive for its residents to work only in Maryland.

During Wednesday’s arguments, Chief Justice John Roberts and Justice Samuel Alito seemed troubled by the potential threat to interstate commerce. Alito cited a submitted brief arguing that Maryland’s tax “operated exactly like a tariff.” Roberts later said that if every state did what Maryland did, “that sounds to me like a tariff.”

But the acting solicitor general of Maryland, William Brockman, said his state should not have to change its tax practices in deference to those of another state, even if there is a concern over double taxation.

“There is no reason a state should have to subordinate this taxing power,” Brockman told the justices. Further, he added, “Maryland is not required to provide a credit at all.”

Justice Antonin Scalia seemed to welcome the point. “That’s my problem with this,” he said, referring to the thinking that one state would have to give in to another’s tax decision. Scalia said opponents were citing “imaginary” constitutional arguments to back up their claims.

The U.S. and Maryland chambers of commerce, the Tax Foundation and the American Legislative Exchange Council (ALEC), which lobbies for conservative causes, agree with the plaintiffs. Maryland, the federal government, the Multistate Tax Commission (a membership group of state departments of revenue) and others defend the practice. Click here for a full list of the briefs filed in the case.

For decades, states have operated under the assumption that double taxation is not allowed, hence their practice of offering credits for taxes levied by other states. But experts say the core question of whether states are forbidden from taxing income twice has never been truly settled.

As they see it, the uncertainty applies to every state’s tax system, and pits federalism and state sovereignty against principles of free trade that have governed more than two centuries of commerce among states.

“It’s a fundamental, foundational question,” said Bradley W. Joondeph, the associate dean for academic affairs at the Santa Clara University School of Law, who wrote his own preview of the case. “When you have a state being told that its income tax system, which is in many respects critical to its raising of revenue, is unconstitutional, that’s something that’s going to get the court’s attention.”

Click here to continue reading…

Basic Information on the Ohio Commercial Activity Tax (CAT)

The annual minimum Commercial Activity Tax (CAT) is due May 12, 2014 for annual and quarterly filers. Annual CAT taxpayers (taxpayers with annual gross receipts between $150,000 and $1,000,000 in a calendar year) pay the annual minimum tax with the filing of the annual return. Quarterly CAT taxpayers (taxpayers with annual gross receipts greater than $1,000,000) pay the annual minimum tax with the filing of the first quarter return.

Quarterly CAT returns and Annual CAT returns filed on or after January 1, 2014 are required to be filed electronically. Taxpayers may file and pay electronically through the Ohio Business Gateway at business.ohio.gov. Alternatively, annual taxpayers may utilize TeleFile to file and pay the annual CAT return by using the telephone.

The CAT is a tax imposed on the privilege of doing business in Ohio, measured by taxable gross receipts from business activities in Ohio. The CAT rate of .26% plus the annual minimum tax applies to business entities with taxable gross receipts over $1,000,000. Business entities with annual taxable gross receipts between $150,000 and $1,000,000 are only subject to the $150 annual minimum tax.

Most receipts, including the receipts from the sale of property or performance of a service, generated in the ordinary course of business in Ohio are subject to the CAT. Gross receipts from sales to out-of-state purchasers or the portion of the services received outside of Ohio are not subject to the CAT.

The CAT applies to most forms of entities with taxable gross receipts of more than $150,000 in the calendar year, including individuals, pass-through entities and federally disregarded entities. Non-profit organizations, most governmental entities, certain receipts of public utilities subject to the public utility excise tax, financial institutions that pay the financial institution tax, insurance companies that pay the insurance premiums tax, certain affiliates of financial institutions, and businesses with less than $150,000 of taxable gross receipts are generally excluded from the CAT.

An out-of-state business or person is only required to register and pay the CAT if that business or person meets the bright-line presence test in Ohio. The bright-line presence test is satisfied if any one (1) of the following applies at any time during the calendar year:

1. Property in Ohio is at least $50,000; or
2. Payroll in Ohio is at least $50,000; or
3. Taxable gross receipts sourced to Ohio are at least $500,000; or
4. 25% of total property or total payroll or total gross receipts is in Ohio; or
5. The person/entity is domiciled in this state.

Taxpayers will utilize the previous calendar year’s taxable gross receipts to determine the current year’s annual minimum tax. For tax periods beginning on and after January 1, 2014, the annual minimum tax will become a tiered structure. See chart below.

Taxable Gross Receipts Annual Minimum Tax CAT
$1 Million or less $150 No Additional Tax
More than $1 Million but less than or equal to $2 Million $800 0.26% x (Taxable Gross Receipts – $1 Million)
More than $2 Million but less than or equal to $4 Million $2,100 0.26% x (Taxable Gross Receipts – $1 Million)
More than $4 Million $2,600 0.26% x (Taxable Gross Receipts – $1 Million)

Penalties may apply for the failure to timely file and pay the tax, including proceedings to revoke a person or business’ privilege to conduct business in this state. A late filed return is subject to a penalty of up to 10% of the tax due or $50, whichever is greater.

For questions or more information on the Ohio CAT go to http://www.tax.ohio.gov/commercial_activities

State and Local Tax Burdens

The Tax Foundation released a report outlining the state and local tax burdens of the residents of each state. Some of the key findings of the report are below:

•During the 2011 fiscal year, state-local tax burdens as a share of state incomes decreased on average. This trend was largely driven by the growth of income in all states.
•In 2011, the residents of New York, New Jersey, and Connecticut had the highest state-local tax burdens as a share of income in the nation. In these states, residents have forgone over 11.9 percent of income due to state and local taxes.
•Residents of Wyoming paid the lowest percentage of income in 2011 at just 6.9 percent. They replaced Alaska, which had previously been the least-taxed for multiple decades, as the lowest-burdened state in the nation. After Wyoming and Alaska, the next lowest-taxed states were South Dakota, Texas, and Louisiana.
•State-local tax burdens are very close to one another and slight changes in taxes or income can translate to seemingly dramatic shifts in rank. For example, the twenty mid-ranked states, ranging from Oregon (16th) to Georgia (35th), only differ in burden by just over one percentage point.
•On average, taxpayers pay more to their own state and local governments (73 percent of total burden). Taxes paid within states of residence decreased on average in 2011, while taxes paid to other states increased, leading to a slight decrease in total burden. Some states deviated from these national trends, however.

For the full report, visit:
http://taxfoundation.org/article/annual-state-local-tax-burden-ranking-fy-2011