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Big changes to BID, other tax provisions on the table

Written on May 1, 2020

The Ohio House Finance Committee on May 2 accepted several tax changes to the amended version of Ohio’s biennial budget, now Sub. House Bill 166. Chief among them is to significantly cut the benefits from Ohio’s Business Income Deduction (BID) by:

  • Lowering the current $250,000 pass-through entity owners can earn without paying state income tax to $100,000; and
  • Applying the changes retroactively to taxable years beginning on or after Jan. 1, 2019.

Legislators are also giving serious consideration to eliminating the flat 3% rate for PTE income over $250,000. (The Legislative Service Commission has reported that the 3% rate represents between 34% and 41% of the BID’s over $1.2B cost).

Some of the money raised will be used for $300 million in personal income tax cuts. The current language eliminates the bottom two brackets, taking Ohio from seven brackets to five. As proposed, all earnings below $22,500 will not be taxed. For income between $22,500 and $88,800, the tax rate would be cut by 4.7%. The marginal rates on the top three brackets remain the same.

Ohio Taxable Income

Proposed Marginal Rate

> $22,250 < $44,400

$315.41 plus 2.829% > $22,250

> $44,400 < $88,800

$942.14 plus 3.302% > $44,400

> $88,800 < $111,100

$2,408.31 plus 3.960% > $88,800

> 111,100 < $222,200

$3,291.39 plus 4.597% > $111,100

> $222,200

$8,398.66 plus 4.997% > $222,200

 

Other tax changes that were included in Sub. H.B. 166 include:

  • Addressing the Wayfair decision by changing Ohio law to force remote sellers – online out-of-state retailers – to collect sales/use tax. The bill adds a presumption of substantial nexus for sellers that have gross receipts greater than $100,000 from sales into Ohio or engage in 200 or more separate sales transactions into Ohio during the current or preceding calendar year.
  • Requiring ride-sharing services such as Uber and Lyft to start collecting sales tax on behalf of drivers.
  • Repealing the sales and use tax exemptions for:
    • Sales of investment bullion and coins;
    • Fractional shares in private aircraft;
    • Sales of qualified property to motor racing teams, among others.

A tax credit of $40 million for motion picture productions filmed in Ohio is also on the chopping block, as is a tax credit for political contributions.

House Republicans say the overall tax plan provides a net $100 million reduction in taxes over two years. H.B. 166 will undergo more changes early next week before a likely House vote mid-week. OSCPA is closely monitoring all these issues and more and will provide updates as details are unveiled.

Members who have concerns about any of these provisions are encouraged to contact OSCPA, and to quickly share their views directly with the Ohio state representative. (Click here to find out how to do so.)