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Ohio: Bill accelerating certain tax cuts is sent to governor’s desk

The Ohio mid-biennium budget bill, H.B. 483, has been sent to Ohio Governor John Kasich for his expected signature. While there are numerous changes enacted under H.B. 483, several will reduce the income tax liability of Ohioans.

Among the bill’s many changes are:

  • Accelerating the already implemented income tax reduction. Under H.B. 483, the full 10 percent income tax cut will take effect in the 2014 tax year instead of in 2015. This reportedly will equate to $94 million in income tax savings to Ohioans in 2014.
  • Increasing the business income tax deduction from 50 percent of the first $250,000 of income to 75 percent in the 2014 tax year. This change is estimated to save $228 million in income taxes in the 2014 tax year.

  • Increasing Ohio’s non-refundable Earned Income Tax Credit for low income Ohioans from five percent of the federal credit to 10 percent.

  • Increasing the personal exemption amount available for income tax purposes for Ohioans, with the lowest brackets of income receiving the greatest increase in personal exemption amounts. These exemption changes are estimated to save Ohioans $80 million for the 2014 tax year.

The bill has been advanced by proponents as a boon to Ohio’s economy through its additional tax savings to small business owners and lessening the tax burdens on the middle class and less affluent Ohioans. Opponents of the bill, the loudest of which appear to be the wind energy industry, claim that certain provisions contained within the bill should be vetoed. For example, the setback standards for wind turbines in Ohio will be increased under H.B. 483. Formerly, the setback was measured from inhabited structures. Under H.B. 483, assuming the governor does not use his veto power, the setback will include property lines in addition to inhabited buildings for setback measurements, further limiting the areas in which a wind turbine may be placed.

Illinois: Legislature revises affiliate nexus law previously voided by state Supreme Court

On May 30, 2014, the Illinois legislature passed a new and improved law aiming to collect sales tax revenue from e-commerce transactions occurring in the state. Senate Bill 352 (the New Law) amends several portions of the Illinois Use Tax Act and the Service Use Tax Act.

In October of last year, the Illinois Supreme Court struck down Illinois’ first attempt to tax e-commerce transactions, Illinois Public Act 96-1544. The case, Performance Marketing Association v. Hamer, 2013 IL 114496 (Oct. 18, 2013), was previously covered in our Oct. 24, 2013 article. After discussing that the federal Internet Tax Freedom Act prohibited discrimination on e-commerce, the Court found that the tax mechanism used in Illinois Public Act 96-1544 discriminated against e-commerce. As such, the court reasoned, that permitting such a law would be in violation of the supremacy clause of the U.S. Constitution. Illinois Public Act 96-1544, the court determined, created tax duties only for electronic promotional activities by affiliates and retailers, but not print and broadcasting promotional activities.

The New Law imposes sales and use tax liability on remote sellers who work with Illinois-based marketing affiliates. This tax will be remitted to the Illinois Department of Revenue. The New Law also aims to remove any discrimination by encompassing all business categories in the law, rather than just Internet businesses.

The New Law establishes that if a retailer or serviceman “has a contract with a person located in [Illinois] under which the person, for a commission or some other compensation based the sale of tangible personal property by the retailer,…[provides] to the potential customers a promotional code or other mechanism that allows the retailer [or serviceman] to track purchases referred by such persons,” the retailer or serviceman will be subject to a rebuttable presumption that they are conducting business in the state. The presumption can be rebutted with proof that the referrals or other activities pursued within the state by the contracting person were not sufficient to meet the nexus standard of the U.S. Constitution for the preceding year. This sales and use tax will apply if the cumulative gross receipts from sales of tangible personal property by the retailer to customers who were referred to the retailer under such contracts, exceeds $10,000 during the previous four quarterly periods.

The New Law also provides that promotional codes or other mechanisms used to track purchases referred by the contracting party include “links on a person’s website, promotional codes distributed through the person’s hand-delivered or mailed material and promotional codes distributed by the person through radio or other broadcast media.” By including other media considerations in its scheme of promotional materials, the Illinois legislature is aiming to remove the Internet company bias, which invalidated the previous law.

The New Law passed in the Senate on May 23, 2014, by a vote of 33-15 and passed in the House on May 30, 2014, by a vote of 62-50. The New Law now goes to Governor Pat Quinn, who is expected to sign it.

South Carolina: Governor signs bill permitting a beach preservation tax

In an effort to maintain and preserve beachfront property, Governor Haley of South Carolina signed S. 503, which authorizes certain municipalities to add a beach preservation fee to any already-existing accommodations tax.

A beach preservation fee may be imposed on “gross proceeds derived from the rental income or charges for accommodations furnished to transients” within the municipality and which are subject to an accommodations tax. Such beach preservation fee may not exceed one percent, subject to certain limitations.

Only municipalities bordering the Atlantic Ocean with public beaches that already impose an accommodations tax that does not exceed 1.5 percent may impose the new beach preservation fee. Consequently, municipalities with an accommodations tax in excess of 1.5 percent will not be able to take advantage of this new beach preservation fee to generate revenue.

The new law requires that any revenue collected from the beach preservation fee must be used exclusively for certain beach-preservation related services, including:

  1. Maintenance and nourishment of beaches;
  2. Dune restoration and maintenance, such as planting grass or other vegetation around beaches; and

  3. Maintenance of public beach access.

Before an eligible municipality may impose the beach preservation fee, such fee must be approved by a majority of the voters residing in the municipality. This law went into effect on June 2, 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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