Small business owners may have been surprised to read an article in The Plain Dealer Tuesday morning titled “Many small businesses face one-year tax increase under Ohio budget bill”. While we believe the PD piece is factually correct, what may have been easy to miss is that the increase seems to be the result of a drafting error and it does not appear to be the intent of the legislature to raise taxes.
The state budget that was signed by Governor Kasich on the evening of June 30th called for a flat 3% tax rate on business income above $250,000 – beginning in 2016. The problem is that for 2015, while there is a 75% business income deduction, the budget language applied a 3% flat tax to the remaining taxable income. Therefore, the 3% rate is currently in effect for all taxable business income not exempted.
We believe this was an oversight in the drafting process of an almost 3,000 page state budget document. We do not believe the legislature or the Governor intended to raise taxes on small businesses this year. And, we are already expressing concern with leadership – on behalf of those that could be impacted – should the legislature choose not to address what many simply believe to have been an error.
The good news is that the legislature and Governor have through the end of the year to fix any errors because they can apply changes retroactively.
Tax code is complicated. COSE acknowledges that “anomalies” can take place when changes are made. We urge the Ohio General Assembly and Governor Kasich to approve language that clarifies this issue so that small business owners don’t face an unexpected tax bill before they’re fully and permanently exempt from paying business income on their first $250,000 in 2016.