Proposed Bill Would Impact PTEs in Ohio

The Ohio state legislature has proposed a bill that would significantly impact withholding taxes for Pass-Through Entities (PTEs) in the Buckeye State if passed. Sponsored by Republican Senator John Eklund and supported by Republican Senators Frank LaRose, Bill Seitz and Tom Patton, Senate Bill (SB) 288 aims to alter the law governing how taxes on income from PTEs are reported and paid both by the entities and any of their investors.

What is a PTE?

A PTE is an entity which is not subject to federal income tax because its individual owner is directly taxed on income based on the company’s profits and losses. They typically include sole proprietorships, partnerships, LLCs and S corporations.

How Would Ohio Senate Bill 288 Impact PTEs?

Under existing law, PTEs and their owners are subject to many types of tax filing and payment provisions. Proposed S.B. 288 will eliminate the PTE “withholding” tax and instead require any PTE with non-resident investors to file a single, composite tax return on behalf of its non-resident investors.  Some of the more specific changes of SB 288 include:

  • Replacing the business income tax rate of 3% with the current withholding rates of 5% and 8.5% for non-resident individual owners and non-resident upper-tier PTE owners, respectively. NOTE: The tax and withholding rate of 3% mirrors the business income tax rate recently passed by Ohio lawmakers.
  • Requiring that every PTE owned by one or more non-residents of Ohio to file a composite return that would include adjustments to the PTE’s income when computing taxes owed.
  • Individual taxpayers that want to take advantage of the business income exclusion of $250,000 will still need to file personal income tax returns as this deduction would not be taken on the required composite returns.

What Taxable Income Would SB 288 Affect?

If it is made into law, SB 288 would apply to taxable years ending on or after January 1, 2017.

If you have any questions or concerns about SB 288 and how it affects your business, please contact a member of the HBK Tax Advisory Group and we will be glad to help.

About the Author(s)
Nick is a Principal in the Youngstown, Ohio office of HBK CPAs & Consultants. He is a member of the HBK Tax Advisory Group with a focus on Federal flow-through entities, C corporations, M&A activity and associated transaction and compliance. Nick focuses efforts in the manufacturing and construction industries within HBK.
Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.