To amend sections 5747.02 and 5747.41 and to enact section 5747.027 of the Revised Code to phase out the income tax and income tax expenditures over ten years.

Section 1. That sections 5747.02 and 5747.41 of the Revised Code be amended and section 5747.027 of the Revised Code be enacted to read as follows:

Sec. 5747.02.  (A) For the purpose of providing revenue for the support of schools and local government functions, to provide relief to property taxpayers, to provide revenue for the general revenue fund, and to meet the expenses of administering the tax levied by this chapter, there is hereby levied on every individual, trust, and estate residing in or earning or receiving income in this state, on every individual, trust, and estate earning or receiving lottery winnings, prizes, or awards pursuant to Chapter 3770. of the Revised Code, on every individual, trust, and estate earning or receiving winnings on casino gaming, and on every individual, trust, and estate otherwise having nexus with or in this state under the Constitution of the United States, an annual tax measured in the case of individuals by Ohio adjusted gross income less an exemption for the taxpayer, the taxpayer's spouse, and each dependent as provided in section 5747.025 of the Revised Code; measured in the case of trusts by modified Ohio taxable income under division (D) of this section; and measured in the case of estates by Ohio taxable income. The tax imposed by this section on the balance thus obtained is hereby levied as follows:

(1) For taxable years beginning in 2004:

(2) For taxable years beginning in 2005:

(3) For taxable years beginning in 2006:

(4) For taxable years beginning in 2007:

(5) For taxable years beginning in 2008, 2009, or 2010:

(6) For taxable years beginning in 2011 or 2012:

(7) For taxable years beginning in 2013:

(8) For taxable years beginning in 2014 or thereafter:

(9) For taxable years beginning in 2015:

(10) For taxable years beginning in 2016:

(11) For taxable years beginning in 2017:

(12) For taxable years beginning in 2018:

(13) For taxable years beginning in 2019:

(14) For taxable years beginning in 2020:

(15) For taxable years beginning in 2021:

(16) For taxable years beginning in 2022:

(17) For taxable years beginning in 2023:

(18) For taxable years beginning in 2024 or thereafter, no tax.

Except as otherwise provided in this division, in August of each year, the tax commissioner shall make a new adjustment to the income amounts prescribed in this division by multiplying the percentage increase in the gross domestic product deflator computed that year under section 5747.025 of the Revised Code by each of the income amounts resulting from the adjustment under this division in the preceding year, adding the resulting product to the corresponding income amount resulting from the adjustment in the preceding year, and rounding the resulting sum to the nearest multiple of fifty dollars. The tax commissioner also shall recompute each of the tax dollar amounts to the extent necessary to reflect the new adjustment of the income amounts. The rates of taxation shall not be adjusted.

The adjusted amounts apply to taxable years beginning in the calendar year in which the adjustments are made and to taxable years beginning in each ensuing calendar year until a calendar year in which a new adjustment is made pursuant to this division. The tax commissioner shall not make a new adjustment in any year in which the amount resulting from the adjustment would be less than the amount resulting from the adjustment in the preceding year. The commissioner shall not make a new adjustment for taxable years beginning in 2013, 2014, or 2015.

(B) If the director of budget and management makes a certification to the tax commissioner under division (B) of section 131.44 of the Revised Code, the amount of tax as determined under division (A) of this section shall be reduced by the percentage prescribed in that certification for taxable years beginning in the calendar year in which that certification is made.

(C) The levy of this tax on income does not prevent a municipal corporation, a joint economic development zone created under section 715.691, or a joint economic development district created under section 715.70 or 715.71 or sections 715.72 to 715.81 of the Revised Code from levying a tax on income.

(D) This division applies only to taxable years of a trust beginning in 2002 or thereafter.

(1) The tax imposed by this section on a trust shall be computed by multiplying the Ohio modified taxable income of the trust by the rates prescribed by division (A) of this section.

(2) A resident trust may claim a credit against the tax computed under division (D) of this section equal to the lesser of (1) the tax paid to another state or the District of Columbia on the resident trust's modified nonbusiness income, other than the portion of the resident trust's nonbusiness income that is qualifying investment income as defined in section 5747.012 of the Revised Code, or (2) the effective tax rate, based on modified Ohio taxable income, multiplied by the resident trust's modified nonbusiness income other than the portion of the resident trust's nonbusiness income that is qualifying investment income. The credit applies before any other applicable credits.

(3) The credits enumerated in divisions (A)(1) to (13) of section 5747.98 of the Revised Code do not apply to a trust subject to division (D) of this section. Any credits enumerated in other divisions of section 5747.98 of the Revised Code apply to a trust subject to division (D) of this section. To the extent that the trust distributes income for the taxable year for which a credit is available to the trust, the credit shall be shared by the trust and its beneficiaries. The tax commissioner and the trust shall be guided by applicable regulations of the United States treasury regarding the sharing of credits.

(E) For the purposes of this section, "trust" means any trust described in Subchapter J of Chapter 1 of the Internal Revenue Code, excluding trusts that are not irrevocable as defined in division (I)(3)(b) of section 5747.01 of the Revised Code and that have no modified Ohio taxable income for the taxable year, charitable remainder trusts, qualified funeral trusts and preneed funeral contract trusts established pursuant to sections 4717.31 to 4717.38 of the Revised Code that are not qualified funeral trusts, endowment and perpetual care trusts, qualified settlement trusts and funds, designated settlement trusts and funds, and trusts exempted from taxation under section 501(a) of the Internal Revenue Code.

Sec. 5747.027.  (A) As used in this section, "income tax expenditure" means any credit, deduction, exemption, or other tax provision in the Revised Code that effectively exempts income from the tax imposed under section 5747.02 of the Revised Code, except for any such provision required to be allowed under federal law.

(B) For taxable years beginning on or after January 1, 2015, but before January 1, 2024, a taxpayer shall not claim or take more than the following percentage of the amount of any income tax expenditure that the taxpayer is otherwise entitled to take or claim:

(1) For taxable years beginning in 2015, ninety per cent.

(2) For taxable years beginning in 2016, eighty per cent.

(3) For taxable years beginning in 2017, seventy per cent.

(4) For taxable years beginning in 2018, sixty per cent.

(5) For taxable years beginning in 2019, fifty per cent.

(6) For taxable years beginning in 2020, forty per cent.

(7) For taxable years beginning in 2021, thirty per cent.

(8) For taxable years beginning in 2022, twenty per cent.

(9) For taxable years beginning in 2023, ten per cent.

(C) Nothing in this section prohibits a taxpayer disallowed from claiming the full amount of a credit because of this section against the tax imposed under section 5747.02 of the Revised Code from claiming the credit amount so disallowed against another tax, provided the credit is authorized to be claimed against that other tax.

Sec. 5747.41. (A) For the same purposes for which the tax is levied under section 5747.02 of the Revised Code, there is hereby levied a withholding tax on every qualifying pass-through entity having at least one qualifying investor who is an individual and on every qualifying trust having at least one qualifying beneficiary who is an individual. The withholding tax imposed by this section is imposed on the sum of the adjusted qualifying amounts of a qualifying pass-through entity's qualifying investors who are individuals and on the sum of the adjusted qualifying amounts of a qualifying trust's qualifying beneficiaries, at the rate of five per cent of that sum prescribed in division (B) of this section.

The tax imposed by this section applies only if the qualifying entity has nexus with this state under the Constitution of the United States for any portion of the qualifying entity's qualifying taxable year, and the sum of the qualifying entity's adjusted qualifying amounts exceeds one thousand dollars for the qualifying entity's qualifying taxable year.

The levy of the tax under this section does not prevent a municipal corporation or a joint economic development district created under section 715.70 or 715.71 or sections 715.72 to 715.81 of the Revised Code from levying a tax on income.

(B) The rate of the tax levied in division (A) of this section shall be one of the following:

(1) For qualifying taxable years beginning in or before 2014, five per cent.

(2) For qualifying taxable years beginning in 2015, four and one-half per cent.

(3) For qualifying taxable years beginning in 2016, four per cent.

(4) For qualifying taxable years beginning in 2017, three and one-half per cent.

(5) For qualifying taxable years beginning in 2018, three per cent.

(6) For qualifying taxable years beginning in 2019, two and one-half per cent.

(7) For qualifying taxable years beginning in 2020, two per cent.

(8) For qualifying taxable years beginning in 2021, one and one-half per cent.

(9) For qualifying taxable years beginning in 2022, one per cent.

(10) For qualifying taxable years beginning in 2023, one-half of one per cent.

(11) For qualifying taxable years beginning in 2024 or thereafter, no tax.

Section 2.  That existing sections 5747.02 and 5747.41 of the Revised Code are hereby repealed.