Ohio has no corporate income tax and one of the most favorable personal income taxes for small business owners. The Commercial Activity Tax (CAT) applies only to businesses with more than $6 million of Ohio gross receipts, and pass-through owners can deduct up to $250,000 of business income before paying state income tax. The personal income tax became a flat 2.75% in 2026. The trade-off is municipal income taxes: most cities tax wages and business profits at 1% to 2.5%.
This guide covers Ohio's business taxes for 2026, with worked examples and comparisons with its neighbors.
Ohio business taxes at a glance
Ohio taxes businesses on receipts rather than profits. A business with less than $6 million of Ohio receipts pays no CAT and files no CAT return. Above that, it pays 0.26% of receipts over $6 million. There is no corporate income tax. Pass-through owners and sole proprietors deduct the first $250,000 of business income and pay a flat 3% on business income above that, so many owner-operators pay no state income tax on their business profits. Most cities, however, tax business net profits and wages at 1% to 2.5%. Customers pay 5.75% state sales tax plus county taxes. LLCs pay $99 to form and nothing afterward.
Commercial Activity Tax (CAT)
| Item | 2026 |
|---|---|
| Rate | 0.26% of taxable gross receipts |
| Exclusion | First $6 million of Ohio gross receipts |
| Annual minimum tax | Eliminated from 2024 |
| Filing requirement | Only businesses above the exclusion |
- Who pays: Corporations, LLCs, partnerships and sole proprietors alike.
- Sourcing: Receipts are sitused to Ohio based on where the customer receives the benefit.
- Exclusions: Certain receipts, such as those from motor fuel, are excluded or taxed separately.
- Returns: Taxpayers above the exclusion file quarterly.
A business with $10 million of Ohio receipts pays 0.26% on $4 million, or $10,400.
Personal income tax and pass-through owners
| Item | 2026 |
|---|---|
| Rate on nonbusiness income above $26,050 | 2.75% |
| Business income deduction | First $250,000 ($125,000 married filing separately) |
| Rate on business income above the deduction | 3% |
- Business income deduction (BID): Applies to income from pass-through entities and sole proprietorships, including guaranteed payments and wages paid to owners by their pass-through entities.
- LLC owners, partners and sole proprietors deduct up to $250,000 and pay 3% on the rest.
- S corporation shareholders qualify for the BID on their share and on wages from their S corporation.
- PTE election: Partnerships and S corporations can elect to pay tax at the entity level at 3%.
Municipal and school district income taxes
| City | Rate on wages and net profits |
|---|---|
| Columbus | 2.5% |
| Cleveland | 2.5% |
| Cincinnati | 1.8% |
| Toledo | 2.5% |
| Akron | 2.5% |
| Dayton | 2.5% |
- Net profits tax: Businesses pay municipal tax on net profits apportioned to each city. Businesses can elect to file a single centralized net profits return through the Ohio Business Gateway.
- Withholding: Employers withhold municipal tax based on where employees work.
- School district income taxes: More than 200 school districts levy an income tax on residents, typically 0.5% to 2%.
Sales and use tax
| Component | Rate |
|---|---|
| State sales tax | 5.75% |
| County and transit taxes | 0.75% to 2.25% |
| Average combined rate | About 7.29% |
- Groceries and prescription drugs are exempt.
- Services: Ohio taxes some services, including landscaping, building maintenance, security services and some data processing.
- Remote sellers with more than $100,000 of Ohio sales or 200 transactions must collect.
Payroll and property taxes
- Unemployment insurance: Employers pay on the first $9,000 of each employee's wages. New employers start at 2.7%.
- Workers' compensation: Provided through the state-run Bureau of Workers' Compensation.
- Property tax: Only real property is taxed. Ohio phased out tangible personal property tax on business equipment and inventory by 2009.
Forming a business in Ohio: fees and ongoing costs
| Item | LLC | Corporation |
|---|---|---|
| Formation filing fee | $99 | $99 |
| Annual report | None | None |
| Franchise tax | None | None (CAT above $6M) |
| Statutory agent | Required | Required |
Worked example: $500,000 of profit
| Step | Amount |
|---|---|
| Taxable income | $500,000 |
| Ohio corporate income tax | $0 (CAT applies only above $6 million of receipts) |
| Federal tax at 21% on $500,000 | $105,000 |
| Total income tax | $105,000 (21%) |
Municipal net profits tax would be added; at 2.5% in Columbus, that is $12,500. For a single LLC owner with $150,000 of business income, Ohio state income tax is $0 because of the business income deduction. At $75,000 it is also $0. The owner would still owe municipal tax, about $3,750 at 2.5%. (Our calculator applies standard rates and does not model the business income deduction, so its estimate for Ohio pass-through owners will be higher.)
How Ohio compares with its neighbors
| State | Corporate rate | Top personal rate | State sales tax |
|---|---|---|---|
| Ohio | None (CAT above $6M) | 2.75% (BID for business income) | 5.75% |
| Pennsylvania | 7.49% | 3.07% plus local | 6% |
| Michigan | 6% | 4.25% plus city | 6% |
| Indiana | 4.9% | 2.95% plus county | 7% |
| Kentucky | 5% plus LLET | 3.5% plus local | 6% |
| West Virginia | 6.5% | 4.58% | 6% |
Ohio is the only state in the region without a corporate income tax, and its business income deduction makes it unusually cheap for pass-through owners at the state level. Municipal taxes are the main offset, and Pennsylvania, Kentucky and Indiana have similar local income taxes.
Choosing an entity in Ohio
- LLC: $99 to form, no annual fees and the business income deduction for owners.
- S corporation: Owners qualify for the BID on both distributions and wages, plus federal payroll tax savings.
- C corporation: No state income tax, but dividends are taxed at personal rates without the BID. Pass-through entities usually come out ahead in Ohio.
Doing business across Ohio
Ohio has three large metro areas, Columbus, Cleveland and Cincinnati, and many mid-sized cities. Columbus has grown fastest, driven by state government, Ohio State University, insurance, logistics and major semiconductor and data center investments. Because nearly every city levies an income tax, businesses with employees in several cities must withhold for each one. Remote and hybrid work has complicated this: since 2023, employers withhold based on where employees actually work, and employees can request refunds from cities where they did not work.
Tax planning tips for Ohio businesses
Make the most of the business income deduction. Pay owners through guaranteed payments or S corporation wages, both of which qualify for the BID. The first $250,000 per individual is effectively tax-free at the state level.
File centralized net profits returns. Electing to file through the Ohio Business Gateway lets you file one municipal net profits return instead of one for each city.
Track employee work locations. Withholding municipal tax for the wrong city can lead to refund claims and penalties. Keep records of where employees work each day.
Recent changes for 2025 and 2026
- Flat 2.75% personal income tax from 2026.
- CAT exclusion raised to $6 million from 2025, with the annual minimum tax eliminated.
- Municipal tax rules clarified for remote work.
- Data center sales tax exemption changes in the 2025 budget.
Is Ohio a good state for business?
Advantages
- No corporate income tax
- Business income deduction for pass-through owners
- No CAT for businesses under $6 million
- No annual report fees and no tax on business equipment
- Central location and strong manufacturing base
Drawbacks
- Municipal income taxes in most cities
- School district income taxes in many areas
- CAT on gross receipts for larger businesses, regardless of profit
- Complex multi-city withholding
Compliance checklist
- File Articles of Organization or Incorporation with the Secretary of State.
- Register with the Department of Taxation for sales tax, withholding and the CAT if applicable.
- Register with each city where you have employees or business activity.
- Register with the Department of Job and Family Services and the Bureau of Workers' Compensation if you hire.
- File municipal net profits returns, individually or through the Ohio Business Gateway.
- File quarterly CAT returns if your receipts exceed $6 million.
Compare Ohio with its neighbors below or estimate your taxes in the United States calculator. See LLC taxes for more.