On Thursday, July 18, 2019, Governor Mike DeWine signed Ohio’s main operating budget, House Bill 166 (HB 166), for fiscal years 2020-2021. The bill contains several important tax-related provisions, including the following:
- Reduces the number of personal income tax brackets by eliminating the bottom two brackets. Taxpayers with Ohio adjusted gross income of $21,750 or less will owe no Ohio personal income tax.
- Reduces the tax rate of the remaining five tax brackets by a total of 4%. The new range will be 2.850% on $21,750 to 4.797% on $217,400 from 2.969% to 4.997% in 2018, respectively.
- The business income tax deduction largely stays the same, after much debate, but with the addition of a new exclusion of lawyers and lobbyists from being able to claim the deduction. Lawyers’ and lobbyists’ income will also be precluded from the 3% flat tax rate on all business income above $250,000.
- Means-tested benefits eligibility has been modified to require an addback of the business income deduction when determining eligibility for the benefits. Means-tested benefits include the joint filer credit, personal and dependent exemptions, the homestead exemption and retirement income credits, for example.
- The nonrefundable campaign contribution credit against income tax and the refundable credit for Ohio financial institution tax paid by a pass-through entity have been repealed, effective January 1, 2019.
- HB 166 adds definitions of a pension and retirement benefit plan to the Ohio city model ordinance, effective for tax years starting in 2020. While the current city ordinance includes an exemption from city income tax for pensions, the ordinance did not define pension.
- Modifies the substantial nexus standard to be consistent with the SCOTUS decision in South Dakota v. Wayfair, Inc. providing that an out-of-state retailer will have met substantial nexus with the state if in the current or previous year it has (1) gross receipts greater than $100,000 from sales in Ohio; or (2) 200 or more separate sales transactions in Ohio. This lowers the requirement from the previous threshold of $500,000 in sales into Ohio and eliminates the “click-through” nexus language from the statute.
- Implements a requirement that all marketplace facilitators with substantial nexus in Ohio collect and remit use tax on behalf of their sellers for sales to Ohio customers. The marketplace facilitators will be required to utilize destination-based sourcing.
- Expands the current sales tax exemption for cleaning equipment and supplies from just production of dairy products to all types of food for human consumption.
- Potential extension of tax increment financing is available to TIF’s that meet required guidelines detailed in the budget bill.
- There is a new excise tax imposed on the distribution, sale or use of nicotine vapor products based on the volume of nicotine-containing liquid and will be effective October 1, 2019.
- There is a new Opportunity Zone Tax Credit available. The credit will be used as an incentive to attract private investment to Ohio opportunity zones and to help revitalize communities within the state. The credit provides eligible investors a 10% transferrable, nonrefundable income tax credit to those who invest in the state’s opportunity zones. The credit is capped at $1 million per biennium and the carryforward period is five years.
- The requirements to meet the Job Retention Tax Credit have been modified to allow businesses that do not meet the payroll or employment requirements to still be eligible for the credit if the corporate headquarters is in a foreign trade zone.
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