Recent Ohio tax changes and how they’ll affect businesses

Ohio’s Biennial Budget Bill — House Bill 33 — signed into law in July, contains many changes to various Ohio taxes. These changes will have a direct impact on businesses and their owners.

Smart Business spoke with Matt McKinnon, Director, Columbus Tax Practice Leader at Brady Ware & Company, about these tax changes and their expected effects.

What Ohio tax changes have been enacted?

Over the next two years, Ohioans will pay less personal income taxes to the state. Beginning with tax year 2023, the top marginal tax rate is scheduled to decrease from 3.99 percent to 3.75 percent, to 3.5 percent over the next two years.

Significant changes to the CAT will phase in over the next two years, resulting in the largest modifications to the tax since it was enacted in 2005.

  • Increase in gross receipts exemption: For 2024, this will increase from the current $1 million to $3 million. For 2025, the exemption will increase from $3 million to the new standard, $6 million. Taxpayers with Ohio Gross Receipts of $6 million or less will pay no CAT.
  • Elimination of Annual Minimum Tax (AMT): The AMT no longer applies, beginning in 2024.
  • Calendar year filing frequency eliminated.
  • Revisions to credits for Research & Development expenditures: Increased scrutiny by the Ohio Department of Taxation. Audits of qualified expenses will occur. Combined or consolidated filing groups must determine the credit on a separate member basis, rather than in aggregate for the group.

Ohio resident owners of certain pass-through entities will get a benefit on their Ohio tax return. For those entities that elected to pay other states’ income taxes at the entity level as a SALT Cap workaround, amounts paid to other states will be included in the Ohio resident credit. This new provision will mitigate the potential double taxation of pass-through income among the states. Owners, however, must addback any pass-through entity tax deducted from Federal Adjusted Gross Income to their Ohio Adjusted Gross Income. The enhanced credit is available starting with original or amended 2022 tax returns.

In the never-ending task to make city tax compliance easier, H.B. 33 contains many noteworthy changes impacting Ohioans.

  • Alternative apportionment for businesses with remote workers: An alternative apportionment for net profit purposes will be permitted. Businesses may elect to apportion net profits to employees’ reporting locations, rather than where they are performing remote work. This simplification only applies to net profits; no change is made to an employer’s obligation to withhold tax for employees’ remote work locations. This change begins with tax years ending on or after December 31, 2023.
  • Change in net profits extended due date for filing: Businesses are allowed until the 15th day of the 11th month following a taxpayer’s year end to file, so long as they are on a federal filing extension. This new extended due date is effective for tax years ending on or after January 1, 2023.
  • Caps on late filing penalties: Beginning with tax year 2023, late filing penalties are capped at $25, down from the current maximum of $150. Cities must also permit a waiver for a taxpayer’s first late penalty.

What impact are these tax changes likely to have on businesses?

These law changes will have two primary impacts. First, there will be a decrease in Ohio taxes. Businesses will note a decrease in Commercial Activity Tax. Owners of businesses structured as partnerships or S Corporations will see a decrease in the amount of Ohio individual income tax they are paying.

Second, the changes will have an administrative impact on Ohio businesses. Simplification of compliance, reduced penalties, and longer extension periods will allow businesses to meet their obligations with less burden.

In light of these tax changes, businesses should continue to meet or talk with their tax adviser on a regular basis. As CPAs learn of upcoming changes, the details can be discussed and applied to a company’s specific situation. ●

INSIGHTS Accounting is brought to you by Brady Ware & Company

Matt McKinnon

Director, Columbus Tax Practice Leader


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