Ohio Senate would tighten tax breaks, give proceeds to the wealthy

Ohio’s 177 state tax breaks have never gotten the scrutiny that they deserve. Adding up to nearly $12 billion this fiscal year, they would amount to more than a quarter of the revenue the state does collect. As the conference committee of House and Senate legislators meet to hammer out a final state budget, it will have to decide whether to accept a significant set of limitations on tax breaks that were included in the Senate budget bill.

“It’s commendable that the Senate looks to rein in a number of special-interest tax breaks,” said Bailey Williams, Policy Matters Ohio’s tax researcher. “Unfortunately, though, the savings are going to another special interest: The most affluent Ohioans, who will be the beneficiaries of the costly move to a flat income tax. Instead, the proceeds should go to support the real Fair School Funding Plan, childcare and the state’s other pressing needs.” 

Policy Matters Ohio for years has pushed legislators to curb unproductive tax exemptions, credits and deductions — known as tax expenditures — that favor corporations and wealthy Ohioans. Remarkably, among those that the Senate has targeted are a number that have long deserved restriction or elimination. However, the final Senate budget plan also would boost the cost of certain tax breaks, and walked back some of the changes proposed in earlier iterations, illustrating the need for a permanent, public mechanism for reviewing all the state’s tax breaks.

Among those the Senate would limit are:

• The sales tax exemption for data centers, worth $141.8 million this year according to the Taxation Department’s tax expenditure report, and probably a lot more if more recently announced investments were included. The budget bill would prohibit new agreements after Oct. 1, 2025. The Legislative Service Commission estimates this could save up to $20 million in FY2027, though perhaps less. While this is a positive step, it does not seem likely to curtail the use of the exemption by big players like Amazon, Google and Meta that have existing agreements that extend many years into the future. Still, it represents a glimmer of smart tax policy.
• The vendor discount, which gives retailers 0.75% of what they collect in sales tax. Governors Strickland and Kasich attempted to cap the discount, which has become a profit center for big retailers. The budget bill would limit it to $750 per retailer per month starting Jan. 1, 2026, protecting small retailers while saving $10 million in FY26 and $20 million in FY27. However, after first including them, the Senate exempted car dealers from the cap, a prime example of how tax breaks can favor special interests. Prior to that change, the cap was estimated to deliver $16 million and $32 million in savings over the next two fiscal years. 
• A provision passed in 2006 that allows trusts created prior to 1972 to choose whether to be taxed under the income tax or the Commercial Activity Tax instead of both. For some trusts, the CAT is a much friendlier tax. Instead, the Senate bill would subject them to the income tax starting in 2026, saving an estimated $7.7 million in FY 2027. According to Columbus observers and an article in The Plain Dealer, this tax break was originally designed for a prominent Youngstown family. Initially vetoed by then-Gov. Bob Taft when first approved, he went along with it a year later.

The Senate also took on a set of economic development incentives that have long needed limitation. However, after sunsetting them at the end of 2027 in its initial budget bill, the Senate pulled back in the final bill and would leave them in permanent state law. It would stop funding them after 2027, but this would remain an open invitation to the General Assembly to continue them. These include:

• The tax credit for film and theatrical productions, estimated to cost $43.2 million this fiscal year. Originally, the Senate would have sunset it at the end of FY2027 by prohibiting the award of new credits after that. But the final bill says that’s “unless specifically authorized by an act of the General Assembly.” The credit, which does not pay for itself in additional tax revenue, has become part of an endless race to the bottom among states seeking to lure movie production.  
• The opportunity zone tax credit, estimated to cost $33 million this year, which the bill originally was to sunset at the end of 2027 (though it oddly calls for an increase in the credit from $25 million to $50 million in both FY 2026 and 2027). This program, a state piggyback credit to the national program that was part of the 2017 Trump tax cuts, is yet another attempt to sweeten the pot for wealthy investors to put money into development projects in poor neighborhoods. But by and large, that hasn’t happened in Ohio. 
• A major overhaul of the transformational mixed use development credit, estimated to cost $41 million this year. Though it prohibits the award of such credits after 2027 without approval by the General Assembly, the Senate would sharply increase the amount of credits available before then, even more than the boost provided in the House bill. The Legislative Service Commission estimates it could reduce future revenue from insurance taxes by up to a total of $300 million, depending on the amount of credits awarded in FY26 and FY2027, but such losses might not begin until FY2028. A myriad of detailed changes in the bill include everything from the application process, the standard used to award the credit, numerous features of what they’re allowed for, and the initial issuance, transfer or sale of such credits. All this was done without separate public hearings and input specifically on this credit.

Beyond those listed above, the Senate would also limit or end many others, ranging from the sales-tax exemption for newspapers and machinery, equipment and material used to produce printed material to others for telecommunications services at certain call centers and some property used in electronic publishing.

Winning major changes in Ohio’s long list of tax expenditures is excruciatingly difficult. One of the last times there was a serious effort to cut tax breaks, in the 2019 budget bill, the House approved slashing the $1 billion business income deduction, also known as the LLC loophole. The Senate didn’t go along, and the bill eventually included only a prohibition on lawyers and lobbyists from getting the deduction. Even that was stripped out just a few months later, and replaced with a transparency requirement that business owners who got the credit report on what industry they were in. Even that compromised measure was later repealed.

“We don’t endorse the entire list of credits, exemptions and deductions that the Senate is targeting. It’s hard to know what criteria it used to come up with its list to cut; why go after newspapers, for instance? There are other tax expenditures, such as the costly business income deduction, that should be added to the repeal list. This illustrates that Ohio needs a permanent mechanism for evaluating all its tax expenditures, as many states have,” said Williams. “Most important, cuts in tax breaks should go to providing for Ohio’s needs, not new tax cuts for the rich.”