Analysis: Challenges Presented by Proposed Services Tax

Innovation Ohio Education Fund today released an analysis of potential problems posed by the Kasich administration’s plan to expand Ohio’s sales tax to services, as contained in the Governor’s two-year state budget proposal.

IOEF Analysis: Challenges Presented by the Expansion of the Sales Tax on Services

As proposed, the plan adds new compliance burdens on businesses and creates incentives for companies to locate out of state, or purchase services from non-Ohio companies. The Department of Taxation estimates that 200,000 Ohio businesses would have to become sales tax vendors as a result of the change. The plan results in “pyramiding” in which business-to-business transactions are effectively taxed again and again as services are sold and repackaged before they are delivered to the end consumer. And it is not accompanied by the addition in funds for taxpayer assistance and auditing functions at the state to help businesses company and ensure revenue targets are met.

For these and other reasons, most states have steered clear of attempts to tax business-to-business services. Indeed, only five states currently tax legal and accounting services. Both the Ohio State Bar Association and the industry group representing Certified Public Accountants have testified in opposition to the plan.

Here’s our list of 72 services that would be taxed under the plan, which indicates in how many states they are currently taxed.