OSCPA, member urge caution as lawmakers weigh BID cut

Written on May 09, 2019

CPAs: Look for a special email announcement on the BID issue May 9 from OSCPA President & CEO Scott Wiley, CAE!

OSCPA staff report

Ohio lawmakers should carefully consider how changes to the state’s Business Income Deduction (BID) will impact job creators, the Ohio Society of CPAs told lawmakers this week.

OSCPA Tax Policy Director Greg Saul, Esq., CAE, testified May 6 before the Ohio House Finance Committee on Substitute House Bill 166, the state’s biennial budget. He said though OSCPA is still gathering feedback from members on the proposed BID changes, Saul said the Society has already heard concerns.

“Business owners have been in good faith planning and implementing changes to their business operations since Jan. 1 based on the current laws,” he said. “Changing these laws several months into 2019 after business expenses have already been made, whether it be through hiring more people, purchasing equipment, goods or services, or other operational changes, is unfair to impacted Ohioans.

He said members have also expressed concerns over the proposed elimination of the flat 3% rate on income over $250,000. You can read Saul’s testimony in its entirety here, or see it in the video above.

Separately, OSCPA member David Supelak, CPA, MT, Tax Signing Director for CliftonLarsonAllen LLP in Akron, this week told the same committee that the proposed BID changes would harm job creators.

“In a challenging economic climate, our clients have benefitted greatly from this pro-business tax incentive and have even been upfront to say this has helped them sustain their continued existence, in Ohio, at a time when other pressures are suggesting they sell to a larger enterprise, move to another state or dissolve completely,” Supelak said. “In the Akron/Canton region, one out of five individual taxpayers and a vast majority of those small businesses that are S-corps, partnerships and LLCs, in our client base, with an average net profit of about $250,000, will lose substantial benefit if the proposed changes are made.”

Nevertheless, the Ohio House Finance Committee on May 8 accepted changes to the budget bill that included these significant BID cuts:

  • Lowering the current $250,000 pass-through entity owners can earn without paying state income tax to $100,000;
  • Eliminating the flat 3% rate for PTE income over $250,000, and instead taxes business income in excess of $100,000 at the same graduated rates as nonbusiness income — the reduced graduated rates would apply to the sum of a taxpayer’s business and nonbusiness income; and
  • Applying the changes retroactively to taxable years beginning on or after Jan. 1, 2019.

After zeroing out the bottom two income tax brackets and cutting other rates by 4.7% last week in a substitute bill, the House included in the omnibus amendment an across-the-board cut of 6.6% from current rates on the remaining five graduated brackets.

Ohio Taxable Income

Proposed Marginal Rate

> $22,250 < $44,400

$309.12 plus 2.773% > $22,250

> $44,400 < $88,800

$923.34 plus 3.236% > $44,400

> $88,800 < $111,100

$2,360.12 plus 3.699% > $88,800

> 111,100 < $222,200

$3,185.00 plus 4.294% > $111,100

> $222,200

$7,955.63 plus 4.667% > $222,200

Rates are reduced to the same degree for trusts and estates, but the rates apply to all their taxable income, including the first $22,250 being taxed at 1.389%. Another change requires that, for purposes of school district income taxes that use “earned income” as the tax base, amounts subject to the state business income deduction must be added back when computing a taxpayer’s taxable income.

The net income tax cut totals $108 million per year, according to House Republicans. The House on May 9 passed its version of the proposed budget, 85-9, sending the bill to the Senate for further consideration.

Members who have concerns about any of these provisions are encouraged to contact OSCPA, and to share your views with your state senator. Click here to find out how to do so or to contact OSCPA for help.

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