How Ohio taxes compare with other states

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COLUMBUS, Ohio ( WCMH ) — Ohio’s first comprehensive tax study in more than 20 years showed how the state compares in taxing its residents and businesses.

The study comes from the Ohio Chamber of Commerce’s Research Foundation, a nonprofit dedicated to providing nonpartisan and educational resources on public policy issues that impact Ohio’s economy. Six states were compared to Ohio: Georgia, Indiana, Michigan, Minnesota, North Carolina and Texas.

Here are the key findings:

Tax burden

Tax burden is a metric that shows the total state and local tax — from income tax, sales tax and more — a person has paid as a share of their personal income. The study found Ohio was in the middle of the pack among its peers in terms of its overall state and local tax burden, but trending in the wrong direction with results varying across those categories.

The study separated Ohio into two groups for this category: before and after House Bill 33, which went into effect on July 4, 2023. The bill established Ohio’s 2024-2025 operating budget.

Before HB 33, Ohio’s overall tax burden was 9.91% of its GSP, with a small dip to 9.75% after the bill. In both cases, local taxes as a share of GSP in Ohio were 4.44%, the second highest among its peers. Ohio’s state taxes were 5.47% of its GSP before the operating budget and 5.31% after, both of which were third lowest among its peers.

The state with the highest overall tax burden was Minnesota at 11.7% of its GSP, also ranking first in its state taxes, which were 8.7% of its GSP. Texas had the highest local taxes at 4.8% of its GSP, beating out Ohio by less than 0.4%.

Effective tax rate

Effective tax rate is the percentage of taxes an individual owes in a given year, looking at both state and local taxes. Ohio was found to have an effective tax rate that surpasses its peers by at least 1.5% in more than half of the industries the study analyzed.

The study compared effective tax rates by county, comparing Butler, Cuyahoga, Franklin, Hamilton, Lucas, Montgomery and Summit counties to a county from each peer state.

Three of the top four effective tax rates were in Ohio, with Cuyahoga and Montgomery at 15.3%, and Lucas at 15%. Hennepin County, Minnesota, was in third place with a 15.1% effective tax rate. The lowest effective tax rate was Wake County, North Carolina, which came in at 8.9%.

Ohio also performed poorly in its property and local income taxes, claiming the bottom six counties among the sample size in terms of average local effective tax rate across all industries. Butler County, the highest-ranking Ohio county in the metric, ranked fifth.

Property taxes were found to be 72% higher in Ohio. The average real property tax rate in the selected Ohio counties was 3.8%, whereas the peer counties had an average of 2.2%.

Of the peer states, Ohio and Michigan were the only two with a local business entity tax.

Gross state product

Gross state product is the measurement of a state’s output, weighing the value of all goods and services produced. The study found that in 2021, Ohio’s GSP per capita ranked third highest among its peers but still measures well behind the top two states.

The average GSP per capita among the six peers was $56,911. Ohio came in just below this with a GSP of $55,980 per capita. The top two states were Minnesota and Texas, at $65,515 and $59,127, with Michigan last at $50,990.

An important indicator of a state’s economic development, GSP is a primary target of economic policy at all levels of government. A summary of the tax study found Ohio’s GSP position to be strong.

Compliance costs

Compliance costs are the costs that come with participating in a tax system. A summary of the report’s findings called Ohio’s income tax compliance costs high, and one area in particular stood out as especially burdensome.

Municipal tax, according to the report, is by far the most burdensome and costly tax to administer in Ohio. The reasons for this include there being numerous taxing jurisdictions, employees working and living in different jurisdictions, and employees working in multiple jurisdictions. A recent trend of hybrid and remote work is an additional burden.

The municipal tax in Ohio is believed to be the most anti-competitive tax compared with other state tax systems, the report said.

Other findings

The study also found Ohio’s commercial activity cost caused lower increases to the effective tax rate compared with its peers, had competitive sales and use taxes to its peers and had the highest maximum unemployment tax rate for new employers among the selected states.

Conclusion

The results of the study found Ohio’s state-level tax structure provides a generally competitive business tax environment. However, it also found Ohio’s local tax system and tax rates cause higher effective tax rates than those in peer locations, and that its structure creates additional compliance burdens for Ohio companies.

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