How Does the Ohio Budget Bill Impact Oil and Gas Producers?

David Shallenberger | July 12th, 2013

By now you’ve heard that Ohio Governor John Kasich signed Ohio’s new budget bill into law. Luckily, the severance tax on oil and gas production was removed from the bill a while back. However, that doesn’t mean that there aren’t other components that you need to be aware of. 

Overall, the bill delivers a $2.7 billion tax cut to Ohio businesses and individuals over the next three years. And the tax cut was made possible by offsetting revenue raisers and efficiency changes. That’s great news for all of us.

Yet, there are areas of the new budget that may impact you… positively and negatively. Below is a summary of some of the changes to Ohio’s tax structure most pertinent to you.

Reductions in Individual Income Tax

A personal income tax cut of 10 percent will be phased in over the next three years. That translates into an 8.5 percent reduction this year. In 2014, there will be an additional 0.5 percent reduction, with a final 1 percent reduction taking place in 2015.

As a small business, you could qualify for a 50 percent deduction from income up to $125,000 (based on an income of $250,000). To be eligible, your business income must be reported on a personal income tax return. This includes any business income on a Schedule C and income from pass-through entities.

If you are a nonresident filer who invests in companies that file and pay Ohio Composite Income Tax, you are now able to file separate Ohio returns. This will allow the investor to take advantage of lower rates and deductions.

Changes to Commercial Activity Tax

Anyone required to file the Commercial Activity Tax (CAT) annually will now be required to file electronically. But that’s not the only change. There is a new minimum tax structure for CAT starting in January.

There will be no change to the CAT rate of 0.26 percent beyond the first $1 million of revenue. However, the first $1 million of revenue will now be taxed based on your total Ohio gross receipts. The following details the new minimum tax due:

Annual Gross Receipts   

New Tax Due on First $1M

$0 to $150K

$0

(preserves existing law)

Over $150K to $1M

$150

(current minimum fee)

Over $1M to $2M

$800

($650 increase)

Over $2M to $4M

$2,100

($1,950 increase)

Over $4M

$2,600

($2,450 increase)

Increases in Sales and Use Tax

Effective September 1, the state’s sales and use tax rate will increase 0.25 percent to 5.75 percent.  And more items will now be subject to the tax effective Sept. 29, 2013, including:

– Books, music and videos delivered electronically. Photos transferred electronically only are still exempt.

– Magazine subscriptions.

Elimination of Real Property Tax Rollbacks

You will be paying slightly more property tax on any new levies passed this fall. The current 10 percent rollback the state has in place for property that is non-business in nature and the additional 2.5 percent tax reduction that applies if you own and occupy the home will be eliminated for new levies passed in November and later. Existing levies and renewals are not impacted and rates will stay the same.

While there are things to celebrate as part of this new budget bill, there are also things that will require changes to some of your business tax process. Overall, the budget bill shows that Ohio is working to be a more business friendly state. Let’s hope that means there is more good news for you in the future.

Ohio Budget Help

The Ohio Budget certainly has many components to it, and it can be difficult to understand what exactly affects you and what doesn’t. Are you finding it a challenge? If so, contact Rea & Associates. Our Ohio oil and gas tax team can help you make sense of the provisions within the new Ohio budget, and determine how your business will be affected in the years to come.

 

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