Ohio Begins Broader Tax Restructuring with New Budget Bill: What You Should Know

Ohio House Bill 96, signed into law by the governor on June 30, 2025, is more than just a biennial budget — it signals a significant state tax restructuring effort is underway. HB 96 is a step toward eliminating Ohio’s individual income tax. However, that will mean an expansion of the sales tax base to make up for lost revenue. That expansion starts with this bill, repealing several longstanding sales tax exemptions that will likely impact the sales tax and businesses with activity in Ohio. While most provisions in the bill are effective January 1, 2026, there is much planning to do beforehand to be ready.

Which Sales and Use Tax Exemptions Are Going Away in Ohio’s New Biennial Budget?

Effective January 1, 2026, Ohio will expand its sales tax base by eliminating several current sales tax exemptions, outlined below.

Sales and Use Tax Exemptions Repealed

The following exemptions will no longer exist when HB 96 takes effect in 2026:

1. Vehicle repair/service rental reimbursements where the service provider reimburses the rental payments.
2. Sales of refrigerated food vending machines.
3. Advertising material and catalogs that price and describe property offered for retail sale .
4. Printing materials used for direct marketing advertising, and equipment used primarily to accept orders.
5. Tangible personal property used in acquiring, formatting, editing, storing and disseminating data or information by electronic publishing.
6. Telecommunications services used directly and primarily to perform the functions of a qualified call center (defined as “any physical location where telephone calls are placed, or received, in high volume for the purpose of making sales, marketing, customer service, technical support or other specialized business activity and that employs at least fifty individuals that engage in call center activities on a full-time basis, or sufficient individuals to fill fifty full-time equivalent positions.”)
7. Digital audio sold on juke boxes and similar devices, located within commercial establishments.
8. 25% refund for electronic information service providers purchasing computers and related equipment.

Caps on Prompt-Payment Vendor Discounts

• For non-motor vehicle sales, the 0.75% vendor discount for timely filing tax payments is now capped at $750 per license per month.
• The discount for motor vehicle transactions remains uncapped.

Remitting and Reporting Adjustments

• Tax remittances for titled watercraft and outboard motors will be handled by the Registrar of Motor Vehicles instead of the Department of Taxation.
• The Department of Taxation must now consult with the Department of Public Safety on the forms used in remittance reporting.

Casual Sales

• Casual sales will remain exempt.
• The casual sales exemption also addresses sales by auctioneers:
  • Online-only auction sales by auctioneers are exempt.
  • Sales by auctioneers at their permanent physical place of business are not exempt.

Changes to Refund Interest

• No interest will be paid on sales and use tax refunds for tax paid to the state by a direct-pay permit holder.
  • Direct-pay permits allow a taxpayer to issue a permit to vendors and pay taxes directly to the state, rather than to the vendor. A vendor who receives a direct-pay permit from their customer is relieved of their obligation to collect sales tax from that customer. Taxpayers holding these permits typically have a higher volume of transactions. Additionally, permit holders may have a mixture of purchases where some qualify for sales tax exemptions and some do not.
• Ohio sales tax is a combined rate, made up of three levels:
  1. State
  2. County
  3. Transit authority
     • 90 days after the bill’s effective date, no county level interest will be paid for sales and use tax refunds.
     • Interest will still be paid at the state and transit authority level for sales and use tax refunds.

Vendor License Enforcement

• The Department of Taxation can cancel sales tax vendor licenses issued while other vendor licenses are suspended.

Commercial Activity Tax (CAT)

• The commercial activity tax (CAT) credit for certain net operating losses (NOLs) converts from a refundable credit to a nonrefundable credit after calendar year 2029.
  • Applies to NOLs accrued under the defunct corporation franchise tax
• A provision allowing certain trusts created before 1972 to elect whether to be subject to personal income tax or commercial activity tax is eliminated. Beginning in 2026, the applicable trusts are excluded from CAT and subject to personal income tax.

When is the 2025 Ohio Annual Sales Tax Holiday?

The 2025 holiday runs from Friday, August 1, 2025, through Thursday, August 14, 2025. During this time, most items of tangible personal property, sold at $500 or less, are exempt from sales and use tax. Items that are still taxable despite the holiday include:

• Watercraft or outboard motors
• Motor vehicles
• Alcoholic beverages
• Tobacco products
• Vapor products
• Items containing marijuana

What Income Tax Changes Are Included in Ohio’s 2026-2027 Budget Bill?

Individual Tax Rates

• Reduction of 3.5% income tax rate on nonbusiness income only
  • 2025: 3.125% tax rate on income over $100,000 and 2.75% tax rate on income $26,051 – $100,000
  • 2026: 2.75% on all income in excess of $26,050
• The business income tax rate remains a 3% flat tax rate, and the first $250,000 continues to be exempt from tax under the business income deduction.
• Political contribution credit is repealed beginning in tax year 2026.
• Eligibility for the joint filer credit, personal exemptions and dependent exemptions are limited to taxpayers with modified adjusted gross income of $750,000 or less in 2025 and $500,000 or less in 2026 and thereafter.

Ohio Electing Pass-Through Entity Return (IT-4738)

• Estimated payment due date changes for years beginning on or after January 1, 2026:
  • 1st Payment due April 15 unchanged
  • 2nd Payment due June 15 (from July 15)
  • 3rd payment due September 15 (from October 15)
• Multi-tiered structure update: Beginning on or after January 1, 2025, a refundable credit received from a lower tier may be used to offset electing entities tax obligation (net zero effect). This may be a planning opportunity for entities in tiered structures that could not previously take advantage of this.

Municipal Net Profit Tax

• The municipal net profits tax return extension for taxpayers that do not request a federal income tax extension will now extend seven months; it was previously six months.

Additional Tax Provisions from Ohio’s New Biennial Budget

Invest Ohio Program (Small Business Investment Credit)

• Credit sunset date is January 2, 2026, but November 3, 2025, is the last date for an investment to qualify. It retains the 60-day application window.

Ohio Commercial Activity Tax (CAT)

• Qualified Opportunity Zone Investment Tax Credit annual cap increased
  • $25 million increased to $50 million for fiscal years 2026 and 2027
• Historic Building Preservation Tax Credit annual cap increased
  • $60 million increased to $75 million for fiscal years 2026 and 2027
• Transformational Mixed-Use Development (TMUD) updated
  • Removed 2025 sunset date; increased annual cap to $125 million for 2026

Ohio House Bill 96 represents a significant shift in the state's tax landscape. As various sales tax exemptions are repealed and tax rates are adjusted, businesses and individuals in Ohio must prepare for these changes, particularly those effective January 1, 2026.

The bill's provisions, including modifications to sales tax exemptions, changes to income tax rates, and updates to various tax credits and deductions, underscore the need to review your current tax strategy with your tax adviser and adapt to the new tax environment to ensure compliance and optimize your tax positions.

Contact Nick Longo, Karen Raghanti or a member of your service team to discuss these topics further.

In this blog Cohen & Co is not rendering legal, accounting, investment, tax or other professional advice. Rather, the information contained in this blog is for general informational purposes only. Any decisions or actions based on the general information contained in this blog should be made or taken only after a detailed review of the specific facts, circumstances and current law with your professional advisers.