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· March 14, 2013

State budget limits local authority, revenue options with sales tax changes

stark-feat Included in the Governor’s sales tax proposal are dramatic changes to how counties are able to levy vital local sales taxes. These changes significantly reduce county sales tax rates, lock in cuts for three years, and lower the maximum amount that can be levied in the future. Administration officials have stated that the reduction in county sales tax rates is necessary to prevent counties from collecting a “windfall” of new sales tax revenue due to the expansion of the sales tax base to services. While the state tax is reduced by 9 percent, county sales tax rates are reduced by 10 to 40 percent. See our table of county sales tax rates and proposed reductions. These reductions are based on how much each county with the goal of each county seeing at least 10 percent revenue growth in the first year. The state will make up the difference if the new rates fall short. In 2015 and 2016, rates will be adjusted to approximate the 10-15 percent growth the Kasich administration thinks is appropriate, but because the adjustments are based on prior year tax collections it creates a ceiling on revenue growth for counties and transit agencies, despite what’s happening in the local economy. Local governments should be concerned that the bill prevents counties from introducing or raising sales tax rates before July 2016. If a county experiences a fiscal emergency that would require them to raise more revenue through their sales tax, the bill restricts their ability to respond. And if a county has an existing sales tax that expires before July 2016, renewals would not be permitted by law. In addition, the proposal lowers the cap on sales tax rates that counties can impose starting in 2016. Currently, counties can levy sales taxes up to 1.5 percent, but the bill lowers the maximum to 1.35 percent. Several counties are already at the ceiling, so these changes will prevent them from using the sales tax to raise revenue to cope with future shortfalls. Counties and local governments were cut drastically in Governor Kasich’s first budget and were forced to go to the polls to make up the difference. To add insult to injury, this time lawmakers are going after county’s local authority to raise their own revenue. It is time for lawmakers to stop attacking local governments and instead make them a partner in growth and not the enemy. Follow me on Twitter at @BPeytonIO

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Tagged in these Policy Areas: Ohio State Budget