Taxpayers that earn $26,050 in taxable income or less will not be subject to the tax. Taxpayers earning more than that amount are subject to a tax and rate schedule as partially indicated above.
Pass-through entity tax (PTET)
In 2022, Ohio adopted a PTET regime effective for tax years beginning in 2022. However, due to the existing statutory structure at the time and how the PTET was drafted, the credit for taxes paid to other states for similar PTETs was not available to pass-through entity owners. The tax bill modifies the regime by creating an addback for any similar taxes deducted for federal purposes and modifying the credit to include similar PTETs paid to other states. According to the bill, the provisions are effective to taxable years ending on or after Jan. 1, 2023, but may be applied to 2022 through an amended return, or on original return for that tax year.
Municipal income tax
The tax bill makes a number of changes to the municipal income tax. Beginning for tax years ending on or after Dec. 31, 2023, a taxpayer may elect to apply a new reporting location methodology to the apportionment of net profit from a business or profession, instead of the standard three-factor apportionment formula.
Two other noteworthy changes include a new statutory exemption from the municipal income tax for those under 18 years of age, effective for taxable years beginning after Jan. 1, 2024, and more time to file the municipal income tax return. Non-individual taxpayers who receive a federal income tax extension are now provided an additional month to file the municipal income tax return. The new extended date is the fifteenth day of the eleventh month instead of the fifteenth day of the tenth month, effective taxable years ending on or after Jan. 1, 2023.
Notable excise tax and sales tax changes
A few notable changes to sales and use tax and excise taxes are listed below:
- Exempts certain baby-related items from the sales and use tax effective Oct. 1, 2023, including diapers, car seats, cribs, strollers and therapeutic or preventive creams and wipes
- Allows for an ‘expanded’ sales tax holiday in 2024, but the original 14-day minimum threshold was vetoed to better ascertain initial revenue loss from an expanded holiday
- Exempts contractor sales or rentals of tangible personal property and services to provide temporary traffic control or structures where the state takes title to, or temporary position of, the property or receives the benefit of services
- Exempts the 4% firework fee from the sales and use tax if it is separately stated on an invoice, effective Oct. 1, 2023
- Doubles the sports gaming tax to 20% from 10%, effective July 1, 2023
While the changes are overwhelmingly taxpayer-friendly, the line-item veto did reduce some of the beneficial provisions passed by the legislature. Business taxpayers should be prepared for future clarifying guidance consistent with the legislation and also be prepared to review the numerous other amendments that were not described in this tax article due to more narrow or nuanced application. Business taxpayers should take note of the many municipal income tax and CAT changes that may increase compliance on some smaller businesses. Pass-through entity owners should consider whether the elective tax is more advantageous with the credit for taxes paid, and also consider whether amending a 2022 election to account for the credit would be ultimately beneficial. As one of the most extensive tax bills out of Ohio in several years, Ohio taxpayers should closely consider how the legislation will impact their Ohio tax footprint and should reach out to their Ohio tax advisers with questions.