Taxes in Ohio: Features and Advantages

Main Taxes in the State of Ohio

Income Tax:

Ohio applies a progressive personal income tax scale, with rates from 2.75% to 3.5% (for 2024–2025). The highest rate applies to income over $115,300.

In addition, most residents also pay municipal income tax, which can reach up to 3% depending on the city (e.g., Cleveland and Columbus). Taxable income includes wages, business income, investments, dividends, and rental income. Deductions and credits exist, including the Business Income Deduction, which exempts the first $250,000 of small business income (and $125,000 for single filers). This deduction applies at the personal return level and benefits sole proprietors and pass-through entities.

Sales Tax:

The base sales tax rate in Ohio is 5.75%, but with county surtaxes the total rate can reach up to 8%. Sales tax applies to most goods and certain services, including rentals, telecommunications, security, and some repair services. Groceries and prescription drugs are exempt.

Determining the taxable base and applicable rate can be complex and requires professional expertise and knowledge of state law. Our company provides services for obtaining a Sales Tax Certificate, as well as preparing and filing Sales and Use Tax Returns. We advise business owners on registration, calculation, and reporting.

Property Tax:

Ohio levies property tax at the county and school district levels. The average effective rate is about 1.56% of market value, higher than the national average. Commercial and residential property are taxed differently, and property values are reassessed annually.

Business Taxes:

Ohio imposes a unique tax on businesses — the Commercial Activity Tax (CAT). This is a gross receipts tax, not a profit tax, and applies to all businesses with annual revenue over $150,000.

CAT rates are:
• $150 — fixed payment for revenue between $150,000 and $1,000,000,
• 0.26% on gross receipts over $1,000,000.

CAT replaces the traditional corporate income tax and applies to all business structures: C-corps, S-corps, LLCs, and sole proprietors. Ohio does not require Annual Reports for commercial LLCs and corporations.

Excise Taxes:

Ohio levies excise taxes on alcohol, tobacco, gasoline, car rentals, and marijuana (under licensed programs).

Favorable Tax Conditions in Ohio:

Despite the presence of personal and municipal income taxes, Ohio offers favorable conditions for small and medium-sized businesses: no traditional corporate income tax — instead CAT with predictable rates; and the Business Income Deduction, providing significant relief for sole proprietors, LLC owners, and S-corps.

Taxes in Ohio Compared to Other States:

Personal income tax in Ohio is lower than in most states with progressive scales, especially considering the business deduction. CAT is a unique gross receipts tax, beneficial for high-margin businesses but potentially burdensome for companies with high turnover and low profit margins. Property tax is above average, especially in urban counties, but the tax structure remains transparent. Ohio also has no inheritance or gift tax, which is advantageous compared to neighboring states (e.g., Pennsylvania). Sales tax is moderate, though the taxable base is broad.