Yesterday, the Ohio Senate Finance Committee accepted a substitute version of the biennial budget bill, H.B. 96. The bill proposes significant personal income tax cuts and implements important property tax protections. However, the bill also proposes the elimination of over 20 popular tax exemptions and tax credits to help offset the income tax revenue losses.
The deadline for amendments and changes to this bill is noon on Friday, June 6th. If any of these changes will impact your business, you should act immediately to contact your legislators. We are also happy to answer any questions you may have–our team of lobbyists and attorneys are experienced with defending important aspects of Ohio’s tax system.
The following is a quick listing of the major changes proposed in the bill.
Personal Income Tax
- Phases down the state income tax on nonbusiness income to a flat rate of 2.75% over two years. For tax year 2025, reduces the top bracket rate (income over $100,000) from 3.5% to 3.125%, while retaining the 2.75% rate for income between $26,050 and $100,000. For tax year 2026, further reduces the top bracket rate so that a flat 2.75% rate applies to all income over $26,050. The tax rate on business income remains at 3% after applying the business income tax deduction.
- Eliminates a provision that allowed certain trusts created before 1972 to elect whether to be subject to income tax or commercial activity tax (CAT). Instead, starting in 2026, subjects such trusts to income tax and excludes them from the CAT.
- For 2025, limits eligibility for the joint filer credit and personal exemptions for taxpayers with MAGI of $750,000 or less. In 2026, reduces the threshold to $500,000.
- Repeals the political contribution income tax credit effective January 1, 2026.
- Eliminates the House’s language that would have permitted credits to flow to multiple tiers of owners for purposes of the Electing Pass-Through Entity Tax and the traditional Pass-Through Entity Tax.
Real Property Tax
The Senate has also included a significant number of real property tax changes, many of which the Taxpayer Protection Coalition has actively advocated for, including:
- Adding transparency to the property tax levy system for voters and taxing authorities by requiring current expense ballot language to include the % and $ amount of any fund carry-over balances.
- Eliminates:
- Replacement levies;
- Emergency levies;
- Substitute levies; and
- Combined school district income tax and fixed sum property tax levies.
- Prohibits a school district with over 100% cash balance from proposing a current expense levy.
- Prohibits a school district or other education related taxing authority from combining a renewal levy with an increase to an existing levy.
- Requires current emergency and substitute tax levies to be included in the calculation of the 20-mill floor/2-mill floor.
- Allows a county budget commission to reduce millage on any voter-approved tax levy, aside from a debt levy, if the commission finds it reasonably necessary or prudent to avoid unnecessary, excessive, or unneeded property tax collections.
- Increases from 30% to 50% the threshold of carry-over balance allowed before a county budget commission must reduce a school district’s property tax collections.
- Expands the Homestead exemption:
- Value reduction is increased from $28,000 to $32,000 while also increasing the income threshold from $40,000 to $42,500.
- Valuation reduction for disabled veterans and surviving spouses is increased from $56,000 to $59,000.
- Expands a property tax exemption on some parking garages to those owned by any municipal corporation, county, port authority, and new community authority, and to the land upon which the garages sit.
Sales and Use Tax
- Repeals, beginning January 1, 2026, the sales and use tax exemption for sales of newspapers.
- Repeals, beginning January 1, 2026, the sales and use tax exemption for rental payments for motor vehicles provided to the owner or lessee of a motor vehicle that is being repaired or serviced, where the payments are reimbursed by the service provider.
- Repeals, beginning January 1, 2026, the sales and use tax exemption for the transfer of all copyrighted motion picture films, including those transferred for use solely for advertising.
- Repeals, beginning January 1, 2026, the sales and use tax exemption for the following:
(1) Sales of refrigerated food vending machines.
(2) Sales of advertising material or catalogs that price and describe property offered for retail sale.
(3) Purchases by direct marketing vendors of items that are used in printing advertising material and equipment primarily used to accept orders.
- Repeals, beginning January 1, 2026, the sales and use tax exemption for sales of machinery, equipment, and material used in the production for sale of printed material.
- Repeals, beginning January 1, 2026, a sales and use tax exemption for agricultural land tile and portable grain bins.
- Eliminates, beginning January 1, 2026, a sales tax exemption for sales of digital audio on juke boxes and similar devices in commercial establishments.
- Repeals, beginning January 1, 2026, a sales and use tax exemption for the sales of telecommunications services that are used directly and primarily to perform the functions of a qualified call center.
- Repeals, beginning January 1, 2026, the sales and use tax exemption for tangible personal property used in acquiring, formatting, editing, storing, and disseminating data or information by electronic publishing.
- Repeals, beginning January 1, 2026, the 25% refund of sales and use taxes provided to providers of electronic information services.
- Beginning January 1, 2026, caps the prompt payment sales and use tax vendor discount at $750 per vendor’s license per month. The discount otherwise equals 0.75% of the amount due on the return.
- Disallows, beginning October 1, 2025, the Tax Credit Authority from entering into an agreement to award a sales and use tax exemption to a computer data center for sales of certain tangible personal property used in the center.
- Prohibits port authorities from entering into agreements for non-public entities that allow the private party to benefit from the sales tax exemption on construction materials without first obtaining county commissioner approval. Excludes construction contracts between port authorities and private entities from the sales tax exemption for construction materials purchased for government buildings if the required approval has not been obtained.
- Eliminates interest on sales and use tax refunds for sales tax and use tax paid pursuant to a direct payment permit, whereby a purchaser pays the tax directly to the state, as opposed to the vendor who makes the sale (same as Executive and House versions of the bill).
- Eliminates interest on refunds of county sales and use tax on and after the bill’s 90-day effective date, but continues to allow interest for refunds of state and transit authority taxes (same as House version of the bill).
Commercial Activity Tax (CAT)
- Converts a CAT credit for certain net operating losses (NOL) accrued under the defunct corporation franchise tax from a refundable to a nonrefundable credit after calendar year 2029 (same as Executive—the House eliminated this provision).
Tax Credits and Incentives
- Replaces the House version with one that increases the annual cap for Transformational Mixed Use Development (TMUD) tax credit awards from $100 million to $150 million, beginning in FY 2026.
- Sunsets the TMUD program at the end of fiscal year 2027. (Current law sunsets it at the end of fiscal year 2025.)
- Sunsets the Ohio opportunity zone investment income tax credits at the end of 2027 by prohibiting the award of new credits after that date.
- Changes various thresholds and application/approval processes for TMUD credits.
- Sunsets the historic rehabilitation tax credit at the end of fiscal year 2027 by prohibiting the award of new credits after that date.
- Sunsets the film and theatre production credits after FY2027.
- Sunsets small business investment credit on January 2, 2026.
Change in Collection Process Raises New Due Process Concerns for Taxpayers Who Did Not Receive an Assessment Notice
- Last budget cycle, ODT requested the General Assembly to eliminate the need to send assessments by certified mail in order to save money. ZHF raised the possibility that this cost saving measure could result in assessments against taxpayers being deemed final even when they never received a notice of the assessment. After concerns were raised on behalf of taxpayers, ODT guaranteed that this would not be a problem and even put in writing a policy to avoid the negative impacts on taxpayers. Now, language is added that could override the Tax Commissioner’s policy.
Municipal Income Tax
- Allows a taxpayer with an unextended federal income tax return due date that falls after the regular municipal income tax due date of the fifteenth day of the fourth month following the end of the taxpayer’s taxable year to file on or before the later federal income tax return due date.
- The House added language to allow a taxpayer who received a valid extension of the tax return due date to file a municipal income tax refund claim within three years after that extended due date. The Senate adopted this provision, but uniformly applies the provision to within three years after the date the return was due, including any valid extension, whichever is later.
- Correspondingly applies the same date commencement to the three-year deadline for tax administrators or the Tax Commissioner to make municipal income tax assessments.
Other Taxes
- Requires Ashtabula County to repeal a 2% special lodging tax used to fund the costs of a convention center.
There is time, but it is limited, to address any concerns this budget proposal raises for you or your clients, as well as time to support favorable changes. Our team of attorneys and lobbyists are happy to discuss ways to have your voice heard on these proposals.