Ohio’s Proposed Budget Could Raise Cost of Doing Business– February 23, 2015 by Hannah Prengler

Governor Kasich recently released his proposed FY16-17 state budget, which provides a 23% reduction in personal income tax rates over the next two years and expands deductions available to small businesses having receipts less than $2 million. However, the budget also calls for numerous tax increases that will negatively impact these same individuals and their businesses’ bottom lines.

Key areas addressed in the proposed budget call for a 23% increase to the Commercial Activity Tax (CAT) rate, a nearly 9% increase in the state sales tax rate, and an increase to oil and gas severance taxes. Furthermore by not addressing Ohio’s outstanding federal loan, employers will continue to pay an annual FUTA surcharge on all Ohio employees (2014 surcharge was up to $126 per employee).

In addition to increasing the state sales tax rate by 0.5%, the budget proposes to begin taxing an array of services, including public relations, lobbying, debt collection, bad debt transfers, repossession, cable TV, parking, travel, and research and public opinion polling, and cutting in half the sales tax exemption provided to motor vehicle trade-ins. Management consulting services will also be taxed. Management consulting is broadly defined in the proposed budget as any activity (by non-employees) providing advice and assistance to businesses and other organizations on business issues. Based on the current definition, an intercompany management fee would be subject to sales tax.

These are just a few of the changes being contemplated. Major provisions of the budget are generally solidified in mid-May; as such, now is the time to review the proposed changes and understand what impact they may have on your business before they become effective on July 1, 2015.

For specific questions or to learn more about the proposed changes, contact Hannah Prengler, partner-in-charge of our State and Local Taxation Group, at hprengler@cohencpa.com, or a member of your service team. Ohio is also asking for taxpayer feedback. To contact your representative and voice your concerns, visit www.ohiohouse.gov/committee/finance!

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This communication is published by Cohen & Company for our clients and professional associates. Cohen & Company is not rendering legal, accounting or other professional advice. Any action taken based on information in this publication should be taken only after a detailed review of the specific facts and circumstances.