On February 4, 2013, Gov. Kasich released his proposed budget for the upcoming biennium beginning July 1, 2013. The tax highlights include:

• Reduced Ohio personal income tax rates – rates for all tax brackets to be cut by 20% over three years;
• Income tax cut for small business income – individuals may deduct 50% of their pass-through entity income up to $750,000 (i.e., $375,000 maximum deduction);
• Severance tax increases – increased rate from 20 cents per barrel to 4% on horizontal wells producing oil or natural gas liquids, with a reduced 1.5% rate for the first year of production, and 1% on horizontal wells producing natural gas; conventional wells would be exempt from severance tax;
• Ohio sales tax rate decreased – state sales and use tax rates would be reduced from 5.5% to 5%; and
• Expanded sales tax – services would be subject to sales tax, except if specifically enumerated as exempt; medical and education services would remain exempt, but professional services such as accounting and legal services would be subject to tax.

Stay tuned as the Ohio legislature considers the Governor’s newest proposal which significantly reduces state tax obligations on individuals, especially small business owners, to be funded by increased taxes on the oil and gas industry and expanded sales tax.