Governor Kasich signed the long-awaited Ohio Budget Bill into law on June 30, 2013. We previously reported on the budget bill that was stalled in the Ohio General Assembly pending elimination of proposed expanded sales tax provisions which were not well-received by Ohio’s businesses.
Dubbed the “Jobs 2.0” budget by the administration, the bill is expected to deliver $2.7 billion in tax cuts. That comes largely from a gradual reduction of the state income tax and a 50 percent cut on the first $250,000 in net business income, the latter aimed at small businesses.
Highlights of the New Ohio Tax Law
- Sales and use tax
- Specified digital products are subject to sales tax. Covers electronically transferred audiovisual, digital audio, or digital book.
- Rebuttable bright line test for “substantial nexus” for activities of sellers for purposes of the Ohio sales and use tax.
- State sales and use tax rates move from 5.5% to 5.75% on September 1, 2013. This rate excludes any local sales/use “piggy back” tax rates currently in effect.
- Personal income tax
- Wagering losses shown as federal itemized deductions are no longer deductible against the Ohio personal income tax beginning in 2013.
- A personal income tax deduction is first available in 2013 for the value of services rendered by dentists and dental hygienists under the Hope for a Smile Program.
- A personal income tax deduction of the lesser of $125,000 ($62,500 per spouse filing separately) or 50% of small business investor income includable in federal adjusted gross income is available starting in 2013. This amount is significantly less than the earlier version of the bill had specified. Pass through entity (trust, S Corporation, LLC, partnership) business income apportioned to Ohio is eligible (as is income from a sole proprietorship). Pass through entities may NOT claim the deduction themselves but rather their investors are entitled to.
- Marginal personal income tax rates are reduced starting in 2013. Rates are further reduced in 2014 and 2015. The rate reductions are not temporary. The top marginal rates go from 5.925% in 2012 to 5.421% in 2013, to 5.392% in 2014, and to 5.333% in 2015 and thereafter.
- Beginning in 2013 the $20 per exemption non-refundable tax credit is no longer allowed to a person having more than $30,000 of Ohio adjusted gross income (OAGI). The $20 per dependent non-refundable credit and associated personal exemption amount (a deduction) is not allowed to a taxpayer if the dependent claims his own credit on a filed tax return. Previously there was no OAGI limitation on benefit and there was no requirement to preclude the claim of a $20 personal tax credit or personal exemption amount even if the person who is a dependent claimed their own $20 credit or personal exemption amount.
- For 2013-2015 the Tax Commissioner is not empowered to make CPI adjustments to the personal exemption amount.
- Starting in 2013 a non-refundable personal income tax credit is available for taxpayers claiming the federal earned income tax credit. The Ohio credit is equal to 5% of the federal credit amount. The Ohio credit is subject to a limitation once OAGI exceeds $20,000.
- Commercial Activities Tax
- The Commercial Activities Tax rate remains at 26 basis points but new maximum taxes apply on taxable gross receipts between $1 million and $5 million. This adds an element of graduated rates to bring the rate up to 26 basis points for amounts over $5 million.
- Receipts from sales of agricultural commodities by a registered agricultural commodities handler are now exempt from the Commercial Activities Tax.
- Motor fuel suppliers will cease paying the Commercial Activities Tax on July 1, 2014 and instead be subject to a Motor Fuel Receipts Tax. 65 basis points is the tax rate applied to the gross receipts under the replacement tax. Motor fuel sales are only subject to this tax one time. Sales and re-sales under the Commercial Activities Tax are subject to tax on each leg of a transaction.
Except as otherwise noted, the law is effective 91 days after the signed bill has been sent to the Secretary of State. The provisions above have already taken into account the line item vetoes of the Governor.
For further questions about this new law, click here to contact us and we will address any concerns you may have.