Senate makes significant improvements to BID proposal

Written on Jun 13, 2019

OSCPA staff report

Ohio Senate Republicans on June 11 released their version of Ohio’s biennial budget bill, which largely restores important existing tax deductions for small business owners and increases across-the-board income tax cuts for all brackets from 6.6% to 8%.

The moves address concerns raised by OSCPA about the House version of Ohio’s biennial budget, which would have reduced the threshold for the business income deduction (BID) from $250,000 to $100,000 and repealed a special flat 3% standard rate on income above that threshold. The House version also made both changes retroactive back to January 1, 2019.

The Senate restored the deduction back to the full $250,000 amount and moved the effective date for the 3% rate repeal out to January 1, 2020. Therefore – as it stands today – there are now no changes to the BID and 3% flat rate for tax year 2019. OSCPA Tax Policy Director Greg Saul, Esq., CAE, said The Ohio Society applauds the Senate for their leadership in tangibly recognizing the important role Ohio’s small businesses play in Ohio’s economy.

“Both changes were actively encouraged by OSCPA and will help protect the stability and fairness of Ohio’s tax climate,” Saul said. “The BID is a valuable economic development tool that has enabled thousands of small business owners to reinvest money back into their businesses and in turn to hire more employees, provide those workers with richer benefits and wages, expand service lines and grow their footprint in communities across our state, support other Ohio businesses by purchasing more goods and services, and make a positive economic impact in Ohio.”

An OSCPA member poll in May revealed concerns about the cuts.

The restoration of the BID to $250,000 and the prospective effective date of 2020 are positive developments, but the eventual repeal of the 3% flat rate will impact future business investment, according to feedback from member CPAs. “While we support and value the changes the Senate made to Am. Sub. H.B. 166, we are hopeful that continued efforts will be made by the Legislature to address proposed tax changes impacting business owners who have invested an even higher level of resources in their companies,” Saul said.

The Senate changes to Substitute House Bill 166 include an across the board 8% reduction in income tax rates phased in over two years, while maintaining House plans to eliminate the bottom two brackets, moves that OSCPA also supports. Here are the proposed income tax brackets, which are based on a 4% cut in both tax year 2019 and tax year 2020:

Ohio Taxable Income

TY 2019 Proposed Marginal Rate

TY 2020 Proposed Marginal Rate

> $21,750 < $43,450

$310.47 plus 2.850% > $21,750

$297.54 plus 2.731% > $21,750

> $43,450 < $86,900

$928.92 plus 3.326% > $43,450

$890.17 plus 3.188% > $43,450

> $86,900 < $108,700

$2,374.07 plus 3.802% > $86,900

$2,275.36 plus 3.643% > $86,900

> $108,700 < $217,400

$3,202.91 plus 4.413% > $108,700

$3,069.53 plus 4.229% > $108,700

> $217,400

$7,999.84 plus 4.797% > $217,400

$7,666.45 plus 4.597% > $217,400

 

The Senate is holding hearings through Monday on the budget bill and will consider further changes before the expected floor vote occurs next week. The bill then will move to a joint House-Senate conference committee where even more changes will take place. By Ohio law, the biennial budget bill must be signed into law prior to the July 1 deadline. The Ohio Legislative Service Commission has published a comparison document of all the Senate’s proposed tax changes.

Members who have concerns about any budget proposals in the comprehensive 2,927-page bill are encouraged to contact OSCPA, and to share their views with their state legislators. Click here to find out how to do so or to contact OSCPA for help.

4 comments

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  1. John | Jun 18, 2019
    Perhaps a restriction on the OH BID to the extent of wages paid?  Make it work more like federal QBID. 
  2. Brent Snyder CPA | Jun 17, 2019

    The bill should not make ANY changes to the existing BID 250,000 exclusion or the 3% rate beyond 250,000for business income. This has been responsible for thesignificant business expansion and Ohio will pay an economic price for any changes. 

  3. Joe Stepan, CPA | Jun 16, 2019

    Ohio is aggressively maintaining an appealing environment for small business entry and inclusion, having a powerful effect in the competative environment with   other states

  4. Doug Fox | Jun 15, 2019
    I disagree with the Senate. 250,000 exclusion is too generous. It should be dropped to between 50,000 and 100,000. Persons with multipale  Sub S businesses can avoid considerable taxable income. This is not fair to the low and middle income people. The reason for the exclusion was to aid and promote small business.

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