Ohio’s Biennial Budget Bill (H.B. 33) was signed into law by Governor DeWine on July 4, 2023. The Bill focused on investments to boost Ohio economic development, education, and healthcare, but also included significant cuts Ohio business and personal income taxes. Additionally, the General Assembly enacted several new or expanded credit and incentive opportunities.

Ohio Personal Income Tax: Continuing the tax cut trends over the past decade, Ohio further reduced the number of tax brackets and cut tax rates for all brackets. Beginning in 2024, Ohio will only have two tax brackets with a top rate of 3.5% on nonbusiness income over $100,000. Other income tax changes include:

• Resident Credit Clarified – Ohio residents are permitted to claim the resident credit for state income taxes paid to other states by pass-through entities to avoid the federal SALT deduction limit, referred to as SALT Cap Workaround laws. This credit is available to taxpayers beginning with the 2022 tax year.
• Home Ownership Savings Deduction – Beginning in 2024, taxpayers may take a deduction of up to $10,000 for married couples ($5,000 single) for amounts contributed to a special home ownership savings account opened exclusively for the purchase of eligible home costs.
• Scholarship Donation Credit – Taxpayers who donate to a qualified scholarship granting organization may claim a credit equal to the amount of the contribution.

Commercial Activity Tax: In a surprising addition to the Bill, the General Assembly increased the annual exclusion for the CAT to $3M in 2024 and $6M in 2025. As a result, businesses with less than the exclusion amount of gross receipts (e.g., sales) from Ohio customers will no longer be subject to the CAT.  The Bill also excludes receipts from grants or debt forgiveness to expand broadband services in Ohio from the tax base and clarifies that heating companies formerly subject to public utilities excise tax are now subject to the CAT instead.

Sales and Use Tax – Baby products including diapers, wipes, car seats, cribs, and strollers will be exempt from Ohio sales tax beginning October 1, 2023. Additionally, the General Assembly ordered an expanded sales tax holiday to occur in August 2024.

Municipal Tax: In determining net profits earned in Ohio municipalities, businesses may elect to apportion property, payroll, and sales attributable to remote employees based upon their where the employee regularly or periodically works or another designated location. This does not change employers’ obligation to withhold taxes based upon where the remote worker actually performed the services. Other changes include:

• Tax Exemption for Minors – Individuals under 18 are exempt from municipal income tax beginning in 2024.
• Taxpayer Reimbursement for Tax Notices – If a taxpayer receives an extension for municipal income taxes, the tax administrator is not permitted to send notices until the return is filed or the deadline passes. If a taxpayer receives a notice anyway, he or she can apply for reimbursement of up to $150 for costs incurred in responding to the notice.

Motor Fuel Tax – Officers, employees, or trustees may now be held liable as responsible parties for a business’s unpaid motor fuel taxes, similar to the current rule for sales and use taxes and employer withholding tax.

Credits and Incentives – The Bill included the following new or expanded tax credits:

• Motion Picture and Theater Production Credits – The total credits for motion pictures and Broadway theater productions was increased from $40M to $50M (with $5M reserved specifically for Broadway productions). This credit equals 30% of the cost of production. The Bill also added a new credit for capital improvements made by motion picture or Broadway production companies equal to 25% of the capital improvement costs. Applications for the new credit will open up in July 2024, although the credit may be taken on costs incurred after June 30, 2023.
• Welcome Home Ohio Credits – The Ohio Director of Development is authorized to issue nonrefundable tax credit certificates for the rehabilitations or construction of homes sold to income-restricted owners. Credits are available to developers and land banks and equal one-third of the construction costs up to $90,000.
• Single-Family Home Credit – Taxpayers may claim a credit for investing and developing affordable single-family housing equal to the difference between development costs and the fair market value of the home. Like other tax credits, taxpayers will need to apply to receive the credit.

Other Tax Changes:  The Bill also provides an extension for tax exemption of Ohio qualified energy projects, indexing the homestead exemption to inflation, credits for non-chartered non-public schools, and a tax reduction on consumer grade fireworks.