Ohio’s Tax Policy Delivers Results
No tax on five key areas keeps businesses growing
Matt Waldo, senior manager of research and analysis, JobsOhio•Mon Nov 18 2019
Ohio’s economic and business climate continues to receive positive national attention. For example, Ohio has been ranked Top 10 in Chief Executive’s annual CEO survey of Best States for Business in each of the past two years, as well as four other Top 10 rankings in leading business publications.
However, the Tax Foundation state Business Tax Climate ranking remains a negative outlier for Ohio. While the rank has improved from 42nd in 2018, in October 2019, the Tax Foundation’s 2020 State Business Tax Climate Index ranked Ohio 38th for the structure and complexity of its tax system. While this would appear to put Ohio in a negative light, we highlight how Ohio approaches its tax policy and why JobsOhio believes this policy puts companies on a strong footing for growth in our state.
The Tax Foundation approaches tax policy by looking at the complexity of state tax systems, and its mission is to “simplify” tax policy, with a preference for a single rate system. It does so in its rankings as well, looking at simplicity as opposed to how those tax systems, like Ohio’s, actually impact business performance.
In contrast, JobsOhio and the state rely on analysis from organizations with decades of experience in tax practice, including Ernst & Young, PricewaterhouseCoopers, KPMG, Deloitte and others. These respected tax analysts, as well as the tangible business results we see across the state, indicate that Ohio is one of the best states in the nation in which to do business.
In Ohio, for example, we focus on small businesses as the driver of job creation. That is why in recent years there has been continuous work to lower the tax burden on these businesses, especially for those who register as an LLC or S-corporation. This currently allows business owners, depending on filing status, to deduct up to $250,000 from the adjusted gross income reported on their Ohio personal income tax return.
Further, Ohio’s Commercial Activity Tax (CAT) achieves the foundation’s goals for low, straightforward, single-rate and broad-based taxation. Ohio’s CAT is a gross receipts tax at a single low rate of .26% on in-state sales, while out-of-state sales are exempt.
Finally, the weight the Tax Foundation places on specific tax categories does not reflect the actual proportion of business taxes paid. For example, individual income tax is the highest-weighted factor in the Tax Foundation report at 30.2% of the overall score.
Property taxes – though nearly 40% of a corporation’s state and local tax burden in the U.S. according to Ernst & Young – carry the second-lowest weight in the Tax Foundation report at just 16.6%. The Tax Foundation report shows that Ohio has the ninth-lowest business property tax burden in the U.S., but still rates Ohio poorly overall.
The choice companies make to locate, stay and grow in Ohio are no coincidence, and run counter to the Tax Foundation’s analysis. In 2019, Site Selection Magazine’s Governor’s Cup rankings awarded Ohio the No. 2 spot overall for total projects for the fifth consecutive year. Ohio has the fifth-largest number of Fortune 500 and Fortune 1000 company headquarters and also led the Midwest by attracting the eighth-highest amount of venture capital in the U.S. in 2018.
In fact, Ohio’s business-friendly tax climate, which has been in place since 2005 and has enjoyed bipartisan support, continues to stimulate company growth, job creation and profitability. With the lowest tax burden in the Midwest, Ohio’s tax structure means no tax on:
- Corporate profits
- Tangible personal property
- R&D investments
- Products sold to customers outside Ohio
Ohio’s tax policy is about results, and we’ve made great strides in creating a pro-business climate and tax structure. The success of businesses in Ohio is evidence that our system is working.