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Ohio – Proposed sales tax expansion would include commercial real estate leases and certain intercompany transactions

As discussed in an earlier alert, Ohio Governor John Kasich’s proposed budget bill broadly subjects previously untaxed business activities to sales tax. The bill seeks to expand sales tax to include most “services.” While the bill itself is well over 4,000 pages in length, the good news is the definition of what is a taxable “service” is relatively short. Unfortunately, the definition’s brevity is due to it mainly listing the excluded activities.

Under the bill, “service” means “an act performed for another person for a fee, retainer, commission, or other consideration, including any fee or other amount charged for access to a physical fitness facility or recreation and sports club.”

One of the items explicitly excluded from “services” is payments for residential leases (i.e., for a person’s primary residence). However, such exclusion implies that other leases – such as commercial leases – would be directly in the purview of the sales taxes imposed under this proposed bill. This implication would be significant to any lessee or owner of commercial real estate. Effectively, this new sales tax would increase the cost of lease payments by five percent for the lessee and require the owner to collect and remit sales tax on such lease.

Other than its significance for every lessee of commercial real estate in the State of Ohio, this proposed tax may be significant for owners of commercial real estate, real estate developers and REITS, as well as other related companies that conduct business between one another. For example, sales tax would now be imposed on a lease between separate but related business entities where one company owns real estate and leases it to a related operating company.

Another exclusion from “services” worth noting is services rendered by an employer’s employee. However, the fact that something seemingly obvious needs to be excluded shows how far this bill reaches. Again, going back to the related company example, in situations where related companies perform services for another, such services could be subject to sales tax.

While this bill presents both positives and negatives for businesses, some taxable activities may be avoidable with adequate planning. An assessment of your business and its operations prior to the enactment of the proposed bill would be advisable to ascertain the impact on your overall operations.

Ohio – Board of revision complaints deadline approaches

The deadline to file a complaint to decrease or increase the value of Ohio real property for the 2012 tax year with the Board of Revision is fast approaching. In general, the deadline to file this year is the close of business for your county on Monday, April 1, 2013. The typical deadline falls on a Sunday this year. Be sure to confirm your county's deadline. Complaints against the valuation of real property can be filed for both residential and commercial properties. Nonetheless, filing a complaint initiates a legal proceeding. Legal representation is therefore advisable.

Below are links to six of the most populous counties’ complaint forms:

Illinois – Governor proposes closing corporate tax loopholes to decrease state deficit

On March 6, Illinois Governor Pat Quinn unveiled his fiscal year 2014 budget, which included proposals for the suspension of certain corporate tax breaks in order to raise an estimated $445 million into the Illinois treasury. The revenue raised from suspending these corporate tax breaks would be used to create a “Bill Payment Trust Fund” to help pay down the state’s approximately $9 billion in overdue bills owed to providers of goods and services.

“The more corporate loopholes we suspend, the faster we can pay down our bills,” Governor Quinn told the Illinois General Assembly. “Why should we give costly, ineffective loopholes to some of the biggest and most profitable corporations on earth, when we have bills to pay?”

Specifically, Governor Quinn called for the suspension of the foreign dividend deduction, the decoupling of the state tax code from a federal law that allows tax deductions for certain domestic production activities and the suspension of the non-combination rule that prohibits companies from filing a combined return in Illinois if they use different apportionment methods.

For additional information regarding these subjects or any other multistate tax issues, please contact:

David M. Kall

216.348.5812

dkall@mcdonaldhopkins.com

Susan Millradt McGlone

216.430.2022

smcglone@mcdonaldhopkins.com

Jeremy J. Schirra

216.348.5444

jschirra@mcdonaldhopkins.com

Multistate Tax Services

Businesses must be vigilant and careful in managing their state and local tax liabilities and exposures. We understand this can be a daunting task. McDonald Hopkins Multistate Tax Services provides a broad range of state and local tax services including tax controversy, tax evaluation, tax planning, and tax policy. With professionals who have worked both inside and outside government agencies, our multistate tax team leverages its knowledge and experience to help clients control their complex multistate taxes.

 

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