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What the Governor’s sales tax proposal could mean to you
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Wednesday, February 20, 2013 9:59 PM

 

By Melinda Krick • Progress Editor

In his new budget proposal, Gov. Kasich offers a $1.4 billion tax cut package (over three years) benefiting every Ohioan, regardless of their income. At the same time, he is calling for sales tax reform that would broaden the tax base to include many additional services.

According to information on the State of Ohio website http://jobsbudget.ohio.gov/tax.aspx, Kasich advocates:

Cutting taxes for small business owners in half on the first $750,000 of earnings

Cutting the income tax by 20 percent

Cutting the state sales tax rate from 5.5 to 5.0 percent

Adjusting local sales tax rates downward from 10 to 30 percent while guaranteeing fair and predictable revenue growth for tax recipients

Eliminating the severance tax altogether for small, conventional natural gas producers

Modernizing Ohio's tax code by broadening the sales tax base to include additional services and by raising the outmoded severance tax from 20 cents on a barrel of oil to 4.0 percent-still the lowest in the region.

Kasich’s administration projects the sales tax changes would boost revenue by $1.3 billion in fiscal 2014, which begins this July 1, and $1.8 billion in 2015.

Kasich’s proposal to cut income taxes and expand sales taxes would produce big tax cuts for Ohio’s most affluent residents while increasing taxes on lower- and moderate-income families. The proposal would provide a $10,369 annual tax cut on average to taxpayers in the top 1 percent of the income spectrum, who made more than $335,000 in 2012. The bottom fifth of taxpayers, making less than $18,000 a year, would see an average increase of $63. Those in the middle could come out about even. Those are the results of an analysis by the Institute on Taxation and Economic Policy for Policy Matters Ohio.

Almost everything outside of health care, educational and residential expenses would be subject to the expanded sales tax.

Services, admissions and entertainment that would no longer be exempt from Ohio’s sales tax under Gov. John Kasich’s budget proposal:

Admission and amusements

Admission and games at circuses and fairs; amusement park admissions and rides; billiard parlors; bowling alleys; cable TV services; coin-operated video games; admission to cultural events (including concerts, museums); pari-mutuel racing; pinball and other mechanical amusements; rental of films and tapes by theaters; admission to school sporting events – high school, college and professional

Automotive

Parking lots and garages; overnight trailer parks

Agricultural

Horse boarding, training or grooming, as well as pet grooming.

Business services

Accounting and bookkeeping; advertising agency fees (not ad placement); architectural, engineering and related services; bail-bond fees; call centers; check and debt collection; commercial art/graphic design; credit information/bureaus; legal services; lobbying and consulting; magazine subscriptions; mailroom services; management consulting; marketing; packing and crating; process-server fees; sales of advertising time or space for billboards, magazines, newspapers, radio and television (local); public relations and management consulting; secretarial and court reporting; telemarketing services on contract; telephone answering service; test laboratories (nonmedical); travel-agent services.

Computer services

Custom software programming; modifications to prewritten programming

Finance, insurance and real estate

Insurance services (not policies); investment counseling; loan broker fees; property sales agents; real-estate management fees (rental agents); real-estate title abstract services; banking service charges; financial/ ticker-tape reporting

Online services

Downloaded books, videos, music or other electronic goods; online dating sites.

Personal services

Accounting; cutting, coloring, styling of hair; dating services; debt counseling; fishing/hunting guide services; coin-operated laundry and dry cleaning; legal services; mailbox rentals; tax-return preparation; travel-agent services

Professional services

Accounting and bookkeeping; architects; attorneys; credit-rating services; data mining; engineers; interior design/decorating; land surveying; property sales agents (real estate or personal); public relations; sound recording; stenographic services

Transportation

Intrastate courier; Marine towing; packing/ crating

Utilities

Industrial refuse collection

For a full list of currently taxable items, exempt items, and proposed taxable items, see http://www.jobsbudget.ohio.gov/documents/Taxability-Chart.pdf

 

Comprehensive Tax Reform

According to Ohio’s Jobs Budget 2.0, “The FY14-15 budget proposes broadening the sales tax base to include additional services... States and cities with high income taxes are more likely than ever before to drive revenue and investment away to lower tax jurisdictions. Shifting Ohio’s tax system away from its excessive reliance on income and toward a greater reliance on consumption of services helps combat income flight, and better aligns it with the national and Ohio trend toward a more robust service sector in our economy.

“This reform tracks with findings of the Ohio Legislative Study Committee on Ohio’s Tax Structure released in April 2012 that recommended the sales tax be applied to all economic activity on an equal basis. The broadening of Ohio’s sales tax base to include additional services allows Ohio’s state sales tax rate to be reduced from 5.5 percent to 5.0 percent and an adjustment in county and transit authority sales tax rates will prevent a sudden, unintended spike in county sales tax revenue. The inclusion of new taxable services would, of course, maintain exemptions for services related education, housing construction and rent, health care, and residential utilities.”

 

Local Sales Tax Proposal

With Ohio broadening its sales tax base to include more services, local county governments and transit authorities would have broader sales tax bases as well, and without the same sales tax rate reduction that the state is making would end up imposing significant new tax increases on their citizens and businesses simply by keeping their local rates at current levels. Though the increases would vary by county, revenue increases would average 30 percent more at current rates.

To prevent 96 individual county and transit sales tax increases across Ohio – and their inevitable commensurate negative impact on job creation – the state would statutorily adjust local sales tax rates downward from 10-30 percent. Without the adjustment, it would result in a $700 million tax increase and diminish the job-creating value of the Governor’s tax cut and reform plan. At the same time, to protect the fiscal vitality of counties and transit authorities, the state is guaranteeing fair and predictable revenue growth for all recipients of the tax.

Paulding County’s current tax rate is 1.5 percent. The state proposes lowering it to 1.2 percent. Still, the state projects estimated growth of $179,000 based on expected 2012 distributions.

For a full breakdown by county of current tax rates, proposed local rates and estimated growth, see http://jobsbudget.ohio.gov/documents/SalesTax-FactSheet-RateChart.pdf