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:
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.
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.
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.
You’ve heard our thoughts… We’d like to hear yours
The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.
Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.