On June 30, 2025, Ohio Governor Mike DeWine signed Amended Substitute House Bill 96, the state operating budget for fiscal years 2026–2027. This legislation funds the state government and enacts a series of tax law changes that impact a large variety of taxpayers. Most of the changes included in the 3,100-page bill will take effect in the fall 2025. Below is a summary of tax changes by tax type included in Ohio’s budget.
Individual income tax
- Phases down the state income tax on nonbusiness income to a flat rate of 2.75% over two years.
- In tax year 2025: Reduces the top bracket (over $100,000) from 3.5 to 3.125%.
- In tax year 2026: Reduces the top bracket to the flat 2.75%, applied to all income over $26,050.
- As noted above, the tax rate reduction only applies to nonbusiness income, which includes most W-2 income. The business income tax rate continues to be 3.0%. Additionally, the first $250,000 of business income remains exempt. Prior to the rate reduction included in the budget bill, individuals sought to have income characterized as business income to be subject to the lower tax rate. Now, individuals should consider reviewing their income to determine if any amounts can be characterized as nonbusiness income to achieve potential tax savings.
- Allows pass-through entities that pay an elective pass-through entity tax to claim certain refundable credits available to their owners. This welcome change allows pass-through entities who file Ohio Form 4738 and have tax paid on their behalf by another pass-through entity the ability to claim a credit against the pass-through entity’s tax due for those payments. This change can be extremely helpful in a tiered entity structure as the tax due is no longer required to be paid at multiple tiers prior to being claimed by the ultimate owner. Pass-through entities may claim this credit for taxpayer periods beginning on or after Jan. 1, 2025.
- Clarifies that the elective pass-through entity tax is available to pass-through entities whose investors are all Ohio residents.
- Moves the due date for the second and third estimated tax payments for electing and withholding pass-through entity taxes up by one month: July 15 to June 15 and October 15 to September 15, respectively. The due date change is effective starting for tax years beginning on or after Jan. 1, 2026.
- Repeals the income tax credit for campaign contributions to state political candidates starting in tax year 2026.
Commercial activity tax (CAT)
- Starting in 2029, converts net operating losses accrued under the corporation franchise tax from a refundable credit to a nonrefundable credit for CAT.
Sales and use tax
- Repeals certain sales tax exemptions beginning Jan. 1, 2026:
- Rental payments for motor vehicles provided to the owner or lessee of a motor vehicle that’s being repaired or serviced, where the payments are reimbursed by the service provider.
- Sales of refrigerated food vending machines.
- Sales of digital audio or juke boxes in commercial establishments.
- Sales of telecommunication services that are used to perform the functions of a qualified call center.
- Limits the sales tax vendor discount to $750 per month for all retailers who timely collect and remit sales tax to Ohio. Sales and leases of motor vehicles by a motor vehicle dealer aren’t subject to the vendor discount limitation.
- Beginning Jan. 1, 2026, repeals the 25% refund of sales and use taxes for providers or electronic information services.
- Eliminates interest on sales and use tax refunds paid pursuant to a direct pay permit.
- Interest will also no longer be paid on the county portion of sales and use tax refunds.
- DeWine vetoed the proposed repeal of the sales and use tax exemptions for the sales of newspapers and motion pictures, as well as the exemption for data centers.
Municipal net profit and income taxes
- Allows taxpayers whose unextended federal income tax return due date falls after the regular municipal net profit tax due date to file their municipal net profit tax return by the later federal due date, beginning with returns required to be filed on or after Jan. 1, 2026. This change mostly applies to nonprofit entities who are subject to municipal net profit as a result of unrelated business income tax.
- Allows taxpayers who receive a valid extension of time to file their municipal income tax return to also file a refund claim within three years from the extended due date or date of erroneous payment and applies the same timing rule to the three-year deadline for municipal tax administrators or the Tax Commissioner to issue assessments. Prior to the change, tax administrators were authorized to issue assessments against taxpayers who received an income tax extension until three years from the extended due date. However, taxpayers could only obtain a refund up to three years from the original due date of the return.
- Authorizes an extension period from six to seven months for taxpayers who don’t request a federal income tax extension but request a separate municipal net profit tax extension. This change is limited to taxpayers who have opted into centralized collection with the Ohio Department of Taxation.
Property tax
- Expands a property tax exemption on some parking garages to those owned by any municipal corporation, county, port authority or new community authority. It also makes the 20-year maximum exemption period permanent and removes the requirement that the parking spaces be available to the general public.
- DeWine vetoed the following proposed property tax provisions:
- Allows county budget commissions to reduce millage on any voter-approved tax levy.
- Requires that emergency levies, substitute levies, incremental growth levies, conversion levies, and the property tax portion of combined income and property tax levies be included in the 20-mill floor calculation.
- Implements a 40% cap to the carryover balance for every school district in the state.
- Restricts the ability for school districts to put emergency levies on the ballot or request an increase to a current levy.
On July 21, 2025, the Ohio House voted to override the veto on the property tax provision that eliminated replacement and emergency levies. To complete the veto, the Ohio Senate requires a vote. At this time, it’s unknown when the Senate will attempt this vote. Additionally, the Ohio House declined to vote to override DeWine’s vetoes on the county budget commission language and the formula on the 20-mill floor.
Other taxation provisions
- Removes the requirement that taxpayers submit petitions for reassessment through personal service or certified mail. When filing a petition for reassessment, we recommend taxpayers continue using a method to track the date the petition was filed to be able to prove a timely petition for reassessment.
- Extends the transformational mixed-use development (TMUD) tax credit by removing its 2025 sunset date, increases the annual cap from $100 million to $125 million, starting in fiscal year 2026, and transfers program oversight from the Tax Credit Authority to the Department of Development.
- Expands the opportunity zone investment tax credit by increasing the annual cap on credits from $25 million to $50 million for fiscal years 2026 and 2027, requires unused credits from the first year of the biennium to carry forward to the second year, and allows credits issued in the July application round to be claimed for the preceding tax year via an amended return.
- Removes the requirement that taxpayers and municipal corporations submit petitions for reassessment through personal service or certified mail, and removes the requirement that the Department of Taxation must respond to such petitions by ordinary mail.
- Increases the annual cap on the Ohio historic building preservation tax credit from $60 million to $75 million for fiscal years 2026 and 2027.
Overall, the Ohio budget authorized significant future income tax cuts for individuals. There are changes that may still come over the summer if the General Assembly attempts to override certain vetoes from DeWine.
If you have any questions on how the provisions in the budget impact you or your business or any other state and local tax matters, please feel free to reach out to us.
