On Tuesday, the Ohio Chamber of Commerce testified in support of House Bill 467 during a hearing in the House Ways and Means Committee. HB 467 is the latest attempt to address an Ohio Chamber Tax Public Policy Priority. HB 467 lowers the withholding tax requirements for pass-through entities (PTE). Under current law, a PTE is required to withhold tax for an out of state investor at a rate of 5%. If the out of state individual investor is unknown, or, if in certain circumstance, the investor is not an individual, the rate of withholding rises to 8.5%.
The withholding regime has been in place since 1997 and has not been adjusted to account for changes in the Ohio tax code. After 1997, Ohio replaced its franchise tax with a commercial activity tax, added a financial activity tax and made a number of changes to the individual income tax rate including an exclusion for business income. In the 131st General Assembly, Senate Bill 288 attempted to make systematic changes to the PTE withholding regime. SB 288 passed out of the Senate but did not receive a vote in the House. During the most recent budget deliberation, House Bill 166 saw the inclusion of language that would have reduced the two PTE withholding rates to 3%. That language was ultimately removed from the bill before it was passed out of the General Assembly.
HB 467 revives the effort to reform the PTE withholding rates. Although the bill starts with a reduction to 4% for both individual and nonindividual investors, the Ohio Chamber testimony and comments from the sponsor during his testimony suggested that a 3% withholding rate would best match up with the new business income rate of 3% in the Ohio income tax tables. The Ohio Chamber will continue to work with the chairman and the members of the Ways and Means Committee to adjust the language of the bill so that it meets both the Ohio Chamber’s Public Policy Priority and retains an ability to pass out of the committee and the full House. In the six years that the Ohio Chamber has advocated for this reform, HB 467 may be the best opportunity to achieve the goal of PTE withholding tax reform.