Ohio House Bill 166 is one of the most significant pieces of Ohio tax reform legislation in recent years. Signed into law on July 18, 2019, this two-year operating budget bill reshaped the state’s income tax brackets, updated sales and use tax provisions to reflect modern commerce, and expanded several tax credits and incentives. The central question for most readers is straightforward: what did Ohio House Bill 166 actually change, and how does it affect your tax liability? This article answers that question provision by provision.
The legislation touched nearly every corner of Ohio’s tax code. It eliminated the two lowest income tax brackets, reduced rates across the board, and adjusted the Ohio business income deduction. On the sales tax side, it codified economic nexus thresholds in response to the U.S. Supreme Court’s Wayfair decision. The bill also broadened the Ohio motion picture tax credit and created a new Ohio opportunity zone tax credit to encourage investment in distressed communities.
Below is a detailed breakdown of every major provision in Ohio House Bill 166 and what it means for Ohio taxpayers. Because several of these provisions interact with entity structure and multistate filing, businesses often coordinate the analysis with their tax advisory team before filing.
How Ohio House Bill 166 Changed Income Tax Brackets
Ohio House Bill 166 delivered meaningful income tax relief by repealing the two lowest individual income tax brackets. Effective January 1, 2019, any individual with Ohio adjusted gross income (less personal exemptions) of $21,750 or less is completely exempt from state income tax. This change removed thousands of lower-income Ohioans from the tax rolls entirely.
For taxpayers above that threshold, the legislation reduced individual income tax rates across all remaining Ohio income tax brackets by 4% and consolidated the bottom brackets. Once those changes took effect, the rates ranged from 2.850% at the lowest remaining bracket (income between $21,751 and $43,450) to 4.797% at the top (income above $217,400). This rate reduction applied to non-business income and represented a meaningful cut compared to the prior rate structure.
The rate reductions were designed to make Ohio more competitive with neighboring states while providing broad-based tax relief. For tax professionals and filers, it was critical to apply the correct rates for the applicable tax year, since both the bracket consolidation and the rate cut took effect for tax year 2019.
Ohio Business Income Deduction: What Changed Under HB 166
The Ohio business income deduction remained capped at $250,000 under House Bill 166. Business owners could continue to deduct up to that amount from their Ohio adjusted gross income, and any business income above the $250,000 threshold continued to be taxed at a flat 3% rate, at least initially.
However, the legislation introduced two important changes. First, lawyers and lobbyists were explicitly excluded from both the $250,000 Ohio business income deduction and the 3% flat rate on business income. This carve-out was controversial and was widely expected to face legal challenges from affected professionals who argued it created an unfair distinction based on occupation.
Second, effective January 1, 2020, the 3% flat tax rate on business income above the deduction cap was eliminated entirely. This meant that business income exceeding $250,000 would be taxed at the graduated individual rates rather than enjoying the preferential flat rate. For high-earning business owners, this change had a material impact on their Ohio tax liability.
The combination of maintaining the deduction cap while removing the flat rate created a new planning landscape. Business owners needed to reassess their entity structures and income allocation strategies in light of these Ohio tax reform provisions.
Ohio Sales Tax Nexus After the Wayfair Decision
Ohio House Bill 166 updated the state’s sales and use tax framework by codifying economic nexus standards based on the U.S. Supreme Court’s 2018 decision in South Dakota v. Wayfair, Inc. Before Wayfair, states could only require sales tax collection from retailers with a physical presence in the state. The Wayfair ruling opened the door for states to impose collection obligations based on economic activity alone.
Under HB 166, an out-of-state retailer now has substantial nexus with Ohio if, in the current or previous calendar year, it meets either of two thresholds: gross receipts from Ohio sales exceeding $100,000, or 200 or more separate sales transactions in Ohio. Meeting either threshold triggers the obligation to collect and remit Ohio sales and use tax.
This provision brought Ohio into alignment with the majority of states that adopted similar economic nexus rules after Wayfair. For out-of-state e-commerce sellers and marketplace facilitators, the change meant that even businesses with no physical location in Ohio could be required to register for and collect Ohio sales tax. Compliance became a priority for online retailers nationwide as states rapidly adopted Wayfair-based nexus standards.
Businesses operating across state lines needed to evaluate their Ohio sales volumes carefully to determine whether they crossed either threshold. Failure to register and collect once nexus was established could result in penalties, interest, and back-tax assessments. Multistate sellers, particularly those in distribution, benefit from ongoing tracking of where their economic activity creates collection obligations.
Ohio Motion Picture Tax Credit Expansion
Ohio House Bill 166 expanded the Ohio motion picture tax credit in several meaningful ways. The credit, which incentivizes film and media production within the state, was extended to include Broadway theatrical productions for the first time. This broadened the scope of eligible projects beyond traditional film and television to encompass live stage productions preparing for Broadway. Production companies in the motion picture sector should model these rules early, since the credit affects how a project is financed.
The list of qualifying expenses also grew under HB 166. Post-production costs, advertising expenses, and promotional expenditures became eligible for the credit, giving production companies a larger base of costs to apply toward their tax benefit. Previously, these categories were either excluded or treated inconsistently.
One notable restriction accompanied the expansion. Awarded tax credit certificates under the motion picture program were no longer transferable. Before HB 166, production companies could sell or transfer their unused credits to other taxpayers. The elimination of transferability meant that only the company that earned the credit could use it, potentially reducing its value for productions that did not have sufficient Ohio tax liability to absorb the full credit amount.
For the film and entertainment industry, this combination of expanded eligibility and reduced flexibility required careful planning to maximize the benefit of the Ohio motion picture tax credit.
Ohio Opportunity Zone Tax Credit for Investors
One of the most forward-looking provisions in Ohio House Bill 166 was the creation of an Ohio opportunity zone tax credit. This state-level incentive was designed to complement the federal Opportunity Zone program established by the 2017 Tax Cuts and Jobs Act, which encouraged investment in designated low-income census tracts.
Under HB 166, Ohio introduced a 10% transferable, nonrefundable income tax credit for taxpayers who invest in Ohio’s qualified opportunity zones. The credit equals 10% of the taxpayer’s investment in an Ohio qualified opportunity zone investment fund. Eligible taxpayers include individuals, taxable trusts, and taxable estates.
The transferability of the Ohio opportunity zone tax credit distinguished it from the motion picture credit. Investors who could not fully utilize the credit against their own Ohio income tax liability could transfer it to another taxpayer, making the credit more valuable and increasing the incentive to invest in Ohio’s designated zones.
This provision positioned Ohio as one of the states actively layering state incentives on top of the federal program, providing a double benefit for investors willing to deploy capital in distressed areas. Fund managers, individual investors, and especially those active in real estate all had reason to evaluate Ohio’s opportunity zones as part of their investment strategy.
Other Tax Provisions in Ohio House Bill 166
Beyond the headline changes to income tax, sales tax, and credits, Ohio House Bill 166 included several additional provisions that affected specific groups of taxpayers.
The legislation established state partnership audit rules similar to the federal provisions enacted under the Bipartisan Budget Act of 2015. These rules created a framework for auditing partnerships at the entity level rather than requiring adjustments to flow through to individual partners, streamlining the audit process for both the state and taxpayers.
Retirement income received favorable treatment under HB 166. Income from any retirement benefit plan, including nonqualified plans that do not receive favorable federal tax treatment, was made exempt from municipal income tax. This provision was particularly beneficial for retirees receiving distributions from deferred compensation arrangements or other nonqualified plans that were previously subject to local taxation.
Ohio teachers also received a targeted benefit. The legislation created a personal income tax deduction of up to $250 for out-of-pocket expenses related to professional development and classroom supplies. While modest in dollar terms, this deduction acknowledged the reality that many educators spend their own money to support their classrooms.
Finally, the credit on individual tax returns for contributions made to campaign committees for candidates of Ohio offices was repealed effective January 1, 2019. Taxpayers who had previously claimed this credit for political contributions could no longer do so under the new law.
Frequently Asked Questions
What did Ohio House Bill 166 change about income taxes?
Ohio House Bill 166 eliminated the two lowest income tax brackets and exempted individuals earning $21,750 or less from state income tax. It also reduced rates across the remaining brackets by 4%, bringing the range to 2.850% to 4.797%.
What is the Ohio business income deduction under HB 166?
The Ohio business income deduction cap remained at $250,000 under House Bill 166. However, lawyers and lobbyists were excluded from the deduction, and the 3% flat tax rate on business income above the cap was eliminated effective January 1, 2020.
How does Ohio’s sales tax nexus work after the Wayfair decision?
Under HB 166, out-of-state retailers have Ohio sales tax nexus if they exceed $100,000 in gross receipts from Ohio sales or complete 200 or more separate transactions in Ohio during the current or prior calendar year. This applies regardless of physical presence.
What is Ohio’s opportunity zone tax credit?
Ohio offers a 10% transferable, nonrefundable income tax credit for investments made in Ohio qualified opportunity zone funds. Individuals, taxable trusts, and taxable estates are eligible. The credit equals 10% of the qualifying investment amount.
Does Ohio offer a motion picture tax credit?
Yes. Ohio’s motion picture tax credit was expanded under House Bill 166 to include Broadway theatrical productions and additional eligible expenses such as post-production, advertising, and promotional costs. However, the awarded certificates are no longer transferable.
Are retirement benefits exempt from Ohio municipal income tax?
Under House Bill 166, income from any retirement benefit plan, including nonqualified plans, is exempt from municipal income tax in Ohio. This applies to distributions that may not receive favorable federal tax treatment.
