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2013 Ohio Budget Bill Enacts Tax Law Changes

The tax law changes launched with this budget will deliver a $2.7 billion tax cut to Ohio businesses and individuals over the next three years. This tax cut is the product of multiple elements including:

  • A 10% personal income tax cut phased in over the next three years. In 2013, 2013 existing tax rates are being reduced 8.5%; in 2014, the 2013 pre-budget rate cut is 9%; in 2015, the full 10% reduction will be applied to the 2013 pre-budget rates.
  • The $20 personal exemption credit will be available only to households with Ohio taxable income under $30,000.
  • Employer withholding tables will be updated in 2013 to reflect the lower income tax rate enacted with this budget.
  • Ohio small businesses will be entitled to take a 50% tax deduction on the first $250,000 of business income. This deduction is available to owners/investors of all companies structured as passthrough entities. “Ohio small business investor income” means the portion of a taxpayer's adjusted gross income that is business income reduced by deductions from business income and apportioned or allocated to Ohio, to the extent not otherwise deducted or excluded in computing federal or Ohio adjusted gross income for the taxable year.
  • The state sales and use tax rate will increase from 5.5% to 5.75% on September 1, 2013.
  • The minimum Commercial Activity Tax (CAT) will change from a flat $150 tax to a variable tax tied to the level of business receipts. The CAT rate of .26% and the $1 million exclusion are unchanged.
  • Requires annual taxpayers of the CAT, like quarterly taxpayers, to pay the tax electronically and, if required by the Tax Commissioner, to file electronic returns; prescribes minimum penalties for the failure to submit an electronic CAT return or payment, equal to $25 for each of the first two violations and $50 for each subsequent violation, that apply if the current law penalties of 5% or 10% of the tax due, respectively, do not exceed those amounts.
  • The 10% and 2.5% real estate tax ‘rollbacks’ (reductions) will be eliminated for new and replacement levies passed in November, 2013 and beyond. Existing levies and renewals are not impacted. The state subsidy payments to schools and other local governments will continue but will not increase if new local real estate millage is added.
  • The homestead exemption will again become subject to means testing which will limit eligibility to home owners aged 65 years or older with incomes less than $30,000 beginning with applications for tax year 2014. Currently eligible participants will not be impacted.