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Ohio General Assembly Approves State Budget: Important Tax Changes to Take Effect

June 24, 2005

As expected, the Ohio General Assembly this week gave final approval to Amended Substitute House Bill 66, the state biennial budget bill.  Governor Taft will sign the measure next week.  As earlier reported, the bill contains a number of new tax changes that will impact dealers, including the following.

Dealer-Related Tax Changes Effective July 1, 2005

SALES TAX: the state sales tax rate adjusts from 6.0% to 5.5%.  The vendor discount, which was originally scheduled to decrease to 0.75%, will remain at 0.9% for timely filed and paid returns

COMMERCIAL ACTIVITY TAX (CAT) – dealers and most other businesses will be subject to a commercial activity or “business privilege” tax measured by gross receipts.  The CAT – when fully phased in after five years – will be levied at a rate of 0.26% on gross receipts in excess of $1 million.  The first $1 million in receipts is basically exempt ($150 fee).  The CAT will be applied to gross receipts received on or after July 1, 2005.  Out of state sales will be exempt.  More specific CAT information will follow.

*The CAT is intended to replace the corporate franchise and tangible personal property taxes, both of which are scheduled to be phased-out over four to five years under the bill (see below). For your information, click here for an Ohio Department of Taxation chart that details the phase-in rate of the CAT and the phase-out rates of the corporate franchise and tangible personal property taxes, as well as the proposed reductions in the personal income tax rates. 

Other Dealer-Related Tax Changes

INCOME TAX: Ohio ’s personal income tax rate will be reduced 4.2% for all tax brackets for tax year 2005 and an additional 4.2% (from 2004 rates) in each of the years 2006-09.

CORPORATION FRANCHISE TAX: this tax will be phased-out over five years at a rate of approximately 20% per year starting in tax year 2006 (taxable year 2005)

TANGIBLE PERSONAL PROPERTY TAX: this tax will begin a four-year phase-out starting in tax year 2006 and ending with no tax due in 2009. This phase-out applies to all three portions of the TPP – furniture & fixtures, machinery & equipment, and inventory. 

REAL PROPERTY: the 10% rollback is eliminated for certain real property used in business (the 10% rollback remains for residential and agricultural real property)

While we remain very concerned regarding the impact of the CAT on our industry, we are pleased efforts were made to accelerate the phase-out of the inventory tax from the original version of the bill. This change, which the dealer body played a key role in obtaining, was significant to decreasing the impact of this plan on dealers.  We will continue to work with the legislature to identify additional ways to help offset the effects of this plan on our industry.  It is also important to note that the proposed 30% increase in the kilowatt per hour tax on electricity that was originally included in the bill was eliminated and the consumer sales tax trade-in credit on new motor vehicles remains intact.

Dealers may contact OADA with any questions.