Reviewing Business Returns: 2018 RITA Update The elimination of the Throwback provision The following materials are for educational/ demonstration purposes only. They are not to be construed or relied upon as legal or tax preparation advice. 6/21/18 The Regional Income Tax Agency

Throwback Rule Eliminated: Amended. Sub HB 49 6/21/18 The Regional Income Tax Agency

Throwback Rule Eliminated Amended Sub HB 49 Throwback Rule: “The property is shipped from a place within the municipal corporation to purchasers outside the municipal corporation, provided that the taxpayer is not, through its own employees, regularly engaged in the solicitation or promotion of sales at the place where delivery is made.” See division (D)(1) of current section 718.02 6/21/18 The Regional Income Tax Agency

Throwback Rule Eliminated Amended Sub HB 49 Elimination of “Throwback” Sales Provision Gross receipts from sales of tangible personal property are sitused to the municipal corporation only if, regardless of where title passes, the property meets either of the following criteria: The property is shipped to or delivered within the municipal corporation from a stock of goods located within the municipal corporation. The property is delivered within the municipal corporation from a location outside the municipal corporation, provided the taxpayer is regularly engaged through its own employees in the solicitation or promotion of sales within such municipal corporation and the sales result from such solicitation or promotion. 6/21/18 The Regional Income Tax Agency

Throwback Rule Eliminated Amended Sub HB 49 How does this change impact the sales reported to a municipality? --HB 49 creates “no where” sales. For example, manufacturers and distribution centers that previously reported sales shipped to destinations outside of the municipality will only report sales made and delivered within the municipality. All other sales, if not solicited by an employee in the (taxing) municipality where the goods were shipped, won’t be in the sales factor numerator for any municipality. 6/21/18 The Regional Income Tax Agency

Throwback Rule Eliminated Example 1 A customer goes into a hardware store in Dayton and buys a snow blower. He walks out of the store with the snow blower and drives home to Riverside. Where should the sale be sourced? 6/21/18 The Regional Income Tax Agency

Throwback Rule Eliminated Example 1 A customer goes into a hardware store in Dayton and buys a snow blower. He walks out of the store with the snow blower and drives home to Riverside. The sale is sourced to Dayton because the item was property delivered to the purchaser in Dayton from a stock of goods within Dayton. 6/21/18 The Regional Income Tax Agency

Throwback Rule Eliminated Example 2 A customer located in Eastlake calls a Mentor flower shop and orders flowers for a friend who is appearing in a Mentor local theatre production of Romeo and Juliet. The customer wants the flowers delivered to the friend’s dressing room in 2 days on opening night. Where should the sale be sourced? 6/21/18 The Regional Income Tax Agency

Throwback Rule Eliminated Example 2 A customer located in Eastlake calls a Mentor flower shop and orders flowers for a friend who is appearing in a Mentor local theatre production of Romeo and Juliet. The customer wants the flowers delivered to the friend’s dressing room in 2 days on opening night. This is a Mentor sale because the product was both shipped from a stock of goods located in and delivered within Mentor. BUT If the theatre were in Painesville, the sale would not be apportioned to any municipality. 6/21/18 The Regional Income Tax Agency

Throwback Rule Eliminated Example 3 Customer goes to a furniture store in Columbus and buys a couch. The store only has floor models on hand, but has the couch in stock in the store’s nearby warehouse in Grove City. The following week, the couch leaves the Grove City warehouse and is delivered to the customer’s home in New Albany. Where will the sale be sourced? 6/21/18 The Regional Income Tax Agency

Throwback Rule Eliminated Example 3 Where will the sale be sourced? No where. The couch was not shipped from and delivered within the same municipality. The company is not engaged in the solicitation at the place of delivery. 6/21/18 The Regional Income Tax Agency

Throwback Rule Eliminated Example 4 S-Corp in the business of selling lists of people who have put their home up for sale to the company’s clients(i.e. moving, satellite, home security companies, etc.).  The company collects data from numerous sources to compile a list in it’s Strongsville location.  This list is then "scrubbed" to remove bad leads and the cleaned list is sent to customers in a variety of ways including electronic delivery, via mail to the client, or mass mailings at a client request. Because these lists can be printed, touched and mailed to the customer, the tax preparer believes the lists to be tangible personal property and essentially the sales to be “no where sales” since the taxpayer is not soliciting in the delivery municipality and has no Strongsville customers. Where will the sale be sourced? 6/21/18 The Regional Income Tax Agency

Throwback Rule Eliminated Example 4 Strongsville Although the list can be “tangible”, the business is really providing a service. The taxpayer gathers and scrubs data for its clients. The company is providing a service. Since the service is being provided in Strongsville, the sales are allocable to Strongsville. ORC 718.02 (D)(2) Gross receipts from the sale of services shall be sitused to the municipal corporation to the extent that such services are performed in the municipal corporation. 6/21/18 The Regional Income Tax Agency

Throwback Rule Eliminated Example 5 John goes into a big box retailer in Youngstown and buys a computer. He also wanted to purchase the latest video game, but it was out of stock. He walks out of the store with the computer and returns home to Liberty township. John then sets up the computer, and visits the big box retailer’s website to order the hot video game. Since he just spent most of his paycheck on the computer and video game, he takes advantage of the free in-store pick up option. The item is shipped from the company’s Worthington distribution center. Where will the sales be sourced? 6/21/18 The Regional Income Tax Agency

Throwback Rule Eliminated Example 5 Youngstown & no where The computer is sourced to Youngstown. The video game is sourced no where. Why? 6/21/18 The Regional Income Tax Agency

Throwback Rule Eliminated Example 5 Youngstown & no where The computer is sourced to Youngstown. The video game is sourced no where. The video game was not shipped from Youngstown and the sale did not result from solicitation in Youngstown. It also cannot be a Worthington sale because although it was shipped from Worthington, it was delivered to a location outside of Worthington. 6/21/18 The Regional Income Tax Agency

Throwback Rule Eliminated Matters to consider The new law effectively creates a disparity in allocation between service-based businesses and sellers of goods. A serviced based business with all activity in a single muni will pay tax on 100% of its taxable income. A manufacturer or distributor with no activity outside the muni other than the fact that it ships products outside the muni, may pay tax on as little as 66.67% of its income. 6/21/18 The Regional Income Tax Agency

Throwback Rule Eliminated Matters to consider The new law effectively creates a disparity in allocation between larger and smaller specialty retailers. For example, a large retailer with a significant web/catalog presence and distribution center in a muni will not include the sales shipped outside the muni in its Schedule Y numerator. A small specialty shop whose customers come in and purchase items will see no benefit from the elimination of the Throwback Rule. 6/21/18 The Regional Income Tax Agency

Throwback Rule Eliminated Additional considerations: If you are negotiating an incentive agreement, keep in mind how the elimination of the Throwback rule affects any potential net profit tax. If you already have an incentive agreement with a manufacturer or distributor, you will likely see a reduction in net profit tax. 6/21/18 The Regional Income Tax Agency

Modernized eFiling of Net Profit Returns: This is a highly anticipated update since there is currently no way for businesses to file their Ohio municipal Net Profit returns electronically via MeF. 6/21/18 The Regional Income Tax Agency

Filing of Net Profit Returns via MeF RITA is developing a way for preparers to electronically file their Net Profit returns using their software package. This will save tax preparers time, effort, and money. Returns will be linked to IRS returns, eliminating the need to mail federal returns. This functionality will also help streamline some of RITA’s processes allowing us to better serve members, taxpayers, and preparers. RITA is currently working with select software vendors and anticipates it will be available for the 2018 filing season. 6/21/18 The Regional Income Tax Agency

Filing of Net Profit Returns via MeF Taxpayers and preparers have been asking us for an electronic filing option and we are eager to make this available. 6/21/18 The Regional Income Tax Agency

Contact Information Shylo Carmody Business Examiner Regional Income Tax Agency 440-526-0900 x3541 scarmody@ritaohio.com 6/21/18 The Regional Income Tax Agency