Ohio’s two-year, $74 billion budget was signed, sealed, and delivered in the early hours of the morning on Thursday, July 1, 2021. Governor DeWine vetoed 14 items from the final draft but left all of the tax-related provisions intact. This means that several highly anticipated tax changes will become law, although it will take some time for the changes to be in effect. The tax changes range from new capital gains income tax deductions to the elimination of employment services from taxable services. While there are various tax provisions and changes included in the approximately 3,300-page bill, some of the more significant changes are detailed below.

Capital gains income tax deductions

In an effort to attract more venture capital to Ohio, starting in 2026, the bill creates a deduction for taxpayers with capital gains from the sale of an ownership interest in an Ohio-based business and another deduction for all or a portion of capital gains realized by investors in Ohio-based, state-certified venture capital companies. In regard to the sale of an ownership interest, the deduction equals the lesser of 1) the capital gain or 2) a percentage of the business’ payroll over a specified period, based on the taxpayer’s proportionate interest in the business.

Temporary rule withholding taxes extended

In March 2021, the Governor affected a temporary rule for municipal income tax withholdings during the pandemic while many Ohio employees worked from home rather than their principal place of work. Under this rule, employers withhold municipal income taxes to an employee’s principal place of work even though the employee may be working from home or another location due to the emergency declaration. As the days of COVID-19 restrictions continue to wane, many wondered how long this temporary rule would stay in effect. The budget bill provides some certainty by including a provision that extends the rule through December 31, 2021, regardless of when the declaration ends. The bill also allows employees to file for refunds in the 2021 tax year only.

Personal income tax cut

One of the most consequential provisions of the bill is a 3% personal income tax cut for the year 2021 – although the budget cuts taxes more than that in higher tax brackets (by eliminating the top bracket and reducing the tax rate in the next-to-top bracket to 3.99%) while exempting more lower-income people from paying state income taxes altogether by raising the minimum amount some must make to $25,000 before owing anything to the state in 2021.

BWC dividends exempt from the CAT

Senate Bill 18, signed into law earlier this year, excluded from the commercial activity tax (CAT) those dividends received by a taxpayer in 2020 and 2021 from the State Insurance Fund of the Ohio Bureau of Workers’ Compensation. The budget bill makes permanent this exemption from CAT for BWC dividends rebated to employers beginning in 2022.

Employment services will be sales tax exempt

For years, Ohio was one of only a handful of states that taxed staffing services. The bill, however, aligned Ohio with many of its neighbor states by eliminating employment services (providing personnel to perform work under the supervision and control of the purchaser) and employment placement services (locating employment for a job-seeker or locating job candidates for an employer) from the list of taxable services.


There are many other items in the bill on sales tax, certain tax credits and CAT. Our purpose is to highlight some of the more significant changes.

If there are additional comments or guidance on this matter, GBQ will provide updates as warranted. Please contact your GBQ representative if you have questions, or if you would like to discuss any of this information in further detail.


Article written by:
Matt Stamp, JD, LLM
Director of State & Local Tax Services

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