RECENT TAX DEVELOPMENTS

Ohio Property (and Sales) Tax

Once again the Ohio Board of Tax Appeals rules that property is a “Business Fixture” (tangible personal property) rather than realty. In rendering its decision in Oregon Ford, Inc. v. Wilkins, Ohio BTA, 2005-A-111, January 27, 2006 (download pdf) the Ohio BTA ruled that parking lot lighting at an auto dealership did not constitute a real property improvement. Rather, the BTA said that the parking lot lighting constitutes a business fixture and, as such, should be treated as tangible personal property. The taxpayer argued that the lighting was a real property improvement, and qualified as a “structure”.

In rendering its decision, the BTA held:
• The lighting was not a structure, since the use of the natural land is not improved
or assisted by the lighting;
• The lighting was not installed in order to increase or enhance utilization of the
land on which it was placed.

Thus the lighting did not qualify as a structure or any other type of real property improvement. Instead, the BTA said the lighting was placed to allow the taxpayer’s customers to shop for cars after hours, and; to help protect the dealer’s inventory. As such, the property primarily benefits the business conducted, and should be treated as tangible personal property.

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Ohio (New) Penalty Provisions related to automated compliance programs

The Ohio Department of Taxation (ODT) has issued a new information release concerning a change to some of the penalties imposed through its automated compliance programs. This release serves as a notice to the public that penalties imposed on Ohio Department of Taxation’s compliance program tax assessments have been changed.

ODT is devoting increased attention to taxpayers who fail to comply with filing and payment requirements that lead to a tax assessment having to be issued from an automated compliance program. This new release, numbered G 2006-01, provides notice of an increase of penalties in those situations. In general, penalties imposed from automated compliance program assessments will only be reduced if unique circumstances exist. Reduction will then likely be only a partial and not a complete abatement of the penalty. Interest charges cannot be abated. The release outlines the new penalties for each tax; e.g., taxpayers assessed for delinquent income tax or school district income tax face a penalty of the greater of thirty-five percent (35%) of the tax due or $500.

The release has been posted to the ODT Web site, tax.ohio.gov, at the path Releases-Information Releases-General Information Releases.
Click Here to View Release

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Florida R&D Sales/Use Tax Exemption

At last, Governor Bush has not gotten on board with the other states that offer sales/use tax exemptions for R&D purchases.
Click Here for Full Story

Effective July 1, 2006 - House Bill 415 - Sales Tax Exemption on R&D

Provides full sales tax exemption for machinery and equipment purchased for use in research and development (e.g., exemption on the purchase, rental, or repair of real property or tpp used for R&D). This new tax exemption will result in an estimated $27 million in tax savings next year.

Effective July 1, 2006 – House Bill 69 - Sales Tax Exemption on M&E Used to Increase Productive Output

No longer will a business be required to pay the first $50,000 in sales/use tax for purchases of M&E used in expanding a manufacturing facility. Under the Bill, an exemption is granted to qualified purchases of M&E used to increase the productive output of the manufacturer as long as that equipment will lead to a 10% increase in productivity. The new law will result in an estimated $24 million in tax savings next year. It is also estimated that more than 16,000 manufacturing companies will be able to take advantage of this tax break.

Effective July 1, 2006 – Sales Tax Exemption on Advertising Materials

Advertising material distributed free of charge by mail in an envelope are exempted from sales and use tax.

Other Incentive Related Programs:

Effective July 1, 2006 – SB 2728 – Governor’s Innovation Incentive Program

This bill creates an incentive for high-value R&D and innovation business projects. The bill details eligibility requirements and provides $200M in funding for fiscal year 2006-2007.

Effective July 1, 2006 – SB 2728 - Capital Investment Tax Credit

If certain criteria are met, a credit is provided for new or expanding headquarter facilities in an enterprise zone and brownfield area. The credit is equal to the lesser of $15M or 5% of the eligible capital costs made in connection with a qualifying project for a period not to exceed 20 years.