On June 30, 2015, the Ohio Legislature enacted its biennium budget bill effective July 1, 2015 through June 30, 2017. While we will continue to analyze the bill and share changes, here are some initial and important highlights.
Small Business Deduction
The small business deduction continues, but it is improved. For the 2015 tax year, the 75% deduction of small business income will continue. Beginning with tax years beginning in 2016 and later, income tax is totally eliminated on businesses earning less than $250,000; for businesses earning more than $250,000, the income will be taxed at 3%. This is a significant benefit to businesses operating in Ohio. We are examining the budget bill in detail to determine how this will be implemented.
Individual Income Tax Rates
Reduction in individual income tax rates will continue. Effective for tax years 2015 and after, individual income tax rates will range from .495% (individuals earning $5,000 or less) to the top rate of 4.997%. The Ohio individual income tax rates for 2014 ranged from .528% (individuals earning $5,200 or less) to the top rate of 5.333%.
The budget bill includes significant changes to the activities that create nexus for a business operating in Ohio. The primary purpose of the nexus change is to enact “click through” nexus for sales tax purposes. Click-through nexus occurs when an in-state business solicits an Internet sale on behalf of an out-of-state business in exchange for some type of compensation or commission. The states’ reasoning is that the sale would not have been possible without the effort of the in-state business soliciting on behalf of the out-of-state business. The sales tax nexus of the in-state business transfers to the out-of-state business via the click-through. In layman’s terms the activities of the in-state business are considered the activities of the out-of-state business, thereby creating sales tax nexus for the out-of-state business. Ohio is just the next state to enact click through nexus in the hopes of widening its net for sales tax collection.
InvestOhio will be around through the next biennium. InvestOhio is a tool for helping Ohio small businesses gain the capital they need to succeed and create jobs. Through the program, individuals who invest up to $10 million in eligible small businesses may receive up to a 10 percent non-refundable personal income tax credit if the investment is held for two years.
Sales Tax Holiday
Don’t forget Ohio’s first ever sales tax holiday will begin Aug. 7, 2015 at 12:01 a.m. and ends Aug. 9, 2015 at 11:59 p.m.
During the holiday, the following items are exempt from sales and use tax:
- An item of clothing priced at $75 or less;
- An item of school supplies priced at $20 or less; and
- An item of school instructional material priced at $20 or less
Skoda Minotti’s SALT team will continue to provide pertinent information as we further examine the details of the budget bill. If you have any immediate questions about Ohio’s budget bill, please contact Mary Jo Dolson at 888-201-4484 or firstname.lastname@example.org.