UPDATE: Billion Dollar Tax Shift Headed For Ohio Small Business Owners

Date: May 23, 2019

Massive tax changes will impact many members

NFIB wants to say thank you to the Ohio Senate Finance Committee, who on May 23, 2019, heard and read testimony from 16 NFIB members among the day-long hearings on sub. HB 166 (State Operating Budget). We are so grateful for our members who recognize what a danger this is to Ohio’s economic climate. In addition to those testifying, 275 messages were sent by NFIB members across Ohio to 32 of the 33 Ohio Senators urging them to stop the assault on the business investor deduction. 

Updated testimony for the Ohio Senate Finance Committee: Read Here

To check out letters and testimony click the following link and then click May 23, 2019, http://www.ohiosenate.gov/committees/finance/document-archive

NFIB members Clara Osterhage, Lisa Crosley, Dave Boothe, & Bob Sielschott all testified on the need to put the brakes on cutting the BID.

The introduced Ohio House Budget Bill (sub. HB 166) will reduce from $250,000 to $100,000 the amount of business income pass-through entities may deduct from their Ohio taxes.  This small business provision is known as the business investor deduction (BID). This Bill also removes the three percent tax rate cap on all business income over $250,000. These changes are a massive tax shift onto Ohio’s entrepreneurs and job creators to the tune of over $1 billion.

NFIB member Albert Macre testifies before the Ohio Senate Finance Committee.

The business income deduction was enacted to create tax parity between pass-through entities and general business C-Corps. Pass-through entities pay both, the Commercial Activity Tax (CAT) and the Individual Income Tax, while C-Corps simply pay taxes on receipts under the CAT. The BID has been in place in its current form since only 2015, a short time period.

The US Bureau of Labor Statistics notes since the end of the last recession, small businesses have created 62 percent of all net new private-sector jobs. According to the US Small Business Administration, Ohio is home to approximately one million small businesses. Also, these small businesses employ nearly half of Ohioans working in the private sector.

Ohio is at an 18-year low for unemployment in the state. The Ohio Means Jobs website shows that there are nearly 146,000 employment opportunities in Ohio. As reported in the April NFIB Jobs Report, 24 percent of small business owners cited the difficulty of finding qualified workers as their Single Most Important Business Problem, one point below the record high.

Tax reform is working in Ohio. This proposal was crafted in a week’s timeframe with no input from the small business community. Although the proposal reduces personal income tax rates for all Ohioans, it does so by tax shifting and does not negate tax increases included in the budget.  Why rush to move to this massive tax shift by the Ohio House of Representatives? NFIB testified opposing the reduction in the BID, which can be read here

Watch it here on The Ohio Channel Archive at time marker 2:51:

Please note, this shift in the tax structure is retroactive to January 1, 2019.  For some business owners who already paid Q1 and presumably Q2 (by the time the budget is finalized) estimated taxes, they may face penalties and fines on an entire half year of taxes to the state of Ohio.  Small business owners played by the rules, and Ohio comes and changes the rules midgame.

The proposal places Ohio just in front of West Virginia with combined state and local tax rates, but higher than all other surrounding states, making us less competitive and attractive to retaining and attracting companies locating here. 

Proponents of this tax proposal indicate they believe individuals are gaming the system.  Well, this proposal does nothing to fix this assertion.  The tax shift simply lowers the threshold for the BID. NFIB believes more time is needed to “fix” any problems that may exist, although proof of gaming has yet to materialize. 

Let your member of the Ohio House of Representatives and the Ohio Senate know this is going to negatively impact your business by clicking here to send them a message:  https://www.nfib.com/ohio/now/

Please contact Chris Ferruso, NFIB Legislative Director for Ohio with any questions at 614-221-4107 or by e-mail at [email protected].

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