The Ohio Biennial Budget Bill (House Bill 166) passed the Ohio House by a vote of 85-9 and has been moved to the Ohio Senate for debate. This bill contains a number of tax law changes that will impact not only Ohio residents, but some businesses may find themselves subject to sales tax nexus with Ohio when previously they were not. The changes are proposed to be applied retroactively to taxable years beginning on or after January 1, 2019.
One major change proposed in the Bill is with regards to the Ohio Business Income Deduction. The Business Income Deduction has been in place since 2015 replacing the previous version the Ohio Small Business Deduction which was adopted in 2013. The deduction allowed married filing joint taxpayers to deduct up to $250,000 of business income from their Ohio adjusted gross income, thereby subjecting any excess business income to be taxed at a flat 3%. House Bill 166 will cap the deduction at $100,000 for taxpayers married filing joint and $50,000 for taxpayers married filing separate. Additionally, any amounts of business income in excess of the threshold deduction amount will be taxed at ordinary tax rates. House Bill 166 did provide a reduction to the highest tax rate in Ohio from 4.997% to 4.667%
Another significant change was with regards to marketplace facilitators being included as those required to collect sales tax. A marketplace facilitator will now have nexus with Ohio and be subject to sales tax collection if they have $100,000 in sales or 200 separate transactions of taxable property or services in Ohio in the current or preceding calendar year. The thresholds are a reduction to the previous remote seller exemptions of $500,000 in sales and 1,000 transactions. This provision is in keeping with other state sales tax laws as a result of the Wayfair decision in South Dakota. Failure to remit sales tax could result in full application of penalties under Ohio law with personal liability being the most severe.
The bill is now before the Ohio Senate with changes being possible. Contact us if you have questions.