Five Ohio State Tax Changes: What You Need to Know

The first provision—the Income Tax Rate Reduction—will decrease individual income tax rates by 10%. Also, the highest marginal rate of 5.925% will be decreased to 5.333%. These changes will be phased in by 2015. In this same provision, there will be new income tax deductions for individuals who are sole proprietors or owners of a pass-through entity. Individuals may receive up to a 50% deduction of business income included in federal adjusted gross income that is apportioned to Ohio. The maximum deduction is $125,000 (or $62,500 for married filing separately if both report business income.) This is effective for tax years beginning on or after January 1, 2013.

A second provision, related to Commercial Activity Tax, adjusts the minimum tax due on a graduated scale beginning on or after January 1, 2014. For gross receipts of $1,000,000 or less, the minimum tax is $150; $1,000,001 - $2,000,000, the minimum tax is $800; $2,000,001 - $4,000,000, the minimum tax is $2,100; and for $4,000,001 or more, the minimum tax is $2,600. It’s important to note that the $1,000,000 exclusion and .26% tax rate remain unchanged.

Related to the third provision—Sales Tax—which is effective September 1, 2013, the state sales tax rate will increase from 5.5% to 5.75%. In addition, sale of digital products including books, music and videos will be subject to sales tax. The Marketplace Fairness Act Compliance provisions have been made in the bill with the intent that Congress passes the Act; the State of Ohio intends to conform. This Act also allows states to require sellers outside of the state (even those without substantial nexus) to collect and remit sales tax.

The fourth provision relates to Property Tax. The 10% and 2.5% property tax rollbacks may not be applied to new or certain replacement levies that become effective in or after tax year 2014. Property levies that are in effect in 2013 remain subject to rollbacks.

Finally, in the provision related to Credits and Incentives, the InvestOhio credit will be offered in the next biennium. It is important to note that significant changes are being considered and announcements will be coming in the next few weeks.