This past Tuesday the Republican controlled Ohio Senate unveiled its two-year budget proposal. The proposed budget is about $2 billion less than the version the Ohio House passed and contains significant changes to Ohio’s tax code and the way Ohio funds schools.
Significant Income Tax Changes
The Senate’s proposal would significantly alter the current income tax system in Ohio by consolidating some of the tax brackets and cutting taxes for certain earners.
Senate Proposed State Income Tax Brackets:
| Beginning in 2024 | ||
| Adjusted Gross Income* | Tax Owed | Tax Rate |
| $0 – $26,050 | $0 | 0% |
| More than $26,050 but not more than $92,150 | $360.69 plus 2.75% in excess of $26,050 | 2.75% |
| More than $92,150 | $2,178.44 plus 3.5% in excess of $92,150 | 3.50% |
| *AGI less taxable business income and exemptions | ||
The Ohio House also proposed changes to Ohio’s income tax in its proposed budget.
House Proposed State Income Tax Brackets:
| Beginning in 2023 | ||
| Adjusted Gross Income* | Tax Owed | Tax Rate |
| $0 – $26,050 | $0 | 0% |
| More than $26,050 but not more than $92,150 | $360.69 plus 2.750% in excess of $26,050 | 2.75% |
| More than $92,150 but not more than $115,300 | $2,178.44 plus 3.688% in excess of $92,150 | 3.688% |
| More than $115,300 | $3,032.21 plus 3.990% of amount in excess of $115,300 | 3.99% |
| *AGI less taxable business income and exemptions | ||
The differences between the House and Senate’s proposals may prove to be a sticking point in negotiations to finalize the budget.
In addition, the Senate’s proposal would reduce the Commercial Activity Tax (CAT) for businesses by 25%, phased in over two years. Proponents of the Senate’s changes argue the new tax regime will attract both businesses and workers to Ohio. Opponents of the changes express concern the changes will lead to less tax revenue overall.
$1 Billion for Community Capital and Transportation Projects
The Senate’s proposed budget slashes $1 billion in earmarks from the House’s budget and instead creates a fund for community projects to be allocated next spring. The roughly $1 billion comes from leftover federal revenue and taxpayer funds from last year. According to Senate Finance Chair Matt Dolan the Senate’s change from the House’s proposal is meant to require legislators to prioritize one-time funding decisions for transportation and capital projects. In the end, the state may likely use the funds for the capital projects envisioned in the House’s proposal, but if so, they will be administered in a different way and at a different time.
Expansion of the Back-To-School Tax Holiday
The popular back-to-school tax holiday will be expanded under the Senate’s proposed budget. Currently sitting at only one weekend in August, the Senate’s budget expands the 2024 tax holiday to two weeks. The back-to-school tax holiday allows for parents to avoid paying sales taxes on items under $500 right before school starts in August. Local municipalities will be reimbursed for sales taxes through the State’s $1 billion of excess general revenue funds. This expansion of the tax holiday would re-occur any year there is more than $50 million in excess money in the State’s general revenue fund.
Expansion of School Voucher Program
Perhaps the most controversial aspect of the Senate’s plan is the expansion of the state’s private school voucher program to allow more students to use State funds to pay for private school tuition. The Senate’s proposed budget would provide families earning up to 450% of the federal poverty level an estimated $6,135 to pay for private school for students in kindergarten through 8th grade and $8,407 for students in 9th-12th grades. Families making more than 450% of the federal poverty level will still be eligible for a grant but at a lower amount. According to estimates, under the Senate’s proposed plan, Ohio would spend about $1 billion on school vouchers per year.
What Happens Next?
Senators were required to submit any amendments to the proposed budget by this past Friday. Next, the Senate will debate the proposed budget together with any proposed amendments and are scheduled to vote on the budget by June 15th. The Senate and the House will then have a short window to reconcile their versions of the budget through a conference committee. The deadline to pass and sign the budget is June 30th.
KJK will continue to monitor the budget process and will let our clients know of any developments. For further questions regarding the content of this article, contact Michael Hoenig (MDH@kjk.com; 216.736.7247) or an attorney within KJK’s Tax & Tax Exemption practice group.