Tax Reform Provisions in Proposed Ohio Budget Bill

On January 31, 2017, Ohio Governor John Kasich proposed a new two-year state budget that includes moderate state tax law changes. With Ohio losing revenues from sales taxes on business internet service provider access and Medicaid purchases due to federal law changes, there was a significant amount of projected budget deficit that needed to be addressed along with the Governor’s desire to reduce or eliminate the state’s personal income tax. The following is a summary of the proposed tax law changes by tax type:

Income Taxes

• Reduce the number of income tax brackets from nine down to five.
• Reduce the top bracketed rate from the current 4.997% down to 4.75% in 2017 and to 4.33% in 2018.
• For taxpayers with Ohio adjusted gross income (OAGI) between $0 and $40,000, the personal exemption will be increased from $2,250 to $3,000. For taxpayers with OAGI between $40,000 and $80,000, the exemption will be increased from $2,000 to $2,500. For taxpayers with OAGI above $80,000, the exemption will remain at $1,750.
• Expansion of the income tax exemption for those who make less than $15,000 per year.

Sales and Use Tax

• The state portion of the sales and use tax rate would increase from 5.75% to 6.25%.
• Expansion of the tax base to include the following services:  cable subscriptions, travel services, cosmetic surgery (non-medically necessary), interior design, landscape design and repossession services.

Severance Tax (Oil & Gas)

• Tax structure would be modified from the current per barrel/MCF methodology to a gross receipts tax of 6.5% at the wellhead for oil and natural gas and 4.5% for natural gas liquids tax.

Tobacco/Alcohol Tax

• Cigarette tax would increase from $1.60 to $2.25 per pack.
• Vapor products would be subjected to the “other tobacco products” taxes.
• Alcoholic beverage taxes would be increased by approximately 70%.

These tax law changes would result in an overall projected $20 million tax cut to Ohio businesses and individuals over the two years covered by the biennial budget period. The biennial budget period begins July 1, 2017.

By and large, the tax reform in this biennial budget bill is significantly less than what was proposed in Governor Kasich’s prior budgets.  If you have questions about the Ohio Budget Bill and its impact on your business, contact us.