On June 30, Governor Kasich signed Ohio House Bill 59 into law as the new state budget for the 2014-2015 biennium. Passage of the Bill indicates Ohio’s continued movement to a system that taxes consumption rather than income and supports an overarching objective to make the state more business friendly. Immediately prior to its signage, we outlined the likely tax impact of the bill.
The post-signing dust has settled, allowing us to offer certainty of the tax provisions included in the finalized state budget. Below we supplement the information we originally provided to highlight the implications that matter to you.
• Effective for tax years beginning in 2013, a 8.5% personal income tax rate reduction with the full 10% reduction phased in by 2015.
• Effective for tax years beginning in 2013, a small business tax deduction for pass though entity owners capped at one-half of the first 250k in business income.
• Effective January 1, 2014, a new graduated minimum CAT based on a taxpayer’s total gross receipts, as follows:
o 1 Million or less – $150
o >1mm – 2mm – $800
o >2mm – 4mm – $2,100
o > 4mm – $2,600
• Effective September 1, 2013, a .25% increase in the state sales tax rate; the state rate will be 5.75% after the increase.
• Sales Tax base expansion and full state membership in the Streamlined Sales Tax Initiative.
• Taxation of specified digital products, including digital audiovisual and electronically delivered books.
• With respect to new or replacement levies, voter-approved after August 2013, the 10% property tax rollback and the 2.5% exemption for owner occupied residential real property are eliminated. Essentially, this means the state will no longer subsidize 12.5% (10% + 2%) of new property tax levies. Existing levies and any renewals are NOT impacted.
So what DID NOT make it in the legislation? Several items were vetoed by the Governor, including:
• The so-called click-through nexus provision that would enable Ohio to collect sales taxes from out of state retailers to Ohio customers.
• A new sales tax exemption for purchases intended for use in aerospace research and development.
If you you’d like to discuss the impact of the new Ohio budget, please contact us. The effects of this new legislation are far-reaching and we want to make sure you are prepared.
Bill Hallmark is a Principal with Clark Schaefer Hackett and is an experienced tax advisor to privately held businesses and their owners. He specializes in State and Local Tax (SALT) matters. He can be reached at [email protected]. Brittany Lawrence is a Manager who focuses on business tax planning and compliance. She can be reached at [email protected].