Changes to Business Personal Income Taxes and Commercial Activity Taxes

Kegler Brown Business Tax Alert

Small Business Tax Deduction

A new personal income tax deduction for individuals with business income, either as a sole proprietor or as an owner of a pass-through entity, became effective when Governor Kasich signed the fiscal year 2014-2015 State Budget. The new deductions equal 50 percent of business income of up to $125,000.00 per tax payer, per year, or $62,500.00 for spouses who file separately and who each report business income. The income must be apportioned to Ohio, is not otherwise deductible and is otherwise included in the tax payer’s federal adjusted gross income. This deduction is not available to estates, trusts or pass-through entities.

Beginning with taxable years after 2013, investors in pass-through entities on whose behalf the entity filed a composite tax return and paid tax may file a personal income tax return. They may also claim their refundable credit for taxes the entity paid on the investor’s behalf.

Commercial Activity Tax: Motors Fuel Receipts Tax

The new legislation also exempted gas stations from paying commercial activity tax on their sales of motor fuels. Instead a new tax, The Motor Fuel Receipts Tax, was enacted. It is similar to the Commercial Activity Tax, but is based solely on receipts from one sale or exchange of motor fuel and is imposed on motor fuel suppliers. This tax is measured by the gross receipts that a supplier receives from the first transaction in which motor fuel is sold for delivery to a location in Ohio. Gross receipts for this purpose generally include all amounts received from the transaction without deduction for the costs of goods sold or the supplier’s expenses. The Motors Fuels Receipts Tax rate is 0.65 percent of the gross receipts. This is a much higher rate than the Commercial Activity Tax rate of 0.26 percent. The new tax, however, eliminates duplicative taxing of the motor fuel sales.

The 2014-2015 State Budget also created a new exclusion from the Commercial Activity Tax for receipts of agricultural commodity handlers licensed by the Department of Agriculture arising from the sale of agricultural commodities.

For additional information on Ohio tax matters, contact Kenneth R. Cookson at 614-462-5445 or Matthew D. Elliott at 614-462-5405.