Chapter 8 – Budgeting Process
8.5 Sources of Revenue for the State of Ohio
The state government of Ohio relies on several key sources of revenue to fund its operations and services. These sources are essential for supporting public programs, infrastructure, and other important functions in the state.
Sales Tax
A major source of revenue for Ohio’s budget is the sales tax, which applies to most goods and some services sold in the state. This tax is important because it grows with the economy, providing a steady stream of income.
Personal Income Tax
Another major source of revenue is the personal income tax. Ohio’s income tax system is progressive, meaning that people with higher incomes pay higher tax rates.
Ohio’s current state income tax rates for the 2024 tax year are structured across five brackets. Here are the rates and the corresponding income ranges:
- 0% for income up to $26,050.
- 2.75% for income between $26,051 and $46,100.
- 3.23% for income between $46,101 and $92,150.
- 3.69% for income between $92,151 and $115,300.
- 3.99% for income over $115,300.
The state adjusts these brackets annually for inflation to account for changes in the cost of living.
Federal Funds
Federal funds are a significant part of Ohio’s budget. These funds come from the federal government and are used for specific programs like Medicaid, education, and transportation. Federal contributions are crucial because they help supplement the state’s own revenues and support essential public services.
Check out this graphic showing revenue sources for the state’s transportation budget. The federal government provided the largest source, followed by the state’s motor vehicle fuel tax. Without this funding source, the state wouldn’t be able to maintain our highways at the same level.
Motor Vehicle Fuel Tax
Ohio’s motor vehicle fuel tax is a crucial revenue source for the state’s transportation budget, funding the construction, maintenance, and repair of highways and roads. This tax is applied to the sale of gasoline and diesel fuel, with rates periodically adjusted to meet the growing infrastructure needs. As of July 2019, Ohio increased its fuel tax to 38.5 cents per gallon for gasoline and 47 cents per gallon for diesel. This adjustment was aimed at addressing the funding shortfalls for critical transportation projects across the state, ensuring safe and efficient travel for residents and businesses alike.
Commercial Activity Tax (CAT)
The Commercial Activity Tax (CAT) is a tax on the gross receipts of businesses in Ohio. Unlike a corporate income tax, which is based on profits, the CAT is based on the total receipts of a business. Although it only contributes about 3.5% to the state’s revenues, the CAT is an important part of Ohio’s tax system, especially since Ohio does not have a corporate income tax.
