Ohio Budget Bill Changes Property Tax Rollbacks

by Larry Gearhardt, OSU Field Specialist, Taxation

Every two years, the Ohio General Assembly has the formidable task of passing a biennial budget for the state. Unlike the federal budget, the budget for Ohio is required to be a balanced budget. This year, H.B. 59 was passed and signed by the Governor on July 1. This budget will take Ohio through 2014 and into 2015.

Ohio’s budget contains numerous tax provisions that affect taxpayers. For example, the state sales tax was increased from 5.5% to 5.75%. The state income tax rate was decreased by 10%. The Commercial Activity Tax (CAT) was removed from the sale of motor fuels and replaced by a new motor fuels tax. But perhaps the most impact will be felt by landowners with the eventual elimination of the ten percent and two and one-half percent real property tax rollbacks. The Homestead Exemption was also adjusted.

Since 1971, Ohio’s landowners have enjoyed a ten percent reduction in total real property tax on non-business property (with the exception of farming, which is considered non-business use for this reduction) and a two and one-half percent reduction in the tax due on the value of an owner occupied home. These rollbacks were passed to lessen the opposition of Ohio voters to the adoption of a state income tax. The state has been reimbursing local governments for the lost revenue, which in 2012 totaled $1.7 billion.

This year’s biennial budget contains language which phases out these reductions. The new law says that the ten percent and two and one-half percent rollbacks will no longer apply to new levies that are enacted after August 31, 2013. These non-qualifying levies include any additional levies, the increase portion of any renewal levy that contains an increase, and the full effective millage of replacement levies. Levies that will continue to qualify for application of the rollbacks are levies approved at or before the August 2013 election, inside millage and charter millage as they appear on the 2013 tax list, renewals of qualified levies (i.e. those without an increase), and the substitute of qualified school district emergency levies under Revised Code section 5705.199.

In order to avoid confusion by the taxpayer, the nomenclature will be changed on the tax bills. The ten percent rollback will now be called the “Non-business Credit” and the two and one-half percent rollback will be referred to as the “Owner Occupancy Credit.” This change is necessary because the implementation of these changes will reduce the ten percent and the two and one-half percent rollbacks over time so that the landowner will not be receiving a full ten percent and two and one-half percent reduction. The new terms have been taken directly from H.B. 59.

The Homestead Exemption has also been adjusted and will now become a means-tested exemption. Under the old law, any Ohio landowner who currently lives in their home and that home is their primary residence, qualifies for an exemption if:
• He is at least 65 years old or will reach age 65 during the current tax year; or
• He is certified totally and permanently disabled, regardless of age; or
• Is the surviving spouse of a qualified homeowner, and who was at least 59 years old on the date of the spouse’s death.

Eligible homeowners were able to shield $25,000 worth of the market value of their home from local property taxes. Beginning with the tax year 2014, new participants in the homestead exemption program will be subject to a means test. The exemption will only be available to those otherwise eligible taxpayers with household incomes that do not exceed $30,000, as measured by Ohio adjusted gross income for the preceding year. That amount will be indexed to inflation each fall and is expected to be around $30,400 for tax year 2014. Existing homestead exemption recipients will continue to receive the credit without being subject to the income test.

It is important to note that in order to be exempt from the means test, the homeowner must actually receive a homestead exemption credit for tax year 2013. This means that a homeowner who is not receiving the homestead exemption credit for tax year 2012 must file an application by June 2, 2014 to secure the exemption for tax year 2013. Otherwise, the homeowner will be subject to the income test for all future years.

Homeowners who received a homestead exemption credit for tax year 2013 will never be subject to the income requirement even if they move to another Ohio residence. In other words, the grandfather status is “portable” and is associated with the individual alone, rather than with a particular residence.

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