July 2005

TaxAdvisor

New State of Ohio Tax Bill

On June 30, 2005, Ohio Governor Taft signed Amended Substitute House Bill 66 which made significant changes to Ohio's tax structure. These changes will be phased in over the next 4 to 5 years. Once these are fully phased in, the key changes to the Ohio tax law will be as follows:

1. Franchise and Personal Property Tax will be phased out. The state sales tax rate will be reduced by .5%.

2. The top Personal Income Tax rate will be reduced from 7.5% to 5.925%.

3. Taxation of trusts will be made permanent.

4. The tax law will no longer allow the Investment Tax Credit (ITC) to be applied against franchise tax or personal income tax for taxable years ending on or after July 1, 2005. It will convert existing ITC 1/7 credit increments and carry-forwards to grants that can be applied against Franchise and Personal Income Tax.

5. A new commercial activity tax (CAT) will be created. The CAT tax is an excise tax based on taxable gross receipts sitused in Ohio. There is a specific list of exclusions which include dividend and interest income. The highlights of this tax are:

   1. The rate will be .26% on sales over 1 million dollars. The first million dollars on gross receipts will be limited to $150 in tax.

   2. Persons with $150,000 or less in sales will not be subject to the CAT.

   3. Persons having substantial nexus with Ohio will be subject to the tax.

   4. Taxpayers must register no later than November 15, 2005.

   5. Reporting will be required quarterly with the fourth quarterly return designated as an annual reconciliation. Returns will be due by the 40th day after the end of the quarter or annual period.

   6. There will be combined and consolidated reporting requirements available for related party companies.

Key planning opportunities related to the new CAT tax will be:

1. Determining Ohio sitused sales.

2. Reviewing and properly electing whether to be taxed as a combined or consolidated taxpayer.

Your engagement partner or one of our tax partners, Dale A. Ruther (330-255-2427) or Jim M. Bowen (330-255-2461), will be contacting you during the month of August to discuss what issues and/or opportunities you may have related to these tax law changes.

This Web Site is designed to present accurate and authoritative general information on a broad range of tax and accounting issues. For personalized advice on matters effecting your rights under the law and/or the drafting of legal documents, you should consult a licensed attorney.

IRS Circular 230 Disclosure: To ensure compliance with U.S. Treasury rules, unless expressly stated otherwise, any U.S. tax advice contained in this Web Site is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

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