Phase-out and Loss Reimbursement of Tangible Personal Property Taxes

Introduction

Sections 5751.20 to 5751.22 of Amended Substitute House Bill 66 of the 126th General Assembly provided for the phase-out of tangible personal property (TPP) taxes on general business, telephone & telecommunications, and railroad properties over a period starting in tax year 2006 and ending in tax year 2010.  In fiscal year terms this would be from FY 2008 to FY 2012.  Based on that, by tax year 2011 or FY 2013 there would be no general tangible values left in the property tax base of school districts. A schedule was established for the phase-out of this tax through progressive reductions in the assessment rate of these properties.

The law provided for school districts to be held harmless by the state for their local tax revenue losses for a period of time referred to as the ‘hold-harmless’ period, through a combination of additional state formula funding resulting from the use of reduced valuation in the charge-off calculation as well as direct state reimbursement.  The hold-harmless period was to be followed by a period of phasing out of the hold-harmless guarantee. The phase-out period was slated to start in August of 2011 and to go on for the following six years.  Amended Substitute House Bill 1 of the 128th General Assembly however, postponed the starting of the phase-out period to August 2013.

The reimbursements to school districts during the hold-harmless and the ensuing phase-out periods all apply to fixed-rate levy (levies passed for a fixed set millage rate) losses.  For fixed-sum levies (levies passed for a fixed dollar amount), districts were to be reimbursed for as long as those levies were in effect.

State reimbursements were made in August, October and May of each fiscal year.  For fixed-rate levies, reimbursements were to continue during the hold-harmless and the period that followed it in which the hold-harmless guarantee was phased-out, regardless of whether or not the levies remained in effect up through tax year 2010.  The law provided that any qualifying fixed-rate levy that was not applicable to a tax year after 2010 would not qualify for any reimbursement after the tax year to which it was last applicable. 

Reimbursement in FY 2012, FY 2013 and Thereafter

Am. Sub. H. B. 153 introduced major changes in the reimbursement calculation and the distribution schedule.  It also introduced a process of identifying reimbursement eligible school districts which we did not have before the passage of the new law.  The test of eligibility is predicated on the relationship of the reimbursement amount for operating levy losses to the total operating resources available to the school district.  If the ratio of the latest annual TPP reimbursement for current operating fixed rate levy losses to the total operating resources of the district is smaller than a threshold percentage provided in law, the district is no longer eligible for reimbursement.  For eligible districts reimbursement is calculated according to the procedure outlined below. 

Eligibility

To identify the school districts that should still receive reimbursement for the phase-out of TPP taxes, the ratio of 2011 Current Expense TPP Allocation to Total Resources was first be determined.  If this ratio was equal or less than 2%, the district would not be eligible for reimbursement for fixed rate operating levy losses in FY 2012.  If this same ratio was less than 4%, the district would not be eligible for reimbursement in FY 2013 or any year thereafter.

  1. 2011 Current Expense TPP Allocation is the sum of payments received by a school district in FY 2011 for current operating fixed rate levy losses [Section 5750.20(A)(34)].  The reimbursement amount came from a special fund set aside for this purpose after accounting for state aid offset and was paid to school districts together with reimbursements for non-operating levy and fixed sum levy losses in three installments in August and October 2010 and May 2011 with the foundation payment distributions.

  1. Total Resources is the sum of the amounts a school district has received for current operation in FY 2010 [Section 5751.20(22)] as follows:

    1. The state education aid for FY10 which is the amount that is shown on the PASS foundation calculation form for FY 2010 labeled ‘State Resources for the Foundation Funding Program’.

    2. Public Utility Deregulation reimbursement for current operating fixed rate levy losses in FY 2010.

    3. Public Utility Deregulation reimbursement for fixed sum levy losses in FY 2010.

    4. TPP reimbursement for current operating fixed rate levy losses in FY 2010.

    5. 50% of the real and public utility tangible property taxes excluding any JVS taxes for FY 2010.

    6. 50% of the real and public utility tangible property taxes excluding any JVS taxes for FY 2011.

    7. 100% of the general tangible property taxes excluding JVS taxes for FY 2011.

    8. Any school district income taxes for FY 2010.

    9. Any shared municipal income taxes under ORC Section 718.09 for TY 2009.

Reimbursement Calculation and Distribution    

Sections 5751.21(C)(12) and 5751.21(E)(1) of Am. Sub. H. B. 153 provide for the calculation of reimbursements for:

  1. Current Operating Fixed Rate Levy Losses in FY 2012 and FY 2013 as follows:

    1. If the ratio of 2011 Current Expense TPP Allocation to Total Resources is equal to or less than the threshold percentages of 2% in FY 2012 or 4% in FY 2013, then the reimbursement for these losses is zero.
    2. If the ratio of 2011 Current Expense TPP Allocation to Total Resources is greater than the threshold percentages of 2% in FY 2012 or 4% in FY 2013, then the reimbursement for these losses is the difference between 2011 Current Expense TPP Allocation and the product of Total Resources times the appropriate threshold percentage.

Reimbursement for current operating fixed rate levy losses will be distributed in November 2011 and May 2012 in equal portions with the foundation payment.  For these levies, the same reimbursement amounts as were calculated for FY 2013 will be distributed in the ensuing fiscal years based on the same schedule, i.e. November and May as long as the levies for which the reimbursements were calculated remain intact for an indefinite period of time. 

  1. Non-Operating Fixed Rate Levy Losses in FY 2012 and FY 2013 by simply providing to the district, 75% of its FY 2011 reimbursement for these losses in FY 2012 and 50% of the FY 2011 reimbursement in FY 2013.  Reimbursement for non-operating fixed rate levy losses will be distributed in November 2011 and May 2012 in equal portions with the foundation payment. For these levies the same reimbursement amounts as were calculated for FY 2013 will be distributed in the ensuing fiscal years based on the same schedule, i.e. November and May as long as the levies for which the reimbursements were calculated remain intact for an indefinite period of time. 

  1. Fixed Sum Levy Losses in FY 2012 and FY 2013 by providing 100% of the reimbursement calculated for these losses in FY 2011 provided the levies are still in place.  Two-thirds of the reimbursement for fixed-sum levy losses will be distributed in November 2011 and one-third will be distributed in May 2012 with the foundation payments.  For these levies the same reimbursement amounts as were calculated for FY 2013 will be distributed in the ensuing fiscal years based on the same schedule, i.e. November and May as long as the levies for which the reimbursements were calculated remain intact.  ORC Section 5751.20(E)(1) provides for  the calculation of fixed sum emergency levy loss reimbursements up through November 2017 which will be the first reimbursement of FY18 based on levies certified by the Taxation Department through 2017.  So, FY17 will be the last complete year for which fixed sum emergency levy loss reimbursements will be calculated and for FY18, only one reimbursement will be calculated (November 2017).  Bond levies will continue to be reimbursed indefinitely for the life of the levy like fixed rate current operating and non-operating levies.  

  1. Inside Debt Levy Losses in FY 2012 and FY 2013 by providing 100% of the reimbursement calculated for these losses in FY 2011 provided the levies are still in place distributed in equal portions in November 2011 and May 2012 with the foundation payments.  For these levies the same reimbursement amounts as were calculated for FY 2013 will be distributed in the ensuing fiscal years based on the same schedule, i.e. November and May as long as the levies for which the reimbursements were calculated remain intact for indefinite period of time.

Please also note that beginning in 2011 and ending in 2014 ORC Section 5751.20(I) requires the Department of Taxation by the end of February to certify to the Department of Education the revised fixed-rate levy losses for the preceding year.  Calculated reimbursement adjustments resulting from these revisions will be distributed on the same schedule as the fixed-sum levy loss reimbursement, i.e. one-third in May and two-thirds in November.

Beginning in FY 2015, TPP reimbursements will no longer be paid out with the second foundation payment in November and May.  Instead, they will be distributed on dates before the end of November and May of each year directly by the state.

Phase-out and Loss Reimbursement of Tangible Personal Property Taxes Documents

Last Modified: 11/18/2014 1:56:39 PM