March 16, 2000 - Columbus, Ohio - Governor Endorses Taxpayer Services Bill
Reforms Would Benefit Small Businesses
Governor Bob Taft today helped launch a new effort to make Ohio tax law more taxpayer friendly—especially for small businesses—by announcing his support for the Taxpayer Services Bill introduced this afternoon in the Ohio House by Representative Greg Jolivette (R-Hamilton).
"Nobody likes paying taxes and the frustration is only compounded by complex, hard-to-understand tax laws. Certain provisions of tax law are especially hard on small businesses. As the laboratories of free enterprise and innovation, small businesses deserve our diligent support," Taft said. "Taxpayers deserve a simpler, more easy-to-use process and this legislation helps create that with reforms including expanded Internet filing opportunities and less paperwork. I commend Representative Jolivette for his help on this issue."
The bill would remove outdated and obsolete provisions of tax law and would reduce by 60,000 (15 percent) the number of taxpayers required to file quarterly personal or school district income tax payments. This change would also save the Department of Taxation $100,000 annually in processing costs.
Other reforms include eliminating various mandatory penalties and granting the tax commissioner discretionary authority to impose penalties based on the details of the case. The bill would also allow businesses to relocate within the same county without having to obtain a new license. Currently, businesses must cancel their existing licenses and obtain a new license when they relocate to a new address.
Representative Jolivette says he welcomes Taft’s support and believes the Taxpayer Services Bill will quickly sell itself, "This is not a partisan issue; it’s about making life easier for taxpayers and helping the Department of Taxation deliver more efficient service. As a businessman, I welcome the changes. As a legislator, I’m committed to accomplishing these goals."
Ohio Tax Commissioner Tom Zaino says the bill’s changes can be made easily by the state and will benefit taxpayers.
"We are working to create a system that gives taxpayers more convenience and the Department more flexibility in dealing with all the variables that occur. Our focus is on enhancing taxpayer services and this bill is a key part of that effort," said Zaino.
Zaino says many of the proposed changes came from business and individual taxpayers, along with a number of suggested improvements contributed by Department of Taxation staff.
For more information, contact Scott Milburn, press secretary, at (614) 644-0957, or Gary Gudmundson, Department of Taxation, at (614) 644-6903.
TAXPAYER SERVICE/TAX ADMINISTRATION LEGISLATION
SUMMARY OF CONTENTS
March 21, 2000
Permissive Penalties (3734.904, 3734.907, 3769.088, 4301.422, 4303.33, 4305.13, 4305.131, 5727.89, 5728.09, 5728.10, 5733.28, 5735.12, 5735.121, 5739.12, 5739.13, 5739.133, 5739.15, 5743.03, 5743.081, 5743.082, 5743.52, 5743.56, 5747.15, 5749.15).
Many tax law penalty provisions are mandatory. H.B. 612 would make application of these penalties permissive. Under H.B. 612, the Department could impose penalty at a lesser level than currently specified by the law, or not at all. For example, the current tire tax law (section 3734.907) imposes a late filing penalty of fifteen percent of the tax due. The bill authorizes imposition of a late filing penalty of up to fifteen percent. These changes apply to employer withholding, sales tax, personal income tax, corporate franchise tax and excise taxes.
Appeal period extensions (3734.907, 3769.088, 4305.13, 4305.131, 5711.25, 5711.28, 5711.31, 5717.02, 5727.26, 5727.47, 5727.89, 5728.10, 5733.11, 5735.12, 5735.121, 5739.13, 5739.15, 5743.081, 5743.082, 5743.56, 5747.13, 5749.07).
Language is included in this bill to extend appeal periods from thirty to sixty days. This includes appeals to the Commissioner and to the Board of Tax Appeals. Taxpayers have indicated that thirty days is often insufficient time to prepare and file an appeal.
Penalty only appeals (5733.11 and 5747.13).
Under current personal income and corporate income tax law, taxpayers must pre-pay the penalty if this is the only item of the assessment being appealed. H.B. 612 would remove this pre-payment requirement in cases where the only item appealed is the penalty itself, neither the tax nor interest.
Permits appointment of a Deputy to serve as Commissioner (5703.05).
The bill permits the Tax Commissioner to appoint a deputy to serve as Commissioner in the case of the Commissioner’s disability, absence, or recusal. Recusal could occur where there would appear to be a conflict of interest if the Commissioner were to render the decision.
Electronic signature (5703.054).
Under current law, the Commissioner has the authority to prescribe what constitutes a legal signature for personal income tax. This provision enables tele filing and electronic filing of income tax returns. The bill expands that authority to all taxes administered by the Commissioner, facilitating the expansion of electronic filing.
Allow the Commissioner to require rounding (5703.055 and 5747.082).
The proposed changes allow the Commissioner to require that taxpayers round cents to the nearest whole dollars on their returns. This change will have no measurable impact on tax liabilities and will eliminate data entry "keystrokes" and therefore promote greater efficiency in the Department of Taxation. The department estimates saving data processing costs totaling $325,000 annually in the income tax area alone.
Delivery services/Record of delivery (5703.056, 5705.37, 5717.01, 5717.02).
Current law imposes various deadlines for the filing of tax documents. H.B. 612 provides that the date the taxpayer submits a document to a designated delivery service will be treated the same as the date of the United States Postal Service postmark or the date a document is submitted to a U.S. Postal Service employee for certified mail delivery constitutes the filing date. The bill allows the Commissioner to designate alternative delivery services to be used when filing documents with the Commissioner or the Board of Tax Appeals, or paying the Commissioner or the Treasurer. As with a U.S. Postal Service delivery, the date the qualified delivery service receives the petition or appeal to the board will be the date deemed received by the department or the Board of Tax Appeals. Qualified carriers will be determined by rule and may include United Parcel Service, Federal Express and/or like carriers. This provision allows taxpayers greater flexibility.
Session modifications (5703.11).
An outdated section of the code, dating back to the Tax Commission, which requires the department to be open for business on Saturday. This section is amended to ensure that the department is open during business hours Monday through Friday, but to eliminate the Saturday hours requirement.
"Murdoch" Journal (5703.141).
The bill eliminates section 5703.141 of the O.R.C., which requires the department to maintain a journal containing copies of any directive, bulletin, or informational document issued by the Commissioner which affects taxpayers. The journal, which is rarely used, includes items such as information releases, notices to vendors and rate increases. The department is making all such documents available on its web site.
Modifications to procedures for notice (3734.907, 3769.088, 4305.13, 4305.131, 5703.37, 5717.02, 5727.26, 5727.89, 5733.11, 5739.13, 5743.081, 5743.082, 5743.56, 5747.13, 5749.07).
The tax law includes numerous statutes requiring legal notice be given to taxpayers. The law includes a general service provision (5703.37) and numerous specific provisions within the law governing a particular tax (e.g., sales tax, income tax). These provisions vary, creating confusion as to what standards apply. The Ohio Supreme Court decision addressed the discrepancies in Schindler Elevator Corp. v. Tracy (1999). In the decision, the court rejected the taxpayer’s arguments that the general service provision prevailed over the later enacted specific service of sales tax assessment provision found in section 5739.13 of the ORC. The bill revises the general service provision and cross-references other service provisions to the general statute. The bill provides that the Commissioner is not required to address notices or orders to the statutory agent of a corporation, but to the person affected by the notice.
Severance tax (5749.08).
Currently, most taxes allow interest to be paid to taxpayers on erroneous assessments. This type of provision is not included in Chapter 5749, the severance tax. The Department proposes to amend severance tax law to allow the payment of interest to taxpayers on erroneous assessments.
Personal Property Tax
Extend the personal property tax filing period (5711.04).
Personal property tax returns are due between the fifteenth day of February and the thirtieth day of April. Under current law, county auditors can extend the filing for a period not exceeding forty-five days (the extension expires on June 14). Most, but not all auditors grant the file extension.
The bill gives auditors the discretion to extend the filing to a date certain: June 15.
Prospective application of depreciation rate changes (5711.18 and 5727.11).
Long established depreciation schedules are used to determine taxable property of general business and public utility personal property. The proposal provides that any changes to these schedules in true value would be prospective in nature, and prohibit using changes in the schedules as evidence of value with regard to prior year taxes. Information obtained by the Commissioner regarding the business, property and transactions of any individual taxpayer for the purpose of modifying these schedules shall not be disclosed.
Motor Fuel Tax / Fuel Use Tax
Change the minimum threshold for vehicles subject to the fuel use tax (5728.01, 5728.02, 5728.03, 5728.04, 5728.06).
Ohio is the only state that levies an intrastate fuel use tax on a two axle truck pulling a trailer that weighs more than 3,000 pounds and the gross vehicle weight (GVW) is less than 26,000 pounds. The International Fuel Tax Agreement (IFTA) governs use taxes of trucks with interstate operations and only taxes such combinations if their GVW exceeds 26,000 pounds. Currently, the difference between Ohio and the IFTA means that certain intrastate combinations are taxed while Ohio cannot tax the same interstate combinations.
Increasing the threshold to greater than 26,000 pounds will provide similar treatment of intrastate and interstate motor carriers. This change will also eliminate the tax return filing requirement for many non-business users of pickup trucks pulling trailers and farmers using pickup trucks pulling trailers. There will be a loss of revenue to ODOT of approximately $100,000 per year.
Eliminate the $2.00 Fuel Use and International Fuel Tax Agreement (IFTA) permit and renewal fees (5728.02 and 5728.03).
The proposed changes will eliminate the $2 fuel use and IFTA permit and renewal fees. The Department of Taxation will be able to better serve Ohio's motor carriers by making it easier and faster for them to obtain permits. Also, it will be easier for Taxation to develop electronic filing of permit applications and renewals. Until the electronic system is developed, taxpayers will be able to file their permit applications by fax and receive their temporary authority the same day.
Currently, the motor carries can go to one of nine Taxation offices statewide, send the information and payment by mail (up to three weeks), or pay a third-party commercial permit service to get the permits the same day. There will be a loss of revenue to ODOT of approximately $325,000 per year (162,500 permits per year at $2 each).
Codify policy on the reporting of bobtail miles (5728.06 and 5728.04).
A bobtail is a semi-tractor operating without the trailer. Currently, taxpayers are reporting these miles as taxable for purposes of the fuel use tax. Thus, this provision codifies existing practice and will not affect tax liability.
Expand fuel use tax annual filing option (5728.08)
Currently, farmers using fewer than 15,000 gallons of motor fuel per year are allowed to file motor fuel use tax returns on an annual rather than a quarterly basis. The bill would permit the Tax Commissioner to authorize any fuel use taxpayer to file on an annual basis. If the Commissioner extends the annual filling option to all taxpayers using fewer than 15,000 gallons of fuel per year (the standard for farmers) the Department will experience an annual cost savings of $50,000 due to reduced mailing and processing costs. It would cause an estimated one-time loss to ODOT of $650,000. This change would affect approximately 8500 taxpayers.
Permit the sale of dyed kerosene at gasoline service stations (5735.01, 5735.023, 5735.05).
Generally, federal law provides for the dying of motor fuel as a means to enforce motor vehicle fuel tax laws. Dyed fuel, on which no fuel tax has been paid, may be used only for tax exempt purposes.
Kerosene can be used as an additive to or component of motor fuel (taxable), or for non-transportation (tax-exempt) purposes. One of the prime non-transportation or tax exempt uses of kerosene is as a home heating fuel. Small purchases of kerosene for tax exempt purposes typically occur at a retail (gasoline) service station from a special pump. Ohio law only permits the sale of clear kerosene at retail service stations. Ohio law also provides that the state motor fuel tax does not apply to these service station sales.
The bill will permit the sale of clear and dyed kerosene at retail service stations.
Change the point of taxation for ethanol to be the same as gasoline (5735.01(E) (2)).
Gasoline and ethanol are blended to produce gasohol and must be reported separately as a sale of gasoline and a sale of ethanol under current motor vehicle fuel tax law. Ethanol was not defined as gasoline to facilitate claims for the ethanol credit that was repealed in 1997. H.B. 612 changes the definition of gasoline to include ethanol. This will ease the reporting requirements of terminal operators and wholesale distributors. Tax revenue will not be affected.
Change the definition of transmix to reflect industry practices (5735.01(E) (3)).
A terminal is the main distribution center for motor fuel. At this location, different types of fuels are continuously pumped through a main pipeline. At times, these types of fuels will blend in the pipeline, for example, when gasoline follows diesel. The commingled fuel is called "transmix." Current law defines transmix as gasoline. The bill would define transmix as gasoline or diesel, in conformance with industry practice. This change will simplify reporting for taxpayers, because they will be able to report fuel types through their own classification system without making additional accounting or tax return adjustments. This change does not alter tax liabilities.
Codify policy that gallons must be reported in "gross" and not "net" gallons (5735.012).
Motor fuel gallonage can be reported in "gross" or "net" gallons. "Gross" means the actual gallons at the time of delivery and "net" means the gallons adjusted for temperature and pressure. It is important that fuel be reported consistently one way or the other. All taxpayers are now using the gross reporting method in accordance with Department policy. H.B. 612 will codify existing practice.
Motor fuel used by "vessels" (5735.05 (A) (10)).
Certain users of motor fuel are exempt from taxation, but must pay for the tax when the fuel is purchased and then apply for refund. H.B. 612 will permit purchase of fuel for use in vessels for commercial fishing, or for ferries, barges, and freighters without paying tax in the first instance, eliminating the need for the refund.
Repeal of tax refund for "excess gallonage" (5735.17).
The sales of motor fuel between licensed motor fuel dealers is exempt from the motor fuel tax. Due to the prior structure of the tax, licensed motor fuel dealers were permitted to file for a refund when then sold more motor fuel in a month to other dealers than they had purchased. In 1996, the point of taxation for motor fuel changed, eliminating the need for this refund provision. H.B. 612 eliminates it.
Eliminates obsolete provisions for taxation of interstate buses (5735.l2 and 5735.132).
With the advent of the International Registration Plan (IRP) of which Ohio is member, the registration and taxation of interstate bus operators changed. The bill eliminates provisions of law that are remnants of the prior tax structure for these companies.
Extend the time to file motor fuel refunds (5735.14, 5735.141, 5735.142, 5735.18).
The bill will extend from 180 days to 1 year, the time within which a taxpayer must file a refund claim for the following exempt uses of motor fuel: off highway usage (farmers, industrial users), transit bus usage, and non-dealer sales.
The bill will extend from 60 to 120 days the time within which a taxpayer must file a refund claim for the retail dealer shrinkage allowance.
Redefine casual sales (5739.01(L)).
Under current law, "casual sales" are exempt from sales tax when the item sold has previously been subject to a tax within Ohio. Generally, a "casual sale" is the resale of an item by a person who is not a retailer. There are some exceptions to this including motor vehicles, certain watercraft, snowmobiles and all purpose vehicles. The proposed change would allow exemption when the item had been subjected to the taxing jurisdiction of any state. Current law favors items transferred within the state over items purchased and brought into the state and therefore raises constitutional concerns.
Clarify sales tax treatment related to 501(c)(3) Organizations (5739.02).
The sales tax law provides special tax treatment to charitable organizations in three areas. 1) They are exempt from sales tax on their purchases. 2) Charitable organizations may make retail sales for up to six days a year without incurring the responsibility of collecting sales tax; and 3) Building contractors are exempt from the tax when they purchase materials for construction of buildings for those charitable organizations.
Current law treats 501 (c)(3) organizations as charitable organizations for purposes of making exempt purchases, as described in item 1), above. It does not clearly address items 2) or 3), although it has been the Department’s practice to allow these exemptions.
The bill amends the law to reflect the Department’s practice.
Elimination of the exemption for certain types of energy systems (5739.02(B)(27)).
This section provided an exemption for certain types of energy systems purchased between August 14, 1979 and December 31, 1985. The exemption no longer applies.
120 days to substantiate tax exempt sales (5739.03 and 5741.02).
Vendors making sales are required to either collect the tax or obtain an exemption certificate that specifies a legal reason why the purchaser is not paying the tax. In some cases, the exemption certificate is incomplete or not submitted. In case of audit, the bill extends the time from 60 to 120 days for an in-state vendor to collect sufficient information to establish an exemption. The bill also extends the same treatment to out-of-state sellers who presently face no specific time limitation.
Lower Electronic Funds Transfer (EFT) payment thresholds (5739.032, 5739.122, and 5741.121)
Under current law, a vendor whose sales tax liability meets or exceeds $600,000 for a year is required to pay taxes by EFT beginning in the second ensuing year after this threshold is met. From then on, the vendor pays electronically until the vendor owe less then $600,000 for two consecutive years. Current law also requires vendors that file for more than one license to pay electronically if the combined tax meets or exceeds the $600,000 threshold.
The bill lowers the threshold from $600,000 to $60,000 effective with the 2000-filing year. This change will affect the December 2001 return with the payment due January 23, 2002. Also, vendors filing for multiple licenses will no longer be required to combine the tax liabilities. (See also Employer Withholding Tax.)
Eliminate the limited vendor’s license; Expand transient vendor’s license (5739.033 and 5739.17).
Currently, limited vendors are retailers who make sales at a temporary exhibition, show, flea market, or other similar events. The license is valid only for the duration of the event, up to 20 days. For each event, the vendor must obtain a separate license at a cost of $5 for each limited license. Transient vendors are retailers who make sales in any county in which they have no fixed place of business. The license is valid throughout the state. The transient license allows the person to sell at many events during a year with no limitation on the number of sale days. The cost of the transient license is currently $100 and transient vendors are subject to annual license renewals for a $40 fee.
The bill eliminates the limited vendor’s license and requires those vendors to obtain the transient vendor’s license. The transient vendor’s fee will be reduced from $100 to $25. The estimated loss, including state and local funds, totals $400,000.
Under current law, either the county auditor or the department may issue the limited vendor’s licenses. The department issues the transient vendor’s licenses and renewals. If the auditor issues the limited license, the revenue is placed into the county’s general fund. If the department issues the license or renewal, the revenue is deposited in the state General Revenue Fund. Under the bill, the department will continue to handle the issuance of the transient vendor’s licenses.
Eliminate vendor’s license renewal and renewal fees (5739.13, 5739.17, 5739.19, and 5739.30).
License renewal fees currently apply to vendor, service vendor, transient vendor, and delivery vendor licenses. The amount of the fee is $40 for the transient vendor and $10 for all other vendors. The bill eliminates these renewal fees and the associated paperwork for the department and vendors. The bill also permits the Commissioner to revoke inactive licenses. The estimated loss to the state General Revenue Fund totals $2.3 million .
Allow vendors to transfer licenses between locations (5739.17).
Allow vendors to transfer licenses between locations (5739.17).
Allow vendors to transfer licenses between locations (5739.17).
Generally, each county auditor issues vendor’s licenses for a specific location. Currently if a vendor relocates, even if only across the street from his original location, the vendor must apply and pay for a new license and cancel the existing license. This change allows the vendor to retain the license if the business remains in the county, reducing paperwork and costs for the vendor.
Require a liquor permit holder to have the liquor license in the same name (5739.17).
H.B. 612 codifies existing policy that requires a liquor permit holder to have a liquor license in the same name as shown on the vendor’s license. This change will complement existing statute that specifies that only the liquor permit holder is allowed to sell liquor.
Repeal temporary immunity provision (5739.161).
For 16 days during 1981, the state sales tax rate was increased from 4.0 percent to 5.1 percent. Because this tax rate created many problems for vendors, the General Assembly quickly amended the tax and gave vendors immunity from assessments related to that period. This section is no longer needed.
Employer Withholding Tax
Lower the Electronic Fund Transfer (EFT) payment threshold from $180,000 to $84,000 (5747.07).
Under current law, employers with annual personal income tax withholding tax payments exceeding $180,000 per year, are required to remit their payments to the Treasurer of State via EFT. The bill would lower that threshold to $84,000 beginning in 2001 and increase the number of filers by approximately 1,300.
Personal Income Tax and School District Income Tax
Increase the estimated payment threshold (5747.09).
Under current law, taxpayers with annual tax liabilities of $300 or more (after withholding) are required to make quarterly estimated payments of personal and school district income taxes. The proposed changes raise that threshold to $500, which will reduce the number of taxpayers required to file estimated payments by approximately 15 percent. There will be a one-time revenue loss of approximately $6.5 million in the fiscal year this change is enacted. The $300 threshold was established in 1984. Raising it to $500 is consistent with inflation since then.