Ohio Budget Bill is Proposed with Significant Tax Reform Provisions

On February 2, 2015, Ohio Governor John Kasich proposed a new, two-year state budget that includes significant state tax law changes.  The biennial budget period begins July 1, 2015.  These tax law changes will result in a projected $500 million dollar tax cut to Ohio businesses and individuals over the next two years. The following is a summary of the tax law changes by tax type:

• Income Taxes
  • Personal income tax rates would be cut by 23%, which will be phased in over the next two years.  The rate will be reduced 15% in 2015, and then 8% additionally in 2016.
  • For individuals earning less than $40,000 a year, the exemption amount increases from $2,200 to $4,000 in 2015, and for those earning between $40,000 and $80,000 a year, the exemption increases from $1,950 to $2,850
  • Ohio tax on income from all small businesses with annual gross receipts of $2 million or less would be eliminated— which includes Ohio businesses structured as sole proprietorships or pass-through entities (PTEs) such as partnerships, Subchapter S corporations (S-corps) and Limited Liability Companies (LLCs).  Owners of a small business that has greater than $2 million in gross receipts will still be able to deduct 50% of the first $250,000 in income from pass-through entity sources.
  • Certain credits and deductions for those making $100,000 or more per year would be means-tested.
• Commercial Activity Tax (CAT)
  • The CAT rate would be increased from the current 0.26% to 0.32%.  The $150 minimum tax would be expanded to include businesses with less than $2 million in gross receipts.
• Sales and Use Tax
  • The state portion of the sales and use tax rate increases from 5.75% to 6.25%.
  • Sales tax base would be expanded to include additional services such as cable TV subscriptions, parking, lobbying, public relations, market research/opinion polling, management consulting, travel packages and tours, and debt collection services.
  • The 100% discount for used car and watercraft trade-ins would be reduced to a 50% discount.
  • The sales tax vendor discount would be capped at $1,000 per month.  The discount of 0.75% would remain unchanged, however.
• Severance Tax
  • The severance tax would increase from 20 cents a barrel of oil and 3 cents on an MCF unit of natural gas to a 6.5% tax for both oil and natural gas when sold at the wellhead, and a lower rate of 4.5% for natural gas and natural gas liquids when sold downstream.
  • No tax would be imposed on small producers.
• Tobacco Tax
  • The cigarette tax would increase from $1.25 to $2.25 per pack.

If you have questions about the Ohio Budget Bill and its impact on your business, please contact Mark Rossetti in the SALT Group at (614) 586-7234.