On Sunday, June 30, 2013, while some people were celebrating birthdays, or anniversaries, or other significant milestones in their lives, Ohio Governor John Kasich was signing Ohio’s new biannual budget bill into law.
The tax law changes launched with this budget will deliver a grand total of $2.7 billion in tax cuts to Ohio businesses and individuals over the next three years. These cuts are the product of multiple elements and are being paid for by offsetting some revenue raisers and efficiency changes.
Below are highlights of significant changes within the new biannual budget.
• Individual taxpayers will eventually realize a 10 percent personal income tax cut that will phase in over a three-year period.
• Personal income tax inflation adjustments are frozen for 2013, 2014 and 2015.
• Small businesses will enjoy a 50 percent reduction in small business income tax. This is structured as a deduction of half of business income, with a maximum deduction of $125,000 (on income of $250,000). Only personal income taxpayers are qualified for the deduction on business income and pass through income.
• Individuals are no longer able to claim tax deductions from their gambling losses for 2013 and beyond.
• A $20 personal income tax credit is removed for adjusted gross incomes above $30,000 in 2013 and later.
• Non-resident tax filers who are investors in companies that file and pay Ohio tax composite are now able to file separate Ohio returns, which means a lower rate and an increase in deductions).
• A new Ohio earned income tax credit (EITC) is available. Taxpayers with federal EITC are also entitled to Ohio EITC. Those with incomes under $20,000 will see the most benefit.
Commercial Activity Tax (CAT)
• Businesses that the Commercial Activity Tax (CAT) annually must now file electronically.
• A new minimum tax structure for the first $1 million in gross receipts will begin on Jan. 1, 2014. The CAT rate of .26 percent beyond the first $1 million in revenue remains unchanged. The first $1 million of revenue will now be taxed based on total Ohio gross receipts.
• An amendment in the budget now exempts sales of motor fuel from the CAT.
• Effective July 1, 2014, the CAT is being replaced by the Motor Fuel Receipts Tax (MFRT), which will now only be applied once in the distribution chain, thereby eliminating the existing cascading effect of the CAT.
Sales and Use Tax
• The Ohio sales and use tax rate will increase from 5.5 percent to 5.75 percent on Sept. 1 of this year.
• Beginning Sept. 29, digital products, including books, music and videos delivered electronically, will be subject to tax. Photos transferred electronically are still exempt from tax.
• Also effective Sept. 29, magazine subscriptions will be subject to sales or use taxes.
• Ohio is a full member of the streamlined sales tax project.
• Any new research and development within the aerospace industry in Ohio will be exempt from sales tax.
• A proposed major expansion of taxable services was NOT passed.
Real Property Tax
• The 10 percent and 2.5 percent real property tax reductions will be eliminated for new and replacement levies passed in November and later. Existing levies and renewals are not impacted. Ohio currently pays 12.5 percent of real property taxes imposed on residential real property.
• The Homestead Exemption will again become subject to means testing, which will limit eligibility to homeowners 65 years of age or older with incomes less than $30,000. This will affect applications submitted for the 2014 tax year. If an individual currently qualifies for the exemption, they will continue to qualify regardless of need.
Ohio Budget Help
Not quite sure how you might be impacted by the new budget changes? Are you interested in getting in front of some of these changes and planning for your financial future? Contact Rea & Associates
. Our team of Ohio tax professionals
will help you develop a plan to take advantage of the opportunities and minimize the risks that you will face with Ohio’s new biannual budget.
Tags: ohio, Ohio business, Ohio sales tax, Ohio tax, Ohio use tax