Ohio’s Tax Policy About Results, Not Philosophies
Ohio’s economic and business climate continues to receive national accolades, improving more than any other U.S. state. Yet, depending on the source, the growth and success of the state is up for debate. This year, the Tax Foundation’s 2017 State Business Tax Climate Index ranked Ohio 45th in the structure and complexity of our tax system. While this would appear to put Ohio in a negative light, it’s time to set the record straight and tell the story of Ohio’s true tax reality.
The Tax Foundation, which bills itself as “the nation’s leading independent tax policy nonprofit,” approaches tax policy by looking at the complexity of state tax systems – not how those systems actually affect business performance.
The Tax Foundation’s mission is to “simplify” tax policy, which it expresses as a preference for single rate systems. When a state’s tax policy doesn’t align with this philosophy, the Tax Foundation gives it a negative ranking in its reports. For example, states with more than two tax tiers are given lower scores, regardless of how businesses in that state are actually performing.
Individual income tax is the heaviest-weighted factor in the report, while property taxes, a corporation’s largest local tax in the U.S., rank near the bottom.
In Ohio, small business is the driver of job creation, that is why in recent years there has been continuous work to lower the tax burden on these businesses, especially for those who register as an LLC or S-Corporation. For taxable year 2016 and forward, the business income deduction enables a business owner who files single or married filing jointly to deduct 100% of business income up to $250,000 from the adjusted gross income reported on their Ohio personal income tax return. Married filing separate filers will deduct 100% of business income up to $125,000. Any remaining business income above these thresholds will be taxed at a flat 3% rate.
Further, the Tax Foundation prefers corporate income taxes over a gross receipts tax – despite the fact that Ohio’s Commercial Activity Tax (CAT) achieves the foundation’s goals for low, single-rate and broad-based taxation. Ohio’s CAT is a gross receipts tax at a single low rate of .26 percent on in-state sales; out-of-state-sales are exempt.
In contrast, JobsOhio relies on analysis from organizations with decades of experience in tax practice, including Ernst & Young, PricewaterhouseCoopers, KPMG, Delloite and others. These respected tax organizations, as well as the results we see across the state, indicate that Ohio is one of the best states in the nation in which to do business.
For example, KMPG’s 2015 report “Location Matters: State Tax Cost of Doing Business,” was co-authored by The Tax Foundation and looked at effective tax rates for seven key business sectors. In that analysis, Ohio came out well ahead of most states in all but one sector. In 2016 Site Selection magazine’s Governor’s Cup rankings, awarded Ohio the No. 2 spot overall for total projects for the fourth consecutive year.
In fact, Ohio’s business-friendly tax climate, which has been in place since 2005 and has enjoyed bipartisan support, continues to stimulate company growth, job creation and profitability. With the lowest tax burden in the Midwest, Ohio’s tax structure means no tax on:
- Corporate profits
- Tangible personal property
- R&D investments
- Products sold to customers outside Ohio
Ohio’s tax policy is about results, not philosophies and we’ve made great strides on creating a pro-business climate and tax structure. The success of businesses in Ohio is evidence that our system is working.