COLUMBUS, Ohio (AP) - A bill that seeks to avert an unintended tax increase on some small businesses cleared the Ohio House on Tuesday and was likely headed to the governor's desk.
COLUMBUS, Ohio (AP) — A bill that seeks to avert an unintended tax increase on some small businesses cleared the Ohio House on Tuesday and was likely headed to the governor's desk.
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 means for this tax year, some business owners could end up paying 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. The Senate, which approved an earlier version, was expected to give its final signoff later Tuesday.
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.
House staff says the state budget remains in balance and will adequately cover the revision.
The measure also seeks to restore some money that schools lost in a tax change vetoed from the budget by Gov. John Kasich.
Schools affected by the lost tangible personal property tax reimbursement could see an estimated $44 million.
The bill is S.B. 208