Ohio tax revenue comes from a handful of major sources — personal income tax, state and local sales and use tax, the Commercial Activity Tax on businesses, and excise taxes on fuel, alcohol, and tobacco — and the money is spent primarily on K-12 education, Medicaid, prisons, and revenue sharing with local governments. The mix shifted in 2026 with a move to a flat personal income tax, and the business tax base shrank in 2025 when the Commercial Activity Tax threshold jumped to $6 million. Everything else flows from those sources into a biennial state budget that the legislature divides up every two years.
Where the Money Comes From
Personal Income Tax
Ohio’s personal income tax applies to individuals, trusts, and estates that live in or earn income in the state, calculated on Ohio adjusted gross income (federal AGI with Ohio-specific additions and deductions). Starting in 2026, Ohio uses a single flat rate. If your taxable nonbusiness income after exemptions is $26,050 or less, you owe nothing. Above that threshold, you owe $332 plus 2.75 percent of the amount over $26,050.1Ohio Legislative Service Commission. Ohio Code 5747.02 – Tax Rates
That is a real structural change. As recently as 2025, Ohio used two brackets: 2.75 percent between $26,050 and $100,000, and 3.125 percent on income above $100,000. The legislature collapsed those into one 2.75 percent rate for 2026 and beyond, which lowers the effective rate on higher earners and leaves the rate on middle-income filers unchanged.1Ohio Legislative Service Commission. Ohio Code 5747.02 – Tax Rates
Sales and Use Tax
The state sales tax rate is 5.75 percent on most retail sales of tangible goods and certain services.2Ohio Legislative Service Commission. Ohio Revised Code 5739.02 – Levy of Sales Tax – Purpose – Rate – Exemptions Counties layer their own permissive tax on top, ranging from 0.50 percent to 2.00 percent. In high-rate counties like Cuyahoga and Franklin, the combined rate reaches 8.00 percent.3Ohio Department of Taxation. Sales and Use Tax Rate Map
Use tax picks up what sales tax misses. If you buy from an out-of-state or online seller that does not collect Ohio tax, you owe use tax at the same combined rate.
Several categories sit outside the base. Most food bought for off-premises consumption is exempt, including groceries and bottled water. Prescription drugs, insulin, medical equipment like wheelchairs and oxygen gear, and prescription eyeglasses are exempt. Feminine hygiene products have been exempt since April 2020.4Ohio Department of Taxation. Sales and Use Taxability The grocery exemption alone keeps a meaningful share of household spending out of the sales tax base.
Commercial Activity Tax
The Commercial Activity Tax (CAT) is a gross receipts tax on businesses, calculated on total revenue rather than profit. The rate is 0.26 percent of taxable gross receipts. Starting in 2025, only businesses with more than $6 million in Ohio taxable gross receipts per year owe the CAT, a sharp increase from the previous threshold that pulled most small businesses out of the tax entirely.5Ohio Department of Taxation. Commercial Activity Tax (CAT)
The annual minimum tax that smaller businesses used to pay was eliminated in 2024. Because the CAT taxes revenue rather than profit, it falls harder on high-volume, low-margin operations than the headline rate suggests.
Excise Taxes
Ohio taxes motor fuel, alcohol, and tobacco by the unit, with the amount built into the price at the register.
Gasoline is taxed at $0.385 per gallon. Diesel and compressed natural gas are taxed at $0.47 per gallon.6Ohio Department of Taxation. Motor Fuel Tax Fuel tax revenue is dedicated to road construction and maintenance rather than the General Revenue Fund. A driver who covers 12,000 miles a year at 25 miles per gallon pays about $185 in state fuel tax annually.
Alcohol taxes vary by product. Wine up to 14 percent alcohol is taxed at $0.32 per gallon, and sparkling wine at $1.50 per gallon. Beer taxes work out to about $0.18 per gallon for larger containers. Cuyahoga County adds a permissive tax on top of the state rates.7Ohio Department of Taxation. Alcoholic Beverage Tax
Property Tax Is Local, Not State
Property tax is Ohio’s largest single source of local revenue, but the state itself does not keep any of it. The state sets the framework and county auditors handle valuations and collections, with the money going to schools, fire departments, libraries, and other local services. Real property is assessed at 35 percent of appraised market value, and the bill equals that assessed value multiplied by the effective millage rate of the local levies in your area.8Ohio Department of Taxation. Real Property Tax – General So when people talk about Ohio tax revenue flowing into the state budget, property tax is not part of that pot.
Where the Money Goes
State tax revenue flows into the General Revenue Fund, which the legislature divides up through a biennial budget. Three categories dominate the spending plan.
K-12 and Higher Education
Primary and secondary education is the single largest state investment. The FY 2026–2027 budget continues a record level of state spending on K-12 schools, distributed largely through a foundation funding formula that calculates a unique base cost per pupil for each school and district using student-teacher ratios, staffing levels, and actual costs.9Ohio Department of Education and Workforce. Overview of School Funding State universities and community colleges also draw General Revenue Fund support, though higher education’s share has been smaller and more politically contested for years.
Medicaid
Medicaid is the other budget giant. Ohio’s program covers hospital care, prescriptions, and long-term care such as nursing home stays for low-income residents, children, pregnant women, seniors, and people with disabilities. Spending is split with the federal government, with the federal share covering roughly 73.5 percent and the state covering 26.5 percent.10Ohio Department of Medicaid. Budget When both state and federal dollars are counted together, Medicaid consistently accounts for the largest slice of Ohio’s total budget.
Corrections
The Department of Rehabilitation and Correction runs Ohio’s prison system, including reception centers, institutional facilities, the Adult Parole Authority, and community-based alternatives. The FY 2026–2027 budget appropriates $5.14 billion for the department over the biennium, with about 95.6 percent drawn from the General Revenue Fund.11Legislative Service Commission. Department of Rehabilitation and Correction Greenbook
Money Shared Back With Local Governments
A portion of state-collected tax revenue cycles back out to counties, cities, townships, and libraries through two main funds.
Local Government Fund
The Local Government Fund receives 1.75 percent of General Revenue Fund tax collections and distributes those dollars to roughly 2,300 political subdivisions across all 88 counties.12Auditor of State of Ohio. Local Government Fund Part 1 Local Government Fund Overview Local governments can spend the money on any lawful purpose, from police staffing to road repairs. The 1.75 percent share is well below the 3.68 percent that existed before the 2011 fiscal crisis, and many local officials still describe the fund as a fraction of what it used to be.
Public Library Fund
The Public Library Fund used to be calculated as a fixed percentage of General Revenue Fund tax collections, reaching as high as 2.22 percent. The FY 2026–2027 budget changed the mechanism. The legislature now appropriates a flat dollar amount: $490 million for FY 2026, rising to $500 million in FY 2027. County budget commissions decide how to divide each county’s share among local library systems based on operational needs.
School District Income Tax
Separate from the state income tax, Ohio lets individual school districts levy their own income tax with voter approval. As of January 2026, 210 school districts have an active income tax. Unlike city income taxes, which can tax you based on where you work, school district income taxes apply only where you live.13Ohio Department of Taxation. School District Income Tax
Districts pick one of two methods. Traditional districts tax modified adjusted gross income, which can include retirement income. Earned-income districts tax only wages and self-employment income, leaving retirement income alone. That difference matters to retirees choosing where to live. The Ohio Department of Taxation collects the money on each district’s behalf and remits it back, so these dollars never land in the state’s General Revenue Fund.13Ohio Department of Taxation. School District Income Tax