New for 2008: Ohioans get cuts in taxes

A state tax cut passed in 2005 is being phased in.

New Year’s Day brings a tax cut for Ohio residents.

Withholding rates for state income tax will be cut 4.2 percent for pay periods ending on or after today.

The reduced withholding rate matches a cut in state income tax. They are part of a 21 percent income tax cut that was passed by the Ohio General Assembly in 2005. The phase-in of the tax cut will be completed next year.

This year’s cut will increase the take-home pay of Ohioans by about $350 million during 2008, Tax Commissioner Richard A. Levin said.

Next year when the cuts are completed, a family of four earning $60,000 will save about $350 compared with 2004 tax rates, officials said.

The reforms also include major changes for business taxes. This year will be the last year most business owners face a tax on tangible personal property such as machinery, equipment, furniture, fixtures and inventory. In 2008, personal property will be assessed for tax purposes at 6.25 percent of true value, down from 12.5 percent in 2007.

In 2009, personal property assessment rates will fall to zero for most businesses — making Ohio one of just 10 states without a general business tax on tangible personal property.

Ohio has revised its business tax structure, which has pleased some businesses but angered others. The personal property tax is being replaced with the commercial activity tax or CAT, which is favored by manufacturing companies, which will no longer have to pay taxes on their large machinery and inventory.

The new tax, however, has been opposed by high-volume businesses with low profit margins, such as grocery stores and gasoline stations. The CAT is a tax on gross receipts, so owners of those businesses say they are paying increased taxes under the new system.

In 2008, the CAT will rise from 0.156 percent to 0.208 percent April 1 as it is phased in.

Another major change for 2008 is designed to benefit military retirees. A new law will exempt military pensions from the state income tax starting today.