20.1 Taxes

Taxes are money that people and businesses must pay to the government. The government uses this money to provide public services and build things like roads, schools, and parks. There are different general types of taxes:

• Income tax – Money taken from the money you earn.
• Sales tax – Money added to the price of things you buy.
• Property tax – Money you pay based on the value of your home or land.

These taxes are important because they help fund essential services like education, healthcare, and public safety.

Taxes affect businesses in many ways. High taxes can make it harder for businesses to make a profit. Sometimes, governments offer tax breaks or lower tax rates to encourage businesses to open in their area. These incentives can attract new companies, create jobs, and boost the local economy.

In addition, taxes are a way for businesses to contribute to public goods and services that directly benefit them. For example, taxes help pay for infrastructure such as roads and bridges, which businesses rely on to transport goods and services. Taxes also fund job training programs that create a skilled workforce, which is essential for businesses to grow and innovate. By contributing to these public services, businesses help create a better environment for their operations and the community as a whole.

Different Types of State and Local Taxes for Businesses

State and local governments in Ohio rely on a variety of taxes to generate revenue, many of which directly impact businesses, both large and small. You’ll remember these terms from previous chapters on state and local government revenue sources.

• Sales Tax – A significant revenue source for Ohio’s budget, applied to most goods and some services sold in the state. Businesses collect this tax from customers and remit it to the government. This tax affects retail businesses and service providers.
• Personal Income Tax – Ohio’s progressive income tax system means higher earners pay higher rates. This tax impacts business owners who pay personal income tax on business profits, especially sole proprietors and partners in limited liability corporations.
• Commercial Activity Tax (CAT) – A tax on the gross receipts of businesses in Ohio. Unlike a corporate income tax based on profits, the CAT is based on total receipts, affecting businesses with high sales volume but low profit margins.
• Motor Vehicle Fuel Tax – Applied to the sale of gasoline and diesel fuel, funding the construction, maintenance, and repair of highways and roads. This tax impacts businesses involved in transportation, logistics, and delivery services.
• Property Tax – Collected from property owners based on the value of their property. This tax significantly impacts businesses that own real estate, such as manufacturing plants, office buildings, and retail spaces.

These taxes shape the business environment in Ohio. Understanding how each tax impacts different types of businesses helps companies plan their finances, comply with regulations, and take advantage of any available tax incentives.