*Update as of August 2, 2019
Elected Leaders Opt for Full Restoration of Business Income Deduction & Protect Small Businesses from Billion Dollar Tax Increase
The Columbus Chamber now proudly boasts nearly 2,000 members. There is power in that number – the more businesses we represent, that we hear from on issues of importance, that speak with one voice through our Chamber – the stronger our influence at City Hall, the Statehouse, and with our congressional delegation.
Your Chamber has been working hard over the last six months to ensure the voice of Columbus region businesses was heard throughout the state’s budget process that appropriates $69 billion over the biennium to fund Ohio government operations. We are thrilled to report our successful efforts to prevent a tax increase of more than one billion dollars on businesses in Ohio structured as pass-through entities.
Enacted in 2013 and amended in 2016, the business income deduction permits eachsmall business owner to take an income tax deduction against his or her Ohio income tax liability on the first $250,000 of business income, and pay a flat 3 percent rate on business income above that threshold. Over the last few years, this policy has served its intended purpose of incentivizing entrepreneurs to reinvest and grow their business, by purchasing new equipment, upgrading technology, increasing wages, improving benefits packages for their employees, and even hiring new workers.
The House version of the budget proposed to eliminate the business income deduction and the 3 percent rate on business income, posing a significant negative impact on existing businesses and Ohio’s economic competitiveness. The Senate restored the deduction but retained the elimination of the 3 percent rate.
We fought hard to preserve both. Chamber President and CEO Don DePerro testified in committee, we activated our members to submit testimonials and call your elected officials, had countless meetings and phone calls with legislators, the governor’s office, aligned stakeholders, and the media. And together, we were successful.
The final version of House Bill 166, signed by Governor DeWine after an uncommon 17-day extension for compromise negotiations, restored boththe business income deduction at the full $250,000 level as well as the flat 3 percent rate on business income above that threshold. Therefore, most small business owners in Ohio should not expect a tax increase in 2020. It was the leadership of the Senate and the Governor that ensured restoration of these pro-business policies, and we encourage members to communicate your appreciation to these elected leaders.
Two professions were carved out of the business income deduction and will no longer be eligible: business income from a trade or business that performs either or both (a) legal services provided by an active attorney admitted to the practice of law in Ohio or by an attorney registered for corporate counsel status under the Ohio supreme court rules, or (b) executive, legislative or retirement system lobbying activity. The Chamber is currently working to determine the impact of these exclusions on our membership at large. If you have attorneys and lobbyists on staff that are generating income for your business, or that serve as owners of the business, please contact the Chamber and your law firm for guidance and consultation as to whether certain individuals and business income will still qualify for the deduction under the new law.
The Chamber was also successful in our advocacy efforts on a number of other provisions of the budget: passage of an Ohio Opportunity Zone tax incentive; substantial increases in investment for industry credentials and workforce training, internship programs for minority students in the tech industry, and industry sector partnerships; creation of a study committee to evaluate and make recommendations on the workforce needs of the healthcare industry; and designated funding to provide professional development and strategic training for teachers in STEM fields to better align with the needs of employers.
While the General Assembly didn’t act to ensure the long-term sustainability of our unemployment compensation system, the workers’ compensation budget passed free and clear of a costly and controversial proposal opposed by the Chamber relating to coverage for PTSD claims that could have opened the floodgates for additional private-sector claims that are not accompanied by a physical injury.
H.B. 166 is the largest piece of legislation that will pass the general assembly this session. There are many additional provisions and policy changes that will impact our members, including the addition of language to require online-only sellers doing business in Ohio to collect and remit sales tax on Ohio sales; reduction of the overall income tax rates for all Ohioans; large funding increases for children’s services and support for mental health and addiction treatment; and creation of a new H2Ohio Fund for long-term water quality programs, just to name a few. For specific questions about the budget, please contact Holly Gross, Vice President of Government Relations.
The Chamber’s work on this budget should signal to our members that we have your back – we’re looking out for your interests in government not just at the Ohio Statehouse, but throughout all layers of government. If you’re not a member, know that the Chamber’s advocacy efforts on these important issues are one of many reasons for you to join.