While many Ohioans were away on vacation or just enjoying the summer our legislature was busy passing some news laws that would allow the State to balance the budget.
According to one new law, complex trusts will now have to pay State income tax, even if those funds are not distributed to the beneficiary.
“The Ohio law, prior to passage of this Bill, did not apply the personal income tax to the undistributed income of a trust,” explains Andrew Press, CPA and tax partner with Bick Fredman & Co.
Before, as long as the income was not distributed tax did not need to be paid. This only applies to trusts that “reside” in Ohio. “There are three case in which a trust or part of a trust is considered an Ohio resident,” explains Press.
The tax applies when assets are transferred under a will of a person who lived in Ohio; when the trust is irrevocable and the assets are transferred by a person who lives in Ohio; and if even one of the beneficiaries is an Ohio resident during the taxable year.
The amount owed on the trusts is figured the same way as the federal tax. “The tax is computed by multiplying the allocated and apportioned income of the trust by the personal income tax rates,” says Press.
In the end, the state won’t actually raise more money, the new legislation just the receipt of the tax. Press suggests that the State is looking to raise a little revenue this year. “This is the one thing the state is doing to get the money quicker,” he says.
The first of these quarterly estimates was due Sept. 15, 2002. “Those who have taxable trusts will owe their first estimate in September and if they don’t pay on time they will have to pay penalties,” says Press.
The Ohio Department of Taxation has released a release to professional practioners however the new tax has otherwise not received a lot of attention. When asked if he thought there might be a public awareness issue regarding the new legislation, Press said, “I don’t think there is any public awareness.”
How to reach:Bick Fredman & Co., (216) 426-2100
