Sales Tax Archives | Innovation Ohio

Apr 05 2013

Three things to watch as House Republicans put their stamp on the state budget

House leadership have spent their two-week spring recess reviewing over 800 amendments that legislators want to see included in the state budget. Many of them will be incorporated into a new version of the budget (House Bill 59) that is expected to be adopted by the Finance committee next Tuesday. Below are three issues to keep an eye on next week as the budget process moves forward. [Read more…]

Mar 14 2013

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

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. [Read more…]

Mar 11 2013

Omen for Ohio? Michigan’s sales tax on service repealed 17 hours after taking effect.

In his two-year budget, Governor Kasich proposes to expand Ohio’s sales tax to apply to most services to pay for an income tax cut. Expansions of sales taxes to services have been proposed before, but typically fail. We’ve already discussed previous efforts in Florida and Ohio. Today we look at a 2007 effort in Michigan. On October 1, 2007, the Michigan legislature passed a bill expanding the state’s sales tax to services. Like in Ohio, proponents noted that the service sector was growing as a share of the economy and represented three-fifths of consumer spending. Expanding the sales tax would generate an additional $1 billion in revenue that was needed to fund infrastructure projects, education, police and fire departments, welfare and the prison system. And, also similar to the Kasich effort in Ohio, proponents of the Michigan tax expansion argued that the expansion was actually more progressive than the existing sales tax on tangible goods because wealthier taxpayers use more services — and more expensive services — than the poor. The bill took effect on December 1, 2007, but was repealed just 17 hours later. Here’s how it played out: [Read more…]

Mar 07 2013

Florida’s failed experiment with sales tax expansion

Governor Kasich is seeking to expand the state sales tax base to help pay for a $4 billion income tax cut. This is not the first time a state has attempted to broaden its sales tax base. Yesterday we looked at Gov. Taft’s 2003 effort. Today we review the 1987 expansion of Florida’s sales tax to services which faced many of the same roadblocks. At the end of the 1986 legislative session, the Florida legislature passed a bill extending the state’s five percent state sales tax to an array of new services and repealed exemptions for many previously exempt services. Florida did not have an income tax and needed additional revenue to provide services for a rapidly growing population. After the bill’s passage, the legislature was forced to postpone the tax’s enactment until July 1, 1987, citing “significant policy, revenue, legal and administrative implications” that required further consideration. Six months later, the new sales tax was repealed. Here’s what happened: [Read more…]

Mar 06 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.

Mar 05 2013

Organizations offer conditional support for sales tax proposal

Witnessed testified this morning before the House Ways and Means Subcommittee on Gov. Kasich’s sales tax plan, offering the first public testimony in support of the proposal since its February 4 introduction. Witnesses argued that the proposed sales tax expansion was needed, but cautioned that other provisions caused them to question the effectiveness of the overall reform plan. Gavin DeVore Leonard with One Ohio Now said that his organization saw the merit in expanding the sales tax base, but suggested that any new revenue should be used to pay for needed public services. In the proposed budget, new revenue from the sales tax expansion is used to pay for an income tax cut that overwhelmingly favors the wealthiest Ohioans while making the tax code much more regressive John Honeck, Director of Public Policy for the Center for Community Solutions, also testified that his organization supports the expansion of the sales tax, but has reservations about other tax provisions in the budget. Honeck suggested closing the tax exemption for magazine subscriptions and asked lawmakers to consider closing some of the bill’s other 183 exemptions. Ashland County Commissioner Kim Edwards spoke on behalf of the Ohio County Commissioners Associations, and was the most outspoken opponent of the sales tax proposal. Edwards testified that the three year freeze on sales tax rates would tie the hands’ of county governments to pay for needed services and would override the will of voters. All three witnesses expressed concerns about the sales tax proposal and offered suggestions on how to improve it. Mr. Honeck suggested lowering the sales tax rate even further would help mitigate some of the concerns associated with lower income individuals having to pay more in sales tax. Both Mr. Honeck and Mr. DeVore Leonard suggested that the state should provide tax credits to offset a portion of the increased tax burden on individuals. Specifically, DeVore Leonard suggested that a state-based earned income tax credit would lessen the impact on low-income Ohioans. Tomorrow, committee members will hear from witnesses opposed to the sales tax reform.

Feb 25 2013

Recent history shows state efforts to tax services typically fail

The Kasich administration’s proposed expansion of the state’s sales tax to services as well as goods is not a new idea. Several states have been down this road recently, including Ohio. The results of those efforts have been consistent: taxing services is so unpopular — both among consumers and businesses — that every attempt in the past four decades has been undone before taking effect or shortly thereafter. We looked at three such examples. [Read more…]

Feb 06 2013

Who is really served by latest Kasich budget?

If Gov. John Kasich’s latest two-year state budget proposal proves one thing, it is this: Most Ohioans don’t have a friend in Columbus. If you’re a high income earner, the governor is on your side. If you’re a bigwig at a Big Oil & Gas firm, the governor is your humble servant. If you are a charter school cheat, looting public education – John Kasich is your wheelman. If you’re looking for relief or a leveling of the playing field – you’re out of luck. There are still bills to be dropped, hearings to be held and a months-long political process to watch and to participate in on Capitol Square. Innovation Ohio will be unpacking the issues below in greater detail in the coming days and weeks. The state budget is about taxing and spending, but it’s also a huge collection of public policy changes. It’s a document that can be forward looking and which offers a plan to put public money into to the public’s interest. What we’re seeing so far is ideological dogma, little that speaks to the future and lots of your money flowing in the wrong directions. [Read more…]