Ohio Governor John Kasich recently released a budget proposal that calls for sweeping changes in Ohio taxes beginning this year. A brief description of the proposed changes follows, by type of tax:
Personal Income Tax
Ohio personal income tax rates would be reduced 15% in 2015 and an additional 8% in 2016. This would reduce Ohio’s top income tax rate from 5.33% in 2015 to 4.1% in 2016.
The proposal would also eliminate all Ohio income taxes on small businesses with annual gross receipts of $2 million or less.
The Governor’s plan would provide further tax relief for low income Ohioans, in the form of increased personal exemptions for households earning less than $80,000 per year, but would eliminate several income tax breaks benefiting senior citizens and retirees for households making more than $100,000 per year, including the retirement income credit, senior citizen credits and the deduction for Social Security income.
Commercial Activity Tax (“CAT”)
The CAT rate would be increased from .26% to .32%. The minimum annual tax for businesses with annual gross receipts of $2 million or less would be reduced from $800 to $150.
The state sales tax rate would increase from 5.75% to 6.25%, plus local add-on sales tax rates that currently run as high as 2.25%. In addition, the sales tax would apply to several services not currently subject to the tax, including parking, lobbying, cable TV, public relations, market research, opinion polling, management consulting, travel services and debt collection.
The “vendor discount” — a percentage of the sales tax collected by vendors for their expense in collecting the tax — would remain at .75% but would be capped at $1,000 per month per vendor. This effectively reduces the vendor discount for vendors with more taxable sales.
Finally, sales tax would increase for those trading in a used car or watercraft when purchasing a new car or watercraft. Under current law, the sales tax applies to the difference between the sales price of the new car or watercraft and the credit received for the trade-in. The Governor’s proposal would change this to the difference between one-half of the trade-in value and the purchase price of the new item. According to the Governor’s office, the result of all of these proposals would be an additional $219 in sales tax if a $20,000 car is purchased with a $5,000 trade-in.
The Governor recommended an increase in Ohio’s cigarette tax by $1 per pack, to a total of $2.25 per pack. Taxes on other tobacco products would also increase.
“Fracking” Tax and Natural Gas Tax
The Governor renewed his call for Ohio to tax oil and natural gas extracted by “fracking” at rates of 6.5% at the wellhead for both crude oil and natural gas and 4.5% downstream for natural gas. The existing tax on natural gas from conventional wells would be changed so that no tax is charged for wells producing less than 10 MCF per day, and a tax of three cents per MCF would per charged for wells producing more than 10 MCF per day. An existing tax of 20 cents per barrel of oil from conventional wells and 4.5% for natural gas liquids sold downstream would remain. After paying regulatory costs, 20% of the proceeds from these taxes would go to local governments in areas where the drilling is taking place, while 80% would go to the state.