Higher taxes on tobacco, oil and gas operations and business activities would provide the revenue to offset much of a sizable personal income tax cut expected under Governor Kasich’s mid-biennium review budget bill (MBR) set for unveiling this week.  The Governor isn’t likely to include an architectural services tax similar to the one he included in his last MBR proposal, which the General Assembly rejected. 

This new MBR will be introduced into the House of Representatives and will be split into 10-20 separate bills to be studied by various legislative committees. 

As expected, the governor will bring back his plan to increase the oil and gas severance tax, which the GOP-led legislature previously rejected, to help pay for the PIT cut, according to sources briefed by the administration on the proposal. 

While the House’s own version of a severance tax rewrite would set the tax rate at 2.25%, Mr. Kasich is seeking an increase to 2.75%. 

The governor as part of the “tax reform” package may propose an increase in the Commercial Activity Tax rate from 0.26% to 0.30%. The gross receipts-based tax has been lagging against estimates for several months and has been an area of concern for the administration. 

The governor also proposes to increase taxes on tobacco and tax e-cigarettes, sources said. The plan includes two 30-cent increases over two years for cigarettes, and the “equalization” of taxes on “other tobacco products.” 

All told, the 1,000-plus page bill will have to include several hundred million in new revenue from other sources in order to pay for getting Ohio’s top PIT rate below 5%, which is the governor’s target. Sources said, however, that the administration has not yet provided specific revenue figures for the various proposals. 

Early indications are that Mr. Kasich will again face opposition with his tax proposals. 

Increasing the CAT, originally sold as a broad-based, low-rate replacement to the “Swiss cheese” corporate franchise tax, will arm critics who argued on its inception in 2005 that it could be too easily increased as a revenue generator by future administrations. 

The oil and gas severance tax has been an ongoing debate among reluctant Republicans, and the two target rates remain a bone of contention as illustrated by hearings on the House’s proposal (HB 375). 


And the tobacco tax has always stirred vigorous debate, with the industry funding success at repelling or at least muting past proposals to hike taxes as well as equalize other tobacco product levies with those of cigarettes.