Governor John Kasich continues his effort to drive Ohio forward with his executive budget plan for Fiscal Years (FY) 2018-19. It is highlighted by income tax reductions, increases in cigarette and alcohol taxes, an increase in the sales tax, an increased severance tax, and municipal tax reforms. The $66.9 billion two-year state general revenue fund budget lowers spending 5.6 percent in FY 2018 before increasing 2.2 percent in FY 2019. Office of Budget and Management Director Tim Keen outlined the budget and tax proposals Wednesday in a House Finance Committee hearing. The actual bill language is expected next week.
The governor’s proposed tax reforms include personal income tax reductions such as collapsing brackets from nine to five, increasing the low income threshold from $10,000 to $15,000, and increasing the personal exemption from $2,250 to $3,000 for those earning under $40,000 and from $2,000 to $2,500 for those making between $40,000 and $80,000. These changes would realize an overall 17 percent decrease in tax liability.
This reduction in personal income tax would be offset by several other reforms beginning with increasing the taxes on tobacco sales. An additional 65 cents would be added per pack of cigarettes along with equalizing the other tobacco products. There would also be an inflation adjustment from 1992 to the present on alcoholic beverages, approximately one cent in taxes per serving.
INCREASE IN SALES TAX
This reform plan would also increase the sales tax by a half-cent to 6.25 percent and would subject lobbying, repossession services, cable, non-medical cosmetic surgery, landscape design and travel agents to the sales tax. This is a similar but somewhat scaled-back version of the proposal in the FY 2016-17 budget.
SEVERANCE TAX INCREASE
The tax proposal on the extraction of oil and gas, commonly known as the severance tax, from the previous budget has also been repeated. It would levy a tax of 6.5 percent on oil and 4.5 percent on gas. This proposal would increase collections by approximately $447 million during the biennium.
CAT FLOOR CREATED
There would be no increase in the commercial activity tax (CAT) rate but a floor of 10 percent exemption on the qualified distribution centers would be created. The Ohio Chamber of Commerce remains concerned about any changes to the CAT and is working to better understand how this proposal would impact business tax competitiveness.
MUNICIPAL INCOME TAX CHANGES
Finally, the budget proposes some beneficial changes to the municipal income tax. This tax consists of both withholding/individual taxation and the tax on business net profits. The governor’s plan only affects the business net profits side. First would be a centralized filing through the Ohio Business Gateway, one form, one administration and appeals in one place. It would also eliminate the throwback rule. The municipalities would retain their rates and credits. This would only affect the business net profit filings with the municipalities retaining their employer withholding and individual filers.
WHAT’S IT TO ME?
Why should you care? The Ohio Chamber is concerned that this budget includes efforts to shift the tax burden from individuals to business, a strategy which we’ve actively opposed over the last several budget cycles. This budget isn’t as aggressive but still includes some tax shifting. We will continue to be at the forefront of efforts to enhance the business climate and stand ready to help with questions and aid in your efforts to effect any changes in this budget.