After several weeks of negotiations, the conference committee responsible for producing an agreement on the state’s two-year operating budget, House Bill 110, met on Monday to finalize the committee report. This was followed late in the day by both chambers approving the $78.1 billion biennial spending plan ($161.9 billion in all funding) and sending it to Gov. Mike DeWine for his signature. The governor must complete his review and sign the bill by no later than midnight on Wednesday, June 30, as the new state fiscal year begins on July 1.
The final version of HB 110 includes numerous major pro-business policy initiatives supported by the Ohio Chamber that will improve Ohio’s business climate. Most significant, it accomplishes a longstanding Ohio Chamber public policy objective to eliminate the sales tax on employment services.
Ohio is one of only a few states that require sales tax on the contract of staffing provided to third parties to meet temporary needs of those third-party businesses. The current tax is nothing more than an onerous and outdated tax that raises the cost of creating jobs. The elimination of this tax on hiring will make Ohio more competitive with our neighboring states, and it is estimated that the repeal will save employers who rely on staffing services more than $300 million over the course of the next two years alone.
The Ohio Chamber also was successful in preserving language incorporated into the budget that makes it clear that employers are not required to permit or accommodate an employee’s use of medical marijuana in or outside of the workplace.
Also of interest to employers – especially those who continue to struggle with workforce challenges – HB 110 contains additional funds for the TechCred program and makes available statewide an innovative program designed to address the “benefit cliff” problem. TechCred, launched in 2019, assists employers in “upskilling” their existing workforce as well as attracting prospective employees by providing state grant dollars to businesses to help underwrite the training costs for employees pursuing industry-recognized, technology-focused credentials.
The benefit cliff problem occurs when lower-income workers, as they move up the income scale, fall outside the eligibility range for some benefits and lose access to those support programs. With the goal of putting these workers on a path to self-sufficiency and success, the new “Employment Incentive Program,” based on an Allen County pilot program created in 2018, will function as a tiered incentive that provides cash stipends to help offset reductions in public assistance benefits to participants that achieve benchmarks over an 18-month period.
The conference report also settled the question of whether or not – and how much – to fund the state’s new Broadband Expansion Grant Program. This program, supported by the Ohio Chamber, seeks to deploy broadband service to some of the 300,000 Ohio households that currently lack access to high-speed internet. The total amount of funding available over the two-year period was set at $250 million.
Additionally, the budget contains three clarifications sought by the Ohio Chamber related to special municipal income withholding rules first adopted in March 2020 when employees began to work remotely in response to the COVID-19 pandemic. These clarifications: 1) make Dec. 31, 2021 the cut-off for ending these withholding rules; 2) protect employers against nexus expansion for net-profit taxes and provides penalty and interest relief on withholdings; and 3) narrows the documentation or certification an employer must produce if an employee files a refund claim.
Other provisions of interest to Ohio Chamber members include:
- New income tax deductions for certain venture capital gains and capital gains received for the sale of a business;
- A permanent ban on local efforts to ban or tax one-time use plastics;
- $350 million for brownfield remediation and $150 million for a site revitalization program for non-brownfield sites;
- A prohibition on local governments from imposing gross receipts taxes on marijuana businesses;
- An increase in the number of years transformational mixed-use development credits will be made available for developers;
- New tax credits for companies that bring “megaprojects” that have at least $1 billion in fixed-asset investments or create at least $75 million in Ohio employee payroll;
- The removal of the NAICS code for each business listed on IT-BUS used to report business income; and
- The removal of language that would have changed the valuation of rental property eligible for federally assisted low-income housing.
Beyond these important business issues, major items of significance include a $1.7 billion personal income tax cut and substantial changes to how Ohio funds K-12 education.
The tax cut, potentially one of the largest income tax cuts in Ohio history, reduces rates for all personal income tax brackets starting with tax year 2021 by 3 percent and removes one bracket altogether, leaving Ohio with just four brackets and a top income tax rate of 3.99%. Just a decade ago, Ohio had nine brackets and a top rate of 5.925%. In addition, the new amount of income shielded from personal income tax will increase to $25,000, up from $22,150.
The school funding changes were a priority House Speaker Bob Cupp and strongly supported by most education organizations. They establish a new formula for how per pupil costs are calculated for each school district and for determining each district’s capacity for generating local school funding based on property value and income factors within each community. However, because lawmakers are concerned about the potential for large increases in spending in future budget years, the formula is limited to this particular budget period. It also increases maximum scholarship amounts for Ohio’s Educational Choice Scholarship (EdChoice) Program, which provides students from designated public schools the opportunity to attend private schools.
HB 110 was ultimately approved by bipartisan majorities in both chambers, 32-1 in the Senate and 82-13 in the House.