On June 3, the Ohio Senate Finance Committee (“Committee”) released its proposed state budget for the next biennium, making significant changes to the Ohio House budget proposal passed on April 9. As anticipated in GBQ’s last budget update, the Committee made significant proposals for income tax and sales tax, while also including major property tax reforms. The Committee, like the House, did not include Governor DeWine’s proposal to double the tax on recreational marijuana and sports gaming.
Income Tax
The headliner is a proposal to implement a flat-rate income tax in Ohio by 2026. Currently, Ohio has a two-rate structure (2.75% / 3.50%). For 2025, there would still be two rates, but the top rate would decrease to 3.125% (for Ohio taxable income exceeding $100,000). For 2026, the rate would be 2.75% on all taxable income. The Committee did not change the tax rate on business income, which would remain at 3.00% (after the business income deduction).
Other notable proposals would:
- Eliminate a longstanding provision that allowed a pre-income tax trust (i.e., an irrevocable trust created by an Ohio resident grantor prior to the enactment of Ohio’s income tax in 1972) to elect whether to be subject to income tax or commercial activity tax. Under the proposal, all pre-income tax trusts would be subject to income tax only.
- Disallow personal, spousal, and dependent exemptions and the joint filing credit for taxpayers with income exceeding $750,000 for 2025 and $500,000 for 2026 and thereafter.
- Remove a House proposal to allow tiered pass-through entities and their owners to more efficiently claim credit for elective pass-through entity tax.
Sales Tax
The Committee’s bill makes several changes that would raise revenue, including the following:
- Eliminate interest on refunds of tax paid pursuant to a direct pay permit.
- Eliminate interest on county tax refunds, while still requiring taxpayers to pay interest on late remittances.
- Cap the prompt pay vendor discount at $750 per vendor’s license per month. The current discount is 0.75% of the tax due.
- Repeal the 25% refund of tax provided to electronic information services providers.
- Prohibit the Ohio Tax Credit Authority from awarding a tax exemption to a computer data center, beginning Oct. 1, 2025.
- Repeal exemptions for sales/purchases of the following:
- Newspapers
- Rental payments for cars provided to the owner of a vehicle that is being repaired, when the service provider reimburses the service provider
- Copyrighted motion pictures
- Refrigerated food vending machines
- Items purchased by a direct marketing vendor to be used in printing advertising material, and equipment used to accept orders
- Machinery, equipment, and material used in the production of printed material
- Agricultural land tile and portable grain bins
- Telecommunications services that are used to perform the functions of a call center
- Any tangible personal property used to acquire, format, edit, store, and disseminate data or information by electronic publishing
Property Tax and School Funding
Property tax and school funding continue to be hot issues in the legislature. There are several bills that have been introduced, and the Committee’s bill would make a number of reforms, including:
- Eliminate the authority of political subdivisions to levy replacement levies.
- Prohibit school districts from submitting to voters the question whether to renew and increase an existing levy, as well as several other types of levies.
- Amend the House’s proposal to require a county budget commission to reduce a school district’s property tax levy if the district’s operating budget carryover exceeds 30%. The Committee would allow a 50% carryover.
GBQ will continue to monitor budget deliberations over the next few weeks as the General Assembly works toward the end of the biennium on June 30 and will provide updates as warranted. If you have questions about how this bill could impact you or your business, contact your GBQ advisor.
By John Petzinger and Matt Stamp, JD, LLM, State & Local Tax Services
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