Ohio Budget Bill Increases Commercial Real Estate Tax

November 2005

Ohio’s biennial budget bill (HB 66), effective July 1, 2005 , changed the landscape of state taxes for many businesses with Ohio activities.  The phase-in of the new Commercial Activity Tax (CAT tax), combined with the phase-out of the tangible personal property tax and corporation franchise tax, have been well publicized.  However, a significant tax increase included in the budget bill has received relatively little attention.

The new law eliminates the 10% rollback of real property taxes for all properties except those that are “not intended for use in a business activity."  Therefore, all commercial and industrial properties will receive an immediate 11.1% increase in real property taxes, effective with tax year 2005 (taxes payable in 2006).  The 10% rollback is preserved for residential and agricultural properties.  Those include properties improved with single-family, two-family, or three-family dwellings, land used for farming, and vacant land that the county auditor determines will be used for farming or to develop single-family, two-family, or three-family dwellings.

Buyers and sellers of commercial and industrial property should consider the impact of the elimination of the rollback on any tax proration calculations made at closing.  And, property owners will need to include the increased taxes in their expense budgets.  Owners of rental properties will have to consider whether they can pass through all or a part of the tax increase to their tenants.  Lenders will likely increase their tax escrow payment requirements.

The 10% rollback was established by the Ohio legislature in 1971 as a partial offset of the state’s personal income tax, which was enacted the same year.  The rollback required the state to pay 10% of local property taxes on every parcel, including residential, agricultural, commercial and industrial properties.  This year’s elimination of the rollback on commercial and industrial properties will create a shift of an estimated $350 million in funding from the state to commercial and industrial property owners.

In certain Ohio counties (such as Hamilton and Franklin Counties ), 2005 was a general reappraisal year for all real estate parcels in the county.  The combined effect of the rollback elimination and the increase in property value assessments resulting from the reappraisal may produce a substantial increase in the local tax burden to the business taxpayer.  Property owners should review carefully their 2005 tax bills (which are mailed in January 2006), and contact us for assistance with tax reduction if the market value assessment appears excessive.  The deadline for filing a property tax valuation appeal is March 31, 2006 .

Please contact Sam Scoggins, (513) 651-6903 or sscoggins@fbtlaw.com, with any questions.

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