Thanks to the strong push made by Ohio Chamber members who responded to our Action Alert by contacting their state lawmakers and who made the trip to Columbus to testify before the Senate Finance Committee, we gained back some major ground this week in our fight to preserve the Business Investment Income Deduction (BIID) in the two-year state operating budget, House Bill 166. On Tuesday, the Senate released its version of HB 166:
- The Senate version restored the deduction back to the original threshold of $250,000, after the House had decreased it to $100,000; and
- The changes are no longer retroactive to Jan. 1, 2019 and would not go into effect until January 2020.
Unfortunately, the 3% flat rate on business income above the $250,000 limit, which the House discarded, was not restored. This means HB 166 will still result in a tax increase for some businesses.
Nonetheless, Ohio small business owners should be appreciative of the action taken by the Senate this week. Senators clearly responded to the numerous examples of how business owners have utilized their tax savings to reinvest in their businesses – just as was intended when it was enacted in 2013. Real stories about how businesses utilize the BIID to assist with property purchases, employee hiring, employee bonuses, employee benefits, new equipment, new software and more were powerful and persuasive.
Overall, the two-year budget appropriates $68.8 billion to fund state operating expenses for the next two fiscal years. In addition, it includes a myriad of policy changes. Beyond the BIID, other tax-related changes – which are a mixed bag for Ohio businesses – made by the Senate include:
- An across-the board personal income tax rate reduction of 8% over the biennium (4% reduction starts with tax year 2019) and exemption of the first $21,750 from income tax by eliminating the two lowest current tax brackets. The new top marginal rate would be reduced from 4.99% to 4.6%;
- Elimination of the changes to pass-through entity withholding (effectively rendered moot anyway by the elimination of the 3% flat rate on business income above the $250,000);
- Levying of a new tax of 17% of the invoice price of vapor products;
- Restoration of an annual, refundable $40 million motion picture tax credit;
- Preservation of language to effectuate the Wayfair decision and require online sellers to collect sales tax on purchases made by Ohioans, but with clarification to guarantee that entities providing only advertising services will not be considered “marketplace facilitators”;
- Modification of the definition of transportation network companies subject to sales tax to specify that any “technology platform” facilitating taxable services is considered the vendor;
- Removal of the requirement that a hotel intermediary – typically an online third-party that sells hotel rooms – collect and remit local lodging taxes;
- Restoration of the sales tax exemption for aviation repair and maintenance services and for investment bullion and coins;
- Removal of the expansion of the sales tax exemption for janitorial services used in a manufacturing facility;
- Removal of the equity capital cap for financial institutions tax (FIT) – which applies to banks – liability calculation;
- Removal of language exempting from property tax the valuation of vacant land subdivided for residential construction;
- Removal of language requiring local boards to notify property owners before filing a complaint challenging a real property valuation;
- Revisions to eligibility for the job retention tax credit (JRTC) that may lead to better utilization of the program; and
- Modification of the definition of retirement income that is exempt from municipal income tax to include supplemental executive retirement plans (SERPs), effective for tax year 2020.
Tax policy is far from the only policy HB 166 addresses, however, and there are certainly other provisions that impact Ohio employers and the state’s business climate. Among the most significant:
- Creation of the TechCred program, which provides partial reimbursement to employers who provide current or prospective employees with workforce training that leads to them obtaining industry-recognized credentials or certificates. The program is strongly supported by the Ohio Chamber, as we believe it will assist employers seeking to upskill their existing workforce and by creating a deeper pool of skilled workers. We have testified in favor of the program in the House, where it is currently being considered as a stand-alone bill, HB 2.
- Extension of the current Unemployment Compensation System stopgap measure. Enacted in December 2016 after the legislature could not agree on a package of reforms that would put the system on a path to solvency, the stopgap measure increased the taxable wage base on which employer contributions are based from $9,000 to $9,500 for two years and also froze unemployment benefit levels – which are pegged to the state’s average weekly wage and typically increase annually – for the same two-year period. The changes took effect in 2018 and expire at the end of this year. The original hope was that, during this two-year period, a more comprehensive package would be passed. Unfortunately, this hasn’t yet happened. We commend the Senate for this forward-thinking change because doing nothing would only exacerbate the problem, since the stopgap measure is set to expire at the end of the year.
- Gov. Mike DeWine’s initial budget proposal contained a new health insurance mandate, requiring health plans to provide coverage for telemedicine services. The House, to its credit, removed this mandate. The Ohio Chamber objects to the state mandating coverage for specific health services and was disappointed that the Senate restored it.
The Senate is expected to make another round of changes to HB 166 early the week of June 17, and it is likely that the Senate will complete its work on the bill later that week. The House is certain to reject the Senate’s changes – this is the normal practice on budget bills – setting up the need for a conference committee to settle the differences. The state’s fiscal year ends at midnight on June 30, so this timetable would leave 10 days or less for the conference committee to act and the General Assembly to finalize a budget for Gov. DeWine to sign before the deadline.