Ohio Governor Mike DeWine took the occasion of Fourth of July holiday to sign the Ohio Biennial Budget Bill into law. The legislation brings sweeping changes to both business and personal taxes.
Key implications and impact of the 44-line-item veto provisions include:
Commercial Activity Tax Exemption Increase
The legislation significantly changes Ohio’s Commercial Activity Tax (CAT), particularly in relation to exclusions based on taxable gross receipts. As of 2024, all taxable gross receipts of $3 million or less will be exempt from the CAT, the exemption threshold increases to $6 million for tax periods beginning in the year 2025. Amounts exceeding the thresholds will still be subject to the current tax rate of 0.26 percent. This represents the first major revision to the CAT since its establishment in 2005.
The new CAT exclusion represents an increase from the current threshold of $150,000 or less, the threshold for the past 18 years.
Personal Income Tax Reductions
The bill introduces a two-year phase-in plan for reducing personal income taxes, which includes consolidating the number of tax brackets from four to two. Under the new structure, marginal tax rates will be set at 2.75 percent for incomes exceeding $26,050 and 3.5 percent for incomes over $100,000. Incomes of $26,050 or less will be exempt from personal income taxes.
Credit for PTE Taxes Paid to Other States
In an effort to alleviate double taxation for Ohio residents, the legislation allows the use of the resident tax credit for pass-through entity taxes (PTET) paid to other states. The change applies retroactively for tax years beginning on or after January 1, 2022, and was enacted to comply with Internal Revenue Service Notice 2020-75. The credit can be claimed on an original or amended 2022 individual income tax return. However, individuals deducting PTET taxes from their federal adjusted gross income will need to add back those amounts.
Municipal Income Tax Changes
The Budget Bill introduces several changes to municipal income taxes, including:
Sales/Use Tax Changes
The Ohio Budget Bill includes the following sales/use tax changes:
As well, Governor DeWine vetoed a provision in the Bill for a mandatory sales tax holiday for the first two weeks of August on the sale of nearly all goods priced below $500. He said he prefers a more expansive sales tax holiday, and that his veto will provide an opportunity for the Ohio Department of Taxation, the director of the Office of Budget and Management, and the Ohio County Commissioners Association to determine the duration of a sales tax holiday in 2024, noting that the associated expenses to the state remain uncertain.
The changes implemented with the Biennial Budget Bill have significant implications for both businesses and individuals in Ohio. For more information on the Biennial Budget Bill or other state and local tax matters, contact an HBK Sales and Local Tax professional at 856-486-2299.
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