Types of business taxes in Ohio
There are many types of business taxes that you may be responsible for managing in Ohio. From federal to state to payroll to local, it’s important to understand the different programs and how they could affect your bottom line.
Federal taxes
You'll be responsible for federal taxes in whatever state you open a business in. Unfortunately, there are dozens of federal tax forms with unique due dates and requirements. Using an accountant or small business accounting software can be helpful in avoiding mistakes that can lead to overpayment or penalties.
As a business owner, you have both personal and business tax filing obligations. Here’s what you need to know:
Personal tax filing
Federal income tax returns:
Every individual is required to file and pay federal personal income tax. This forms the foundation of your overall tax responsibility.
Business tax filing
Business owners have additional filing requirements, depending on the business structure:
- Sole proprietorship: Income and expenses are reported on your personal tax return using Schedule C (Form 1040).
- Partnership: A partnership must file an information return (Form 1065) to report income, deductions, and other relevant details, while each partner reports their share of income on their personal return.
- Corporation: A corporation files a corporate tax return (Form 1120), paying taxes on its profits.
- S Corporation: An S corporation files an informational return (Form 1120S). Its income, losses, and deductions pass through to shareholders, who report them on their personal returns.
- Limited Liability Companies (LLCs): LLCs are not classified separately for federal tax purposes and are taxed based on their ownership structure. Single-member LLCs default to sole proprietorship taxation or may elect corporate taxation, while multi-member LLCs default to partnership taxation or may elect corporate taxation.
Self-employment tax
If you work for yourself and earn more than $400 a year, you pay toward Social Security and Medicare programs through a self-employment tax. The Social Security system provides retirement benefits, disability benefits, survivor benefits, and hospital insurance (Medicare) benefits.
Employment taxes
As an employer, you are responsible for withholding and depositing federal income tax and the employee contribution to Social Security and Medicare taxes. You must also pay the employer portion of Medicare and Social Security and pay federal unemployment tax (FUTA).
State taxes
Ohio has a variety of state taxes. It’s important to know which kinds of taxes your business may be liable for, based on your structure and business activities.
Commercial Activity Tax (CAT)
While Ohio does not have a corporate income tax, it does have a gross receipts tax called the Commercial Activity Tax (CAT). This tax applies to businesses with gross receipts exceeding $6 million.
What is the Commercial Activity Tax rate?
The CAT rate is 0.26% on gross receipts above the $6 million threshold. Pass-through entities are also subject to the CAT but may benefit from the business income deduction when filing individual returns.
How is the Commercial Activity Tax calculated in Ohio?
The CAT is a gross receipts tax applied to businesses exceeding $6 million in annual revenue, calculated at a rate of 0.26% on receipts above this threshold.
For example:
If a business has taxable gross receipts of $8 million in a given year:
Determine Taxable Amount: $8 million (total gross receipts) - $6 million (exclusion threshold) = $2 million (taxable gross receipts).
Calculate CAT Liability: $2 million × 0.26% = $5,200.
The CAT owed would be $5,200.
Who is liable for the Commercial Activity Tax?
The Commercial Activity Tax applies to any business with taxable gross receipts exceeding $6 million per calendar year. A business is liable for the CAT if it has substantial nexus with Ohio. Nexus refers to the level of connection between a business and the state that justifies the state's taxation authority over the business. According to the Ohio Department of Taxation, a business has substantial nexus in Ohio if it:
Owns or uses part or all of its capital or property in Ohio
Holds a certificate of compliance authorizing it to do business in Ohio
Has "bright-line presence" in Ohio, defined as:
Having at least $50,000 of property in Ohio
Having at least $50,000 of payroll in Ohio
Having at least $500,000 of taxable gross receipts sourced to Ohio
Having at least 25% of total property, payroll, or gross receipts within Ohio;
Doing business in Ohio through 1,000 or more separate transactions.
Otherwise has nexus with Ohio to the extent that the business can be required to remit the CAT under the U.S. Constitution.
Taxpayers must file and pay any liability due not later than 30 days from the point that person has more than $6 million in taxable gross receipts in the calendar year.
Visit the Ohio Department of Taxation website for more information.
Business income treatment
Because Ohio's Commercial Activity Tax (CAT) applies to various types of businesses, including pass-through entities like sole proprietorships, partnerships, and LLCs, there is a potential for double taxation of some business income. However, Ohio provides a 100% deduction on the first $250,000 of business income for taxpayers filing as "Single" or "Married Filing Jointly" ($125,000 for those filing "Married Filing Separately"). Any remaining business income above these thresholds is taxed at a flat rate of 3%. This deduction is specifically designed to alleviate double taxation on business earnings..
Financial Institutions Tax
The Financial Institutions Tax or FIT is a business privilege tax imposed on financial institutions organized for profit and doing business in Ohio, including banks, bank holding companies, and nonbank lenders.
The FIT tax rate ranges from .8% to .25% and is based on the total equity capital in proportion to the financial business’ gross receipts attributable to Ohio, with a minimum tax of $1,000.
Franchise taxes in Ohio
Franchise (or privilege) taxes are imposed on certain companies based on their privilege to operate within a specific state. Ohio does not have a franchise tax, but it does have the Commercial Activity Tax (CAT) and the Financial Institutions Tax.
Excise taxes
Excise taxes are special taxes imposed on specific goods or services. In Ohio, these taxes apply to a wide range of products and activities, including:
- Gasoline: Excise rate is 38.5 cents per gallon.
- Cigarettes: Cigarettes are taxed $1.60 per pack of 20.
- Alcohol: Beer is taxed 18 cents per gallon, hard liquor at $3.38 per gallon.
Counties, such as Cuyahoga County, may have additional excise taxes on top of applicable federal and state excise taxes.
Employment taxes
If your business has employees, you will need to pay employment or payroll taxes. While some are federal, others are payable to the state of Ohio. Contributions may be employee-only, employer-only, or shared.
Most employers that do business in Ohio are responsible for withholding Ohio individual income tax from their employees' pay. The current withholding rates range from 0.5% to 3.8% depending on the income level as of 2024, with the highest rate being 3.8% for income over $100,000.
Ohio employers also have the responsibility to withhold school district income tax from the pay of employees who reside in a school district that levies such a tax. Rates vary from district to district within the state, ranging from .50% to 2.00%.
Unemployment tax
As in all states, employers must pay federal unemployment insurance (UI) taxes. In Ohio, employers also fully fund state unemployment insurance. State UI tax is paid on each employee's wages up to a maximum annual amount. That amount is known as the "taxable wage base" or "taxable wage limit."
For 2025, the taxable wage limit for Ohio UI tax is $9,000. Rates range from .4% to 10.1% based on a business’s rating.
Local taxes
Most cities, counties, and other jurisdictions in Ohio levy additional local taxes to fund essential services and infrastructure such as schools, roads, and public safety.
Sales and use taxes
Most local jurisdictions charge their own additional sales tax, ranging from 0% to 2.25%, making the total sales tax range in Ohio 5.75% to 8%. You can locate your local rate on the state’s list of effective sales and use tax rates for 2025.
Remote seller tax considerations
In Ohio, remote sellers—businesses located outside the state that sell to Ohio customers via the internet, mail, phone, or other remote means—are required to collect and remit Ohio sales tax if they meet certain economic thresholds. Effective August 1, 2019, a remote seller establishes substantial nexus with Ohio if, in the current or previous calendar year, they have either:
- Over $100,000 in gross receipts from sales into Ohio, or
- At least 200 separate transactions delivering goods or services into Ohio.
Once these thresholds are met, the remote seller must register for an Ohio seller's use tax account, collect the appropriate sales tax on taxable sales to Ohio customers, file returns, and remit the collected tax. Registration can be completed through the Ohio Business Gateway or the Streamlined Sales Tax Registration System.
For comprehensive information on Ohio's sales tax obligations for remote sellers, please refer to the Ohio Department of Taxation's resources on out-of-state sellers.
Property taxes
The real property tax is Ohio’s oldest tax, on the books since 1825. The Ohio property tax rate is determined by each county assessor and varies widely depending on the location of the property and its use. The average property tax rate in the state is 1.56%, which is lower than the national average.
Ohio business tax deductions, credits, and exemptions
Obtaining a tax exemption or tax credit can significantly reduce your tax burden. Each tax credit program has specific eligibility requirements and application procedures. The Ohio Department of Development provides information on all tax credits, other programs that support Ohio small businesses, and their eligibility requirements.
This is an overview of some of the available programs.
- Ohio New Markets Tax Credit: The Ohio New Markets Tax Credit program incentivizes investment in underserved, low-income communities by offering a 39% tax credit over seven years. Investors fund Community Development Entities (CDEs), which channel capital into local projects, fostering business growth and economic development.
- Ohio Enterprise Zone Program: The Ohio Enterprise Zone Program offers property tax exemptions to businesses investing in designated zones, encouraging job creation and expansion. Incentives apply to new real and, in some cases, personal property investments but exclude existing land and buildings.
- Qualified Energy Project Tax Exemption: This program exempts renewable energy projects from public utility tangible personal property tax. Owners or lessees must apply before the tax year begins. Large projects (over 20 MW) need county approval and agreements for local infrastructure and safety, while small projects (under 250 kW) are automatically exempt. Certified projects must meet deadlines, job requirements, and ongoing reporting obligations.
Credits and exemptions from the Commercial Activity Tax (CAT)
For purposes of the Commercial Activity Tax, the law provides different credits qualified taxpayers may apply against their tax liability. The following are a couple of examples:
- Jobs Creation and Retention Credits: The Jobs Creation and Retention Tax Credit (JCTC) is a refundable credit that can be applied against the CAT. It requires a certificate issued by the Department of Development.
- Credit for Qualified Research Expenses: The Qualified Research Expense (QRE) credit is a nonrefundable credit with a 7-year carryforward period. It is calculated as 7% of the difference between the current year's expenses and the average of the prior three tax periods, considering only Ohio expenses. This credit must be claimed in the 4th quarter of the year the research expenses were incurred.
Credits and exemptions for Ohio sales tax
In Ohio, certain businesses and activities qualify for sales tax exemptions or credits, offering significant savings on purchases directly tied to their operations.
Data center tax exemption
The Data Center Tax Exemption offers partial or full sales tax relief on eligible equipment purchases. To qualify, projects must meet investment and payroll requirements, with final approval granted by the Ohio Tax Credit Authority.
Manufacturing sales tax exemption
Ohio provides a sales tax exemption for manufacturers on purchases of machinery, equipment, and materials used primarily in the production of tangible personal property for sale. This exemption encompasses items directly involved in the manufacturing process, including those used in packaging and quality control.
Research and development sales tax exemption
Ohio offers a sales tax exemption for tangible personal property used directly in qualified research activities aimed at new or improved products or processes. To qualify, businesses must engage in eligible research as defined by state law.
Nonprofit organizations
Nonprofit organizations that are 501(c)(3) tax-exempt or operate exclusively for charitable purposes are exempt from sales tax on purchases of tangible personal property and services. However, when these organizations sell goods or services, they are generally required to collect and remit sales tax unless specific exemptions apply.
