In a surprise development, the House Finance Committee amended SB 26 (Educator Tax Deduction) to allow lawyers and lobbyists to use the business income deduction (BID) in the same manner as any other pass-through entity generating business income. The Committee activity was followed up by a House vote of 90-0 for passage of SB 26. The bill now goes back to the Senate for concurrence. That vote should take place next week.
As readers may recall, the Ohio Budget (HB 166) excluded income earned from the practice of law or lobbying from being eligible for the business income deduction and the 3% rate of tax for the remainder of income. This exclusion was scheduled to apply to taxable years beginning in or after 2020. SB 26 removes this exclusion but now requires the 2020 tax forms used to calculate the BID to include space for the North American Industry Classification System (NAICS) code or codes of the business or professional activities from which the business income was derived.
Updates to this article will be posted once the Senate and governor act on the bill. For now, SB 26 restores parity between all businesses, which is a good result for Ohio and its business climate.