Ohio sales tax hike takes effect Sept. 1

Income tax cut also coming soon

That’s because a statewide 0.25 percentage point sales tax hike will take effect on Sunday, Sept. 1.

Under the change, a $30,000 car will cost an extra $75 on Sept. 1 than it will the day before. A $500 TV will cost an additional $1.25. And so on. Excluding “big-ticket” purchases, the change will cost a family of four making $50,000 a year about $29.41 more a year, according to IRS estimates. However, that all depends on how much people purchase.

The sales tax hike does not impact local sales tax rates, which vary from county to county. Necessities such as food, rent, utilities and medicine are exempt from sales tax.

The increase may seem small, but it will add up for the state — $1.1 billion during the next three years, according to the Ohio Office of Budget & Management.

But also beginning next week, Ohioans’ paychecks could begin to get a little fatter. New withholding rates for an 8.5 percent income tax cut will take effect on Sept. 1.

However, the tax cut may not show up in paychecks immediately — employers first have to incorporate the change into their payroll system. State officials find that companies usually adapt to tax changes quickly and are urging them to do so this time around, said Ohio Department of Taxation spokesman Gary Gudmundson.

“I would imagine most employers would respect that this is something that’s going to benefit their people, and it is a tax law change that they’re going to have to implement, so why dawdle?” Gudmundson said.

The income tax cut will impact people in income ranges differently, but a family of four making $50,000 will pay $96.75 a year less in income taxes this year for example. The income tax cut will grow to 10 percent compared to current rates by 2015, and is worth almost $3 billion over three years, according to the OBM.

Regardless of when employers update their payroll systems, the income tax cut applies retroactively to the beginning of the year. Ohioans will receive their full year’s cut via a tax refund when they file their taxes.

The sales tax increase and the income tax cut are related — both are part of a larger, complicated tax plan passed by the Republican-controlled state legislature and signed by Republican Ohio Gov. John Kasich earlier this summer. The changes net a total estimated $2.7 billion tax cut over the next three years, according to the Kasich administration.

The sales tax hike could increasingly drive shoppers in counties along Ohio’s boundaries across state lines to seek out better deals, said Tony Caporale, an economics professor at the University of Dayton.

Michigan and Kentucky both have sales tax rates of 6 percent, lower than anywhere in Ohio, even before the 0.25 percentage point increase.

It could also inspire people considering a big ticket purchase — like a car — to move up their purchasing decision to before Sunday, Caporale said.

“I’ve seen some ads in the local papers basically saying that you want to buy now before the increase takes place,” Caporale said. “So it will probably push some of these sales forward a little bit.”

One company hoping to cash in this weekend is Hidy Acura in Centerville. The auto dealer advertised in the Dayton Daily News earlier this week that the hike is coming this Sept. 1.

Hidy pre-owned vehicle sales manager Joe Saporito said the company’s ad is targeted at used car buyers, who tend to be more thrifty than people buying new cars.

“I don’t think many people know that there’s a tax increase that’s about to take effect… we just wanted to make people aware of what they can save,” he said.

“It may not sound like a lot, but for people making $8 or $9 an hour, every bit helps,” he added.

Roosevelt Robinson III, president of Middletown Ford, said the sales tax hike could cause some people planning to buy a car to move up their purchase a bit.

“You’ll have a rush of people try to beat the change in the sales tax. That’s normal. But I don’t see it being a major issue,” he said.

Elisha Claar, manager of Jake’s Marine Services and Power Sports in Springfield, spent Wednesday preparing the company for the increased sales tax rate.

The company sells used boats ranging from $2,000 to $15,000 — so the sales tax increase will range from $5 to $37.50 on a boat purchase there.

Claar said business is down from last year, and she hasn’t seen any evidence of anyone buying a boat now to try to save on taxes.

“We had two customers in here when we were changing it, and they didn’t know about it actually,” she said. “So I think a lot of people don’t know it’s ready to be raised.”

In total, the tax plan could have a positive effect on Ohio if it cuts the state’s overall taxes as the Kasich administration says it does, said Caporale, the University of Dayton economist.

“If the net tax burden is lower, that makes Ohio a little more competitive vis a vis neighboring states,” Caporale said.

Other changes within the tax plan include:

  • A 50 percent tax cut on the first $250,000 income for businesses and investors organized as pass-through entities
  • The end of a 12.5 percent state property tax rollback for new local tax levies
  • Limiting a $25,000 property tax exemption for senior citizens to only those making $30,000 a year or less.
  • A Commercial Activity Tax increase ranging from $650 to $2,450 for businesses with annual sales exceeding $1 million.

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