CPA & Business Advisory Blog

Important Ohio Tax Changes for 2013

Posted on Friday, September 6th, 2013 by

Governor Kasich signed the final version of the biennial budget bill on June 30, 2013.   The budget resulted in changes that affected both individuals and business and were intended to make Ohio a more attractive place for new businesses and investments in new jobs.

Individual Income Tax Changes

Over the next three years a permanent 10 percent personal income tax reduction will be phased in (retroactive to January 1, 2013) as follows:

Calendar Year​

​Top Rate

​2012

 

​5.925%

​2013

​5.421%

​2014

​5.392%

​2015

​5.333%

Other changes to the individual income tax include:

  • Income tax brackets will be frozen for three years (2013-2015)
  • Gambling losses are no longer deductible; winnings must still be reported as income but losses can no longer be deducted against Ohio adjusted gross income
  • Nonresident investors included in a composite return who have no other income from Ohio sources are now eligible to file a separate individual Ohio return which will allow them to claim a personal and dependency exemption and non-business credits
  • Taxpayers with income of $20,000 or less can claim an Ohio earned income tax credit for 5 percent of the credit allowed for federal income tax purposes
  • For taxable years beginning January 1, 2014, taxpayers are prohibited from claiming either a personal exemption on their returns if they are being claimed as a dependent on the federal income tax return of another taxpayer.

Small Business Income Tax Changes

There will be a small business income deduction of 50 percent on the first $250,000  ($125,000) of Ohio business income passed through to an individual owner of a pass-through entity, such as a partnership, S corporation, sole proprietorship, and limited liability companies.   Ohio small business investor income is defined as the portion of a taxpayer's adjusted gross income that is business income reduced by deductions from business income and apportioned or allocated to Ohio, not otherwise deducted or excluded in computing federal or Ohio Adjusted Gross Income for the taxable year.  Therefore, the Ohio portion of net business income reported on the taxpayer's federal 1040 Schedules C, E, and F will be used in calculating the deduction.  The deduction is limited to 50 percent on the first $125,000 ($62,500) for each spouse filing separately.  Note that this deduction will not impact the calculation of a taxpayer's school district income tax liability.  Any deduction will be added back to Ohio income for school district income tax purposes. 

Real Estate Tax Changes

A change has been made to phase out the homestead property tax exemption over time. Effective January 1, 2014, if a homeowner becomes age 65 and has an annual income over $30,000, they will not be eligible for this exemption. Homeowners who qualify in calendar year 2014 will continue to qualify in the future regardless of income levels.

Sales and Use Tax Changes

The changes to the sales and use taxes have broadened the overall scope of what is taxable along with increasing the statewide sales tax rate by 0.25 percent up to 5.75 percent. The bill also provides that Ohio will become a full member in the Streamlined Sales Tax Project, which was designed to increase the collection of sales and use taxes on internet commerce. Changes include, but are not limited to:

  • Taxing electronically transferred digital products (videos, music, ebooks)
  • Taxing magazine subscriptions (beginning September 29, 2013)
  • The ability to exempt equipment for a computer data center if an investment of at least $100,000,000 is made for three continuous years and payroll is at least $1,500,000 per year for those three years
  • An exemption for sales to or by a cable service provider, which includes electronically transferred digital products. This results in a cable provider being able to sell digital products tax free

These changes are effective September 1, 2013

Commercial Activity Tax Changes

Beginning January 1, 2014, there is a new minimum tax structure for CAT taxpayers on the first $1 million of revenue. The new minimum tax will be as follows:

Annual Taxable Gross Receipts​​​

​Minimum Tax Due

​$0-$150,000

​$0

​$150,001-$1,000,000

​$150

​$1,000,001-$2,000,000

​$800

​$2,000,001-$4,000,000

​$2,100

​Over $4,000,000

​$2,600

The 0.26 percent tax rate will remain the same on receipts over $1,000,000 and all CAT filers are required to electronically file.

If you have any additional questions about these tax changes and how they may affect you or your business, please contact Jenna Staton in our tax planning and preparation department at 440-449-6800 or jstaton@skodaminotti.com.

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