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Bill sponsors testify in support of Ohio municipal income tax reform

This past Tuesday, sponsors of H.B. 5, Representatives Grossman and Henne, testified before the Senate Finance Committee regarding the Ohio municipal tax simplification bill. This bill was previously covered in the Oct. 17, 2013 edition of the Multistate Tax Update. Some highlights of their testimony were:

  • Ohio is the only state where municipalities set their own rules and regulations, resulting in the current state of 600 municipalities utilizing approximately 300 forms to collect local income tax. The next most complex state is Pennsylvania which has 3 income tax forms for the entire state. Only 10 states in the country have a municipal income tax.
  • International site locators surveyed said the state’s municipal tax system is the second highest negative factor in attracting new employers.
  • The compliance burden for small business is high, forcing such small business to hire either dedicated staff or outside professionals to research the potentially 600 different definitions, rules, and regulations that are applied to their business and employees.
  • The language in Am. Sub. H.B. 5 (the current version of the bill) is a result of continued negotiations between representatives of the Municipal Tax Reform Coalition, a coalition of state and local professional associations, trade organization and Chambers of Commerce, and city representatives. As such, it represents compromise that aims to mitigate potential negative revenue impact incurred by municipalities and businesses.
  • The sponsors believe H.B. 5 will make Ohio a more competitive economic climate.
  • Many witnesses claim to annually complete 25-30 separate municipal income tax forms. Under H.B. 5, the number of required tax returns would be dramatically reduced.
  • The bill is designed to ensure no tax increases. As a result, some municipalities will experience revenue loss. However, an opportunity for revenue gain exists based on a number of companies and taxpayers who currently are not compliant with municipal tax law.
  • H.B. 5 would mandate a five-year carryover of NOL, as opposed to the numerous durations applying to carryovers currently permitted under municipal law. 

The sponsors also invited various interested parties to provide input on the bill. Read the H.B. 5 Sponsor Testimony to learn more about the H.B. 5 and the issue of municipal tax reform.  

Iowa extends and increases tax credits and refunds for renewable fuel sales and production

Iowa Governor Terry Branstad recently signed legislation (S.F. 2344) that extends and increases the tax credits offered to certain Iowa renewable fuel retailers and extends the tax refunds offered to certain Iowa biodiesel producers.

E-15 Plus Gasoline Promotion Tax Credit

Subject to certain requirements under current law, the E-15 Plus Gasoline Promotion Tax Credit is available to a retail dealer who sells and dispenses qualifying ethanol blended gasoline through a motor fuel pump located at the retail dealer’s retail motor fuel site. Under the prior law, the current tax credit of three cents per gallon of qualifying ethanol blended gasoline sold and dispensed by qualifying retailer dealers during the calendar year 2014 would be reduced to two cents per gallon for calendar years 2015, 2016 and 2017. 

Under S.F. 2344, which applies retroactively to tax years beginning on and after Jan. 1, 2014, the three cent tax credit will be maintained during most of each calendar year and will be increased to 10 cents per gallon for qualifying ethanol blended gasoline sold and dispensed between June 1 and Sept. 15 of each calendar year. This E-15 Plus Gasoline Promotion Tax Credit is still set to expire on Jan. 1, 2018. 

Biodiesel Production Refund

Subject to certain requirements, under current law, a manufacturer of biodiesel used in biodiesel blended fuel may be eligible to receive a sales and use tax refund. Under current law, the tax refund is equal to two cents per gallon of biodiesel produced by the biodiesel producer in Iowa during the 2014 calendar year, subject to certain limitations. This tax refund was set to expire on Jan. 1, 2015.

S.F. 2344 extends the Biodiesel Production Refund through calendar year 2017 at the current two cents per gallon rate.

Iowa renewable fuels industry

S.F. 2344 is an example of how states are using their taxing authority to promote the sale and production of renewable fuels.

According to a press release by the Iowa Renewable Fuels Association (IRFA), the State of Iowa is the leader in renewable fuels production with 12 biodiesel facilities capable of producing almost 315 million gallons annually and 42 ethanol refineries capable of producing in excess of 3.8 billion gallons annually.

IRFA Policy Director Grant Menke stated in the press release that “S.F. 2344 will help preserve Iowa biodiesel jobs while also expanding Iowa motorists’ access to cleaner-burning, more locally-produced E15 [gasoline], and I applaud Iowa’s elected leaders for standing united with Iowa’s renewable fuels community.”

South Carolina amends accommodations tax to exempt certain guest charges

On May 16, 2014, South Carolina Governor, Nikki Haley, signed House Bill 3561, amending South Carolina’s accommodations sales taxes (the “Amendment”).

Currently, South Carolina imposes a 7 percent accommodations sales tax on the gross proceeds derived from the rental or charges for any sleeping accommodations such as hotel rooms, inns, motels and campground spaces, subject to certain exemptions. The tax does not apply to certain additional guest charges, which currently includes the following: room service, amenities, entertainment, special items in promotional tourist packages, laundering and dry cleaning services, in-room movies, telephone charges, rentals of meeting rooms, and other guest services. Current South Carolina law imposes a 5 percent sales tax on these additional guest charges.

Under the current application of the law, whether a guest is charged this 5 percent sales tax on additional guest charges would generally depend on whether such services were billed to the room (subject to the additional sales tax) or paid directly by the guest (not subject to the additional tax). The Amendment limits the type of additional guest charges that are subject to this 5 percent sales tax, which results in more uniformity in the application of this sales tax.

The Amendment changes the definition of “additional guest charges” to include only: room service, laundering and dry cleaning services, in-room movies, telephone services, and rentals of meeting rooms. Therefore, amenities, entertainment, special items in promotional tourist packages and other guest services will no longer be subject to the 5 percent sales tax. The Amendment also clarifies that “separately stated optional charges on a bill to a customer for amenities, entertainment, special items in promotional tourist packages and other guest services” are also not subject to the 7 percent accommodations sales tax.”

The South Carolina Board of Economic Advisors estimates that this Amendment will cause the state to lose around $1.1 million in annual tax revenue.

The Amendment was unanimously approved by those members of the House and the Senate who voted on the Amendment. The Amendment goes into effect on July 1, 2014.

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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