The Akron Legal News

Proposed legislation would tweak small business taxes

TIFFANY L. PARKS
Special to the Legal News
Published: October 1, 2015

A new bill that would make technical changes to the state income tax law has gained movement in the Ohio General Assembly.

The proposed legislation, Senate Bill 208, is sponsored by Sen. Bill Beagle, R-Tipp City.

The lawmaker stumped for the bill before the Senate Ways and Means Committee.

“As you will recall during our recent budget deliberations, the House and Senate versions both contained significant tax relief for small businesses,” he said, adding that the Senate version introduced a 3-percent flat tax on small businesses income in excess of $250,000.

“Following the passage of House Bill 64, several opinions and some confusion surfaced regarding the implementation of these provisions and how the conference committee had reconciled the House and Senate packages.”

SB 208 was crafted to clarify that for tax year 2015 the small business exemption will be 75 percent of a business’s first $250,000 in income.

The remaining 25 percent will be taxed using the current graduated tax rates and there will be a 3-percent flat rate on any income greater than $250,000.

“This clarifying language ensures Ohio’s business owners will receive the full tax relief intended by HB 64,” Beagle said.

“With these funds, businesses will be able to create more jobs, invest in expansions and continue to be competitive in the global marketplace.”

SB 208 would make no changes to tax year 2016 in that the small business exemption would be 100 percent of a business’s first $250,000 in income.

“With the time since the budget’s enactment, the (Ohio) Department of Taxation has found ways to streamline the actual process of filing for this tax relief,” Beagle said, noting that the exemption will now be incorporated into electronically available software for easier use.

“The Senate’s intention has not changed since the passage of HB 64 and SB 208 makes clear the extent of tax relief for Ohio’s small businesses.”

Marjorie Kruse, deputy tax commissioner for the taxation department, testified in support of the bill’s passage.

“Tax law can be complex and this bill will harmonize some issues that arose in transition from progressive tax to a flat tax on certain income,” she said.

“The language in SB 208 will realign business and non-business income to allow both to be combined in the taxpayer’s adjusted gross income and ensure that taxpayers receive the full value of the personal and dependent exemptions.”

Chris Ferruso, legislative director for the National Federation of Independent Business/Ohio, also endorsed the proposed legislation.

“NFIB/Ohio strongly supported the small-business investor deduction both in HB 64 passed earlier this year, as well as previous iterations,” he said.

Ferruso went on to commend the legislature and Gov. John Kasich for signing the provisions into law.

“Unfortunately, during the amending and conference committee process, the language ultimately enacted in HB 64 will result in negative consequences for some business owners,” he said.

“HB 64 allows small businesses to deduct up to 75 percent of their first $250,000 of income in 2015, and then applies a flat, 3-percent tax on remaining net income. However, due to Ohio’ graduated income tax rates, there will be instances where the 3-percent rate will exceed the graduated rate on net income, thus resulting in a tax increase.”

By clarifying, by all accounts, the clear intention of the legislature, that this 3-percent tax will only be on business income in excess of $250,000, the state will avoid the aforementioned situation, Ferruso said.

“We applaud Sen. Beagle for identifying and taking the lead on this issue. NFIB/Ohio appreciates the need to address this issue in a timely manner,” he said.

“Given the effective date of HB 64 and absent any emergency clause added to this bill, correcting this unintended consequence needs to occur soon.”

According to the Small Business Administration, small businesses created two out of every three new jobs in 2014.

“The SBA also stated that start-ups and small enterprises generated seven million of the 11 million new jobs during the economic recovery,” Ferruso said.

“In reports on the number of new business filings in Ohio by (the) secretary of state, the latest numbers for 2015 indicate this year will be another record year. I present this information to stress the importance of small business to our economic well being.”

SB 208 is co-sponsored by Sen. Bob Peterson. The bill has not been scheduled for additional hearings.

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