Ohio Statehouse in Columbus, Ohio
Huge billboards in New York City, Los Angeles, Boston, Seattle, Chicago, and San Francisco, as well as national television commercials, attract CEOs, entrepreneurs, and investors to do business in Ohio. The campaign run by the Columbus-based nonprofit organization Jobs Ohio, boasts that “Ohio has a 0% state tax on corporate income, R&D investment, and goods and products sold outside of the state.” However, this advertising campaign is based on a lie. At least it’s not based on the full truth.
Ohio may not impose a traditional corporate income tax on corporations, but instead the state impose a corporate income tax that economists on the ideological spectrum consider more harmful than a traditional corporation tax. In lieu of corporate income tax, the state of Ohio imposes a Commercial Activity Tax (CAT) on businesses.
Unlike a traditional corporate income tax that is applied to corporate profits, the CAT applies to gross corporate income. As such, an Ohio employer who is not making a profit and even losing money will still face CAT liability.
“Gross income taxes have an impact on companies with low profit margins and high volumes of production because the tax does not take into account a company’s cost of production the way a corporate tax would,” writes Janelle Cammenga, Policy Analyst at the Tax Foundation. “These taxes can be particularly high for start-ups and entrepreneurs, who usually record losses in the first few years while they still owe gross income.”
Ohio and six other states – Texas, Washington, Oregon, Tennessee, Nevada, and Delaware – have a state gross income tax. Oregon is the youngest state to adopt gross income tax in 2019. The rates and structures of these gross income taxes vary by state.
“Washington’s trade and occupational tax has the highest top rate at 3.3%, followed by Delaware’s manufacturer and dealer license tax at a top rate of 1.9914%,” explains Cammenga. “Ohio and Oregon have flat rates of 0.26% and 0.57%, respectively.”
State gross income taxes
JobsOhio’s ad campaign might lead many to believe that Ohio doesn’t levy taxes on corporate income. But there are only two states in the United States, Wyoming and South Dakota, that can reveal such an advantage. A third state, North Carolina, could soon join South Dakota and Wyoming, boasting that there is no corporate or gross income tax.
North Carolina corporate tax is the lowest corporate tax rate in the United States of the 41 states that collect the levy at 2.5%. The new budget, approved by the North Carolina Senate on June 24, runs corporation tax in full through 2028.
North Carolina is already the only state in the southeastern United States that would still have a combined corporate tax rate below 30%, even after factoring in President Joe Biden’s proposed increase in federal corporate tax. The budget approved by the North Carolina Senate would add to this benefit. Proponents of corporate tax hikes portray it as a way to get CEOs and investors to pay more, but the North Carolina Senate budget recognizes that the burden of corporate tax is ultimately borne by ordinary people.
“A ‘society’ is simply a bundle of contracts between individuals – investors, lenders, executives, workers, sellers and consumers,” writes John Hood, president of the John William Pope Foundation. “Only people pay taxes. Legal abstractions cannot do that. ”
“North Carolina has been steadily lowering its corporate tax rate for nearly a decade now,” added Hood. “A complete abolition in the next few years will bring economic benefits that far exceed the apparent fiscal costs. We will attract more investment and create more jobs at higher wages. And yes, consumers will pay lower prices. ”
Ohio lawmakers must repeal or phase out their CAT if they want JobsOhio’s ad campaign to stop being so misleading. While Ohio lawmakers can’t honestly market their state so that it has no tax on corporate income, Buckeye State officials have much to praise, including the recent passage of the largest income tax cut in the state’s history.
As part of the new two-year state budget approved June 29, Ohio lawmakers cut state income tax by $ 1.6 billion, Ohio’s largest income tax cut ever. The new budget removes the top two income tax brackets, resulting in a new top rate of 3.99%. That happens to be the same rate that North Carolina income tax would be reduced to under the Senate budget, which cuts the state’s flat-rate income tax rate from 5.25% to 3.99%.
Like the North Carolina Senate budget, the new Ohio budget increases the standard deduction, also known as the “zero tax bracket.” Ohio’s new budget increases the zero tax bracket from $ 22,600 to $ 25,000.
This new budget builds on Ohio’s last two households that have eliminated multiple tax brackets. With this advance, lawmakers in Columbus Ohio are gradually moving closer to a single income tax. That achievement is something JobsOhio might want to promote. Contrary to their campaign’s current claim, it’s an award that is absolutely true and doesn’t require reservations.