Ohio Tax Law

Sometimes it’ll feel like you’d need to be a tax expert to understand what you’d need to pay to the state and the federal government. Indeed, there are numerous Ohio state taxes with even more exemptions, credits and rules—so many that it’s easy to make a mistake or forget to pay something. You could get into legal trouble just as easy as missing a tax break opportunity.

Whether you live in Cincinnati, Cleveland or Columbus, you’ll need to account for the various state and federal taxes in your budget, including everyday sales and gasoline taxes. LawInfo’s Ohio tax law articles can help you become familiar with the various taxes to avoid penalties.

Ohio Progressive Income Tax

Ohio doesn’t charge all taxpayers the same income tax rate. Instead, it uses a progressive income tax system that increases the percentage rates in relation to nine income brackets. The rates and income ranges for each bracket changes annually in response to inflation.

Taxpayers whose personal incomes qualify for the lowest bracket need to pay that bracket’s tax rate only. If your income exceeds the first bracket, your tax burden becomes more complicated. For example, say you made $16,000 in 2016. You’re in the fourth tax bracket, so you’d calculate:

1. $16,000 minus $15,800 (the highest dollar amount of the previous bracket’s income range) equals $200.
2. Multiply $200 by your tax bracket rate of 2.476 percent (0.02476) to equal $4.95 as your base income tax.
3. Add $4.95 to $182.91 (the maximum tax payment of the previous bracket) for $187.86, your total Ohio income tax.

Ohio Business Taxes

Many states charge businesses a franchise tax, which is a privilege tax for doing business within a state. Ohio repealed its franchise tax for tax year 2014, however. Instead, businesses must pay either a commercial activity tax (CAT) or a financial institution tax (FIT). Both taxes are privilege taxes similar to franchise taxes, but each tax applies to a specific kind of business.

The CAT applies to all business entities, including partnerships, limited liability corporations and sole proprietorships. A business must pay the CAT if their taxable gross receipts exceed $150,000 annually. The minimum tax amount can range from $150 to $2,600 depending on the value of your gross receipts. An extra tax percentage is added for receipts valued at more than $1 million.

The FIT applies to financial institutions only, including banks, brokers and other banking or non-banking financial organizations. The institutions are taxed based on their total equity capital earned in Ohio. There are no minimum qualifying equity capital limits. Instead, if an institution’s total equity capital is below $125,000, they must pay the $1,000 minimum tax amount.

Ohio Sales and Use Taxes

Sales and use taxes are applied to tangible products and certain services purchased and used in Ohio. Ohio’s state sales and use tax rate is 5.75 percent as of January 2017. Use taxes are levied against customers for goods and services that were subject to Ohio’s sales tax but not collected by the seller or vendor. They typically apply to products sold within Ohio from an out-of-state seller.