On January 30, 2017, Governor John Kasich introduced his FY 2018-19 budget proposal. Over the biennial period, the personal income tax rate reductions contained in the budget would result in an approximate 17% personal income tax cut. To help pay for the income-tax cut, the budget proposes tax increases on alcohol, tobacco products, and gas drilling, as well as a ½% increase in the state sales tax.
Personal Income Tax Rate Reductions
The Ohio personal income tax table currently consists of nine income tax brackets, ranging from .495% to 4.997%. The governor’s proposed budget would reduce the existing income tax brackets from nine brackets to five brackets, ranging from .456% to 4.33%, as follows:
| Income | 2016 (Actual) | 2017 (Proposed) | 2018 (Proposed) |
| Up to $10,000 |
.495% - .990% |
.50% |
.456% |
| $10,000 - $25,000 |
.990% - 2.969% |
1.5% |
1.367% |
| $25,000 - $100,000 |
2.969% - 3.96% |
3.25% |
2.963% |
| $100,000-$200,000 |
3.96% - 4.597% |
4.25% |
3.874% |
| More than $200,000 |
4.597% - 4.997% |
4.75% |
4.33% |
It is important to keep in mind that the above tax rates apply only to nonbusiness income. Under already enacted legislation, the first $250,000 of business income is exempt from the Ohio personal income tax and business income in excess of the $250,000 exemption is subject to a maximum tax rate of 3%.
In 2018, the proposed rate reduction would save approximately $600 for a taxpayer with nonbusiness income of $100,000 and approximately $3,200 for a taxpayer with nonbusiness income of $500,000.
The proposed budget would also increase the threshold for the low-income tax credit from $10,000 to $15,000 (thereby preventing taxpayers earning less than $15,000 from paying an Ohio income tax) and would modestly increase the personal exemption amount for taxpayers earning less than $80,000.
Finally, the proposed budget calls for the elimination of the campaign contribution credit. Under current law, individual taxpayers may claim a credit up of the $50 ($100 for married filing joint returns) for cash contributions made to the campaign committees of candidates for select Ohio offices.
Sales Tax Increase and Expansion of Taxable Services
The proposed budget would increase the state sales tax rate from 5.75% to 6.25% and would expand the sales tax base to include the following services: lobbying, repossession services, cable subscription services, elective cosmetic surgery/procedures, landscape design, interior design, travel agent services, pre-packaged tours, and other travel services.
Tax Increases on Tobacco and Alcohol Products
The budget proposes the following tax increases on tobacco and alcohol products:
- Increases the cigarette tax rate from $1.60 to $2.25 per pack.
- Increases the tax rate on other tobacco products from 17% to 69%, with a cap of $2.00 on certain specialty cigars. The increase is intended to be equivalent to the new $2.25 per pack cigarette tax rate.
- Subjects vapor products to the tax on other tobacco products at the new 69% rate.
- Eliminates the 2.5% early payment discount for the other tobacco products tax.
- Reduces the cigarette tax stamp credit to $1.25 Increases the tax rates on most kinds of alcohol by approximately 70%.
- Imposes an additional tax rate increase to high alcohol beer.
- Eliminates the deduction for early beer and wine payments and reduces the small brewers’ credit.
New Severance Tax on Fracking and Natural Gas Extracts
As he has proposed in prior budgets, Governor Kasich’s once again proposes severance taxes on oil and gas production. The 2018-19 budget proposes the following new severance taxes -
- A 6.5% tax on extracted oil and gas from hydraulic fracturing wells; and
- A 4.5% tax on extracted natural gas liquids.
The severance taxes would be calculated by multiplying the volume extracted by the quarterly spot price at the exchanges where the commodities are traded.
Impact of the Proposed Budget
While the personal income tax cuts in the 2018-2019 budget proposal are more modest that the cuts in prior budgets, the budget continues the effort to reduce Ohio’s individual income tax. Business that will be adversely impacted by the sales tax and other tax rate increases of the budget may want to consider ways to express opposition to the budget proposals. The final budget must reach Governor Kasich’s desk before the end of the current fiscal year on June 30, 2017. If you would like to discuss the impact that the proposed budget will have on your Ohio taxes, please contact Leslie Kasten at (216) 241-3272.
