Signed into Law: Ohio Biannual Budget Revisions

Changes in Ohio legislation

Early in November, Ohio Governor Mike DeWine signed Senate Bill 26 into law, amending items enacted by the Ohio Budget Bill this past July. The most substantial changes in this legislation involved:

• Allowing legal professionals and lobbyist to take the Business Income Deduction (BID), as the previous budget excluded these professions from the deduction
• Requiring individuals who use the BID deduction to provide the North American Industry Classification System (NAICS) code number for their profession on their tax return
• Allowing sales of feminine hygiene products to be exempt from sales tax
• Allowing medication patients with a prescription for incontinence under pads or diapers to purchase these items tax-exempt
• Allowing a qualifying Ohio educator to deduct up to $250 of educator expenses from Ohio income not previously deducted from Federal or Ohio adjusted gross income
• Postponing the repeal of the Ohio Political Campaign Credit to 2020, versus 2019 as previously enacted

The “Pink Tax” and What it Means for Ohio Taxpayers

An item of significance in this bill is the sales tax exemption for feminine hygiene products. The passage of this exemption follows a national trend to eliminate tax on feminine products, commonly referred to as the “Pink Tax.” The Pink Tax has garnered national attention over the past few years, as changes are seen at the state levels. Ohio State Representative Brigid Kelly of Cincinnati noted that Ohio joins fifteen other states in eliminating the Pink Tax, and that is saves consumers roughly $4 million per year in Ohio sales tax. The tax exemption is effective starting April 1, 2020.

Impact of the BID Change

Of the items passed, the changes to the BID were the most expected. Lawyers and lobbyists argued that they were unfairly excluded from the BID benefit, since they were the only professions targeted. Ultimately, this could have led to a constitutional challenge in Ohio’s court system. Both groups also argued that defining legal or lobbying services was open-ended and that it would create confusion as to who could take the deduction. For now, all taxpayers are eligible for the BID deduction, provided the income source meets the criteria.

However, this could be a short-lived victory. Ohio will require anyone that claims the BID to report the NAICS code on their return to allow Ohio to gather data on what industries and professions are receiving the benefit of this deduction. Using this information, Ohio may once again target certain professions to exclude from the BID. Keep in mind that the initial 2019 budget proposal was to exclude all professionals from this deduction. Only last-minute changes in the budget process allowed professionals (except legal and lobbying) to claim the BID in future periods. Armed with this information, taxpayers with income from professional services should pay close attention to the outcome of the 2021 budget process, since taxpayers could lose out on this deduction.

Takeaways

We encourage Ohioans to take the time to learn and understand the effect of this new law. Ohio taxpayers can contact a Sikich state tax expert for assistance analyzing the impact of this Senate bill on their personal situations.