Business groups across the state are pressuring the Ohio Senate to reject House-passed tax changes that would restore higher taxes on Ohio’s highest-earning business partnerships, sole proprietors and LLCs.

Meanwhile, a new analysis from Policy Matters Ohio of the overall House tax plan, which includes a 6.6% reduction of all income-tax brackets and eliminates income tax for those earning less than $22,250, found that 1% of Ohio tax filers would pay more. And of those, four-fifths of that increase would be paid by the top 1% — those earning at least $496,000.

The tax changes are part of the two-year operating budget that passed the House with overwhelming bipartisan support but is likely to see Senate changes in early June.

Under current law, owners of pass-through entities, including many attorneys, accountants, doctors and landlords, pay no state income tax on up to $250,000 in income, plus get a 40% tax cut on income over $250,000. For pass-through companies, profits are treated as income for tax purposes.

A letter from the small-business advocate NFIB/Ohio and 20 other business associations said the House tax changes were “put forth quickly, unexpectedly and without input from Ohio’s impacted business community.” That missive and a second, similar letter signed by the Ohio Chamber of Commerce and three dozen regional chambers urge senators to remove the House tax provisions from the budget.

Business groups also have been calling senators and visiting their offices to persuade them to not reduce the current tax breaks.

As Senate leaders decide what budget changes to make, there’s a near-zero chance that the House-passed reduction of the $1.2 billion business tax break will be left intact. Some argue that the state’s current economic growth shows there’s no need to make major changes.

“Why would we change what appears to be working?” asked Sen. Matt Dolan, R-Chagrin Falls, chairman of the Senate Finance Committee. “Are we interfering with the growth and ability of small manufacturing, service shops, tailors, pizza shops? We don’t want to create an environment that stifles some of the good growth that we’ve had.”

Dolan said he’s not sure the House-passed $100,000 is high enough to account for what some owners are investing back in their businesses.

Among those hoping to persuade the Senate to remove the provision is Jim Matesich, owner of the 91-year-old Matesich Distributing Co. in Newark, which employs 108 people. He has sent written testimony to the Senate Finance Committee arguing, among other things, that making the tax change retroactive to Jan. 1 throws off financial plans made at the end of 2018.

That, he said, includes using the tax savings to put new senior managers in place months early so they can be ready to replace five members of his leadership team. The savings, he said, also help him make facility and fleet investments.

“To take that away and penalize a company for building on success and using those resources in our business, to me, is a slap in the face to businesses that don’t have the ability to relocate and haven’t closed down during economic tough conditions,” Matesich said. “To me, they’re being short-sighted and penalizing those of us who have stayed through thick and thin times.”

Matesich said he has been told the tax change, including eliminating the 40% tax cut for income over $250,000, would cost him $30,000 to $50,000 in additional taxes for one year.

But those numbers don’t seem to add up. Based on calculations involving current tax rates, to generate savings that high would appear to put his taxable profits around $1.5 million to $2 million. But Matesich said he did not have taxable income that high.

For a business, he said, “taxable income isn’t necessarily money in the bank.”

There is some Senate support for scaling back the business tax break.

“I believe there are some people out there that don’t have employees who aren’t reinvesting, and it’s just serving as a pretty significant tax cut,” said Sen. Jay Hottinger, R-Newark.

Gov. Mike DeWine has not yet weighed in on the House proposal, but Lt. Gov. Jon Husted said he’s been hearing complaints from business owners, particularly over the retroactivity of the changes.

“I would advise us to go slowly before we make any of these changes and truly evaluate what the impact will be to real businesses,” Husted said.

 

Dispatch Reporter Randy Ludlow contributed to this report.