Ohio Business Taxes Explained for New Owners

Ohio Business Taxes Explained for New Owners

Ohio Business Taxes Explained for New Owners

Starting a business in Ohio means navigating a different tax landscape than most states. The good news: Ohio eliminated corporate income tax years ago, and limited liability companies don't file annual reports. The catch: you still owe taxes, just in a different form. This guide walks you through exactly what you'll pay and when.

The Biggest Tax You Don't Expect: The Commercial Activity Tax

Forget everything you've heard about state income tax for businesses. Ohio's main business tax is the Commercial Activity Tax, or CAT. It's a gross receipts tax, meaning it's based on the money coming in before expenses, not profit.

The rate is 0.26% of Ohio taxable gross receipts. That's 26 cents on every $10,000.

Here's the threshold that matters: as of tax year 2025, you only owe CAT if your Ohio taxable gross receipts exceed $6 million in a year. That's up from $3 million in 2024 and $150,000 before that. If you're under $6 million, you don't pay CAT and don't need to file CAT returns.

If you do cross that threshold, CAT returns are filed quarterly with the Ohio Department of Taxation. The tax applies to gross receipts from doing business in Ohio, so out-of-state sales and service revenue may not count. The specifics depend on your industry, so confirm with a CPA if you're close to the threshold.

Income Tax: What You Personally Owe

CAT is a business tax. Income tax is different, and here's where it gets personal. If you're operating as an LLC, the business itself doesn't pay income tax. You do. The LLC's profit passes through to your personal tax return, where it's taxed as business income.

For tax year 2025, Ohio's graduated income tax applies:

  • 0% on the first $26,050 of Ohio taxable nonbusiness income
  • $342 plus 2.75% on income from $26,050 to $100,000
  • $2,394.32 plus 3.125% on income over $100,000

However, tax year 2026 brings a change. House Bill 96 collapses this into a simpler structure: the first $26,050 stays untaxed, and everything above that is taxed at a flat 2.75%. Bracket inflation indexing is suspended for 2025 and 2026.

Business income specifically is taxed at a flat 3%, separate from your nonbusiness income brackets. So your LLC profit hits 3% rate immediately.

Many Ohio municipalities and some school districts layer their own income taxes on top of the state rate. Columbus, Cleveland, and Cincinnati all have city income taxes. Check your specific city and county before finalizing your tax planning.

Sales Tax: When You Collect and Remit

If you sell tangible goods or taxable services, you'll handle sales tax. The Ohio state rate is 5.75%. Counties and regional transit authorities add their own permissive rates on top, so the total varies by location. Your effective rate could be anywhere from 5.75% to over 8%, depending on where your customer is located.

You only collect sales tax on sales subject to Ohio's tax. Services are often exempt, but it depends. For example, consulting is typically not taxable, but repair services often are. Digital products, subscriptions, and software have specific rules that change frequently.

Every retailer selling taxable goods or services must obtain a vendor's license before making your first sale. As of April 2025, the application fee for a county vendor's license or transient vendor's license is $50, up from $25. You apply through the Ohio Business Gateway or your county auditor. If you're an out-of-state seller registering for a seller's use tax account, there's no fee.

Once licensed, you collect sales tax at point of sale and remit it monthly to the Ohio Department of Taxation. The frequency might change based on volume, so confirm your due date when you register.

Do You Need a General Business License?

Ohio does not issue a single general state business license. Your licenses and permits depend entirely on what you do. A retail store needs a vendor's license (above). A salon needs professional licensing. A contractor needs specific credentials. A software company might need nothing beyond your business formation documents.

Start by checking what your specific industry requires. The Department of Taxation website and the Secretary of State office both have guides for industry-specific requirements. When in doubt, talk to a business attorney or your industry association.

Other Taxes and Payroll Considerations

If you hire employees, you'll owe federal payroll taxes (Social Security, Medicare, unemployment insurance) and Ohio unemployment insurance tax. These have nothing to do with CAT or income tax and hit on every paycheck. The rates vary by industry and your employment history. Federal rates are consistent nationwide; Ohio's unemployment insurance rate is set by the state and depends on your history of claims.

If you're a pass-through entity (LLC or S-Corp), you'll need an Employer Identification Number (EIN) even if you have no employees. Apply online at the IRS website for free.

Professional service businesses and financial institutions have specialized tax rules. Financial institutions pay the Financial Institutions Tax instead of CAT. Insurance companies pay the insurance premiums tax. If either applies to you, consult a CPA familiar with that sector before filing anything.

The Vendor License Is Almost Universal

The one registration that touches almost every business is the vendor's license. If you sell anything taxable (goods, specific services, digital products depending on state rules), you need it. Even if you're exempt from sales tax, you might still need to register as a seller's use tax account holder. Check with Ohio's Department of Taxation if you're unsure whether your sales are taxable.

You can apply online through the Ohio Business Gateway or mail an application to your county auditor. Online is faster.

What You Should Know About LLC Annual Reporting

This is refreshingly simple: limited liability companies in Ohio file no annual report. None. You don't owe annual fees to the Secretary of State. If your LLC's information changes (address, registered agent, members), you file an amendment. Otherwise, you're done with state filings once you're formed.

Corporations are slightly different but also have no annual report requirement. Only domestic professional associations file a biennial report at $25.

Real Planning: What This Means for Your Bottom Line

Most new businesses under $6 million in revenue will pay: personal income tax on your profit (at 3% business rate, plus any municipal tax), sales tax on taxable sales (if applicable), and payroll taxes if you hire anyone. You won't pay CAT. You won't file an annual report.

The exact total depends on your revenue, expenses, location, and industry. A $200,000 online service business in Columbus looks very different from a $500,000 retail store in a rural county. Get a CPA involved now, not at tax time. The cost of a consultation ($300 to $500) often saves multiples of that in tax planning and penalties avoided.

Resources to Bookmark

Schedule a consultation with the Ohio Small Business Development Centers. These are funded by the SBA and offer free advising on tax planning, business structure selection, and compliance. Finding the right advisor early beats scrambling at tax time.

A Word on Accuracy and Professional Advice

This guide is informational only and not legal or tax advice. Ohio tax law changes regularly, and rules vary by industry and location. Rates cited here were accurate as of September 2026 but may change. Specific calculations depend on facts unique to your business.

Consult a qualified CPA or tax attorney before making structure decisions or filing your first return. The structure you choose at the start (LLC vs. S-Corp vs. sole proprietorship) affects every tax you pay going forward. Small mistakes at formation can cost thousands later.

If you need help getting your business formed correctly, check out How to Start a Business in Ohio for the complete formation process, or How to Form an LLC in Ohio for LLC-specific steps.