· March 6, 2013

Flashback: Governor Taft tried expanding the sales tax in 2003

In his two-year budget (House Bill 59), Governor Kasich proposes to expand Ohio’s sales tax to help pay for a $4 billion reduction in the state income tax. This will be accomplished by taxing a wide range of services never before subject to the sales tax. Ohio is not the first state to try expanding its sales tax base to more services. In fact, it’s been tried here before. We looked at how it played out. As part of his budget introduced in February, 2003, Gov. Taft proposed to expand the sales tax to a number previously untaxed services in order to cope with a sluggish economy. The bill that ended up taking effect, however, was markedly different, with far fewer services subject to the sales tax expansion. We took a look at how it played out.

• Many businesses attacked the sales tax expansion. Cable TV systems, tattoo parlors and dry cleaners argued that extending the sales tax would harm low-income families and impact sales. Representatives of Kings Island complained about that its admissions tickets were taxed too. The Nation Federation of Independent Business called the sales tax expansion an attack on small business. Businesses were generally concerned that the new tax burden might cause commercial interests to leave Ohio for other states.
• Citizens rejected Gov. Taft’s new tax. The University of Cincinnati’s Ohio Poll found Ohioans rejected the plan to tax services by a wide majority (70-28). A poll commissioned by a Cable TV industry group found that more than three-quarters of cable subscribers in Ohio said they might reduce or even drop their service if lawmakers applied the sales tax to cable as Gov. Taft proposed. A majority of those respondents said they preferred to pay slightly higher sales taxes on goods and services that are already taxed, rather than imposing a tax on more services.

Passage of the Kasich sales tax on service is all but certain. Republican legislators have had as many questions in hearings held to date as minority Democrats. Hearings continue in the House Ways and Means subcommittee this week.