1. It was enacted in Ohio and took effect starting with the 2022 tax year. It applies to certain types of pass-through entities, including partnerships, LLCs, and S corporations.
2. The tax is levied at a rate of 3% on the entity's Ohio taxable income, which is determined by adjusting the entity's federal taxable income to conform with Ohio tax laws.
For example, if your Ohio business profit is $400,000 (after add-backs), you’d pay $12,000 in Ohio Tax through your entity. This is then treated as a deductible expense on your business
3. Qualifying pass-through entities can elect to pay the tax on behalf of their owners, who can then claim a credit on their individual Ohio income tax returns.
Instead of making Ohio estimate payments at the personal level, you’d make payments through your entity. These payments are then treated as a credit on your personal tax return (as though you paid these taxes personally).
4. The tax allows pass-through entity owners to avoid the $10,000 cap on state and local tax deductions that were imposed by the federal Tax Cuts and Jobs Act of 2017.
States have responded by enacting this pass-through legislation as a Federal tax benefit for business owners.
5. To qualify, the entity must have at least one Ohio resident owner and must make the election to pay the tax by the due date of the first estimated tax payment for the taxable year.