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Ohio Business Taxes Going Up...And Down
Ohio Business Taxes Going Up...And Down
Blog – August 2013
Ohio passed its budget bill for fiscal year 2013/2014 on June 30, 2013 in customary last minute fashion. With the passage of HB 59, Ohio businesses will see several significant tax changes. Let’s review the good news first.
Individual owners of small businesses will be able to deduct up to 50% of their businesses income, up to $ 250,000. The types of businesses eligible for this deduction are referred to as “pass-thru entities”, meaning that the business passes the net income thru to the business owner to report on their personal tax return instead of the business itself paying tax on the income. Eligible businesses will include sole proprietors, S corporations, partnerships and farms. To complement this change, the individual business owner, as well as all taxpayers, will see a reduction in their income tax rates between 8.5% in 2013 increasing to 10% by 2015. The Ohio 2012 tax rates ranged from .587% to 5.925%, this is where the reduction will be seen.
If the individual business owner is a non-resident of Ohio, he/she may now file a non-resident Ohio tax return to obtain a refund of taxes that may have been overpaid by the business itself due to the business filing a composite business return on behalf of the non-resident business owner. The composite business return tax rate is often higher than the rate the non-resident would pay on a non-resident individual tax return. We expect more technical guidance from Ohio on these changes soon.
And now for the bad news. All businesses and individuals will pay a higher sales tax rate on their Ohio purchases. Effective September 1, 2013, the Ohio sales tax rate increases by .25%. Also, businesses with annual Ohio sales between $ 1,000,000 and $ 5,000,000 will see a dramatic increase in their Commercial Activity Tax (CAT) in the form of minimum tax payments that will range between $ 800 and $ 2,600. The percentage increase in the CAT businesses in this sales range will pay will be in the triple digits!
There were other tax changes in the budget that affected just individuals mainly dealing with the homestead exemption for real estate taxes which will start in 2014. New real estate tax reductions will be limited to property owners with total income less than or equal to $ 30,000. Currently eligible participants will not be affected.
It’s still too early to tell if the tax reductions will accomplish their goal of job and economic growth. Opinions are quite divided on this subject. Rest assured that Ohio’s rollercoaster tax ride is not over yet.