Ohio Senate passes budget bill with several OSCPA tax priorities

By Greg Saul, Esq., CAE, director of tax policy  

The Ohio Senate on Thursday passed by a 24-7 party-line vote House Bill 33 (Ohio’s biennial budget legislation for fiscal years 2024-2025).  The comparison document of the current tax policy provisions can be found here – references to TAXCD## are to the comparison document.    

The Ohio Senate Finance Committee last week released its substitute version of H.B. 33 and proposed: (1) phasing in a two-year income tax reduction taking Ohio from four brackets to just two – the marginal rates will be 2.75% for incomes over $26,050 and 3.5% for incomes over $92,150. Ohioans making $26,050 or less would pay no income taxes (TAXCD68); and (2) phasing in, again over two years, a 25% across-the-board reduction in the Commercial Activity Tax (CAT) rate and annual minimum taxes, eventually bringing the CAT rate from 0.26% down to 0.195% by 2025 (TAXCD81).  

The Senate proposal last week was the first major reduction being proposed to the CAT rate since the CAT’s inception. Since 2005, the OSCPA and other major business associations have advocated no changes be made to the CAT to mitigate any future CAT rate increases. After seeing the Senate proposal, the OSCPA quickly formed and led a coalition with other business groups to offer an alternative approach to achieve the same revenue cut as the Senate’s CAT rate reduction proposal.  

On Wednesday, the Finance Committee finalized its changes by accepting an omnibus amendment that substantially adopted OSCPA’s alternative proposal, keeping the CAT rate at 0.26% but exempting from CAT taxable gross receipts of $3 million or less (for tax periods beginning in 2024), and then exempting taxable gross receipts of $6 million or less (for tax periods in 2025).  The new exemption will apply to all businesses and is a substantial increase to the current exemption for taxable gross receipts ($150,000 or less), which has remained unchanged for the past 18 years.   

For tax periods in 2026 and thereafter, the Tax Commissioner must annually adjust the exemption amount for inflation. Businesses with taxable gross receipts exceeding the exemption amount will pay the existing CAT rate of 0.26% on that excess.  Importantly for tax practitioners, it eliminates thousands of businesses from calendar year CAT filing, which was principally available to taxpayers with less than $1 million in taxable gross receipts, who are now exempted from the CAT. After the two-year phase-in, an estimated 90% of all Ohio-based businesses will no longer pay CAT (roughly 145,000 of the current 163,000 CAT payers).  

The Ohio Senate also added the following OSCPA tax policy priority to H.B. 33 prior to passage:  

Resident tax credit for SALT cap deduction from other states (TAXCD92). This issue is also currently pending as House Bill 200 which would permit Ohioans who are currently subject to double taxation to get back to a status quo position. Senate Bill 246 (134th GA) authorized pass-through entity (PTE) owners to “elect” to file a new form IT 4738 and be subject to a new entity-level tax in response to the federal $10,000 SALT deduction cap limit placed on individuals, but it did not allow Ohio residents to take a credit for similar PTE taxes paid to another state. This authorizes an Ohioan to utilize our resident credit (in existence since at least 1991) for PTE taxes paid to other states while requiring an add-back of taxes deducted from that individual’s federal adjusted gross income. Ohio continues to be one of the only states that authorizes a PTE tax (see the map of states), but does not allow a credit for taxes paid to another state. The Senate’s amendment to H.B. 33 would allow the resident tax credit.  

In the next couple of weeks, OSCPA will continue to advocate for these issues as H.B. 33 likely heads to conference committee and then to Governor DeWine’s desk prior its July 1st deadline.