Tax Reform Could Distinguish Between Pass-Through Businesses

In April, the Trump Administration announced a broad outline for tax reform which included proposals to cut the top individual tax rate to 35% and reduce the top business tax rate to 15%.   This reduced business rate would also apply to "pass-through businesses" - the majority of U.S. businesses who report income on their owners' tax returns rather than paying corporate income taxes.

However, Treasury Secretary Steven Mnuchin recently indicated that the reduced pass-through rate may not be available to service companies.

From the Wall Street Journal:

The idea is to create a special tax rate that is equal to or higher than the corporate tax rate but lower than the tax rate that applies to wages. That new rate would apply to pass-through business income but with boundaries to prevent it from being used by people whose income from service businesses closely resembles wages. 

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Under a system like the one Mr. Mnuchin described, the owners of an accounting partnership would pay the individual tax rate on both their salaries and their partnership distributions. But the owners of a manufacturing partnership would pay the individual tax rate on their salaries and the special, lower rate on their profits.
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It could be a challenge to define which companies get the lower tax rate Republicans are planning and which owners of companies would continue paying higher individual tax rates on their business income. Creating that distinction would cut against another Republican goal for the tax code: simplification. Possibly affected industries include law, engineering, medicine, finance, architecture and consulting.

Although many details are still lacking from the proposal, such a distinction - if included in the proposed legislation - could have a major impact on closely held businesses. The White House and Republican congressional leaders hope to reveal the full tax reform plan by the end of September.

Changes to Public Records Laws Take Effect Sept. 28

Under Ohio's Public Records Law, any Ohioan may request copies of public records from a public office.  If a proper request for records is denied, the citizen can petition a court to order the release of the records.

However, new legislation passed by the General Assembly - the first of its kind in the country - now gives Ohioans a more streamlined and cost-effective way to obtain these records in case of a denial.

From the Columbus Dispatch:

On Sept. 28, the Ohio Court of Claims will begin accepting complaints on the refusal to release records by government at all levels, from townships to the state.

The law, the product of legislation from Senate President Keith Faber, R-Celina, will send complaints to a mediator who will work with citizens and government officials in an attempt to reach a resolution.

If no agreement is reached, a special master will rule within seven days whether government was legally correct in denying a records request or broke the law and must hand over the records.

In order to file an appeal, a citizen must file a complaint form and copies of the records requests and governmental denials, along with a filing fee of $25, with the county court of common pleas. 

The 2016 Ohio Sunshine Laws Manual, published by the Public Records unit of the Ohio Attorney General's office, provides an excellent overview of Ohio's public records laws.

Ohio Doubles Film Tax Credit

In good news for Ohio filmmakers, the General Assembly recently passed legislation to double Ohio's film making tax incentive in order to encourage big-budget films to be shot in the Buckeye State.

From the Columbus Dispatch:

The legislation, passed by the Ohio General Assembly and signed by Kasich last month, will go into effect at the end of September. In addition to doubling the incentive cap, the law removes the $5 million cap for each project and raises the incentive rate to 30 percent of production dollars spent in Ohio.

Since 2011, when the state increased the tax credit to $20 million, 1,729 full-time jobs have been created and more than $400 million in total economic impact has been generated, according to the Ohio Department of Development.

In addition to the state tax credit, Section 181 of the Internal Revenue Code includes various federal incentives for filmmakers. Congress has extended these incentives through the end of 2016.

A previous blog post has additional information on the tax incentives available to filmmakers.

Ohio's D.O.L.L.A.R. Deed Program

The 131st Ohio General Assembly is currently considering new legislation to give individuals and families another opportunity to stay in their homes and avoid foreclosure after default on a mortgage loan.

House Bill 303 would create the D.O.L.L.A.R. Deed Program, established in part by the Ohio Housing Finance Agency. Under the new program, if the borrower defaulted on a mortgage loan, the borrower and lender would enter into an agreement in which the borrower transfers his interest in the property to the lender by way of a deed in lieu of foreclosure. In return, the lender would then rent the property back to the borrower for a specified period of time. During the lease term, the borrower would be able to repurchase or refinance the property.

House Bill 303 was passed by the House on December 8, 2015 and is currently under consideration by the Senate Committee on Financial Institutions.

New Tax Cut for Ohio Small Business Owners

Most Ohio small business owners are eligible for a 50 percent deduction on their first $250,000 of business income as part of tax cuts approved last year by the Ohio legislature.  As part of the tax cut, a business owner can exclude 50 percent of Ohio net business income from the adjusted gross income reported on the state personal income tax return.

Owners of and investors in, Ohio businesses structured as pass-through entities (such as sole proprietorships, partnerships, S-Corps, and Limited Liability Corporations) are eligible for the tax cut.  Owners and investors receiving income from the pass-through entity are required to pay personal income taxes on that income.

For more information, read the full tax alert issued by the Ohio Department of Taxation or check your eligibility for the deduction.

New Markets Tax Credit Set to Expire

An important tax incentive for investments in economically distressed neighborhoods is set to expire at the end of 2013.

The New Markets Tax Credit (NMTC) is designed to increase the flow of capital and spur investment and job creation in communities with high unemployment and other measures of economic distress. The NMTC provides private investors with a 39 percent federal tax credit for investments made in businesses or economic development projects in some of the most distressed communities in the nation.

Since 2003, NMTC investments have directly created over 350,000 jobs -- including more than 40,000 in Ohio – and leveraged $55 billion in capital investment to credit-starved businesses in communities with high poverty and unemployment rates. In Columbus, for example, the NMTC helped investors purchase land and construct a grocery store in a distressed neighborhood.

Legislation sponsored by Sens. Jay Rockefeller (D-WV) and Roy Blunt (R-MO) is currently pending in Congress to make the NMTC permanent. S. 1133, The New Markets Tax Credit Act of 2013, would extend the Credit indefinitely by making it a permanent part of the Internal Revenue Code, and enhance the potential impact of the Credit by increasing the annual NMTC allocation. However, Congress must pass the legislation before the end of the year in order for the NMTC to continue.

Learn more about the credit or congressional efforts to extend it.

Comprehensive Tax Reform Unlikely Before 2015

Experts at this week’s American Institute of Certified Public Accountants National Tax Conference predicted that Congress is unlikely to pass comprehensive tax reform legislation in the near future despite ongoing positive discussions.

The House and Senate tax-writing committees are on track to produce bipartisan tax reform legislation that will receive lawmakers’ approval, but it is unlikely to occur until the next Congress, said tax experts on November 4. Speaking at the AICPA National Tax Conference, Donald R. Longano, former Democratic chief tax counsel to the House Ways and Means Committee, said tax reform is “more likely to come to fruition in 2015,” despite the intense activity going on behind the scenes. 

Observers also predicted that lawmakers would not extend $64 billion in energy and business tax provisions scheduled to expire at the end of 2013.

Any proposals not enacted into law by the end of 2014 would have to be reintroduced in the 114th Congress in January 2015.

Read the full report from the CCH Group Blog.

Lawsuit Abuse Reduction Act Proceeds Through Congress

Legislation designed to help small businesses by reducing frivolous lawsuits in federal courts is making its way through the U.S. House of Representatives.

H.R. 2655, the Lawsuit Abuse Reduction Act of 2013 amends Rule 11 of the Federal Rules of Civil Procedure to strengthen sanctions against parties and lawyers who file unmerited lawsuits. Specifically, the bill:

• Reinstates sanctions for the violation of Rule 11;
• Requires judges to impose monetary sanctions against lawyers who file frivolous lawsuits, including the attorney's fees and costs incurred by the victim of the frivolous lawsuit; and 
• Prevents parties and their attorneys from withdrawing frivolous claims after a motion for sanctions has been served.

Bill sponsors hope that the increased sanctions would discourage frivolous suits and claims, allowing business owners to use resources to expand their business rather than defending lawsuits in federal court. Moore & Van Allen’s Litigation Blog has a detailed explanation of the changes to Rule 11, which could affect all attorneys and parties in federal court.

The bill was recently passed by the House Judiciary Committee and is now pending before the full House. A companion bill, S. 1288, is under consideration by the Senate Judiciary Committee.

Legislature Examines Debt Settlement Regulations

Ohioans seeking to settle their credit card debt could be affected by a pending bill in the Ohio Legislature. House Bill 173, currently pending before the House Financial Institutions, Housing and Urban Development Committee would change existing regulations governing debt settlement companies.

Debt settlement companies are third parties who intervene between a debtor and creditor, offering to settle creditor debts for a small percentage of the amount owed. In a typical case, the debtor stops paying the creditor and instead makes regular payments to the debt settlement company, who then attempts to negotiate a settlement on behalf of the debtor.

Currently, these companies are regulated under a 2004 statute known as the Debt Adjuster’s Act (Ohio Revised Code § 4710.01 et. seq.), which, among other provisions, limits fees charged by debt settlement companies to the greater of 8.5% of the debtor’s monthly payments or $30. Additionally, the Federal Trade Commission finalized rules in 2010 prohibiting companies from charging fees before debts are settled.

House Bill 173 would create separate regulations for debt settlement companies. Under the bill, these companies would be exempted from the requirements and fee caps of ORC 4710.02 and – as in the 2010 FTC rules – prohibited from charging up-front fees to debtors. Fees would no longer be capped, but companies would be subject to additional regulations, including registering with the Department of Commerce and disclosing a variety of information to debtors.

The Columbus Dispatch recently published an article summarizing opposing views on the bill, and the Ohio Legislative Service Commission has a full analysis of the legislation.