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What Ohio business owners need to know about Governor Kasich’s budget proposal

The Ohio Manufacturers' Association ("OMA") tax committee meeting was held in Columbus today with majority of discussion on the status of House Bill 64 which is Governor’s Kasich’s budget proposal for 2016-2017 fiscal years.

As we are all aware, the Administration was looking for a dramatic decrease in the personal income tax (lowering top marginal rate to 4.1%) which was going to be paid for by tax increases in other areas such as Commercial Activity Tax, Sales Tax, Severance Tax (Oil and Gas),and Tobacco Tax.  Overall, the original bill would have reduced income taxes by approximately $5.7 billion, while increasing other taxes by approximately $5.2 billion, resulting in net overall tax decrease of $500 million.

The Ohio House has made significant changes to the tax provisions contained in House Bill 64, largely due to the persistent opposition provided by the business community to many of the tax changes contained in the original bill.

Highlights of the House’s substitute bill follow:

  • 6.3% across-the-board reduction of income tax rates, reducing the top marginal rate to 4.997%.
  • Make permanent the small business tax deduction for 75% of the first $250,000 of business income earned by sole proprietors and the owners of pass-through entities (Partnerships and S corporations).
  • Retain the means-test for some deductions/credits from the original bill.  The means-test was based on annual income in excess of $100,000.  The deductions and credits that would be eliminated if a taxpayer failed the means-test would be the deduction for social security and railroad retirement benefits; the $50 senior credit; and the lump sum retirement credit.
  • All increases and other adjustments to the sales, commercial activity, severance and tobacco taxes contained in the original bill have been dropped (eliminated).
  • Over-all, the changes provide an estimated $1.2 billion in income tax reductions over two years of the budget.

Senate Budget Update

At the OMA Tax Committee meeting, Ohio Senate Ways and Means Chairman Bob Peterson (R-Sabina) and Vice Chairman Bill Beagle (R-Tipp City) visited to discuss the Senate’s process for analyzing the budget bill’s tax provisions.  Senator Peterson indicated that Senate members heard the arguments set forth by the OMA and other business groups and are therefore wary of touching the Commercial Activity tax or expanding the sales tax.  Some highlights of where the Senate stands on the proposed budget:

  • Favors a larger income tax cut than that contained in the House-passed bill
  • CAT will not be touched
  • Expansion of sales tax base unlikely
  • Increase in Sales tax rate possible, but not .5% increase; .25% increase possible, but would be last option
  • Spending cuts first on table
  • Tobacco and Severance tax still in play, but with different approach than governor’s version

The Senate has completed 5 weeks of hearings and plans to release a sub bill the week of June 8th and hold a floor vote the week of June 17th.  This timeline will leave 13 days for the House and Senate to settle any disagreements in the conference committee process.

The governor’s signature must be on the final bill by the statutory June 30 deadline.