COLUMBUS – The Ohio House of Representatives voted in favor of legislation sponsored by State Representatives Jim Hoops (R-Napoleon) and Craig Riedel (R-Defiance) that will keep tax money in Ohio from the sale of a business.
House Bill 515 will revise how the state’s income tax applies to the sale of an ownership interest in a business.
Taxes collected from the sale of a business are broken into business or nonbusiness income. Currently, this is determined by statuary law, the Supreme Court and the Ohio Department of Taxation.
Furthermore, current law’s treatment of income from the sale of a business as nonbusiness income depends on whether the seller of the business is a resident or nonresident of Ohio. Nonbusiness income for Ohio residents is not eligible for a business income deduction or a flat 3% tax on business income, while nonresidents would pay no Ohio tax on the sale of a business.
Riedel believes this loophole in the tax laws give businesses owners an incentive to leave Ohio prior to the sale of a business.
“It’s a common sense bill intended to keep and incentivize Ohioans to stay in Ohio after selling a business rather than leaving Ohio and moving to Florida or Texas before selling their business,” said Riedel.
Hoops and Riedel want to simplify the tax laws by creating a standard for what is considered business income. House Bill 515 will codify into law that the sale of a business will be treated as a sale of assets for federal income tax purposes and if the seller actively participates in running the business during the taxable year of the sale or any of the five proceeding years.
“This simplification will make a clear distinction between what is and isn’t business income,” said Hoops. “The passage of this bill would mean that at tax time, Ohio-resident business owners will not face an unexpected increase in taxes.”
House Bill 515 will now head to the Ohio Senate for their consideration.