COLUMBUS, Ohio (AP) – A bill that seeks to avert an unintended tax increase on some small businesses cleared the Ohio Legislature on Tuesday and headed to the governor for his expected signature.
The measure comes after an apparent oversight in crafting a tax break during the frenzy of state budget negotiations.
The budget that passed in June allows small business owners to deduct up to 75 percent of their first $250,000 of business income this tax year, then 100 percent in 2016. In both years, a 3 percent flat tax is applied on the remaining net business income.
But lawmakers had intended the flat tax be applied only on business income in excess of $250,000.
That meant for this tax year, some business owners could have paid more on the 25 percent of their income that’s not deductible, because they typically pay less than a 3 percent rate under the state’s graduated income tax system.
Supporters of the bill say their revisions ensure that no taxpayer will pay a higher marginal tax rate on business income for the 2015 taxable year than he or she otherwise would have paid if the budget had not been enacted.
The House passed the budget-correcting measure on an 84-6 vote Tuesday, followed shortly by the Senate’s final approval.
Adjusting the tax code will create a revenue loss for the state, according to a legislative analysis of the bill.
The Ohio Legislative Service Commission estimates that the general revenue fund loss is between $75 million and $81 million for fiscal year 2016, because the state is forgoing the money it would have gotten from the increase. In the fiscal years that follow, the changes could lead to an annual revenue loss ranging from slightly less than $2 million to nearly $8 million, depending on taxpayers’ characteristics.
The state budget remains in balance and will adequately cover the revision, House staff says.
The measure also seeks to restore some money that schools lost in a tax change vetoed from the budget by Gov. John Kasich.
School districts affected by the lost tangible personal property tax reimbursement could see an estimated $44 million.
State Rep. John Boccieri, D-Poland, applauded the passage of Senate Bill 208 on Tuesday. The passage restores all but four percent of fiscal year 2015 funding for districts that were set to lose state money.
“This bill provides critical funding to school districts in Mahoning County that would have otherwise seen significant drops in support,” Boccieri said via a news release. “SB 208 saves our kids from losing out on the educational resources and support they need to be successful.”
Through restored TPP reimbursements, Jackson-Milton Local School District in Mahoning County will receive an additional $64,929 in state funding for Fiscal Year 2017. In addition to securing reimbursements, SB 208 adjusts the phase-out process, making it easier for local school districts to adjust.
Boardman Local School District will receive a full $250,038 more in total accumulated reimbursements than it would have under the current law’s scheduled two-year phase-out, according to the release from John Boccieri’s office.