Ohio Budget Bill (H.B. 59) is Enacted with Significant Tax Reform Provisions

State and Local Tax

By Mark Rossetti

Ohio Governor John Kasich recently signed a new, two-year state budget that includes significant state tax law changes. The biennial budget period begins July 1, 2013. These tax law changes will result in a projected $2.7 billion tax cut to Ohio businesses and individuals over the next three years. The following is a summary of the tax law changes by tax type:

  • Income Taxes
    • 10% cut in the personal income tax rates, which will be phased-in over the next three years. The rate will be reduced 8.5% in 2013, 9% in 2014, and in 2015, the rate will be reduced by the full 10%.
    • The income tax brackets will not be indexed to inflation, and the personal/dependent exemptions will be suspended for three years, starting with 2013.
    • Only households with Ohio taxable income of less than $30,000 will be eligible to take the $20 personal exemption credit.
    • Owners/investors of a small business that is structured as a pass-through entity (LLC, S-Corp, etc.) will be able to deduct 50% of the first $250,000 in income from pass-through entity sources.
    • A new Earned Income Tax Credit will be available to lower income households.
  • Commercial Activity Tax (CAT)
    • The CAT rate (0.26%) and $1 Million exclusion are intact; however the minimum tax will change from $150 to a tiered amount, based upon Ohio gross receipts of the business.
  • Sales and Use Tax
    • The state portion of the sales and use tax rate increases from 5.5% to 5.75% starting on September 1, 2013.
    • Digital products, such as electronically downloaded books, music and videos will now be subject to sales and use taxes.
    • Magazine subscriptions will now be subject to sales and use taxes as well.
  • Motor Fuel Receipts Tax
    • Motor fuel refineries and terminals will no longer be subject to CAT, but will need to pay a new Motor Fuels Receipts Tax at a rate of 0.65%. This change goes into effect starting July 1, 2014.
    • Only the first sale of motor fuel in Ohio will be subjected to the new Motor Fuels Receipts Tax.
    • Motor fuel retailers will no longer be subject to the CAT on receipts from motor fuel.
  • Real Property Tax
    • The 10% and 2.5% “rollbacks” (reductions) will be eliminated for new and replacement levies passed in November 2013 and beyond. Existing levies and renewals are not impacted. The state subsidy payments to schools and other local governments will continue but will not increase if new local real estate millage is added.
    • The homestead exemption will be limited to home owners aged 65 years or older with incomes less than $30,000 beginning with applications for tax year 2014. There is a grandfather clause however, so if you are currently an eligible participant, you will not be impacted.
  • Tobacco Tax
    • "Little cigars” will now be taxed at a rate equal to that levied on cigarettes.

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

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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