For two decades, a collective of hundreds of wealthy Ohioans have been able to avoid paying millions in taxes every year by keeping money for their heirs in trusts – lockboxes of cash or assets often held by lawyers for the inheritors.
Before 2006, these Ohioans needed to pay both the income tax and the commercial activity tax on such trusts. But legislation signed that year by then-Gov. Bob Taft instead allowed the trusts, if formed before 1972, to only pay one tax or the other but not both.
The Cleveland Plain Dealer reported at the time the change came at the behest of the namesake family of Cafaro Companies, a Youngstown-based developer of 30 million square feet of retail space. As of 2022, 341 trusts in Ohio were using the law to avoid paying an income tax, according to state tax officials. Budget forecasters say the tax break has cost the state $8 million per year in lost revenue.
Republican state lawmakers in the Ohio Senate at first voted to kill the trust tax break. And they almost finished the job before balking at the 11th hour, when a joint panel of House and Senate lawmakers reversed course at roughly 1 a.m. Wednesday morning.
They voted later that day to send the final version, which keeps the trusts’ tax break, to Gov. Mike DeWine for his signature.
Ohio’s two-year budget includes an income tax cut for 1 in 5 of the state’s highest earners, costing Ohio an estimated $1.1 billion in revenue per year. The state budget can’t run on a deficit. So to find money to pay for the cut, the Senate proposed ending a string of tax exemptions granted to different industries and interests.
The trusts’ tax exemption shows how special interests can win out in little-noticed committee roll calls during painfully dry sessions stretching into the wee hours of the morning of the final passage vote. Records show that Timothy Cosgrove, a lobbyist credited by the Plain Dealer in 2006 with persuading lawmakers on the trusts’ tax exemption, also lobbied lawmakers about this year’s state budget for the Cafaro Companies. (Cosgrove didn’t return an email or phone call.)
That was a major victory for Ohioans using these trusts, making them among the notable winners in the budget bill, which is full of tax changes. Conversely, it has losers who could be missing their perks come 2026. The lineup of winners and losers is set unless the governor chooses to veto any provision within the bill that can survive a supermajority of the legislature.
Here’s a list of other winners and losers created by the budget’s new tax changes.
Winner: Car dealers
State law has long allowed all vendors to keep .75% of the money they collect in sales taxes before passing the money on to the state. The discount is meant to reimburse businesses for their administrative costs in processing the tax. This cost Ohio $102 million last year and $100 million the year before, according to the state tax department.
The Senate’s first budget proposal capped this tax break for all vendors at $750 per month. However, before passing a final budget, Republicans voted to exempt car dealers from the limit. Senate President Rob McColley echoed an argument from auto dealers, stating that because of the complexity of vehicle transactions, the titling process, and the cashflow lag between sale and third-party financing, dealers should keep the tax break.
That change saves the dealers – and costs the state – an estimated $9 million per year.
The conference committee went even further than the Senate, adding that the exemption applies to dealers who lease cars as well as those who sell them.
Winner: Browns, Cavs or Guardians
Signal Ohio has previously reported how the budget provides $600 million for the owners of the Cleveland Browns to build a new sports stadium and $15 million to Brook Park to pay for new roadwork leading in.
But the budget also allows Cuyahoga County to expand its existing “sin taxes” on booze and cigarettes to include vapor used in increasingly popular e-cigarettes. The proceeds would be divided among the major league sports facilities.
The county has collected sin taxes to cover costs for stadiums used by the Cleveland Browns, Cavaliers and Guardians since 1990. Voters have extended the tax three times since.
While the legislature allowed Cuyahoga County to levy the sin tax, lawmakers rebuffed attempts from Gov. Mike DeWine to raise statewide taxes on tobacco, marijuana and sports betting.
Winner: TouchTunes and other jukeboxes
Late Tuesday evening, the Conference Committee of House and Senate lawmakers who negotiated the final budget became jukebox heroes.
Jukebox owners fell into the Senate’s crosshairs when the Senate-passed budget would have eliminated a sales tax exemption for “sales of digital audio on juke boxes and similar devices in commercial establishments,” according to the Legislative Service Commission.
It’s a win for the likes of TouchTunes, a modern jukebox that allows bargoers to play songs straight from their smart phones through a network of more than 65,000 machines worldwide.
Winner: Pregnancy resource centers
House lawmakers proposed a $750 per year tax credit for contributions to pregnancy resource centers. The facilities, often affiliated with anti-abortion advocacy groups, attempt to persuade women against abortion and offer certain baby products or health services like ultrasounds and pregnancy tests. Several dozen exist around the state, according to a map curated by Ohio Right to Life.
Pro-choice activists have long criticized the facilities. They say the centers market themselves as abortion clinics but use misleading tactics and information to steer women away from the procedure.
The credit costs Ohio about $900,000 per year in lost revenue.
Winner: Coal
Coal isn’t the dominant political force it was, but its operators would still get their severance tax reduced from 10 cents per ton to eight under the budget.
It’s a modest cut, expected to cost the state just $48,000 over two years.
Loser: Employees of National Oceanic and Atmospheric Administration and the Public Health Service
Ohio currently allows a special income tax deduction for wages paid during active duty tours with the Army, Air Force, Navy, Marine Corps, Coast Guard, and reserve forces.
The Senate proposed expanding this by allowing the deduction for members of any “uniformed services.”
That broader definition included the NOAA Commissioned Officer Corps, whose officers graduate from the U.S. Coast Guard Academy and serve on NOAA ships and aircraft monitoring atmospheric conditions and hurricanes. The definition also included the U.S. Public Health Service’s Commissioned Corps, who have responded to disasters including Ebola outbreaks in West Africa, Hurricane Katrina, the earthquake in Haiti, and the Deepwater Horizon oil spill. And it includes the Space Force.
Those three are part of the nation’s eight “uniformed services,” which includes the combat-oriented divisions.
The final version negotiated between the two chambers, however, tweaked the language by limiting the deduction to “armed forces” members.
In other words, active duty troops and Space Force cadets get the tax break. NOAA officers and Public Health Service workers do not.
Loser: Big tech
Since Gov. John Kasich’s tenure in the 2010s, large, new data centers built in Ohio – often by Amazon, Microsoft, Meta and Google – have avoided hundreds of millions of dollars in sales taxes when they buy the expensive hardware at the core of their operations.
The state budget axes the tax break, despite lobbying from the tech sector. The change is expected to yield the state an extra $20 million in revenue each year.
That pales in comparison to the estimated $100 million to $120 million data centers have claimed on their sales taxes in recent years, sometimes in long-term contracts. Regardless, the industry issued a letter urging the Senate against the move, but it failed to move the needle.
Loser: Recreational marijuana’s social equity and jobs fund
When Ohio voters approved the recreational use of marijuana through 2023’s Issue 2, the new law specified where the hundreds of millions in new tax revenue would go.
Some 36% goes to local governments, 25% to state efforts to combat substance abuse, and 3% to the program administrators. The remaining 36% goes to a newly created “social equity and jobs fund,” a large pot of money with a sprawling mandate.
The law directs state officials to review applications of those who say they’re disadvantaged by wealth, race, ethnicity, gender, physical disability, socioeconomics, or a personal or familial record of marijuana crimes. These people can access financial assistance, loans, grants and technical assistance.
The money would also be used to study and fund judicial and criminal justice reform including bail, parole, sentencing reform, expungement and sealing of records, legal aid, and community policing related to marijuana. It would also fund studies and policy proposals to address social and economic impacts of the enforcement of marijuana laws and to track and prevent underage use of marijuana.
Lawmakers tore up the formula, reducing the rate for local governments to 20% and spreading the rest out over law enforcement, mental health and behavioral health services.
The locals’ successfully had their share reinstated to 36%.
The rest, if approved by DeWine, will flow to the general revenue fund, which lawmakers ultimately control. And McColley, among others in the General Assembly, has criticized the program.
Loser: Newspapers and the printed press
A shift to digital publishing, social media pulling away from political news, artificial intelligence models helping themselves to publishers’ content, political attacks and other forces are all hurting the news business.
Ohio’s budget is piling on.
The budget repeals several sales tax exemptions granted to newspapers and other publishers, some dating back to the 1930s. Those include:
- Sales of advertising material or catalogs that price and describe property offered for retail sale (think newspaper inserts)
- Purchases by direct marketing vendors of items that are used in printing advertising material and equipment primarily used to accept orders
- Sales of machinery, equipment and material used in the production for sale of printed material
- 25% refund of sales and use taxes provided to providers of electronic information services
- The sale of tangible personal property used in acquiring, formatting, editing, storing and disseminating data or information by electronic publishing