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Ohio Enact Midterm Tax Law Changes

On June 16, 2014, Ohio Governor John Kasich signed into law House Bills 492 (“H.B. 492”)1 and 483 (“H.B. 483”),2 followed by his signature on June 17th of Senate Bill 263 (“S.B. 263”).3

 The adopted bills make changes to the Motor Fuels Receipts Tax, the Individual Income Tax, and various administrative provisions.

These changes include the following:

Individual Income Tax

The new law reduces Individual Income Tax rates for the highest tax bracket from 5.421% to 5.333%, increases the individual income tax deduction for investors in closely held businesses, increases personal exemption amounts available to low and middle-income taxpayers, and increases the Ohio earned income tax credit.

  • H.B. 483 accelerates the phase-in of a 10% income tax rate reduction previously not scheduled to be in full effect until the 2015 taxable year. The full 10% reduction will apply to tax years beginning in 2014 and thereafter.

  • The highest marginal tax rates will be reduced from 5.421% to 5.333%.

  • For tax years beginning in 2014, the new law increases the existing income tax deduction for Ohio small businesses from 50% to 75% of Ohio sourced “small business” income, with a maximum allowable deduction of $187,500 for married filing jointly taxpayers. No pass-through entity may claim this deduction. Instead, the deduction is claimed by the pass-through entity’s individual owners. “Small business” income is derived from a pass-through entity or directly owned entities that are typically reflected on the taxpayer’s Federal Form 1040 Schedules C, E or F.

  • Currently applicable Individual Income Tax law allows a taxpayer to claim a personal exemption for the taxpayer, the taxpayer’s spouse (if the spouses do not file separately), and the taxpayer’s dependents. Prior to H.B. 483, the personal exemption amount was $1,700. For tax years beginning in 2014 or 2015, H.B. 483 increases this amount to $2,200 for taxpayers whose Ohio Adjusted Gross Income (“OAGI”) is $40,000 or less and to $1,950 for taxpayers whose OAGI exceeds $40,000 but is less than or equal to $80,000. The exemption amount will remain at $1,700 for taxpayers whose OAGI exceeds $80,000.

Motor Fuels Receipts Tax

The new law renames the “Motor Fuel Receipts Tax” as the “Petroleum Activity Tax,” repeals the currently applicable mandatory electronic tax payment statute (and with it the exclusion for dealers with an annual tax liability of $600,000 or less) and instead imposes electronic payment as the “[Ohio Tax] Commissioner so requires,” changes the basis on which the tax is computed to that of “calculated gross receipts,” imposes the tax at a rate of 0.65%, and authorizes job creation and retention tax credits to be claimed against the tax.