Since it was unveiled last month, Gov. John Kasich’s proposed two-year state budget has many individuals, businesses, school districts, not-for-profit organizations and others scrambling to find out how his proposed tax reform package will affect them. In his recommendation, Gov. Kasich says his proposal seeks to “create more opportunities for each and every Ohioan.” To this end, the budget focuses on four primary objectives:
- To ensure that students are ready for college and careers
- To help more students get degrees
- To cut and reform taxes
- To help Ohioans move up and out of poverty and into jobs
To achieve these goals, Gov. Kasich has proposed implementation of several tactics to help fund his $35.5 billion 2016 budget, which is up 15.5 percent over the state’s projected spending in fiscal year 2015. Of those tactics, a slew of tax cuts and increases are central to his budget initiative. The following points address some primary changes Ohioans can expect to see if Gov. Kasich’s 2016-2017 budget plan is approved.
Proposed Tax Cuts
- A 23 percent across-the-board income tax rate reduction. This proposed cut would drop the top income tax rate to 4.1 percent, the current from 5.33 percent.
- Business owners of pass-through entities with gross receipts less than $2 million will pay no income tax on their business income.
- Other Ohio business owners will see the 50 percent reduction incentive on income that totals $250,000 and less become permanent.
- Individuals who earn less than $40,000 will see a $1,600 increase in their personal exemption (from $2,400 to $4,000). The personal exemption for those who make between $40,000 and $80,000 will increase by $900 (from $1,950 to $2,850).
Proposed Tax Increases
- The commercial activity tax (CAT), which is measured by a business’s gross receipts on business activities in the state, will increase 0.6 percent to 0.32 percent.
- The state’s sales tax will increase to 6.25 percent. The current sales tax rate is 5.75 percent and would be expanded to include management consulting, lobbying, market research and opinion polling, public relations, debt collection services, cable subscriptions and parking and travel services.
- Means-tested tax credits and exemptions for retired taxpayers who earn more than $100,000.
- Oil and gas produced by horizontal wells will be taxed at a 6.5 percent tax rate for product sold at the wellhead. If sold downstream, a 4.5 percent tax will be applied.
- The state currently reduces the price paid for the new car or boat by the value of the trade-in. The proposal calls for a 50 percent deduction in this exemption.
- The discount vendors receive for collecting, reporting and remitting sales tax will be capped at $1,000 per month.
To learn more about how tax reform could affect you, email Rea & Associates.
By Lesley Mast, CPA (Wooster office)