When you started your small business in Ohio, it was probably because you were so darn excited to do your Ohio business taxes. Just kidding, of course it wasn’t. Taxes are something most business owners dread, but are a mandatory part of running a business.
But don’t let the tax time terror get your down too much, because we’ve put together the ultimate guide to Ohio business taxes for business owners (and soon-to-be business owners) like you. By the end of this article, you’ll be an expert on how Ohio taxes differ from other states, how business taxes work for different business structures, and, ultimately, how to keep the IRS happy while not raising your blood pressure in the process (which will keep your doctor happy, too. Win-win!).
How do Ohio business taxes work?
Business taxes aren’t a one-size-fits-all for every state—or for every business structure, for that matter. Let’s get into how business taxes work in Ohio, specifically.
Commercial activity tax (CAT)
Ohio is unique when it comes to business taxes, because, unlike most states, it doesn't have corporate income tax or franchise tax. Instead, it has the commercial activity tax (CAT), which is based on a business's gross receipts, which applies to most business structures. Gross receipts are the total amounts of revenue coming into your business from all sources within an accounting period, without subtracting expenses or deductibles.
Here’s a breakdown from Nolo on how much commercial activity tax you’ll have to pay based on your business’s gross receipts:
- No tax: gross receipts less than $150,000
- $150 tax: gross receipts from $150,000 to $1 million
- $800 tax: gross receipts over $1 million up to $2 million
- $2,100 tax: gross receipts over $2 million up to $4 million
- $2,600 base tax + 0.26% of gross receipts: gross receipts over $4 million
Businesses with over $1 million in gross receipts need to pay the CAT on the tenth day of the second month, following each tax period. Yeah, that was kind of a mouthful. Here’s a breakdown of when the CAT is due for most of these businesses:
- May 10
- August 10
- November 10
- February 10
Other Ohio business taxes
S corporations, LLCs, partnerships, and sole proprietorships are all “pass through” entities. This means income from your business flows through to you (and any other owners) and is taxed at your individual tax rate, which can range from 2.765% to 3.99%.
In Ohio, the sales and use tax is applied to tangible goods and services, which is collected by you at the point of purchase and then paid to the Department of Revenue. It’s around 5.57%, but certain cities and counties may be different.
If you have employees, you’re responsible for withholding individual Ohio income tax from their pay.
You might also owe industry-specific taxes if you’re selling certain goods, like alcohol, tobacco, and gasoline, for example.
Ohio business taxes for corporations
Corporations (C corporations) in Ohio are subjected to the CAT based on their gross receipts. As we mentioned before, there is no corporate income tax (woo!). You may owe other types of federal and local taxes, though. (Yeah, the US tax system is complicated.)
Okay, it’s example time. Let’s say your Ohio corporation had gross receipts of $4.5 million. The amount of CAT it owes is $14,300 (0.26% of $4.5 million, plus the $2,600).
How are S corporations taxed in Ohio?
S corporations are a unique type of corporation, because they don’t owe federal income tax. The income from an S corporation “passes through” to each individual owner, and gets taxed by both the state and federal governments based on each individual’s portion of the income. Keep in mind, S corporations are still subject to the CAT in addition to the tax on their share of the business’s income.
Example time! If your Ohio S corporation had gross receipts of $4.5 million, the amount of CAT it will owe is $14,300 (0.26% of $4.5 million, plus the $2,600).
Okay, now let’s also say your S corp had a net income of $1 million, which gets divided between you and a few co-owners; you will pay tax on your portion of this income based on your tax rate.
Business taxes for LLCs in Ohio
LLCs are taxed similarly to S corporations in that they don’t pay federal income tax either. The income from an LLC also “passes through” to each owner, who then pays federal and state taxes on that amount. LLCs also need to pay the CAT on top of that, along with the federal self-employment tax.
Our example here has the same results as our S corporation example. Let’s say your Ohio LLC had gross receipts of—yup, you guessed it—$4.5 million. The amount of CAT it will owe is $14,300 (0.26% of $4.5 million, plus the $2,600).
Let’s also say your LLC had a net income of—you can probably guess what’s coming up—$1 million, which gets divided between you and a few co-owners. Your income is subject to taxation on your personal tax return.
Bonus hot tip time: You might be able to reduce the amount of self-employment tax you pay if you elect to treat your LLC as an S corporation. A huge perk of starting an LLC is that you get to choose how your business is taxed. But we always recommend speaking with a tax pro to help you figure out what’s right for you.
Partnership business taxes in Ohio
The same goes for partnerships—the income each partner makes from the business goes on their own individual federal and state tax returns. They are also subject to the CAT.
Ohio business taxes for sole proprietorships
As a sole proprietorship, the income you make from your business is also part of your personal tax return. You’re also responsible for the CAT, along with state taxes.
How multistate business are taxed in Ohio
What if your business is based in Ohio, but conducts business in other states? In this case, your business has a “nexus” with these other states, and may owe taxes in those states. If your business was originally formed in another state, but operates in Ohio, you might owe Ohio taxes.
The concept of nexus and multistate businesses are complicated even for seasoned business owners, so we highly recommend speaking with tax professionals, like Wave Advisors.
The bottom line on Ohio business taxes
One more thing! In order to pay your taxes properly, you first need to register your business with the Ohio Department of Taxation through the Ohio Business Gateway or by paper application. After that, you should be all prepared to comply with Ohio business tax regulations—especially after reading this article. 😉
To summarize what we covered today:
- There is no corporate income tax in Ohio, but all businesses making over $150,000 in gross receipts will have to pay CAT.
- If you own a pass-through entity—an S corporation, LLC, partnership, or sole proprietorship—your share of your business’s net income will be taxed at your individual tax rate.
- You may be responsible for other federal and state taxes, too, depending on your business type and industry, such as self-employment tax, sales and use tax, payroll tax, employee taxes, etc.
- If your business is based in Ohio but operates in another state, you may owe taxes there as well. If your business is originally from another state but operates in Ohio, you may owe Ohio taxes.
Ohio taxes can definitely take a while to wrap your head around, so if you need additional help, Wave’s in-house accounting and tax coaches, Wave Advisors, are on call and ready to provide personalized 1:1 help. For everything you’d ever need to know about starting a business in Ohio, you can also check out our in-depth guide.
The information and tips shared on this blog are meant to be used as learning and personal development tools as you launch, run and grow your business. While a good place to start, these articles should not take the place of personalized advice from professionals. As our lawyers would say: “All content on Wave’s blog is intended for informational purposes only. It should not be considered legal or financial advice.” Additionally, Wave is the legal copyright holder of all materials on the blog, and others cannot re-use or publish it without our written consent.