In the process of passing House Bill 64, the Ohio Fiscal Year 2016-2017 operating budget, an error was made that could mean some Buckeye small business owners could end up paying higher taxes in tax year 2015.
HB 64 included a small business deduction allowing business owners of pass-through entities to exclude a percentage of the first $250,000 of his or her business income—75 percent for tax year 2015 and 100 percent for 2016—from Ohio personal income tax. The bill also enacted a 3 percent flat tax on all business income over $250,000. While the intent was to impose the flat tax only on income beyond $250,000 in 2016, there was language included that would enact this tax for 2015.
“The legislature meant to put tax year 2016, which would have made the first $250,000 deducted from income, but they erroneously put 2015,” explains Chris Ferruso, NFIB’s Ohio legislative director. “So some business owners will experience a tax increase if the law is not fixed.”
However, he says, the challenge is the rate is graduated right now, depending upon amount of income. For those that earn less in business income, their rate may be currently lower than 3 percent. For example: In tax year 2015, a business that takes in $50,000 will be able to deduct the first 75 percent of that income, leaving $12,500 subject to the new flat 3 percent tax, which is a higher rate than what the business would have paid if the law hadn’t been changed.
In a July blog post, the Ohio Chamber of Commerce noted that the General Assembly will likely have this issue at the top of its to-do list for the new legislative session beginning in September.
