June 30, 2005 - Ohio Reforms Tax System
COLUMBUS, Ohio -- Nearly every Ohio taxpayer
– both individual and business – will see some tax relief as
a result of a sweeping tax reform package initiated and
signed into law today by Ohio Gov. Bob Taft. The tax
changes are part of the biennial state budget bill that takes
effect July 1.
Ohio Tax Commissioner William W. Wilkins said the reform
substantially modernizes state tax
laws including providing significant tax relief with cuts to
the state income and sales taxes. As
well, the budget bill phases out of two major business taxes
– corporation franchise and tangible
personal property – and phases in of the new commercial activities tax (CAT) on businesses.
Wilkins says the challenge now is helping taxpayers
understand and adapt to the changes, “This is
a huge educational process. We’re going to be sending out
more than a million pieces of mail;
we’ll be at numerous seminars and workshops; we’re posting
information on our web site and
making other changes, all to convey information about the new
laws. We understand that change
isn’t always easy but we’re committed to provide the support
it takes to make the transition as
smooth as possible for all taxpayers”.
The most significant tax law changes include:
- Introduction of the new commercial activity tax (CAT), an
privilege tax measured by a business’s gross receipt. The
amount of taxable gross
receipts determines whether or how the CAT applies.
Businesses with annual gross
receipts of $150,000 or less are not subject to the CAT;
those with receipts from
$150,001 - $1,000,000 pay a minimum $150 tax; receipts
exceeding one million
dollars -- when the tax is fully phased in – will be taxed
at a rate of 0.26 percent (tax
rate for the first tax period from July 1, 2005 to December
31, 2005 is only 0.06
Businesses subject to the CAT must register by Nov. 15,
2005. Registration includes a one-time refundable fee of
$15 for registering on-line or a $20 fee for paper
registration. On-line (electronic) registration is
available beginning July 1 at the Ohio Business Gateway
(obg.ohio.gov); paper applications will be available on the
ODT web site (tax.ohio.gov). Information on filing and
payment of the CAT will be sent to all registered
taxpayers. The first CAT returns must be filed by Feb. 10,
- Phase-out over five years of the corporation
franchise tax at the rate of 20 percent annually
beginning in tax year 2006.
- Phase-out of the tangible personal property (TPP)
tax on most businesses inventory, manufacturing
machinery and equipment, and furniture and fixtures over four
years at about 25 percent annually beginning in tax year
2006. Most new manufacturing machinery and equipment
that would have been first taxable in tax year 2006 and
thereafter will be subject to no TPP tax.
- The individual income tax rate cut for
all tax brackets of 4.2 percent for tax year 2005 and an
additional 4.2 percent (from 2004 rates) each year through
2009 for a total cut of 21 percent.
- The state sales tax rate cut from 6 to
5.5 percent. The vendor discount of .9 percent remains for
timely filed and paid sales tax returns.
- A cigarette excise tax increase of $.70
to a total of $1.25 per pack of 20 cigarettes. Cigarette
wholesalers and retailers must pay the additional 70 cents
per pack on cigarettes that were previously taxed but still
in inventory at the end of business June 30th.
- Elimination of the ten percent property tax
rollback on most commercial and industrial real
property. The rollback remains for residential and
agricultural real property.
- Ohio’s additional estate tax (sponge
tax) is eliminated. The Ohio basic estate tax remains in
For questions regarding the CAT and other major changes,
taxpayers are encouraged to visit the ODT web site
(tax.ohio.gov) for information and updates.
(For information, contact Gary Gudmundson, ODT Communications
Director, at 614-644-6903.)