Article written by:
Michele McKenney, CPA
Tax Manager

Last week, after a rare unanimous and bipartisan vote in the House Finance Committee, Ohio H.B. 166 also passed the full Ohio House on Thursday, May 9th.

The bill contains significant changes to the Ohio Business Income Deduction:

  • Lowering the maximum business income deduction from $250,000 to $100,000
  • Eliminating the 3% flat tax rate on pass-through entity income above $250,000

If enacted, these changes would be retroactive to tax years starting on, or after, January 1, 2019.

The bill addresses the Supreme Court Wayfair decision by adding a sales threshold of $100,000 in sales into Ohio, or 200 or more sales transactions into Ohio during the current or preceding year. If an out-of-state online retailer exceeds either of these sales thresholds, they would be mandated to collect and remit Ohio sales tax.

Other items of note in the bill:

  • Tax brackets: The bottom two brackets would be eliminated, raising the threshold to start owing Ohio income taxes from $10,851 (2018) to $22,250 (2019 proposed). The rates across the rest of the brackets would also decrease, taking Ohio’s highest bracket of those earning over $222,000 from 4.997% to 4.667%.
  • Nonresident withholding: The proposed bill reduces the pass-through entity nonresident withholding percentages for both individual investors and non-individual investors. In addition, there is a provision to allow nonresidents to affirm that they will file an Ohio return on their own, so no withholding is required.
  • Ohio Opportunity Zones: A new Opportunity Zone Investment tax credit equal to 10% of an individual’s investment, up to $1 million per biennium, is included in the bill.
  • Ride sharing services: Companies like Uber or Lyft would be required to collect sales tax on behalf of drivers
  • Education: The minimum salary for an Ohio teacher would raise from $20,000 to $30,000
  • Arts: A tax credit for motion pictures filmed in Ohio would be terminated

The bill is expected to face more scrutiny in the Senate. For example, the Senate recently passed a measure not only keeping the motion picture tax credit but also expanding it to include a wider range of entertainment including Broadway productions. Therefore, changes are expected.

A final budget must be signed by Governor Mike DeWine on June 30th.

Your GBQ advisors are staying up-to-date on the proposed Ohio tax law changes and are ready to help you plan and strategize accordingly.

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