Last week, the House passed its version of HB 166, the state budget for the next two fiscal years. We alerted you to the most significant provision impacting businesses: the substantial reduction of the Small Business Investor Income Deduction (BIID) from $250,000 to $100,000 and the removal of the provision that caps the income tax rate at 3% above the limit.
Together, these changes mean all business income above $100,000 will now be taxed at the corresponding marginal income tax rates. This represents a shift in tax burden of more than $1 billion onto small business owners. Lawmakers need to hear from their business constituents like you that you don’t support this massive tax increase on small business owners.
Overall, the budget appropriates $33.6 billion for FY 2020, which is a spending increase of 3.4% over the current fiscal year. For FY 2021, the budget appropriates $35.2 billion, a 4.8% increase over the FY 2020 amount. The actual dollar increase in FY 2020 over the current fiscal year is approximately $1.1 billion, followed by an additional increase of $1.6 billion in FY 2021. The total combined spending of $68.8 billion over two years is allocated as follows:
- 46.5% for Medicaid
- 4.2% for other health & human services programs
- 8.0% for higher education
- 28.6% for K-12 education
- 6.1% for corrections
- 6.6% for all other government programs
Beyond the proposed changes to the BIID, other budget provisions of note to employers include:
- Creation of the new Innovative Workforce Incentive Program that attempts to address employer workforce challenges by providing $12.5 million to reimburse employers whose employees or potential employees obtain industry-recognized credentials necessary to work in growing industries in Ohio.
- Establishment of an “economic nexus” threshold above which online and catalog retailers would be required to collect and remit Ohio sales taxes even if they don’t have a physical presence in the state. The requirement would apply to remote sellers that have gross receipts in excess of $100,000 from sales or 200 or more separate sales transactions in Ohio.
- Creation of a new Opportunity Zone Investment tax credit equal to 10% of an individual’s investment in an Opportunity Zone, up to $1 million per biennium. An Opportunity Zone is a designation created by the federal Tax Cuts and Jobs Act of 2017 to encourage those with capital gains to invest in undercapitalized communities. The budget provision further enhances these newly-created Opportunity Zones by incentivizing their use in order to drive investment and accelerate economic growth in Ohio.
- Removal of language from the as-introduced version of HB 166 that would have forced health plans to provide coverage for telemedicine services. The language did not have adequate safeguards to protect against jeopardizing the potential for health care cost savings that telemedicine promises. This issue is likely to be revisited in stand-alone legislation.
- Establishment of the H2Ohio Fund to support programs to protect Ohio’s water quality, including efforts to minimize the introduction of nutrients and other runoff into the Lake Erie Basin and other Ohio rivers, lakes, and waterways.
- Establishes that nature or any ecosystem does not have standing to participate in or file a lawsuit and also prohibits any person from bringing, or intervening in, a lawsuit on behalf of nature or an ecosystem. This is likely in response to so-called “Community Bill of Rights” ordinances cropping up at the municipal level around the state that open local businesses to costly lawsuits for common business practices that are otherwise fully in compliance with existing state and federal environmental laws.
- Protects real property owners by requiring a local governmental entity to seek local board or legislative approval before filing a complaint challenging the assessed value of a property.
While the Ohio Chamber, with your help, will be focusing on getting the harmful BIID changes removed from HB 166, these other provisions are positive and we hope they remain in the bill as it winds its way through the legislative process over the next six weeks. Beginning next week, the Senate Finance Committee is scheduled to meet three times to hear public testimony on HB 166. The committee is expected to unveil the Senate’s first round of budget amendments the following week, likely on May 28.